Chain reaction

Again, recently, the petfood industry faced – at least in certain parts of the world – massive recalls, maybe unprecedented in the history of the industry. A lot of debate breaks out again with the aim to try and solve "the problem" for good. Solutions brought to the table range from new committees, new regulations, additional ....... etc! It looks as if the industry puts the blame of the disaster outside of its own court; but is this justified? Guided by some introspection the industry might come to the conclusion that it is not.

The chain reaction probably starts with somebody deciding what the end-buyer is prepared to pay for a product; whereas exhaustive consumer-research clearly indicates that price is not the key decisive factor for choice. Provided that the end-buyer perceives an added value relevant to her/him. Do 2 dollar-cents therefore really make the difference?

Because the distributive trade is increasingly more demanding regarding margins, while offering less added value, (stockbrokers' analysts are watching over their shoulders), manufacturers are forced into a situation of extreme cost-diligence; they also have their stockbrokers' analysts who need to say some wise things each quarter. And, because manufacturers also outsource, where can they put the burden of cost? Exactly!

Bonus-schemes and careers dictate that the performance of companies must be better than the previous year; so, taking market-circumstances into account would therefore evidently be a silly thing to do. In a situation of – probably structurally – rising ingredient prices where can the compensation be found? Upstream?

Without wishing to imply that this has been the case with the more recent recalls, I ask myself this: "is the industry prepared to sacrifice the love for the animals - to which everybody in the industry pays at least lip-service - for just that little bit of extra profit?" If so, we need only wait for the next disaster to hit us; it's consequence being diminishing consumer-confidence in industrially prepared petfoods: our business!

If players in the industry are prepared to shoot themselves in the foot for the sake of the quick buck, they will then have lost the right to complain about being crippled.


Functionality is hot

Trend-watchers tell us so. And looking around us – inside and outside of our own industry – we daily see the confirmation. Functionality has probably been hot for quite some time now. So is it a trend or has functionality gradually been embedded in a more general product-offer?

In other words, has it been put into a higher gear and has it gained a much broader acceptance over a period of probably 5 years? Looking at the human food shelves in hyper and supermarkets today would lead to the belief that functionality has become a fact of everyday life.You name it and you can find it; segmented to the extreme, to satisfy the most individual demands.

Is this also true for our industry? Most certainly not; at least not in the majority of markets. Of course we see so-called functional products, such as snacks and treats for dog and cats with an added ingredient to prevent something nasty to happen or to improve general health.

But all the same, our industry is still lagging far behind what has become custom in the human food industry in most regions of the world. Despite the fact that another trend that is much talked about in our industry is humanisation; the pet as part of the family, to be treated as such. Which apparently is still not reflected in the way owners take care of the perceived nutritional requirements of their animals.

What is functionality in relation to food and feeding?

The concise Oxford dictionary is very clear about this: functionality serves a function. Great! But when we, in our industry, talk about functionality we mean something special, something specific that cannot be found in the “normal” composition of a product. It has a special effect. In other words: we add something to a base (formulation of a) product. Because that provides the opportunity to attach an additional and valuable claim to the product

Most of these functions are health and wellbeing oriented and the reasons for their use can mostly be established by the owner himself. A poor skin and coat is after all visible to the naked eye as are some other symptoms. Furthermore, people around the globe (and that includes pet owners) potentially have 24/7 access to mountains of information; censored and uncensored, true and false. This information is absorbed and used at the next buying-occasion; be it brick-and-mortar or online.

The problem with the “amateur-diagnosis” is that pet owners step in the shoes of the veterinarians and can resort to self-medication. Which is contrary to the intentions of functional products that are typically over-the-counter (if not they would be called therapeutic); they serve a preventive purpose rather than a curative one. And that is where manufacturers and suppliers of these so-called functional products walk on a fine line; on the one hand they wish their claims to be as potent as possible whereas on the other they need to stay away from any claim that can be considered to be medicinal. In some regions of the world regulatory bodies have issued comprehensive regulations regarding the do’s and don’ts as far as claims are concerned. The burden of proof is then mostly a heavy one. Other regions take a more liberal stance in this respect.

As with a lot of other subjects, functionality is about sense and nonsense. Luckily most of the products offered today actually do make sense in it that they serve a recognizable purpose and its effects are well-documented. A trend-in-the-trend is that functional ingredients are commonly natural ones; not to interfere with an otherwise natural positioning of what could be called the base-product. This gradually leads to the intensified use of botanicals as functional ingredients, the efficacy of which is however still unclear due to the further processing of the ingredients.

