Structured product development as a strategic issue

 

The previous meeting was another sign of the unstructured approach to NPD. People start to scratch their heads. Joe and Justin meet again.

Joe: I wonder if our NPD approach is still up-to-date

Justin: why don’t you call it Structured Product Development or SPD instead of NPD?


Joe: indeed, why?

Justin: because often  product development lacks structure and, product-development is for new anyway.


Joe: makes sense, but I continue to wonder if our approach is up-to-date

Justin: the shortest and best answer is: no!


Joe: you’re best qualified to give me the answer; it’s your responsibility after all. What do you plan to do about it?

Justin: I plan to start and put SPD in its strategic context and work from there


Joe: instead of what we are doing now.  Like “we need a few new products, let’s make them”. Is that what you mean?

Justin: exactly. Because I sincerely believe that with a bit more structure in our approach we can significantly diminish the failure-rate


Joe: looking at what we now spend on NPD, sorry SPD, that is a very attractive idea. What goes wrong nowadays?

Justin: to mention but a few flaws – have you got another 10 minutes? -  I can spontaneously say lack of focus. Sometimes we were working on 50 odd different development projects. The development-briefs are often so ambiguous that it looks as if we are working on a quack’s cure all. The lack of a team that can commit and dedicate time to projects is certainly felt. For most, the SPD effort is “when I have time”. And therefore we fail in the execution; because we cut corners to be ready on D Day.


Joe: that sounds ominous. What about this ambiguity you mentioned?

Justin: take for instance claims for which no proof can exist, or no clear positioning of the products, proposed brand-messages that are obscured by a plethora of information, no clarity as regards pricing-points, a list of deliverables that is way too long to be credible. Shall I go on?


Joe: so, are we talking discipline or approach?

Justin: both actually. With more discipline and a more focussed approach we can achieve much more in a shorter period of time. As I said, our failure-rate is bound to drop


Joe: can you send me a memo describing the current situation and your recommendations?

Justin: I did so about a year ago, but at that time you may not have wondered whether or not our SPD-approach is up-to-date. Product did not appear to be one of the priorities of the board. I am glad to see that this is changing.


Joe: oh, before you leave, don’t forget to put the memo in its proper strategic context. The board will love that.

Justin: consider it done. Without the proper strategic context the memo would hardly make sense anyway.


Marcel Blok

Change Stranamics BV/The Netherlands

 Appeared earlier in Petfood Industry’s E-Newsletter


How to stand out in a crowded pet food market?

 

Imagine this conversation between Joe Zweifel (chairman of the board) and Justin Case (marketing director) at the HQ of FYP Inc. (Feed Your Pet)

 Joeit’s about time we bring something new to the market; more than our current run of the mill products

 

Justin: excellent idea. How about natural products?


Joethat is very old hat; I do remember that when I started in pet food this was already mainstream

 

Justin: organic could be an option

 

Joewhy not, but I fear we run into problems with raw material supplies

Justin: could very well be; so why don’t we opt for holistic, to be on the safe side?

 

Joeoh no! besides the fact that nobody knows what it is, this denomination is by now used by virtually every manufacturer in the industry

 

Justin: true, but it seems powerful. By the way, something that is not used by anybody in the industry is symbiotic.

 

Joethat has a nice ring. What does it mean?

Justin: dunno. But I will look it up straightaway

 

Joeso symbiotic is the adjective that describes an interaction between two different organisms living in close association usually to the advantage of both. Sounds complicated.

Justin: yes, great isn’t it. Mystery sells.

 

Joeso, what do you plan to do?

Justin: I want to turn this into a major programme. Our major launch of the decade. Think of what we can do: register Symbiosis as a global trademark, develop a dry and a wet line, approach the symbiots if they exist

 

Joethis can stand out. A new denomination protected through the trademark. Monopoly in this new segment. What are the consequences product-wise?

Justin: hardly any, because we do not want to rock the boat. Do we?

