Surveying the Battlefield
Independent pet specialty stores must understand and overcome the increasing competition they face from other brick-and-mortar retail channels in order to grow their share of the pet care market.
It is a jungle out there for pet specialty retailers.
Facing more—and stronger—competitors than ever before, many pet store owners find themselves locked in a battle to defend and grow their share of the lucrative pet care market. What is at stake is no less than the very survival of their individual businesses, as well as the long-term viability of the pet specialty retail model as we know it.
While pet stores have never been insulated from outside competition, there are strong indications that the competitive climate in which they operate has been heating up in recent years. Not only is there a wider variety of channels—from grocery and mass to club and off-price retailers—actively looking to cash in on the increased spending of pet owners, a number of players in these channels have become more savvy in their approach to courting this valuable group of shoppers.
“The market is very competitive, because everybody out there from your local gas station to the grocery store is selling pet products,” says Leslie Yellin, executive vice president of Moonachie, N.J.-based Multipet International.
The fact that competition is ratcheting up has not gone unnoticed by pet store owners and operators—particularly successful ones like Michael Levy, co-owner and president of Oakland, Calif.-based Pet Food Express, which operates more than 50 stores in California. “It’s on our radar, and I think that it is something that every [pet specialty retailer] should focus on,” he says. “You have to be aware that the pet segment has been growing year after year, so of course, there is going to be a lot more competition.”
Naturally, online retailers are prominently included in this growing group of players in the pet market. In fact, many in the industry believe that the Internet will be the most dangerous source of competition for independent pet retailers—with some experts estimating that web-based sales may end up accounting for as much as 20 percent of the pet market in the future. However, online retailers still only account for less than five percent of pet product sales and have a unique model that cannot easily be countered by any traditional retailer. With this in mind, the immediate concern for most pet shops should probably be the non-specialty, brick-and-mortar competitors around the corner, which are proving quite formidable in their own right.
“They are absolutely taking dollars from the pet consumer,” says Kevin Fick, president and CEO of San Rafael, Calif.-based Worldwise, referring to brick-and-mortar retailers in other channels. “And in certain product categories, they’ve made bigger inroads than others.”
For pet specialty stores, identifying which competitors are excelling in each category, and why, is a vital step in preparing for the fight over pet owners’ pocketbooks. While this may seem like a no brainer in some cases—after all, pet stores are no strangers to competition from grocery and mass stores—an evolution in the approach of these outside players requires a second look.
“Independent pet shops are no longer facing a simple competitive environment, they’re facing a very complex one,” says an executive at a northeast-based pet product supplier that serves a variety of retail channels. He points to grocery stores as a particularly good example of how competitors outside the specialty channel are raising their game. “I think the grocery industry is doing a better job of merchandising pet supplies than they did in the recent past.”
Fick also sees the grocery channel becoming a more formidable source of competition for pet stores, and holds up Kroger, one of the largest grocery chains, as a prime example. “In grocery, you see some retailers doing creative things that are resonating with consumers,” he says. “Kroger, for example, is implementing some pretty interesting merchandising concepts, like brand blocking. Space is a premium, so they’re framing their selection with a cleaner presentation.”
Kroger is also something of a poster child for another element of the grocery channel’s improved approach to the pet category—improved product quality. “Grocery stores—and Kroger, in particular—are focused on upgrading the quality of their dog food,” says the northeast supplier executive. “They’re following a trend set by Petco and PetSmart, in a flat-volume environment, to drive quality higher and higher.”
The trend toward higher-quality products is one that Paul Cooke, vice president/director of industry development, customer development group at St. Louis-based Nestlé Purina, has observed in not only grocery stores, but also in the aisles of mass retailers like Walmart. “Grocery and mass retailers understand that pet ownership is on the rise and that these consumers’ expectations are high,” he says. “Many of these retailers are responding by offering a wider selection of pet foods that focus not only on value but also nutritional solutions.
“Product values—not just price—and product benefits have never been more important than they are today. Many grocery and mass retailers are now carrying products that appeal to what’s important to the pet owner, such as natural products—no wheat, no corn, no soy, no artificial flavors and no by-products—which many have called out as separate sections in the pet department.”
According to Samuel Cohen, vice president of marketing and sales for Ferndale, Wash.-based Healthy Pet, this upgrade within the pet aisles of grocery and mass retailers is not limited to the food category. For example, a lot of grocery chains are embracing natural litters. “Many progressive grocery chains are building bigger natural cat litter sets,” he says, noting that Healthy Pets’ ökocat natural wood litter is growing in the channel.
