Steve King, president of the Pet Industry Distributors Association (PIDA) discusses the pet specialty channel's evolving distributor landscape and growing efficiencies in the retail supply chain.
Last month, PIDA held its annual Management Conference in Carlsbad, Calif. How did the conference go?
Steve King: We had record attendance with 250 people representing 35 distributors and 49 manufacturers. The PIDA Management Conference has a 45-year history of bringing the top management from the leading distributors and manufacturers in the industry together for three days of provocative speakers, discussion of industry issues and one-on-one executive conferences. It is a formula that has served PIDA and our members well.
From your perspective, how is the overall health of the pet industry?
King: The industry appears to be in pretty robust health as we move deeper into 2013. One of the key indicators that I look at is participation in the industry’s major events, and that was quite strong in 2012—both Global Pet Expo and SuperZoo set records in number of exhibitors, booths and attendees. That tells me the industry is very dynamic right now.
Also, the industry continues to attract venture capital, both on the distribution side and on the manufacturer side, which indicates that investors see it as a solid place to put their money. That’s a good sign as well.
How has the infusion of venture capital impacted pet industry distributors, in particular?
King: On the distributor side, we have seen a couple of large investment groups that have concentrated their investment activity in the pet industry, and really around two major players—Phillips Feed & Pet Supply on the East Coast, and Animal Supply Company on the West Coast. Those two companies have really driven most of the M&A activity on the distribution side of the business in recent years. For example, in 2012, Animal Supply acquired Lone Star Pet Supply in Texas and Summit Pet Product Distributors in North Carolina, while Phillips acquired K&W [Distributing, Co.] in Ohio and Anjo Distributors in New York. The investment groups have largely kept the management teams of those acquired companies in place. So the strategy has clearly been to hold onto the key people who really know the industry, while the investors’ role is to provide the funds for acquisitions and overall growth of the business.
Overall, how are PIDA’s member distributors doing? What are the major challenges facing the industry’s distributors?
King: What I’m hearing from distributors is that there is a lot of vitality in the independent retail sector. It is obviously a positive sign for distributors that they are seeing strong pet specialty retailers in a lot of markets competing very well against all of the other channels that sell pet products these days.
Another positive development is that the aquatics segment of the industry is reporting stronger sales. One distributor told me his aquatics sales were up 12 percent last year. That is pretty significant for a segment of the industry that has been flat or down in recent years. Certainly, the aquatics side of the business has been largely dominated by independent pet stores, so to see growth in that area is a real positive sign for the industry.
We continue to see growth in the top-end sector of the pet food market, which is driving growth in the industry not only through product diversity, but also by increasing price points. It’s a trend that helps distinguish independent retailers by letting them cater to a certain consumer who isn’t going to comparison shop at Walmart because she is looking for a product that can be found in the mass market. And that consumer is willing to pay a higher price point for these super-premium foods, because of the perceived benefit to her pet.
I’ve seen a number of distributors make major investments in the equipment they need to properly handle those top-end foods, particularly the raw diets. They are putting in these huge walk-in freezers to handle the frozen and fresh foods that are becoming more prevalent in the industry. Clearly, distributors see that it is growth area for them, and they’re willing to make the investment necessary to ensure the product is handled properly so there are no problems with tainted food at the consumer level.
To me, this says that distributors aren’t hunkering down in anticipation of slower growth; they’re making major investments in equipment and facilities to handle growth in their markets.
How are pet industry distributors helping retailers deal with the post-recession selling environment?
King: To me, the number-one thing is technology. We’ve talked for years about the need to have systems in place that allow for the more efficient movement of product data from retailer to distributor to manufacturer, for things like order entry, picking orders at the warehouse and invoicing. And the industry has really made some headway in that regard. It started with manufacturers and distributors trying to become more efficient in that aspect of their business relationship; and now distributors are telling me that retailers are investing in the equipment necessary to place their orders electronically and manage their inventory more efficiently in the stores. Those investments are really paying off by driving cost out of the channel and allowing storeowners to focus on things that are important, like making their stores more attractive to customers by merchandising more effectively and keeping fill rates up.
Each year, PIDA is responsible for arranging the educational seminars at Global Pet Expo. What can attendees expect to find this year?