 

Marcel Blok

Change Stranamics BV/The Netherlands

Appeared earlier in Petfood Industry’s E-Newsletter


Food for thought for pet food

 

Imagine this conversation between Joe Zweifel (chairman of the board) and Justin Case (marketing director) at the HQ of FYP Inc. (Feed Your Pet)

 

Joeit’s about time we bring something new to the market; more than our current run of the mill products

Justin: excellent idea. How about natural products?

 

Joethat is very old hat; I do remember that when I started in pet food this was already mainstream

Justin: organic could be an option

 

Joewhy not, but I fear we run into problems with raw material supplies

Justin: could very well be; so why don’t we opt for holistic, to be on the safe side?

 

Joeoh no! besides the fact that nobody knows what it is, this denomination is by now used by virtually every manufacturer in the industry

Justin: true, but it seems powerful. By the way, something that is not used by anybody in the industry is symbiotic.

 

Joethat has a nice ring. What does it mean?

Justin: dunno. But I will look it up straightaway

 

Joeso symbiotic is the adjective that describes an interaction between two different organisms living in close association usually to the advantage of both. Sounds complicated.

Justin: yes, great isn’t it. Mystery sells.

 

Joeso, what do you plan to do?

Justin: I want to turn this into a major programme. Our major launch of the decade. Think of what we can do: register Symbiosis as a global trademark, develop a dry and a wet line, approach the symbiots if they exist

 

Joethis can stand out. A new denomination protected through the trademark. Monopoly in this new segment. What are the consequences product-wise?

Justin: hardly any, because we do not want to rock the boat. Do we?

 

Appeared earlier in Petfood Industry’s E-Newsletter


What does it take?

Shortages of all sorts and sizes have made the headlines during the last couple of months. Including dark pictures about the consequences for industries and consumers alike. Also for the pet food industry. Where ingredient-cost (can) weigh substantially in the total mix of cost.

However, what is much less reported upon is the search for solutions for these recurring events. Whereas it is beyond any doubt that structural solutions need to be found to fight the noticeable cyclical fluctuations with an upward trend.

Dry wellThe energy market is tightly controlled by a few hands full of countries and companies that own the oil-wells. On the short-term these few hands full can manipulate supply and thus price, but on longer-term nature will do so; the wells will be dry! So from an industry perspective there is not a great deal we can do. Or, is there? By applying more solar and wind-energy? Or by re-installing water-turbines where appropriate?

The scarcity of key ingredients for the pet food industry is becoming more evident by the year. And again, which initiatives does the industry take to find solutions for this scarcity? Not a great many; at least not noticeable to the naked eye.

Whereas the solution might be to dedicate more land surface to grow ingredients that make sense for the pet food industry. Not necessarily for commodities that have been part and parcel of this industry for the last 7-8 decades or so, but for commodities that are less known in the countries where the bulk of pet food manufacturing takes place. Ask yourself what would have happened if dry pet foods would have been developed surrounded by field of sorghum and flax instead of corn and wheat. One could argue that commodities then need to be shipped over big distances, but to an extent that already happens today anyway.

In other words can the tradition be broken by applying alternative ingredients that have a sustainable purpose? Probably to be found in Africa where the sub-Saharan landmass is in general very fertile and crops can be abundant if managed properly.

Maybe using land that is now under-utilised by growing crops that can be used for pet foods (and not so much for human foods) creates the desired win-win-win situation: countries get a higher income from agriculture, the pet food industry becomes less dependent upon world commodity supplies (and its fluctuations) and the industry doesn’t tap into a food source that is meant for human consumption.

The question however as always is: what does it take to start an initiative of these proportions and how can speculation that is at the root of the fluctuations today be kept at bay?


An industry on the move

Despite what industry sources have said in the recent past, our industry has gone through turbulent times the last few years; essentially due to what is euphimistically called “the economic downturn” but what others refer to as the economic crisis

Industry observers started with saying that the pet food market (representing 65-70% of the global pet industry sales) was recession-proof.This was followed by the claim that the industry was recession-resistant; and only recently this same industry was mentioned to be recession-resilient. The fact that the BRICS countries showing exponential growth flattered the industry-figures led to the cautious observation that the industry may not be as resilient as global figures seem to indicate.

Although there are no strong – maybe not even modest – indications that the global economy is warming up again, we need to take into account that we will some time enter into a new period of prosperity.