Functionality is a big challenge for our industry; as it is a big opportunity. Hurdles need to be taken; on the regulatory side and on the technology one. The industry already has found some ways to overcome the difficulties; and will find new ways in the future. This will without any doubt be visible at the 2012 Interzoo where functionality as a trend is bound to be one of the hot items in this enormous basket called the global offering of the pet industry.


A healthy business

The pet health care category has already for a long time been recognised as interesting and financially rewarding for those active in this field. Probably the following proverb applies to the category:

“He who has health has hope and he who has hope has everything” (Arab proverb).

Although true in general, we must not forget that the characteristics of the category are changing; partly through external influences that are outside of the control of the industry.

We can observe an increased interest in functionality, more stringent regulations, a more informed and critical consumer and not to forget the impact of social networks.

Functionality and pet health care are maybe not synonymous, but they certainly overlap each other to a great extent. After all, both deal with providing or administering a substance that aims to do something beneficial to the body (and the mind?) of pets. And as such, functionality looks to mimic what is happening in the human food categories. Because the functionality provides the reassurance that pet owners are looking for. They want to do the “right thing”.

Of course regulations play an important role as well; where pet health care products are concerned. These regulations can be more limiting or more liberal; depending on the region of the world where you look at them. But there is one common factor that can be observed already irrespective of the region: in a gradual process these regulations become more strict and less open to interpretation.

It becomes a matter of providing unbiased, scientific evidence for what is being claimed. So standards are being defined and made available to the public in general. For the sake of the transparency that consumer-organisations and consumers are craving for.

What in no way must be underestimated is that we now deal with well-informed and thus more critical consumers. And, pet-owners are consumers! Everybody who has excess to the Internet has an overwhelming abundance of specific data at hand. Some true, some false but always enough to form an opinion. And that their opinions can less and less be steered by manufacturers and their brands. Because everybody nowadays has the opportunity and the liberty to voice her/his opinion on the Internet. Which is increasingly available to the global citizen.

So manufacturers and brands better make sure that what they say and claim passes muster with these critical consumers; and not only with the regulatory authorities. Because if not, the punishment (whether justified or not) will be painful.

A clear reason for the success of pet health care is also the extended availability; i.e. the number of outlets where phc products are for sale is mushrooming. It’s no longer the domain of the specialist who can explain what the product is about and what it is supposed to do. People can now go to the online shops, read all they need to know on the shops’ websites – which is probably more than what the traditional retailer can tell them anyway – and make the purchase at any convenient time of the day or the night. And particularly phc products are popular in online business; because they represent a decent sales value and shipping cost are acceptable. But online is not the only differentiation in the distribution. Also modern mass-distribution is active in gaining market-share in the category; because they have a vast experience in dealing with over-the-counter human health products. This wider availability further promotes the purchase an use of the products in question.

The main question is of course: how bright is the future of the category? If we bear in mind that in most regions of the world we look at markets in an earlier stage of development. This applies to pet foods and even more so to phc.

But even in so-called saturated markets there still is plenty of room for growth as far as phc is concerned. By offering a wider variety of usage per animal and by tapping into the vast reservoir of, non-usage. More conscious pet owners with a growing affluence expressed in money that can be spent freely will boost the sales of the category in less developed markets.

And, the chaff will be separated from the wheat; the not-serious suppliers to the category whose only purpose is to line their own pockets like any other quack will be exposed and as a result the category will become even more mainstream than it is today. Because the intermediate trade has a growing trust in the category. Even more so if the manufacturers pump up the investments in making the category more popular and accepted by their trade-partners and pet owners alike.

If pet owners would treat their pets along the lines of “Health is not valued till sickness comes”(Thomas Fuller), the category would be in a deplorable state. But pet owners know better and that’s why pet health care remains what it already is today: a very attractive category to be active in. 


DISTRIBUTORS WANTED!

When walking the aisles of tradeshows, when browsing through trade magazines, one can not help but being repeatedly confronted with the sign or announcement: "distributors wanted!"

This phenomenon looks to be the continuation of a business-model that has been developped in the dim-and-distant past; i.e. the manufacturer's thinking that the next station to be reached was (and is) their wholesale relations to whom the worries of getting product to the end-buyer could be delegated at a profit for both.

The distributors were supposed to be the external sales and logistics arm for companies that were not in a position to build their own structures. In the cooperation it was essential that the distributors had an asset that the manufacturers lacked: knowledge of and contacts in the market in which they operated. This applied (and still does apply) much more to the flow of products through the specialty trade than through mass markets.

This business-model proved to be a worthwhile one and in a growing pet market there was plenty of room for those who were dedicated to play their role in a professional way.

For manufacturers and distributors alike, the key questions today are: how likely is it that this business-model can and will be continued and if the role of the distributor will have to change, in which directions will this change take place?

