Distributor Consolidation at Pet Food Forum - Part II
Last week, I began a blog about the presentation I gave—along with Steve King, president of the Pet Industry Distributors Association (PIDA)—at Pet Food Forum in Chicago. Part one discussed the size and scope of the pet specialty distribution channel, the consolidation activity within the channel, and the dependence of independent pet stores on a diverse pool of distributor partners. This week, I delve into some of the concerns that retailers have about consolidation and offer some analysis of the short- and long-term impact of the trend.
The importance of a healthy, diverse pool of distributors to independent retailers is undeniable, so it is no surprise that pet store owners and operators are concerned about the potential impact of consolidation:
• 85% of retailers surveyed by Pet Business said that they were at least “somewhat concerned” about distributor consolidation, and nearly 40% indicated that they were “very concerned.”
• Of course, price increases are always a potential problem when you are talking about a narrowing supply chain, so it was no surprise when we saw that more than three quarters of surveyed retailers indicated that this was among their top concerns.
• Given the important role that product diversity plays in setting small, independent pet stores apart from their competition, it makes sense that retailers would be concerned about the impact that a shrinking pool of pet product distributors would have on their access to products. That is exactly what we saw when surveying pet store owners and operators. More than half of the respondents said that they were worried that consolidation would ultimately result in less access to the products they currently stock.
• While pricing and access to the current selection of products on the market should be a concern for not only retailers, but also pet food manufacturers, what both sides (and small pet food companies, in particular) should probably be focused on are the areas of service and access to new products. Here’s why:
• Many small food companies do not have their own sales team in the field calling on retailers. Instead, they depend on distributors to do much of the heavy lifting when it comes to providing service to their retailer customers—whether it is helping with plan-o-gram sets or introducing a new addition to a pet food line. If service is diminished by distributor consolidation, pet food sales will almost surely suffer—and those small manufacturers that don’t have their own field reps or national advertising budgets will be impacted the most.
• But this presumes a pet food manufacturer has gotten its products on a pet store’s shelf. The reality is, for many small manufacturers, building their presence on those shelves is the number-one concern. And this is where consolidation could have its largest impact.
• While 82% of surveyed retailers indicated that they are receptive to taking on new pet food lines, only 13% are actively looking for new lines to bring into their stores. This indicates a very passive potential customer base for small and start-up pet food companies, which puts a premium on distributors’ role in introducing retailers to new product lines.
• While these are all valid concerns among retailers, there has been no obvious evidence that these concerns are being realized. In fact, all indications are that consolidation, at least so far, has driven some rather positive developments in the pet specialty channel.
• Many smaller, regional distributors have significantly stepped up their game in response to the growing competition. For example, these distributors are offering more open-house events than ever, giving manufacturers an opportunity to interact with retailers face to face, and offering retailers access to attractive product discounts.
• Smaller, regional distributors are also proving more receptive to taking on small, emerging brands that will help to set their businesses apart from bigger competitors—a key development for small manufacturers and retailers alike.
• It’s not just the small distributors that are stepping up during this period of consolidation; Phillips and Animal Supply Co. have both gained numerous operational efficiencies through their growth. And Phillips, in particular, is working to redefine what it means to be a partner to its retailer customers with the introduction of its IT Kit. The kit offers pet stores a number of turnkey resources in a variety of areas, such as marketing, data management and even business insurance.
King also pointed out some opportunities that exist despite, and sometime because of, distributor consolidation:
• A big driver of growth in pet specialty has been all natural, organic, grain-free, raw diets. The proliferation of brands in this space has been a boon for independents, as it offers a lot of opportunity to differentiate from big boxes and grocery/mass.
• Independent, regional distributors have been quick to jump on this trend. They now carry dozens of brands of dog/cat food and treats.
• Independent distributors are finding that more brands are available to them than ever before.
• SKU rationalization within consolidated distributors (CDs) making more brands available to independent distributors (IDs)
• Some smaller manufacturers may fear that CDs will focus less attention on their brand, so they are looking for IDs to promote the brand to retailers.
• Some independent retailers may fear that the CDs will pay less attention to them, so will turn to IDs for more personalized attention, and more unique “independent pet specialty only” lines.
Ultimately, it was concluded that the high level of consolidation among pet product distributors has largely been a mixed bag, with the short-term impact highly dependent on retailers’ and manufacturers’ particular situation. However, the long-term effects of consolidation still remain to be seen and may take the better part of the next decade to become apparent.
As a closing thought, I offered a point that was made to me by American Pet Products Association president Bob Vetere, who said that distributor consolidation isn’t just a matter of having fewer distributors. As companies are acquired, the industry is losing more and more of the long-time industry veterans who ran those companies. This represents not only a loss in continuity, but also a loss of knowledge and influence. Hopefully, the industry is not poorer for that loss.