But will this have as a consequence that our industry is getting back to the days when “the going was good?” Most likely not! Disposable income of pet owners (aka consumers) may flourish, but we will not have seen the end of the governmental austrity-measures for quite some time to come. And these will continue to have a negative effect in general, but also on our industry. Grants and subsidies for R&D projects and investments in general will diminish. Taxes and levies are likely to rise.

And this will influence the economic outlook of the individual companies in our industry!

Therefore it’s time to rethink your business. Do you want to go through another round investments, do you want to continue to face a further consolidating retail-trade? Do you want to ……..? Numerous questions need to be raised in this respect; and they all deserve an answer

But which are some of the factors that will increasingly influence the way in which you conduct your business?

More companies will become for sale, because their owners will answer most of the “Do you want to” questions negatively. This leads to intensified consolidation on the supply-side.

Ecology will further grow as an influencer of your business and of our industry in general. Not only through regulation and legislation, but also by the fact that more informed and more critical consumers judge your company and your brands according to your position on the ecology-ladder. Neglecting the consequences of this massive trend will prove to be fatal or at least very harmful.

Furthermore – and this applies more to quasi-saturated markets than to the emerging ones – we will see a further polarisation in our industry. The smaller niche-oriented and often family-owned companies stand very good chances to survive because their specialty is their strengths and not many other comapnies have a similar speciality. The big operators will continue to thrive; also because they have a broader offer than pet foods to bring to the concentrated retail-trade. Mars, Nestlé, P&G, Colgate all offer a big basket of products to their clients, of which pet food is only a (small) part. The consequence is that medium-sized players (particularly in pet foods) are facing tough times. They need to compete with the big boys but their pockets are by far not deep enough. So, what are their chances of longer-term sustainability?

Another possible trend – again this may apply more to the mature and quasi-saturated markets – is downgrading. Does it all have to be “superpremium” or is the consumer likely to stay with premium to which they downgraded during the economic crisis? There will be a large group of pet owners that will ask itself if the perceived differences in added value between premium and superpremium justifies the sometimes substantial price-difference in favour of premium. And part of that large group of pet owners will stick with premium instead of going back to superpremium; despite the fact that they can afford to do so. Remember, we are dealing with an increasingly informed and increasingly critical consumer!

Ingredients are obviously also a further matter of concern. Not only the availability in the strictest sense, but also the availability to whom. We enter an era where cereals - the key ingredient for pet foods representing (remember?) between 65-70% of our industry’s sales – are sold on 3 different markets: human food, pet food and energy. So looking at harvest-predictions to estimate future price-levels is not good enough anymore. Trends in human foods need to be followed and assesed more closely; also in view of more affluence in the BRIC countries that together represent 40% of the world-population. And what about the energy industry? Will the political pressure to become less dependent upon fossil sources increase? It most certainly will; so the trend is towards more renewable energy of which cereals is a part will become an important fact of life. This means that our industry is getting more influenced by factors that we can not influence ourselves anymore.

And that is the main difference with the past. Instead of “going with the flow”, because the market was healthily growing, we now have to try and anticipate the unknown caused by a market in turmoil.

It’s surely all about preparing for your business-future; which must of course be a healthy one if you want to stay in business, and enjoy it.

Therefore rethinking your business becomes relevant as never before. Ask yourself if your business-model of the past can be upheld in the future. Ask yourself to which extent the external factors will influence your business. Ask yourself what you need to do to minimise the probable, negative consequences of these external factors. And above all ask yourself if you are prepared to take the necessary steps to ensure a bright future.

Because after all “It is not the strongest of species that survives, nor the most intelligent that survives. It’s the one that is most adaptable to change” (Charles Darwin)


Marketing 3.0: a re-invention of the wheel?

The title assumes that there have been predecessors; like marketing 1.0.

If they have been around this fully escaped me. Or can it be that marketing 1.0 never existed. But was invented after somebody came up with the idea of 2.0?  To which extent Marketing 3.0 is new and helpful in further leading and giving direction to our businesses.