Distribution is changing and will continue to do so because of its inherent dynamics. The main change that influences the way to market for quite a number of manufacturers is the formation of chains of petshops/stores – franchised or integrated – with their apparent or proven buying-capacity and their own logistics infrastructure. Granted, not all continents and/or countries are equally evolved with regard to pet chain formation but the overall trend seems to be in the direction less "independent" outlets in favour of pet chains.

The consequences of this continuous development seem to be clear: the role of the traditional distributor is changing and diminishing.

Changing because the manufacturers wish to have a direct influence in the negociations with the pet chains and diminishing because many of these chains have their own logistic infrastructures.

In fact, powerblocks are being built, both on the manufacturers' side and the retail-side. Through further consolidation and otherwise. With the objective to maintain the balance of power between them!

So, where does this put the traditional distributor?

In a position of being squeezed between the 2 powerblocks or at best in a follower's position without any genuine influence in the process. In fact, the distributors' strategies are increasingly going to be dictated by suppliers on the one hand and retailers on the other.

In this scenario, a substantial number of distributors will disappear because the room that was originally there for all of them, is shrinking.

To continue to make a contribution to the pet market, distributors will have to change course! So far, most of them have been active to help and build manufacturers' brands. Implicitely the brand-equity has always been for the manufacturer; the distributor was and is an executor of strategy without being in a position to build his own portfolio of meaningful and potentially valuable brands.

In most cases distributor-sizes are not such that they have the resources to build brands. International alliances will have to be sought if the "branded-scenario" is the chosen one. Because market-opportunities will thus multiply and the investments in the brands can be spread to make them bearable for the individual alliance-partners.

Having a small basket of own brands that can be developped into a sustainable position in the market will make the distributor less dependent upon manufacturers' strategies and will revitalise the trading-relationships between the distributor and his retail-partners.

There continues to be room for the distributor, assuming that the latter is prepared and in a position to adapt his business-model and approach to market to today's and tomorrow's requirements and opportunities


THE MARKETING RELEVANCE OF NEW AND NOVEL

Today, more often than not, new has limited relevance from a competitive advantage point fo view. That is to say if newcan be imitated by competitors more or less overnight. I think one of the examples of the latter happening is the use of glucosamine-chondroitin in petfoods. The initiator of the use of these ingredients saw competitors follow suit within a period of not more than 6 months. So the uniqueness in claiming specific benefits got lost, and with that the competitive advantage. These ingredients can now be seen to be fairly standard in petfoods. It's novelty-value has disappeared.

On the technology-side we have seen the development of pouches for wet catfoods. For obvious reasons a branded operator started this development and before the new proposition got the chance to settle in the marketplace (and to give the initiator the opportunity to cream off to have a quick return on its development-cost), private label suppliers could offer a similar concept to the trade.

If I think of a genuine breakthrough that has sustained itself extremely well, I inevitably come to the development of the alu-cups by Mars. Clearly a new technology for petfoods as well as arriving at an outstanding (certainly from a palatability point-of-view) product-quality. Mars had the guts in the mid 80's of the last century to charge cat owners the price of prime beef for their Sheba brand. And they were successful in doing so. Of course they have been followed by others; but much more slowly then has been the case with the pouches, so the competitive advantage for the alu-cup product-concept lasted longer.

I think it is reasonable to say that the development of the alu-cups has been the last genuine breakthrough the petfood market has seen?

It becomes more and more fashionable in the industry to think about so-called novel ingredients. Certainly there where formulations drift increasingly in the direction of foods with more than a health and nutrition function. To an extent the inclusion of novel ingredients in formulations is in line with the trend towards more "natural" products. But what competitive advantage do they offer if these ingredients are freely available on the ingredient-market?. How long does it take to follow the initiator? And even more importantly, can the claims linked to the novel ingredient be scientifically substantiated? Various publications on this subject seem to indicate that the burden of proof is a very heavy one. From the point of view of sustainability of claims, the regulatory bodies continue to sharpen their knives. Within the EU, regulations regarding claims for human foods become very stringent. Legislation in this respect has already been approved by the EU Commission and will be applied before long. It is very likely that this will further effect the freedom with which one can use claims for petfoods.

Does the above imply that companies should stop looking for new and novel? By all means no!

There is always room for meaningful improvement, be it on the product and/or on the technology-side.

The challenge is to find the sustainable competitive advantages. Which can be developed into a monopoly! E.g. by assuring that one absorbs the entire world-supply of a novel ingredient (leaving the competitors to go for second best) or by applying human food technologies for petfoods, the investment in which creates entry-barriers for the competitors.

