The Perfect Fit
Pet specialty retailers of all shapes and sizes are learning that developing a private-label program can be a great way to set their stores apart in an increasingly competitive marketplace.
In today’s hypercompetitive pet products marketplace, where channel-hopping and the rise of e-commerce have blurred the lines of what it means when brands say they are dedicated to pet specialty retailers, it has become harder than ever for independent pet stores to build a selection that helps them stand out from the pack.
But what if there was a pet product brand that was literally made for your business—a brand that simply cannot be co-opted by mass, grocery or even big-box and online pet specialty outlets?
That is exactly the idea behind developing a private label program, a concept that many experts say is catching on like wildfire in the pet specialty channel.
“Private labeling is probably the hottest thing in the industry right now,” says Daniel Harms, owner of SawMill Creek Smokehouse, a Bluffton, S.C.-based manufacturer of premium pet treats that specializes in helping pet retailers develop their own private-label lines. “I get emails and calls [from pet retailers] every day.”
But it’s not just anecdotal evidence that is indicating pet retailers’ growing interest in building private-label programs; the trend can also be seen from a much broader perspective.
According to Maria Lange, business group director of New York-based market research firm GfK’s Pet POS Tracking team—which monitors sales in thousands of pet specialty stores—private labeling in the pet retail industry has “definitely gotten more prevalent year over year.” And while she does note that the big-box pet chains have driven a significant portion of private-label growth in the pet industry, Lange says that neighborhood pet stores are also getting on board.
To Lyndsay Jackson, business manager for Ogden, Utah-based American Nutrition, a manufacturer that produces a wide variety of private-label pet food and treats, it is easy to understand why independent pet stores are attracted to the idea of developing their own proprietary brands.
“Exclusivity is the name of the game as of late,” she says. “[Pet stores] are trying to find ways to differentiate themselves from other retailers. With e-commerce expanding, brick-and-mortar retailers are trying to find ways to bring new traffic into their stores and keep their existing customers from leaving.”
Harms agrees. “[Independent retailers] are having such a hard time competing against e-commerce and big-box stores. They have to focus on specializing,” he says. “What better way to do that than creating their own special line of products.”
Not surprisingly, as more and more pet specialty retailers are exploring the potential that a private-label program can hold for their stores, the industry is seeing a corresponding rise in the number of manufacturers that specialize in building these types of programs. It is a trend that Natural Pawz owners Biff Picone and Nadine Joli-Coeur have witnessed firsthand, including at this year’s Global Pet Expo in Orlando, Fla.
“We were surprised by how many contract manufacturers had booths at Global,” says Picone, whose pet store chain offers its own private label line—branded as Callie’s Naturals—in 20 stores across Houston and Austin, Texas. “I remember when we started this business 12 years ago, you had to almost twist a manufacturer’s arm until they told you where their food was made. Now it’s more or less just out there.”
Luckily for smaller retailers, as the number of contract manufacturers in the pet industry has grown, private labeling has gone from a concept that could only be implemented by large, national chains to one that is accessible to retailers of all shapes and sizes.
“These days, it is getting more open to smaller retailers,” says Harms. “Minimum order quantities are still around 10,000 with some of your larger private-label manufacturers, but there are companies like ours that offer much smaller minimum orders.”
Noting that SawMill Creek Smokehouse’s minimum order quantities vary depending on the product, Harms says that a custom order of jerky treats, for example, might require a minimum of 1,000 units. “But if we’re doing a bunch of different SKUs for someone, we might drop that down and do a smaller order per SKU for that customer,” he says.
Given the growing opportunities available to today’s pet retailers, and the fact that today’s consumers are increasingly receptive to private-label brands, it should come as no surprise that sales of these products are on the rise. In fact, according to data collected by GfK, private-label dog and cat food and treats have experienced double-digit sales growth in the pet specialty channel each year for the past three years.