Let’s have a quick look at what Google (or is it Google 5.0; I am getting nervous here!) has to say about it. This boils down to putting corporate values and believes at the centre of the attention rather than product (marketing 1.0) or customer (marketing 2.0). Actually Google wasn’t very forthcoming with regard to providing information about Marketing 3.0. Maybe Marketing 3.0 is not astute enough to put itself in the floodlight.

When we see marketing 1.0. described as little science, not systematic, little accountability, best guess, shooting from the hip, how did marketing evolve?

Some elaborations I found in Wikipedia say that Marketing 2.0. “refers to the new generation of marketing ideas emerging from the Internet era. The expression became popular in 2005 along with the idea of Web 2.0. It is a buzzword that forms part of the business jargon of corporate work environments pertaining to new means of marketing. The expression is most frequently used by a new breed of marketers who work primarily with the Internet. This new generation of marketers views media such as TV, newspapers, and radio as secondary means of communication”.

So the new breed doesn’t associate itself with the old breed: the people with no access to or no knowledge of the internet. This provides excellent grounds for further segmentation (one of those hobby-horses of marketers): Marketing for dummies! If this is already in print, I apologise to the author(s).

But obviously after customers (Marketing 2.0) became too common-place, it was time to think of something new, something that would change the face of the marketing-earth. By making marketing softer, by buddying with the stakeholders (I mean the ones that share our values and beliefs) to make the world a better place.

So, what does Wikipedia have to say about Marketing 3.0?

It isn’t for everyone. If you’re targeting older age groups, the old media solutions can still work. Your product or service may not be appropriate for these new paradigms. Even if you think you’re in the right space, you need to do your research (and we explore online survey tools that can make your job easier). You also need to do a reality check: are the 3.0 Tools available in your neighbourhood? It’s a global economy but some tools work better in some countries than others. Marketing 3.0 is a work in progress. New media arrive in the twinkling of an eye. Some have the half-life of a mayfly; others will be around for the duration.

So, is it about tools after all? And about a limited life-span for 3.0. Because somebody is already bound to work on Marketing 4.0.

I see a strong link between Marketing 3.0. and Corporate Social Responsibility; the latter for me includes sustainability. It’s about sharing in a responsible way, but not about sharing the responsibilities. Maybe marketing has appropriated CSR for the next stage of its own development. Because marketers are supposed to be the best positioned people when we think about corporate strategy and image. Or should CSR remain the domain of the boardroom? And which conflict arises when another billion acres of rain forest is “sacrificed” to grow cheap soya. Does the boardroom look at the planet or the profit? Or maybe the indigenous people that are driven from their homeland? Where does that figure in the corporate set of beliefs and values; and what does Marketing 3.0 do with that?

From whichever angle I look at it, I invariably come to the conclusion that conceptually not a great deal has changed since marketing (1.0) came to life; which I estimate to be around 8.000 years ago. There is still a supply that needs to be matched with demand in a tumultuous environment where everybody is fishing in the same pond. The objective of a company is not to share believes and values; the objective is economical and financial sustainability and sharing beliefs and values adds to a good way to reach this objective.

So marketing 3.0 is again about tactics and should not pretend to shake the world on its strategic foundations. Do I therefore imply that it should be discarded? Quite on the contrary, as long as it is understood that it’s a means to an end. Nothing more, nothing less.


NATURAL…. Is it to be or not to be?

Natural is a confusing issue at best. From a legal and regulatory point of view. But probably even more so from a consumer-perception point of view. Do they not use natural, ecological, biological , organic and even holistic as adjectives to describe one and the same: products and ingredients not too much tampered with?

And does the petfood industry not add to the confusion in trying to segment a natural proposition into hardly meaningful and hardly understandable sub-segments?

As long as there is no internationally agreed definition of natural the confusion will remain. And, confusion sofar rarely led to broad acceptance (of products) by consumers.

An international agreement will be essential. The world (and not 1 continent) is becoming the marketplace and free movement of goods is in the best interest of all stakeholders involved. And these include the end-buyer!

What keeps the industry from paying more attention to and putting more emphasis on natural?