It all depends on the vision of the companies involved; do they seek to enhance the value of the brand – and thus implicitely of the company – by being at the forefront of developments or does one think it's wiser to wait and see how competitors' new and novel develop in the marketplace, before taking the initiatives to follow? Or, the choice between high risk/high reward and low risk/no reward.


PET HEALTH CARE

What's new?

The first signs of awareness regarding pets' health – more particularly the health of working dogs – became noticable in the late 19th century. It was then – rightfully so – perceived that the daily meal given to the animal lacked essential nutrients: vitamins & minerals.

Albeit from a small base, the product-category was perceived to be growing healthily (no statistics were available then) and started to attract lots of newcomers in the late 60's and early 70's of the last century, all wanting a slice of the growing and highly profitable pet health care (phc) pie. Certainly the pharmaceutical companies took an interest and developed scores of OTC products which were then primarily distributed through the veterinary channels. Smaller, non-pharma companies followed suit and numerous me-too's came to market.

Most of these non-pharma companies entered the segment, because they felt they could capitalise on the brand-image existing for the products they already brought to market. On the whole these entries were opportunistic rather than strategy-led.

Because the larger pharmaceutical conglomerates had a vested interest in staying loyal to the veterinary channel, the followers popularised the category by selling their products through the specialty outlets.. In essence phc thus became more readily available and more commonly known, initiating further growth of the category.

It was not until the mid 80's of the 20th century that mass-distribution hesitantly started to put some of the fast-moving phc products on their shelves.

The category developed gradually product-wise, from nutrition-supplementation for dogs (and to an extent cats) into a broad spectrum of products for all species. Nutrition wasn't the only issue anymore. Antiparastics became an important segment in the category. The biggest impact on the category was supplied by anti-flea and anti-tick products (now counting for some 60% of the total category). Development of new, more often than not solution-oriented products, brought further growth and new companies entered the category. The most recent development is the one of nutraceuticals. These provide on the one hand a new challenge (their efficacy cannot always be sufficiently substantiated), but are on the other hand threatened by the clearly noticeable trend of functional foods and snacks. i.e. complete foods with nutraceuticals added, e.g. to promote joint mobility or to take care of skin and coat problems.

The more the category evolved, the more regulatory issues had to be dealt with. Developments led to the potential of using strong claims but more often than not, regulations were significant roadblocks for the use of these claims. And the burden of proof gradually became such that only the bigger operators could finance the R&D investments that were involved.

Where will the category go? On the product-side natural, as opposed to synthetic, solutions will see a healthy growth. Preventive rather than only curative will become an issue. The marketshares of the various channels of distribution will change somewhat; mass-distribution and specialty will see some growth of share, to the detriment of the veterinary channel. But most importantly, the number of suppliers will diminish, partly because R&D and marketing-investments become prohibitive and partly because the non-specialised suppliers (this is not necessarily the same as manufacturers) will have to refocus on their core activities. Although it is bound to be a gradual process, a shake-out on the supply-side is to be expected. Companies will either have to drop their phc-activity or they will seek alliances with peers to build a power-block which puts them in a position of sustainability in an era where competition will further increase and where regulatory hurdles become even higher than they are today.

But those companies that stay in the market can look forward to healthy market-growth and attractive returns!


PET ACCESSORIES: OPPORTUNITIES GALORE?

Although the main theme of this PIM's issue is Fashion & Bedding I aim to extend my views to the broader spectrum: accessories.

A broad spectrum indeed; the category "accessories" appears to be the reservoir for everything that is not food, pet health care and catlitter.

A reservoir one understands with difficulty; because it's not (always) animal specific, it's not purpose specific; the reservoir is a bit "everything for everybody".

Consumers'shoppinglist

And yet the category is a very attractive one from a manufacturer's and a retailer's point of view. Because of its business dynamics and its margin-potential.

Other than e.g. the food-categories, accessories are not top-of-mind for the average petowner. They partly fulfil a need like leashes and collars for dogs and cats or play on the human-animal bond like frisbees.

Accessories all seem to have in common that they do not appear on consumers'shopping-lists on a regular basis. And yet the number of accessory items on offer doesn't cease to grow; the last Interzoo was again a perfect showcase for this phenomenon.

With a few worthwile exceptions, accessories are not branded in the proper sense. Oh yes, they find their way to the consumer with a trade-mark attached to it, but in the vast majority of cases the trade-marks are nothing but "a name on a bag/pack". However, trade-marks in the accessory-category do seem to have some significance for the vis-a-vis the retailer, because the latter can identify with the manufacturing or distributing supplier of these accessories.

Branding

Does this all mean that there is no opportunity for successful consumer-oriented branding?

