European Report: Private labels pinched, hyperpremiums thrive
It is not easy being a producer of private label petfoods in the west of Europe
It is not easy being a producer of private label petfoods in the west of Europe at present. No clearer indication of this could be imagined than the recent industry stories that a major lending bank had refused funding for a proposed new private label petfood plant because it did not believe in the business model advanced with the loan application.
Other reports refer to the closure of at least one plant. Another company experienced cutbacks in investment plans. These reports are seen as illustrating a general malaise in which private label manufacturers find themselves in a cost-price squeeze, against a background of the rapid rise of private label production capacity in Europe.
Obviously, the major grocery retailers prefer to sell their own petfoods if possible. These offer a better margin than they would obtain from the equivalent sale of an independently branded product. To see the evidence, glance at the lineup of products at any supermarket. The brands are there, but they may be outnumbered.
At the same time, more manufacturing companies have entered the race in a bid to win a share of the private label business. The competition grows almost daily in terms of new market entrants. It has handed the grocery chains the opportunity to become even more aggressive in negotiating with regular private label petfood suppliers. Hence, there's powerful pressure for suppliers to accept retailers' demandseven though supplier costs are mounting.
However, market watchers call all this a readjustment more than a fundamental change. They predict some removal of capacity in the short term, but a return to more agreeable levels of profitability once the supply-demand balance has been restored.
Wanted in Germany: A new name for extra-special petfoods. It is no longer enough to talk about premium or superpremium products, Bianca Corcoran of market watch company Information Resources has told the German food sector publication Lebensmittel Zeitung. The time may have arrived when the only possible description for top-of-the-range products is "hyperpremium."
Certainly, pure luxury is now a clear selling point, not least in the area of wet foods for cats. Hyperpremium petfoods seem to be leading the market charge in Germany in 2006.