Agreed, partly the hesitation and confusion stems from as yet unclear regulations and legislation. And certainly also from the lack of availability of ingredients that meet the required standards.

Couldn't it however be such that - if the industry consciously makes natural part of its development-plans – the ingredient-suppliers will find ways (obviously not overnight) to meet the industry's qualitative and quantitative demands??

Is natural a mere fad that will blow over? Evidently it will be the end-buyer who takes the final decision. But don't we all see around us trends (for the moment primarily in the human food sector ) that seem irreversible?

Also because consumers become increasingly ingredient-sceptical and environment-conscious!

And doesn't antropomorphism lead to a further "humanisation" of pets?

If approached in the right way, i.e. with determination and conviction, companies can build a healthy, sustainable and long-lasting "natural" business.


Developing into alliances part 1

As virtually every industry on the road to maturity and consequently saturation, also the pet industry shows - sometimes clearer, sometimes weaker - signs of consolidation.

The dog & catfood category is most advanced in this respect. Masterfoods and Nestlé have acquired through autonomous growth and an aggressive acquisition-policy such power in the marketplace that for these companies anti-trust legislation will most likely prove to be a stumbling-block for further expansion through acquisition, apart from maybe buying into some smaller niche-operators of regional importance.

Other product-categories – obviously not of the same size as the dog & catfood category, but yet of a fair size if taken from a global point of view – sofar hardly show signs of consolidation. Partly because entry-barriers for some categories are still low, as is the perceived requirement for sophistication.

But there are reasons to think that also the non dog & catfood categories will become subjected to the need of further consolidation; because the drivers for this development generally apply to the pet industry as a whole.

One key driver is the global consolidation of the retail-trade – that turn improved manufacturing- and marketing-efficiencies into a vital component of the business-strategies of the suppliers to this trade. Shorter product-lifecycles is definitely another key driver for the consolidation-process, because they impel manufacturers to boost their R&D efforts to such a level, that they need a greater mass to cover this R&D investment.

Certainly for the dog & catfood category increasingly stringent regulations and legislation on the raw-material and processing-side are bound to lead to further investments which can only be absorbed if the manufacturing-company has the appropriate critical mass.

The market suffers from an overdose of brands; most of them being "names on a bag" because they have no strict relevance for the end-buyer. The days that new so-called brands could easily be launched - and got some shelf-space - are over. The retail-trade stops being the test-farm for manufacturers' brands. In fact, because of their increased power, they seek and find opportunities to further enhance their own house-brands; and in doing so leave less room for manufacturers' brand operations. Isn't it in this respect interesting to observe that Wal-Mart's Ol'Roy brand is most likely the biggest selling petfood-brand on this planet?

One could argue to say that retailers' house-brands are potentially a bigger threat to a manufacturer's brand than the brand of the manufacturing rival!

Where does this lead us?

More than likely to a further polarisation on the manufacturing-side. Big will get bigger, niche will thrive and medium-sized operators will face turbulent times!

The rationales: big has the power to effectively deal with an increasingly demanding retail-trade, niche will initiate new developments and will primarily operate under the radarscreen of the big operators and the medium-sized companies will have difficulties "to go" big or start up a niche operation. So, how what can the latter do to cope with this threatening future set of circumstances?


Developing into alliances part 2

Are medium-sized companies threatened by structural changes in the marketplace? I am convinced they are. But which are their threats?

Let's start with the manufacturing-discipline; the lifeline for most of the medium-sized suppliers. Can they continue with further cost-reduction and increase their manufacturing-efficiencies? Probably not, unless prepared to pass these efficiency-gains on to the market; the result is increased volumes sold without the financial reward of doing so. This is a strategic paradox.

To keep up with the big competitors, investments in state of the art equipment for manufacturing and packing is required. Investments that have a weak return, because capacities will be underutilised. And, these investments put a strain on the company's financial stretch.

Also let's not underestimate the power of the retail-trade. Certainly in grocery/mass markets, international groups continue to develop, if not through M&A, through international buying alliances. Maybe of no strategic relevance for the suppliers today, but I have no doubt that those alliances will grow into powerhouses in the near future.