Quite on the contrary! I am convinced that there is, provided that meaningful and sustainable points of differentiation from the otherwise anonymous bulk of the market will be developped and exploited. And what is the business-relevance of consumer-oriented branding in the accessory-category? Although the market for pet accessories still shows very healthy growth perspectives and will probably continue to do so for some time the category will reach the stage of maturity. Typically in this stage retail will become more critical as to the ranges they carry. I have no doubt that retail will then favour those suppliers that support sales through end-buyer branding and promotion.

The stage of maturity will also lead to changes on product-level. As earlier mentioned, the offering in the category looks to grow like wildfire. Planned obsolescence doesn't seem to be part of the game. The possibilities that retailers have to absorb these "new and exciting" items will diminish; therefore the opportunity for further growing the market can also be found in an further expansion of distribution by going into channels not yet tapped into. Particularly for impules-oriented items.

All in all, the category is very much alive, has very real and highly attractive growth-perspectives and offers great opportunities for those companies that consciously seek to find the way to the end-buyer's heart and mind through branding and differentiation.


PACKAGING An often underestimated marketing-tool!

We seem to flatter ourselves with the thought that packaging is an art, is a key issue for businesses. Of course it is, but let´s not forget that there is proof that also in pre-historic eras packaging was an issue that was considered. Primarily to play two important roles: transport and (food-)preservation. In the Western cultures this has been the case until probably the middle of the 19th century. In the wake of the industrial revolution things gradually changed. Soft soap could be got in an anonymus brown paper bag (hurry home before its starts to leak) into which the quantity required by the customer was scooped by the shopkeeper. Then the paper-tube with a cover and a message from the manufacturer on the outside entered the scene and became the alternative. Thus two additional functional elements entered the packaging arena: storage and branding. With one drawback for the consumer: instead of buying the quantity she wanted, she had to get accustomed to buying what the manufacturer wanted to sell. Because of the added convenience, manufacturers asked a higher price and got what they were looking for. Marketing had entered everyday business!

As did additional convience! Easy to open, easy to pour, easy to close, easy to ........

But haven't we all had the experience that some packaging was designed in such a way that difficult to open, to pour etc. was more applicable? And did we stick with that product or did we go for a more convenient option next time around?

I think that the influence of packaging can be overrated. How often do we see NEW, whereas only the graphic design has been changed? Or where glorious design needs to cover the mediocrity of the physical product involved. In the end of the day the contents must satisfy the needs of our customers. Excellent design can of course lead to trial purchase, but repeat is often very doubtful in case of mediocre products!

Packaging has gradually become a way in which companies try to distinguish their offering. And has thus become part of increasingly complex R&D programs. The complexity of the packaging-issue also leads to the development of new packaging-lines (lots of ideas are transplanted from the human (food) sector), that can "only" be invested in by the bigger players in the industry. They thus aim to grow their sustainable competitive advantage; the medium-sized players simply lack the funds and the required volumes to follow.

In this respect packaging has become of key strategic relevance, certainly for fast moving products.

A sometimes grossly underestimated function of packaging is communication: tell the brand-message!

Packaging is your closest and most real-life link with your (potential) customer. Your product is on the shelf and your customer is shopping. Your message will to a great extent define – assuming that there are products comparable to yours on the same shelves – whether you end up in their shopping-basket or not.

All in all, packaging should not be a side-line for our industry. It is not always merely a cost-factor.

Packaging protects, offers convenience to and communicates with your consumer. And therefore, from a marketing point-of-view, the development of packaging must get the financial and human resources it deserves


SMALL ANIMALS, BIG OPPORTUNITIES

It can be argued that the small animal category, is one of the younger ones in the pet industry; also as far as foods are concerned. But amazingly, this category looks to be one of the most traditional in the industry, especially on the food-side! With some exaggeration one could say that the manufacturing-investment in a concrete mixer and a shovel could put you in business. However, despite the relatively low entry-barriers (in comparison to manufacturing foods for other species) there are not many manufacturing newcomers in the small animal food arena.

Other than for dog and catfoods, product-development for small animal foods only got genuine attention from the manufacturers in the last decade or so; some companies took the lead and improved concepts saw the light. In essence nothing revolutionary, because me-too products with (exactly?) the same proposition followed rapidly. New product development in most cases meant an upgrading of the traditional mixes of cereals and dried vegetables with an added spoonful of X. Probably more to please the consumer's eye (rabbits are colour-blind!) the number of components increased and foods became visually more attractive; the intrinsic nutritional propositions hardly changed.

Because of the lack of genuine innovation in the category, price remained one of the key weapons used in a highly competitive environment. The offerings of the various manufacturers did not allow for significant price-differentiation; at least not in the eyes of the distributive trade. After all, to a great extent the products looked alike!