King: This year, we are offering more seminars than we have ever had at Global Pet Expo. We have a total of 16 seminars from eight presenters over four days, including the four-hour pre-show Retail Bootcamp workshop that we held on Tuesday. In 2013, we have three speakers who are new to Global Pet Expo. Yesterday, Dr. Al Bates, who runs a company called Profit Planning Group, did two seminars on profit improvement at the retail level. Dr. Bates’ company has run PIDA’s “Profit Survey” for more than 20 years, so they have a great deal of experience in the pet industry. One of the neat things about his presentations, aside from his expertise on the subject, was that he actually provided free copies of his latest book Triple Your Profits to the first 100 attendees at his seminars.
Another new speaker this year is Bob DeStefano, who did one session yesterday and will do another today [10:00 - 11:30 a.m., room W204A] about marketing in the 21st Century. He is a master at helping small businesses understand how to capitalize on the availability of online and social media platforms to market a business. It is real hands-on stuff that will help to clarify what is happening in a rapidly changing area of marketing.
Our third new speaker is Anne Obarski, who is doing a couple of programs that I think are going to be a lot of fun and certainly represent a new angle for us. Today’s session is on mystery shopping [4:30 - 6:00 p.m., Room W204A]. It explores how retailers can use mystery shopping techniques to really help improve customer service within their stores. Of course, mystery shopping has been around for a long time, but it has mostly been utilized by larger retailers, so I suspect that it is something that a lot of independents haven’t really looked into. Anne is going to teach them how it can work for their stores too.
Tomorrow, Anne will also lead a session titled “What Women Want in Your Pet Store” [8:00 - 9:30 a.m., room W204A]. With women representing up to 80 percent of a typical pet store’s customers, it’s important for retailers to recognize what that demographic is looking for in terms of store design, customer service, etc.
In addition to the new speakers, we have some returning favorites. Dave Ratner is back again this year, as is Chris Miller, who always has a packed house for his store design seminars. Tom Shay is here to lead seminars about effective management practices, and Rick Segel is back after taking a year off last year.
Last year, we had around 500 people attend the seminars at Global Pet Expo, and I think with this year’s expanded offering, we’ll exceed that number.
In 2012, PIDA launched its Pet Industry Database (PIDB) at pidb.com, a project through which you are trying to compile information about every product in the pet industry in a central location. How has this initiative gone so far. How will it ultimately impact the pet industry supply chain?
King: The database itself has been finalized, and every day it is being loaded with more and more product data. It has been a huge undertaking, because of the complexity of the industry—the number of companies and products involved. With that being said, it is not as far along as we thought it would be at this point last year, but I think that what we now have available is an incredibly robust product that is going to have long-term implications for the industry, in terms of giving companies up and down the supply chain the ability to work together more efficiently than ever.
The biggest change that took place as we were building the PIDB was we realized that we needed a more efficient way for manufacturers to not only get their information into the database, but also bring it up to a level where it could be used beyond this platform—for example, through Google, Bing and other search engines. So, we partnered with a company called Edgenet, which has a product called Ezeedata. The Ezeedata platform is one that is remarkably simply to use but also provides for the optimization of the data.
Like I said, the database is now up and running, and we have more than a dozen key distributors that have subscribed to the system. We also have a small but growing number of manufacturers that have signed on, including United Pet Group, Coastal Pet Products, Paragon and others, and we expect to see a number of other major manufacturers come on board very soon.
You also serve as executive director of the Pet Care Trust (PCT), which recently had a change to its board. Can you tell us a bit about that change? What can we expect from PCT over the coming year?
King: We continue to see growing interest on the part of manufacturers and retailers to help support the Pet Care Trust, and so the board has changed to incorporate more of those folks into our leadership. We added a new board position last year, which allowed us to bring on Dr. Kemba Marshall, who is director of merchandising pet quality and education at PetSmart. We’ve had Rich Williams from Petco on the board for a couple of years, and with the addition of Dr. Marshall, we now have the two biggest retailers in the industry as active participants in the leadership of the Pet Care Trust.
Because the Pets in the Classroom program [which distributes grants to enable teachers to bring companion animals into their classrooms] has been so successful, and because we know that it is having a real impact in schools, that is really where the total focus of the Pet Care Trust is right now. We want to continue expanding that program, making it available to more and more schools, and do it in a way that makes it as easy as possible for teachers to get the pets that they want in their classrooms. That is why we have been looking to expand the number of retail chains that allow teachers to come in with a book of coupons in their hand and walk out with everything they need to have a new pet in their classroom, with very little out-of-pocket expense.