Does this apply to grocery only? Definitely not! Also in the specialty-trade the importance of chains and buying-groups increases dayly. Not in all regions at the same speed; yet an irreversible development you are wise to monitor closely.

The implications of a changing retail-trade for the medium-sized companies are the ways in which selling and marketing take place; they need to be redesigned. But even more importantly, the brands the company sells possibly stop to be part of the evoked set of the retail-trade partners. The result is an eroded value of the company whose brand falls by the way-side..

We can safely assume that regulations become even more stringent than they are today. Certainly on the food-side disasters such as BSE, FMD, dioxin (what's next?) incite authorities to be increasingly sceptical regarding some ingredients and their applications. The likely consequence is additional investments to comply with these regulations. Will these investments ever pay themselves back?

The above constitutes a bleak prospect. Is there anything the medium-sized companies can do to turn the tide? I believe there is! Seriously consider alligning with peers!

The handicap to do so is not rational; i.e.understanding that something needs to be done. Emotion is often the true barrier. Medium-sized companies – often family-owned/privately held –enjoyed a healthy, but above all a very independent life during the past few decades. Why give up this "freedom"?

The fear of management is to relinquish (part of) their independance. How much independance needs to be given up in alligning with your peer? This peer having the same need to allign. And facing the same emotional uncertainties?

Alliances start with the readiness to do something together. Looking at synergies to be created, while retaining the operational versatilities the big boys sometimes lack. And appreciating each others strengths and weaknesses. Co-packing and R&D can be considered, as can joint logistics and sales; to name but a few examples of where economies of scale can be achieved while maintaining the control of your own destiny.

And, why not think outside the framework of your own product-category?. Seeking peers that are no direct competitors, but face similar problems, can be very suitable alliance-partners indeed.

Arguably alliances are seen to be a threat by the management of medium-sized companies. A threat they would wish to avoid. But what if the alternative is to slowly go under?

"it is our mission to help improve the professionalism, performance and sustainability of internationally oriented companies in the pet industry"

C.V.

20 years' experience in the European pet industry in top management positions and as an independent consultant to the industry since 1995.


HOW GOOD IS THE GOING?

Already for quite a long period dog and cat foods manufactured in N.America have found their way into the EU market. One might say that it have been some US brands that were at the origin of the superpremium category in Europe; a category in which today a plethora of brands from the USA and Canada can be found. The going has been good sofar!

However, rules and regulations are changing. The EU Commission takes a more stringent look at the imports of pet foods. In that respect regulation 1774/2002 plus its amendments will have far-reaching consequences. Its interpretation leads to the conclusion that exporting pet foods to EU countries becomes nearly impossible, unless manufacturers are prepared to invest in separate production for the EU market. This investment would most likely bring cost of goods sold to such a level that consequential price-setting in the EU market becomes prohibitive. The exporting manufacturers are bound to lose market-share! The going will not be good in the future!

The measures taken by the EU Commission will incite those manufacturers to rethink their business in and with the European Union. Pulling out altogether is clearly an option. But, wouldn't that destroy all investment sofar made in the brands in the EU?

The alternatives are clear as well: co-packing in Europe is one. The preconception that European manufacturers are not capable to bring excellent products to market is a ridiculous one! One could also think about licensing the brands and their formulations. Both options are constructive in the sense that brand-investments are not destroyed and the presence of brands in the EU can be continued. Those company-owners who take the opportunities the EU market offers seriously do well to consider alliances in the EU in case they wish to continue to play a role in the global dog and catfood market.


SUPERPREMIUM in EUROPE

The first hurdles to take

In the late 80's of the last century some of the US manufacturers saw opportunities in Europe for their superpremium brands and products. Of course there were already diets available to be prescribed by the veterinary profession. The foods brought to market - these were imported from the USA - initially faced the problem of not understanding - by the trade and the dog & cat-owners - the concept of nutritional density, i.e. lower daily food-intake to enhance the animals wellbeing. Furthermore the prices chrged for a bag of food were at that time 2-2.5 times more expensive than those for the leading dry brands. To create demand for the new concepts, the manufacturers sought their way through market through the influencer-route, the breeders and veterinarians.