This is the same approach that some mass retailers are taking, says Jean Broders, brand manager for World’s Best Cat Litter in Muscatine, Iowa. Like Cooke, she explains that the strategy of leveraging higher-quality pet fare comes from understanding the demands of consumers who shop in those stores. “Grocery and mass retailers are doing their homework on what brands consumers are demanding, what bag sizes they want and how much selection between brands they need to carry,” she says. “They are dedicating more shelves to the pet category, trying to capture that consumer that is already in their store three to four times per week.”
Not surprisingly, having shoppers come into their stores with this type of frequency means convenience is a key competitive strength of both grocery and mass retailers. “The strength for grocery and mass retailers is the convenience factor, but more importantly, the understanding that this consumer shops their entire store,” says Cooke. “These retailers focus on feeding the needs of the entire family, including their four-legged family members. They have the ability to offer one-stop shopping for pet-owning consumers, ensuring the ‘right’ everyday low price on the key name brands and SKUs consumers are looking for.”
Similar to the way that they are taking a page out of the pet specialty retail handbook by improving their merchandising schemes and offering higher-quality products in a number of categories, grocery and mass retailers are also putting an increased emphasis on engaging pet-owning shoppers on a more personal level. “Pet specialty has always done an excellent job of connecting emotionally with their consumers by inviting consumers to shop with their pets, showcasing emotional photos and signage, and providing knowledgeable staff who can offer shoppers advice,” says Mike Smith, director of the pet specialty group at Nestlé Purina. “While grocery and mass are limited in this area, they are starting to work on that personal connection with the consumer through in-store features like signage, photos. and community partnerships with local vets, shelters, clubs, social media initiatives, etc.”
While grocery and mass retailers are, in the opinion of many industry observers, probably the biggest source of competition for pet stores—particularly when it comes to consumables categories such as food and litter—that is not to say that other channels do not pose a significant threat. In fact, experts point to farm and feed stores, off-price retailers and even club stores as competitors that should be on pet specialty retailers’ radar.
A Growing Field
“It’s not just grocery and mass retailers [that are competing in the pet market],” says Fick. “For example, if you look at Tractor Supply in the farm and feed channel, they’re doing an excellent job in pet. They’ve really come on out there. They’re to be commended for some of the changes they’ve made to their pet product assortment, and it has really resonated with some of the tests they are doing in different retail formats to build on that.”
Tractor Supply’s newest retail format was introduced late last year with the launch of two HomeTown Pet stores. While this might seem like a shift by the company squarely into the pet specialty channel, Scott Bender, chief pet industry analyst for Cleveland Research, offered a different perspective in his presentation at the Pet Industry Distributors’ 2014 Management Conference, held in January. He contends that the primary focus of the new retail format is to serve as a sort of test lab for pet category concepts for Tractor Supply’s more than 1,400 farm and feed stores, which are distributed across 49 states. With those considerable resources, it is clear that this is a competitor that pet specialty retailers will want to keep a close eye on.
Another important source of growing competition are club stores, with one particular player in this channel leading the charge. “The emerging threat I would be bullish about is Costco, specifically,” says Cohen. “It’s well trusted by consumers and has a powerful business model. And it merchandises some fairly high-quality dog food with good claims.”
Gretchen George, president of Burlington, Mass.-based PetRageous Designs, also sees Costco as a particularly potent competitor in the pet products market, particularly given its ability to offer extremely low pricing on products that typically carry relatively high margins in pet stores. “How do you beat a 40-inch round Costco bed for $19.99?” she says.
George also sees off-price retailers, specifically those operated by The TJX Companies, Inc., as players on the upswing in certain categories. “T.J. Maxx, Marshalls and Home Goods have really expanded big-time and—especially in the case of Home Goods—they have built an assortment of good, better, best price points,” she says. “That is going to be pet stores’ biggest competition, when it comes to fashion-type products.”
Fick, too, has noticed the increased attention that off-price retailers are giving to some types of pet products. “They’re doing a good job in areas such as pet bedding, cat furniture and the like,” he says. “The footage they’re dedicating to [pet products] is significant—in some cases, it’s 12 to 24 feet on both sides of the aisle.”
However, George notes that despite their apparent focus on the pet category, the often-transitory nature of both club stores’ and off-price retailers’ selection can be something of a competitive weakness. “The club stores, as well as off-price retailers, do not have a consistent plan-o-grammed section for much of their pet merchandise, and independent retailers can thrive by offering the consistency that these stores do not,” she says.
While acknowledging that some of the product offerings in club stores are rotational, Cohen says that they do offer consistency in the categories that are vital in driving repeat traffic among pet owners. “If you look at their food and litters—items on the consumables side—they tend to be the same items month in and month out. And they offer a strong value proposition in these areas.”