In addition to Petco and PetSmart, over the past year we added Pet Supermarket, which is an 130-plus-store chain in the southeast. And we are currently in discussions with several other major chains about doing programs with them as well.
We’re looking to get more vendors involved too. We started out with relatively few vendors supporting retailers with their programs. Central Garden & Pet and United Pet Group have been major contributors to the program, practically from day one. Since then, we’ve had a number of other manufacturers come on board, such as Ware Manufacturing, Rolf C. Hagan and Zoo Med, primarily contributing by offering free or reduced-cost product that we can make available to teachers.
Is it difficult to tailor the Pets in the Classroom program for a particular retailer?
King: Not really. It’s basically a matter of identifying products that they have in all of the stores across their chain. We want to make sure that when a teacher signs up for a particular retailer’s program, they can go into any of that company’s stores and find the product that is featured as part of the Pets in the Classroom program.
It is also important that they have the animals in stock too. So, we have to identify those pets that the retailer commonly has in every store and will be available when the teacher comes in.
Everybody that we have presented the program to has been very enthusiastic about it, and it has really just been a matter of identifying those vendors and products that will work for them in the program. Once we identify the products, we help them design the coupons, and the teachers apply for the grant through the Pets in the Classroom website (petsintheclassroom.org). We handle the processing and send out the coupons to the teacher. Then we notify each of our retailer partners, on a weekly basis, how many teachers have applied for grants through their program, what animals are involved, and so forth.
I should also emphasize that independent pet stores continue to play an important role in the program as well. Under the Pets in the Classroom Rebate Program, teachers receive grants for up to $150 to spend at the pet store of their choice. They purchase a pet and products to care for it, and we reimburse them up to the amount of the grant. Twenty percent of the Pets in the Classroom grants issued last year were rebate grants.
How is the Pets in the Classroom program doing, in terms of the number of classrooms it has reached?
King: We had a remarkable first half of the 2012/2013 school year. We awarded 10,000 grants to teachers between August and December of last year. That’s coming off the 2011/2012 school year, when we awarded 6,000 grants to teachers. In all, since the program started in 2010, we have awarded a total of 20,000 grants, and based on how things have gone so far this school year, I wouldn’t be surprised if we’re in excess of 30,000 funded classrooms by June.
Are there any new programs that PIDA plans on rolling out in 2013?
King: One of the programs I would like to talk a bit about is a survey of our distributor members that we did last year to get a sense of the segment of the industry that we are serving. It is a easier for manufacturers to quantify the impact that the big retail chains have, because of their sales volume. It is much harder to do so with the independent sector because it’s much more diffuse, with sales going through distributors and thousands of individual retailers throughout the country. So, what we wanted to do was look at what we represent, in terms of sales. And we’re going to use the information we gathered in a new marketing campaign this year to identify how significant the independent sector of the market is.
In surveying our members, we found that they have a composite annual sales total of $3 billion at wholesale, which supports what we estimate to be $4.13 billion in retail sales. The size of our distribution channel is pretty remarkable too. We have 124 distribution centers, more than 600 field sales professionals out every day calling on retailers, 6,700 dedicated employees and 9.5 million square feet of warehouse space. We think all of these numbers will help to paint a more accurate picture of how vital and vibrant the independent sector of the industry is.
There is another new program that I would like to mention. We recently started working with a group of multi-unit retailers that were interested in getting together to benchmark their operations against other non-competing retailers. In other industries, they’re known as “20 groups,” and they allow retailers to sit down, directly compare financial data—that is probably the most significant part of the program, so anyone who participates has to be willing to share their data with other members—and serve as advisors to one another.
We identified, through our distributor members, a number of retailers that had anywhere from five to 10 stores and didn’t compete geographically, and we got them together to discuss the possibility of putting together one of these benchmarking groups. We have connected them with a facilitator that works with 20 groups in other industries, and their first meeting is taking place here at Global Pet Expo.
There is a lot of potential in these types of groups, where retailers can get advice and input from their peers. Based on the number of retailers identified by our distributor members, I think we can have several of these groups up and running in a relatively short period of time. There are a lot of small independent chains out there that are very professionally run and would see this as a real aid to their business.