Pet Industry Evolution
A number of internal and external forces are driving major transformation within the retail pet industry.
As buyers and exhibitors descend on the Orange County Convention Center to kick off Global Pet Expo 2015, the pet industry—while healthy overall—is very much in transition.
Seismic changes are taking place at almost every level of the industry’s supply chain. The acquisition and privatization of PetSmart, the sale of Big Heart Pet Brands to The J.M. Smucker Company, Petco’s addition of Drs. Foster & Smith to its online retail operations, and several key distributor acquisitions by Animal Supply Company and Phillips Pet Food & Supplies were all significant developments since last year’s edition of the show and are all indicative of a major shift in the competitive dynamics within the industry.
Not surprisingly, much of this change has been driven by the success of the retail pet industry. Reaching an estimated $58 billion in sales in 2014, according to the American Pet Products Association, the industry is showing no signs of stagnation in its growth as consumers continue to prove the pet humanization trend remains alive and well. This, combined with the relative improvement of economic conditions, puts the market for pet products in a prime position for continued growth in 2015, say the experts.
“There is no reason to suspect that the pet industry will not sustain the growth that is has experienced over the past several years,” says Jack Drasner, president of sales and marketing firm PRISM Sales. “The animal/human bond remains strong, and as long as the economy remains stable, I expect continued single-digit growth.”
As a result, the U.S. pet industry is seeing unprecedented interest from outside players—from the private-equity world, human-product manufacturing, foreign markets and other retail channels—and it is the influence of these new actors that is catalyzing some of the biggest changes.
Of course, for traditional pet stores, one of the most impactful changes is the fact that the retail landscape has become increasingly crowded with merchants looking to cash in on the success of the pet products market.
“People often think of the pet market as pet specialty [retailers], as well as food, drug and mass,” says Kevin Fick, president and CEO of San Rafael, Calif.-based Worldwise. “That’s not the entire market anymore, though. You’re seeing a lot of other people getting into pet that weren’t in the market before—off-price retailers like Home Goods, dollar stores and even department stores. And some of the [FDM] retailers that have been in the market are putting in better and better sets, using a store-within-the-store concept—for example, Kroger is doing quite well. These guys are all taking a slice of the pie.”
These changing competitive dynamics are what Eddie Milbourne, owner and founder of U.K.-based Symply Pet Foods Ltd., hopes to help pet specialty retailers with by debuting his company’s made-in-the-USA Canagan line of canine diets here at Global Pet Expo. According to Milbourne, the company’s go-to-market strategy focuses exclusively on independent/regional pet specialty stores, and does not include national chains or online retailers.
“Retailers will be able to purchase direct from the manufacturer, and service an exclusive territory and not worry about losing sales to online, mass, grocery or national pet chains while maintaining high margin profitability,” says Drasner, who represents the company through PRISM Sales.
According to Milbourne, independent pet specialty retailers are the perfect fit for his company’s foods, which are not only sourced and produced in the United States, but also feature grain-free recipes that contain no artificial coloring, flavoring or preservatives. “In an emotional purchasing industry such as pet, the independents provide a relationship with their customers that cannot be duplicated by big box stores or online sales,” agrees Drasner.
The Next Generation of Pet Owners
At the same time all of this transformation is taking place across the retail supply chain, the pet industry is scrambling to adjust to a major shift in consumer demographics. As the Baby Boomers who have been central to the success of the pet industry over the past two decades begin to reach an age at which pet ownership has historically declined, pet product manufacturers and retailers are facing a future where emerging consumer demographics—i.e., Millennials—will play a much larger role.
“Our challenge as an industry in the years to come will be to find the products, services and marketing methods that appeal to the younger generation of pet owners as they gain in numbers and purchasing power,” says Chris Meiering, director of innovation for Zuke’s Dog and Cat Treats.
In fact, there is some evidence that this transition is already underway. According to data presented by Scott Bender of Cleveland Research at the recent PIDA Management Conference, growth in dog adoptions slowed significantly in 2014. This, combined with the fact that cat adoptions continued to accelerate, would seem to reflect the growing influence of Millennials, who tend to gravitate toward an urban lifestyle that has not traditionally been conducive to dog ownership.
“The adoption rates are very concerning, especially when dog is the largest share of the market,” says Fick, responding to the Cleveland Research data. “We have got to get more pets in more homes, plain and simple.”
In addition to looking for ways to increase pet ownership among the next generation of consumers, the pet product companies are also working hard to meet the evolving demands of these shoppers. This has driven a variety of innovative product trends throughout the industry, from high-tech gadgets that interact with mobile devices to customizable pet products that feed Millennials’ desire to have their pets reflect their unique personality.
But where pet product innovation is probably most pronounced is probably within the pet food and treats segment, where healthier fare has become a must for the industry’s shifting customer base. “I think consumer demand for new, innovative products is driving the industry to provide high-quality, healthy products,” says Jim Glassford, director of marketing for Fromm Family Foods, citing the grain-free and natural food and treats as examples. “Consumers are certainly driven to provide the best for their pets; and companies that have delivered on this need are examples of success in our industry.”