The owners of small animals might take another look at pricing once the product – and brand-proposition changes in a meaningful (for the consumer) way. As with dogs and cats there is a category of small animal owners that seek the best for their animals; to enhance the animals well-being and to save on vet bills! There are already clearly noticeable tendencies where premium offerings fetch significantly higher prices and generate higher margins in comparison to the more standard products. But this segment, although growing, still represents a smaller part of the total market.

If we look at the statistics we can say that small animal populations grow worldwide. And small animals are increasingly seen to be a pet, a part of the family. This implies that the emotions surrounding the keeping of small animals are changing and thus the attitudes of the owners.

This manifest change offers great branding and new product development opportunities for manufacturers that seek to upgrade their portfolio of products; and wish to build a sustainable position in an increasingly attractive product-category. The market is there, the consumer is open to relevant change and the distributive trade will embrace any concept and brand that enhances the margin-potential of the category.

In upgrading their portfolio of products the food + concept can be a key element of differentiation. Comparable with the developments we have noticed in superpremium dog and catsfoods. Food + is a "merger" of excellent nutrition for wellness + some functional ingredients. The inclusion of yucca extract to fight nasty smells is a typical example; but now becoming so common in the formulation of small animal foods that the competitive advantage is eroded. Prevention is key in the proposition. But preventive claims are surely subjected to severe scrutiny from the regulatory authorities.

One of the biggest challenges in the small animal food-category will be the search for new technologies. To get away from the traditional mixes which for the untrained eye of the owner are one and the same. Extrusion is used as "another" technology, but extruded small animal foods sofar did not have a noticeable impact in the market. Manufacturers of small animal foods will be wise to look at human food technologies to achieve a breakthrough in the product-formats they can develop.

All in all small animal foods offer excellent business opportunities for those who will break with tradition by being genuinely creative and prepared to invest in technology and the market; and above all have the ambition to change the face of the category!


SNACKS: A SUITABLE CATEGORY FOR TREATMENT!

Snacks: in the Thesaurus described as a bite, nibble, morsel, titbit. And that is their primary function: in-between meals, preferably without spoiling the appetite!

In that respect snacks fit the trend towards humanisation of the pet perfectly.

Arguably one of the most attractive categories in the pet industry; not so much from a volume, but much more from a value point of view.

Also a category which is in its earlier stages of development; less so from a product development point-of-view, but certainly in terms of household-penetration.

Taking this into consideration, you can say (with a degree of simplification) that the category offers very attractive opportunities for growth for players who take this category seriously.

When thinking about snacks, isn't it funny to observe that on the one hand one of the oldest technologies in the industry (baking) can be found in the same product-category as highly sophisticated technologies, some of which being a cross-over from the human food industry?

It does show that snacks offer a wide choice of options where product-formats are concerned.

However, technology available in-house seriously limits the options for the manufacturers. Once manufacturing-capacity is installed (which is always less versatile than one initially thought!) it will turn out that the market is not ready (yet) to absorb the volumes that would allow the manufacturer to produce with some degree of efficiency. It would not be the first time that the dilemma between volume (= efficiency) and value (= margin) shifts in the direction of volume at any price, thus leading to price-erosion; at a stage where the technology has not even had the opportunity to generate some initial ROI. From a consumer point-of-view there is no reason for price-erosion. The pet-owners who care (their numbers are growing quickly throughout the world) accept products that are reasonably priced provided that they offer the meaningful extra she or he is attracted to. With perceived benefits for the animal! Pet-owners want to do the best they can do for their animals (with the possible exception of chain-dogs that will never get a snack however cheap it wouild be); from that perspective the category is not as price-sensitive as other categories in the industry. After all, what is the price-tag for emotion?

There seems to be a general belief that snacks require more or less continuous new product development. This may often seen to be the case if you look at the frequency and number of "new" product-launches, but it is a known fact that products that were developped some 30 years ago for the US market still lead the category in that market; without major alterations to the original product-concept! Needless to say that these products are huge contributors to their manufacturer's bottom-line.

But what if you would start from scratch: would you tap into existing technologies or seek ones that are new to the industry?

The key driver for that decision is the orientation one has: volume or value?

The approach to the investment will clearly differ from cost-orientation = volume to versatility-orientation = value. Evidently the financial rewards will be different as well.

The volume-orientation more or less inevitably leads to the necessity of accelerated penetration, because copycats are bound to appear rather sooner than later; whereas the value-orientation allows for creaming the market from a niche point-of-view; the product being less prone to copying.

Product-formats have of course changed over the years: from an important part of the feeding-regime to indulgence and subsequently to functionality; the latter can be seen as part of the feeding-regime, in sofar that functional snacks provide the (nutritional) extras that are seen to be vital for the animals'health and wellbeing.