Of course, the list of players trying to bite off a share of the pet category extends beyond grocery, mass, club and off-price retailers. Dollar, closeout, department and even drug stores are all competing in this market on some level. However, in most cases, either the selection is not big or stable enough, or the product quality is too low to make these outlets a serious threat to pet specialty retailers.
Still, any store with pet products on its shelf is a potential source of competition, and its approach—good or bad—should be understood. Only after a pet specialty retailer has a comprehensive view of the field can an effective battle plan be devised.
The Pet Specialty Arsenal
When it comes to building an effective strategy for battling against competition from retailers outside the pet specialty channel, pet stores would be wise to lean on their inherent strengths. This means delivering a high level of personalized service and a wide selection of best-in-class products that cannot be found in other outlets. Pet retailers that can do this consistently, notes Yellin, will cultivate and maintain a devoted customer base. “Customers who shop pet specialty are very loyal and see the value of shopping in those stores,” she says. “In addition to having a vast selection, they also have a knowledgebase that is untouchable. Nobody can compete with the knowledge that can be found at a pet store.”
“The key for independent pet stores is to share their knowledge with customers,” agrees George. “I love going into a pet specialty store and talking to the staff about the latest products and trends. They really know what they’re doing, and you’re not going to find that anywhere else.”
This significant advantage is something that was not lost on Brad Kriser as he built the Santa Monica, Calif.-based Kriser’s Natural Pet chain, which operates 27 stores in the Chicago, Southern California, Houston and Denver markets. “The experience we offer is so vastly different than what can be found in other channels,” he says, noting that this makes pet specialty retailers uniquely suited to serve “the customer who wants to be educated and have access to a large variety of products.”
Most industry experts agree that a pet store’s product selection will play an important role in its ability to effectively compete with outside competition. Here, the key is offering a unique mix of high-quality merchandise. “It’s important to have products that are recognizable and only available through pet specialty,” says Yellin, noting that Multipet will be launching a pet-specialty-exclusive line next year. “The way they’re going to keep or even grow their market share is by making sure they carry products that shoppers can’t get anywhere else.”
She also explains that pet specialty retailers have a distinct advantage over big-box retailers in other channels when it comes to building a unique product selection that effectively leverages the latest trends. “One thing that pet specialty retailers can do but their competitors cannot is refresh their sets frequently,” says Yellin. “Most major retailers change their product lines once a year or even once every two years, so their set gets very stale, very quickly. Pet specialty retailers, on the other hand, have the ability to change their sets anytime they want.”
According to George, pet stores should not only look to keep things fresh with their assortment, but also in how that assortment is presented to shoppers. “Where the independents can stay fresh is with endcaps and storefronts, making sure the store changes with the seasons, as far as having fun, fashionable merchandise,” she says. “All of that stuff is an impulse business, and when customers are coming in to buy food or treats, you can attract them with a fun beach toy, for example. A lot of the mainstream big-box stores aren’t going to have that same fun, fashion business.”
But even the highest-quality, most on-trend product selection framed with great merchandising can only be sold to customers who actually come into the store—and up-selling a pet store’s existing customer base holds limited potential for sustainable growth. This means that pet retailers must actively look to convert shoppers from other channels in order to truly grow their businesses’ bottom line. With this in mind, pet stores should look to actively engage consumers outside the confines of their sales floor. “We get out into our communities a lot in all of our markets,” says Kriser. “We try to make ourselves visible, so shoppers can find out more about who we are. We’ll do advertising and direct marketing in different areas to introduce ourselves to potential customers. And we position [our stores] in areas where they are highly noticeable.”
According to Levy, physically positioning stores to maximize their visibility with the right shoppers has also been instrumental to Pet Food Express’ success. Interestingly, in some cases, this strategy has even led the company to place a location directly between two of the higher-profile, premium players in the grocery channel—Trader Joe’s and Whole Foods Market. “We were excited to get into that location,” he says. “They draw the kind of customers that we want. Conversely, we would never want to be next to a Walmart.”
According to Cohen, while there are a number of weapons in the pet specialty retailer’s arsenal—from product selection to services to providing sound pet care advice—there may be none more formidable than the personal connection that pet stores can make by being instrumental in the actual acquisition of a pet.
“Stores in which consumers can actually get an animal—whether it’s an animal for sale or up for adoption—have a real opportunity to achieve a bond with the consumer that no grocery store, no club store, no mass store will ever equal,” he says. “That is a big differentiator.”