Building a Successful Brand
Despite the growing consumer receptiveness to private-label pet products, building an effective program is not as simple as finding the cheapest contract manufacturer and slapping a retailer’s name on its generic products. In order to be successful in today’s selling environment, pet stores must invest a lot of time and thought into the products they entrust with their carefully cultivated brand.
“You have to take a look at your master brand and make sure that your private label products are consistent with that brand,” explains Mitch Duckler, managing partner for FullSurge, LLC, an Evanston, Ill.-based brand strategy consultancy with experience in developing private-label programs. “One of the biggest mistakes that retailers can make is not treating their private label as a brand, but rather simply as product. You have to make sure that it stands for something.”
This is a dimension to private labeling that Natural Pawz has understood from the beginning and has stayed committed to since it launched its Callie’s Naturals line. “Our customers trust us and trust our brand, and we’re able to develop brand loyalty with it,” says Joli-Coeur.
Step one in building a successful private-label program is to identify the product categories it will encompass. In the pet industry, consumable products like treats or even food are where most specialty retailers start. That was certainly the case with Natural Pawz, which launched its Callie’s Naturals brand with chicken jerky. It was a choice that started out of necessity but proved to be a perfect fit for the reputation that the chain had developed with its customer base.
“We had a supplier with a great [chicken jerky] product, but over time the quality began to suffer,” says Joli-Coeur. “Eventually, I decided I could do it better myself. So, I tested some different solutions, found a manufacturer that could meet the stringent requirements that I had, and we launched our first private-label chicken jerky five years ago.”
Natural Pawz has continued this solution-oriented approach throughout the development of its Callie’s Naturals brand, which has grown to include beef chews, Himalayan chews, lamb ears, elk and deer antlers and even an all-natural cleaning product made by a local manufacturer that works with Houston-area schools.
Mud Bay, a 44-store chain in the Pacific Northwest, is another pet retailer that chose to begin its private-label program in the treat category. According to Al Puntillo, chief merchandising officer, the company has had a lot of success with the Mud Bay branded bulk biscuits it sources from a local manufacturer using custom formulas—success that has also carried over into treat categories such as bully sticks.
While Mud Bay’s private-label offerings are still relatively modest, Puntillo says that the chain is looking to further develop the program, using a solution-oriented approach similar to that of Joli-Coeur and Picone.
“We have 25 categories in our stores, and each one provides a solution to customers,” he says. “Our goal is to be able to look at each one of those categories and dream up something that’s new and different and can deliver a great value to our customers.”
One area that Mud Bay will not be extending its private label program into, however, is food—a decision that Puntillo says was made for strategic reasons.
“We intentionally decided not to play in food categories,” he says. “We partner too closely with our food brands, and we feel that is kind of sacred ground—not to mention the risk and liability that goes along with a potential recall or something like that. We would rather keep our relationships on the food side pure.”
Which categories a retailer ultimately decides to include in its private-label program will often go a long way in positioning and shaping the rest of the brand strategy. Retailers basically have two choices when it comes to deciding how they will position their brand, says Jerry Cole, managing director and founder of Starpoint Consulting Group, a Chicago-based marketing and brand development consultancy.
On one hand, retailers may decide to position their brand at the opening price point of a category. In this case, the products may not have the best quality but will be the cheapest item in the section. When choosing this course, Cole cautions retailers against using their primary brand (the store name), as it can potentially be degraded by the low-price, low-quality reputation of the products.
The other approach, which is far more popular with independent pet specialty retailers, is to focus on creating premium or near-premium products at pricing that is slightly below that of other premium brands in the category—typically about 20 to 30 percent lower. This, he says, is much harder to pull off, but often has the most potential for sustained success when done correctly. Here, retailers can feel free to extend their primary store brand to products, as they will likely benefit rather than undermine the retailer’s reputation.
This is the approach Mud Bay has taken, using its primary brand for its early private-label offerings. “Our brand represents a very high level of understanding of pet nutrition and health, so it makes sense to use [private label products as] a natural extension of our primary brand,” says Puntillo. “In the future, we can see having sub-brands that relate to a certain category, but initially when you look around the store and you see the Mud Bay label on a product, it’s not only speaking to the customer about quality, but we also have a strong reputation for everyday low pricing and value.”