Particularly the functional snacks will have a lot of mileage, because they combine ratio = functionality with emotion = indulgence in a pet environment where the consiousness of pet-keeping – with its given set of responsibilities – increases rapidly.

In conclusion you could say: the category is a very interesting one; meaningful creativity is rewarded by the end-buyer and as long as manufacturers are not "trapped" in their own technologies, the spread of development-opportunites is enormous and potentially lucrative.


TAKING CARE OF PETS’ HEALTH!

It can be argued that the pet health care category saw the light in the early 90's of the 19th century when Bob Martin started to manufacture and sell their conditioning powders for dogs; essentially a mix of vitamins and minerals to compensate for the lack of such in the then common regime of feeding table-scraps and meat-offal.

These conditioning powders were made available to the animal owners through traditional grocery outlets, i.e., the veterinarian community was not strongly involved in the marketing of these products.

Over the last 4 decades pet health care developped into a category in its own right; in fact it developped into a huge reservoir of products with "maintenance", preventive or curative purposes.

Which makes it difficult to define the category precisely. An attempt could be to say that pet health care is "the category of products that aim to promote the health of pet animals by either endogenous or exogenous absorption of the actives".

When accepting this definition, we accept the fact that also pet foods belong to this category. In my point of view they do!

The more so since petfoods, particularly the dry ones for dogs and cats, are enhanced with functional properties to promote joint mobility, to promote digestion, to promote strong and healthy dentals, to name but a few.

So far these functional aspects seem to apply primarily to dog and catfoods; isn't it time that attention is paid to other species as well, as far as functional extras in their foods are concerned?

It may have been the case that in the past typical pet health care products (I wish to exclude petfoods in this case) were the domaine of the veterinary community; or even their quasi-monopoly. This is history; pet health care products were popularised over the years and now enjoy wide-spread availablity. Certainly those products that do not need a prescription of any sort; the assumption being that the pet-owners are perfectly capable to decide for themselves which product suits which purpose.

Which brings us to "OTC or prescription?" There are signals the regulations are being changed in the favour of the veterinary community, certainly for those products that are based on synthetic actives. Whether this would be to the advantage of the industry and the pet-owners is questionable.

In the last decade or so we have seen the growing importance of natural actives and nutraceuticals. Depending on the claims used, neither of these require the pain-staking process of license and/or registration. This enabled a great number of manufacturers to enter the segment without huge R&D investments, while offering them the opportunity of wide-spread distribution.

I may be so that the efficacy of natural actives and nutraceuticals are questioned by some scientists, but antropomorphism tells us that the owners feel that what is good for them is good for their pet. So the growth of natural actives and nutraceuticals for human consumption can be seen as a measure for the potential of the same for pet consumption.

Even if regulations would tend to become more in favour of restricted distribution in the veterinary channel, I have no doubt that the industry will (have to) seek ways to increase the popularity and use of pet health care products sold on an OTC basis.

I foresee further developments in the use natural additives in petfoods; as I do foresee a shake-out on the supply-side of nutraceuticals (as end-products). The latter segment will have passed its current state of experiment before long and bringing the segment to its maturity will primarily be done by those suppliers that have the knowhow and budget to educate the pet-owners into the use of these nutraceuticals.

All-in-all, I do firmly believe that the pet health care category provides serious (not going for the quick buck) players, which are committed to the longer-term sustainability of the category, with very healthy business –perspectives.


Development in danger, or a dangerous development?

When observing today's dog and catfood market in W.Europe I can not help but think that it has lost its drive and dynamism. This once vibrant and challenging market has become dull and predictable.

The (unexpected?) high impact of private labels/own brands - or whatever the current buzz-word may be - looks to be one of its causes.

The evident lack of genuine innovation is another one; what is called innovation now is nothing but tweaking some product-features.

However, what appears to be the main reason for this dullness is that there is so much focus on competitive ac tivity that market-chances are overlooked. It is as if management in the industry is frightened to take some necessary steps, let alone bold ones!

I maintain to say that as long as the W.European petfood industry has not reached prepared petfood penetration (PPP) levels as shown in the US market there is room for higher growth than is demonstrated today.

When do we return to "new and exiting"?

Most product-categories – and why should petfoods be an exception? - flourish on the basis of new product introductions. But then genuinely new and meaningful. Not the umpteenth line-extension or further segmented offering. These look to have shelf-dominance as their primary objective.

Yet, how can we expect "new and exiting" in an industry in which the key technologies have been introduced over 30 years ago?

Of course these technologies have been improved over time – mainly with manufacturing efficiency as its main objective -, but conceptually nothing changed.