The definition

All official bodies have desparately tried to define superpremium, without - in my opinion - succeeding sofar. First of all we should not forget that superpremium is typical manufacturers'jargon. Our end-buyers do not relate to products as do manufacturers and as a co

nsequence their wholesale and retail-partners.

Key in the possible definition of superpremium are: high quality ingredients with superb digestibility resulting in maximum availability and subsequent absorption of the essential nutrients.

What continues to puzzle me is the wet products for dogs and cats that are sold under superpremium brands. What is superpremium about 70-75% of tap-water in a can of dog or catfood?

The misunderstandings

Partly because the superp

remium segment is - still - ill-defined, many manufacturers claims superpremium without really providing foods that fit this claim. I have heard people say that 30/20 is a superpremium; implying that anything with 30% protein and 20% fat meets the standards. Nothing is less true; superpremium is not about percentages but about metabolism and situation.

Another phenomenon that saw the light in the mid-90's of the last century was the rise of copycats, i.e. brands that claimed to meet superpremium standards, until then more or less imposed by American brands. The copycats came to market with basically a pricing-claim: "as good as X (the leader) but 40% cheaper". A claim unworthy of belief! Not only because the performance of these copycats could not even stand in the shadow of genuine superpremium products, but also because the final decision-maker - the dog or cat-owner simply did not want to gamble and stuck to the high-priced brands.

The market-development

The phase of pioneering probably lasted until the mid-90's of the last century. The superpemium concept got more appreciated and accepted, resulting in fast growth for the category. This was most certainly helped by a few factors: the growing appreciation for

dry foods in general (more for dog than for cat) nad linked to that increased levels of nutrition-consiousness among dog and cat-owners. What should also not be forgotten is that owners grew more concerned about the wellbeing of their animals, knowing that food is a main contributor to that wellbeing!

The growing popularity of superpremium led to further product-segmentation. Initially by extending the life-cycle/life-style concept; i.e. having more products available for the various stages in life and for the various specific situations (allergies etc.) one can perceive. The number of references sold by the manufacturers thus grew successfully.

The myth that surround the category

In some countries wholesa

le and retail-partners persist in believing that good superpremium products can only be developped and sold by the big multi-national companies. This may have been the case some 10 years ago, but manufacturers in Europe have caught up with their - primarily N.American - counterparts. I dare say that some of the European manufacturers bring excellent products to market; products that do very well in comparative testing against the leading superpremium brands. These products deserve to have

their chance in the market-place and therefore deserve the support of the trading partners.

The current situation

Superpremium does not enjoy the spectacular growth of the 90's of the last century anymore.

However, the concept has become understood and got popular. A rough estimation is that in Europe around 5% of the total volume of petfood sold is

superpremium. To compare, in the USA this is about 15%.

The European superpremium category is estimated to represent around € 1,600,000,000 PVP in 2004.

Through natural evolution superpremium now enjoys a fairly wide-spread distribution; not only in the traditional pet specialty outlets, but also in garden-centers, veterinary clinics, modern self-service agri-stores and do-it-yourself outlets. In some countries grocery retailers have tried to sell superpremium products but they essentially failed because they had no personnel available to tell the "superpremium story"! It has been stated by professionals in the industry that superpremium helped pet specialty retail to survive and to grow. I wholeheartedly agree with that statement. Before sup-repremium came to the European market o

ne could observe share-erosion for the pet specialty outlets. Mass distribution and other types of outlets grew their pet assortments and increasingly threatened the position of pet specialty. Because superpremium was and still is the domaine of pet specialty the increasingly nutrition-conscious consumer had but one option: buy the food in pet specialty!

Shelf-dominance?

The basis for the development of superpremium products has been the so-called life-cycle/life-style concept; i.e. it has taken into account the age of the animal and its degree of activity.

The graph hereafter visualises which plethora of development opportunities lay open to the manufacturers, ranging from food for very old and lazy

dogs (A) to foods for hyper-active puppies (B). The concept has historically been more adapted to dogs than to cats.



