With the recession, credit crunch and consumers becoming
more frugal, the retail channels are responding to the new
realities. With unemployment reaching double digits and fewer
jobs being created, consumers have changed their shopping
- Value and convenience have become very important;
- Discretionary spending is reduced;
- Consumers are making fewer trips to stores;
- Savings in the US have reached an all-time high of 4% of
- Consumers are getting smarter;
- Buy-local movements are getting stronger; and
- Consumers are adopting healthier lifestyles.
The retail formats such as grocers, mass merchandisers
(including supercenters like Walmart), drug stores, specialty,
dollar stores and club/co-ops are responding to the new
realities. The changing retail landscape will have a
significant impact on small and mid-size petfood companies.
Larger companies will be able to weather the storm better. The
changing consumer habits are here to stay for a long time, so
you better ready your products to meet these developing
Though the current pet population remains steady in developed
markets like the US market growth is stagnating for most if not for all goods,
though petfood is still growing modestly. Retailers have to
compete against each other to offer lower price and higher
value. For them, size is the key to survival. Larger national
players will acquire smaller regional players. The number of
retailers will decline--this means fewer stores that will carry
petfood and pet care items. The competition for shelf space
will be fierce.
Until credit opens up, retailers will have difficulty
raising capital. Cash flow will be an important issue for many
of them. There will be increased retail bankruptcies. As store
closings become increasingly common, petfood manufacturers will
have to find different avenues to sell their product.
Retailers look for velocity and high margin items. They are
optimizing on shelf space and labor and experimenting with
multiple formats. Walmart has a smaller store format;
Marketside and other retailers (Giant Eagle, Jewel) are
following suit. These are smaller compact stores that carry
fewer SKUs and fewer choices. This will have a major impact on
larger petfood manufacturers who will have to rationalize each
SKU since retailers will want to eliminate slower moving
Consumers have become more frugal and are avoiding unnecessary
spending. They are constantly looking for price, values and
convenience. Walmart, club/co-op stores and value discounters
(Aldi) are becoming stronger players. Larger petfood
manufacturers are better positioned to provide value
discounters with low cost items. Smaller manufacturers can gain
momentum in the market with grassroot level movements like "Be
local! Buy local!"
Private label brands are growing and are offered at 5-10%
cheaper than branded products. The quality of private label
brands have improved significantly over the years as retailers
demand products as high in quality as their branded cousins.
This may exert pressure on manufacturers to reduce the cost of
branded products as well. As private label brands grow, it may
actually help smaller manufacturers who are in survival
Whole Foods and Trader Joes are examples of alternate retail
formats, another area where small to mid-size manufacturers may
find a niche. The alternative channels will remain small in the
current environment unless the prices come down, however.
Consumers definitely want healthy products to feed themselves
and their pets but currently cannot afford or may not be
willing to pay the high prices. But, if the manufacturers can
reduce the price differences between organic and non-organic
products substantially, organic brands can grow.
Retailers are spending on understanding shopper insights and
shopper marketing instead of getting the information from
manufacturers. Retailers are in a position to demand the right
product at the right price for the consumers without
compromising on their own margin structure. This will exert
more pressure on petfood manufacturers to reduce costs.
Actionable shopper data is creating leadership opportunities
for retailers, who are in a better position to dictate to
manufacturers the kind of product to be stocked on retail
shelves and at a saleable price. Many larger retailers may be
willing to work with mid-size and smaller petfood companies by
sharing consumer insight data.
Sustainability is also a big theme among retailers, and the
largest among them--Walmart--is leading the way. Leadership in
Energy and Environmental Design certification, packaging and
waste reduction will figure prominently in all major retailers'
blueprint for success. Petfood manufacturers may have to show
their commitment to sustainability programs to large
Given the changing retail landscape and changing consumer
habits, innovation is the way to generate sustainable demand by
providing meaningful benefits to consumers and thereby forging
a path for incremental revenue. For small and mid-size
manufacturers, innovation is the key to survival.
The beauty of innovation is that it has no boundaries and
can be implemented in any part of an organization (marketing,
research, accounting, transportation and logistics, operations,
business development, sales, market development organization,
QA, customer development groups) that adds value in the supply
chain. If the innovation does not add value to the
customer or solve a problem, it
is meaningless to the retailer and to the customer.