So, which are the challenges that face the industry if it wants to return to the road of growing the market?

Ingredients is a key issue today and will probably remain so for some time to come. The need to search for alternative protein, fat, carbohydrate sources has clearly announced itself.

Companies that dedicate some of their resources to this search will end up with a strong and sustainable competitive advantage, the more so if they buy the bulk of a limited supply.

A.o. the African continent is likely to be a provider of alternative ingredients. What is now used as and in human food only can be a useful alternative in formulating outstanding dog and catfoods.

The other challenge is one of size.

The divide between the big operators in the industry and the medium-sized and smaller ones becomes wider by the day. This is certainly visible in the R&D/new product development efforts.

The big operators appear to be protecting what they have today, whereas their counterparts lack the funds to challenge them. The solution for this dilemma can be (and as far as I see it, should be) that the medium-sized and smaller operators join forces in new product development. Together they must be able to introduce new and breakthrough technologies in the industry (the human food industry provides some examples that can be borrowed and adapted), thus expanding the opportunities the market continues to offer.

By the way, most of the times it is exactly that: the smaller manufacturer that creates a new niche and in doing so gives new impetus to the market.

A market which is incidentally made up of end-buyers who appreciate added value and are willing to pay for it.

As far as I can see it the question-marks in the title of this article should in fact be exclamation marks. If no serious steps are taken to change one's tack, I foresee that the industry will remain as dull and predictable as it is today.

Who has the guts to bring drive and dynamism back to the market by taking the required bold steps?


The genesis of a new dog food: Eureka or a structured approach?

There appears to be some statistical evidence that in mature markets (no market is saturated before having achieved close to 100% penetration and calorific coverage), the majority of growth is represented by new products. In fact, new products and their introductions drive our business. More from a value than from a volume point of view.

One of the key implications of this is however that product lifecycles become shorter.

How to define new?

How you define new is obviously open for debate. Is it new for the industry, is it new for the company? Is it a minor change to an already long existing theme or is it a major breakthrough that will change the life of the animal, its owner or both forever? The question is: do you take the initiator position – with its inherent risks – or are you satisfied with following; the latter is a good way to avoid risk. Both are very legitimate positions, but the higher risk one tends to be more rewarding than taking the position of the follower.

The choice between these two is fundamental to any New Product Development (NPD) process you want to embark on.

That's what it is: a process! Necessary to bring new and successful products to market. A structured, well-defined and well-planned approach rather than the spark of genius while sitting in the bathtub (Eureka).

And, as importantly, this process is not the monopoly of a few big players in the pet food industry. Any company that takes itself seriously can start an NPD process for dog food, the more so if it is prepared to join forces with peer companies also in search of new products, but servicing different geographical markets. With a bit of guts a lot can be done!

Your position in the market

The choice between initiating "new and exiting" vs. "we want the same as the benchmark" is of course heavily influenced by the way in which the company positions itself in the market.

Does it want to claim psychological leadership or is it focussing on following other initiatives.

If the latter is the case, price, more often than not, becomes a decisive factor: "as good as X, but (significantly) cheaper." Price-erosion will set in before long and the initiator needs to react. How? By revamping the product, while trying to find new attributes that appeal to the end-buyer.

But all based on technologies that are already in existence for at least 40+ years and which are in essence available to everybody who is in the industry or who wants to come into it. So the technology is or will not provide a Sustainable Competitive Advantage

How to start?

So, what's new, what's unique? And what is the starting point in your thinking process? The vested interest in the technology that you have or feeding a dog in a way which is pleasing both the animal and the owner irrespective of the technology necessary to manufacture that food? Provided of course that the product is nutritionally sound and keeps the animal in excellent shape.

In the first case you can not expect a breakthrough!. What you do is limited by and to your technology.

If you however want to feed dogs in a pleasant and nutritionally sound way but differently, a plethora of opportunites opens up. Just by looking at an adjacent industry: human food! New (for pet oriented foods) technologies become available as do – probably - new ingredients. And do dog foods (for animals that increasingly are part of the family and are treated as such) have to have a 12 to umpteen months shelf-life?; in an era where the trends in human foods are fresh, chilled cabinet, short shelflife, no chemicals, less processing etc.

With focus, perseverance and commitment new dog foods can be brought to the market successfully if you take the initiative to step out of the box of existing technologies and start to use the technological alternatives. Not necessarily by investing yourself in this technology, but by coming to an alliance (co-packing or more) with a company that has the alternative(s) available.

No more Eureka (reactive), but a deliberate and well-planned step in the direction of being meaningfully different (pro-active) will give you the icing on your future cakes.

Note: the essence of the above does of course not only apply to dog foods


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