In the framework of the 4 quadrants products were developped; initiallyat a low speed, but gradually the development of products became so massive that the trading-partners of the manufacturers lost their way in the highly extended product-ranges the manufacturers brought to market. And find it increasingly difficult to cope with 190 references from one manufactuer.

Of course the manufacturers have - or claim to have - a justification for this exponential growth of their ranges. Science continues to provide them with better nutritional and physiological insights which provides the opportunity to develop yet another product. The question is how long one can pull on the elastic band before it snaps!

A more cynical view on the exponential development of superpremium product-ranges is - as some people in the industry suggest - manufacturers seek to dominate the retail-shelves.

The impact for the industry

Where does this continuous extension of product-ranges lead to? I have no doubt in my mind that smaller and medium-sized manufacturers will be hard-pressed to follow the development; i.e. only the global or multi-national manufacturers will have the R&D and marketing funds available (and spend them) to persist in this development. The consequence is that the smaller and medium-sized manufacturers will be marginalised. This leaves the trade (both at wholesale and retail-level) with a poorer choice of suppliers/manufacturers. I doubt if an oligopoly on the supply side is in the longer-term interest of the trade and the consumers. And I expect that ultimately the reaction of the trade will be to look for private label alternatives which would not be in the interest of the branded manufacturers.

The upcoming legislation

Regulations surrounding petfoods in general become more stringent and increasingly difficult to comply with. Because the petfood-regulations are a "derivate" of the food-chain regulations; which in my point of view is increasingly undefendable because dogs and cats are not part of the food-chain!

Although nothing is really certain at the moment, it can be that the regulations - a very important EU directive is waiting to be executed - become so stringent that non-EU suppliers will find it too difficult to continue to supply the EU market; i.e. N.American brands not manufactured in the EU will either disappear from the market or find ways to continue to supply the market by having their products manufactured in the EU. This will not change the market per sé, but the supply-side will definitely look different from today.

The future for the product-category

I have no doubt in my mind that the category continues to have growth-potential. Albeit with more conservative growth-rates than in the last decade or so, but still attractive enough to continue to pay special attention to this category.

In Europe the prepared petfood penetration (PPP) is still low as compared to N.America. And in Europe we see enormous differences among the various countries.

Given the fact that there is still an unexploited market open to all stakeholders, i.e. manufacturers, wholesalers and retailers, it stands to reason that also the superpremium category can enjoy a good and profitable future.

Our end-buyers - the consumers - have a natural inclination to upgrade their choice; after all they want to do the best for their animals - that do not have the means to express themselves other than by refusing the food they get - and therefore tend to be less price-consciouss than for the food they consume themselves.

It is my opinion that the price-weapon - price-promotions - is used too early in the development stage of the category which is by no means saturated. Instead of giving the consumer a price-reason to buy, the stakeholders would do better in using the margin given away in further educating the consumers as to the health and well-being advantages superpremium offers. To further popularise the superpremium category and thus increase the value of the market as a whole; to the benefit of all!

Functionality has gradually become a part of the superpremium proposition to the consumers.

The so-called "food +" concept! If initially the proposition was health and well-being oriented, one now sees that most of the superpremium products contain special ingredients to promote e.g. joint mobility, to help the immune system, to diminsih the formation of hairballs etc.

This today sets superpremium apart from the so-called premium segment (as superpremium ill-defined as to their standards) which narrowed the gap between standard products and superpremium ones. The quest for new and improved superpremium products will continue, most likely leading to a further expansion of product-ranges. Because the total offering of superpremium products becomes so complex for the end-buyer, manufacturers who restrain themselves in the development of their assortments (can one cover 90% of the requirements of dogs and cats with 6 and 3 products respectively?) will be successful, provided that they get the opportunity to be on the retailers'shelves; including the ones in super- and hypermarkets

To conclude.

The superpremium category is not a whim; it has found a solid foundation in the European market for dry dog and catfoods. The category has healthy growth-perspectives provided that the stakeholders have a focus on the market growth-opportunity rather than the short-term gain in marketshare. Global players will continue to bring new products to the market to increase their market-position and to dominate the available shelf-space. Local manufacturers of excellent superpremium products will get squeezed in this process unless their trading partners give them the opportunities their products deserve.


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