Whichever direction a retailer decides to go with its brand strategy, Cole says it is important to do your due diligence to gauge its potential on the store’s shelves. “The biggest mistake I’ve seen retailers make with their private label is not taking it seriously,” he says. “If the only marketing you are going to do is on the shelf, you have to make sure you test the name and package design to make sure that it is going to connect with customers. Do your homework.”
Selecting the Right Partners
Once retailers have identified the product categories they want to include in their private-label programs and have an idea of what their brand will look like, it is vital that they take great care in selecting the right manufacturers to work with. Picking the wrong partner could quickly sink not only the fledgling private-label brand, but the retailer as well.
With that in mind, Natural Pawz is very selective when choosing contract manufacturers. “We’ve been approached by a lot of manufacturers who say, ‘Here is a generic food with a generic formula; we can do it in a white bag and stick your label on it,’” says Picone. “But that’s just not who we are. The food manufacturers we partner with really understand the food business and nutrition.”
Mud Bay is also very discerning about the manufacturers it works with in its private-label program.
“We decided to go with best-in-category products and partner with really high-quality manufacturers,” says Puntillo. “With most of our private-label products, we’re partnering with existing manufacturers in our portfolio because these are best-in-class at what they’re doing. Most of them are open to doing private label, so why not stay within the family?”
Puntillo suggests that all pet specialty retailers should take the same approach of trying to build a private-label partnership with existing vendors “before you go looking for somebody you don’t have a business relationship with and a real understanding of their practices and products.”
Another piece of advice offered by Puntillo is that retailers should look for prospective private-label partners in their own backyard. “It’s easy to put these relationships together when you can take an hour drive and go to the manufacturing plant and work very closely and have that local relationship with somebody,” he says. “It also keeps shipping low, so you’re able to offer a lot of value that way.”
When evaluating contract manufacturers, there are a number of areas that retailers should focus on, beginning with how and where the company sources and makes it products. Obviously, the emphasis should always be on quality—particularly when it comes to items like pet food and treats.
“These are very sensitive areas for pet owners—just as sensitive as baby food,” says Jackson. “It’s really important to pick a supplier that you can count on to deliver the quality they promise. This means being able to trace that quality all the way back to where their ingredients come from, because that is a huge indicator of the quality of the final product.”
Harms also advises retailers to carefully question potential private-label partners about their ingredients sourcing, noting that marketing claims can often be misleading. “There is a big difference between saying, ‘sourced and made in the USA,’ and just ‘made in the USA,’” he says. “People are buying bulk-quantity products that might be coming from overseas, putting it in a bag in the United States and calling it ‘made in the USA.’ That is really a misrepresentation.”
Another warning that Harms offers to retailers is to be on the lookout for companies that claim to be true private-label partners but do not actually do any of the manufacturing. “Since private labeling is becoming so popular in the pet industry, we’re seeing companies popping up that claim to be designing the product for you, but they’re not actually making it,” he says. “In fact, they may never have seen the product made.
“I love when people ask, ‘Are you the manufacturer?’ I’m able to say that we’re the only ones making our product in our facility in Bluffton, S.C., and everything gets inspected by me before it goes out.”
After a manufacturing partner has been chosen, retailers must still be diligent in ensuring that the end product is consistently worthy of putting their label on it. To this end, Joli-Coeur suggests looking beyond the sample products provided by a manufacturer to make sure that the initial quality is maintained in mass production.
At the end of the day, says Harms, success with a private-label program comes down to putting in the time and effort necessary to make sure it is done right.
“The biggest mistake I’ve seen is retailers get really excited about the project and try to rush into it,” he says. “The most successful sellers I’ve seen take their time and start small. We roll one SKU out at a time. We do our research to make sure that it’s a viable, moving product and that it’s going to be successful.”