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on May 16, 2010

Business is barking

A mid-year market update

The US pet market continues to remain resilient, despite the uncertainty stemming from the global economic collapse that began to make headlines in October 2008. American consumers are monitoring their spending more closely than they have in recent years, yet petfood sales are holding relatively steady .

Partly cloudy

Packaged Facts, in a recent report US Pet Market Outlook 2009-2010: Surviving and Thriving in Challenging Economic Times, views it as a given that consumers across virtually all industries will be demanding greater value in the products they buy, exploring less expensive options including private labels and self-care approaches, and consolidating shopping trips to save gas. ( Packaged Facts presentation. )

Some manufacturers and retailers may also start to feel the pinch-Central Garden & Pet reported a 7% decline in net sales during the first fiscal quarter of 2009 (ended December 27, 2008), for example.

Other economic indicators - job losses, the financial/credit crisis, the housing market and high levels of personal debt - are all major components driving petfood consumer's purchasing behavior.

A chance of sunshine

So if consumer confidence is at an all-time low, why this relative recession resistance for the pet market? According to Packaged Facts data:

  • Total US retail sales rose 1.4% in 2008;
  • PetSmart posts 8.4% sales increase in fiscal year 2008;
  • Del Monte grows net pet product sales 15.1% in third quarter of fiscal 2009 (ending May 3);
  • Hill's increases revenues 13.5% in fourth quarter calendar 2008;
  • VCA Antech posts 6.7% revenues growth in 2008; and
  • PetMed Express reports 16% increase in net sales in 2008.

According to the same report, total US retail sales are projected to decrease 0.5% in 2009 . Although it will be the first decline for the industry in three decades, it's a miniscule plunge compared to other spiraling markets.

Weathering the storm

Two key factors are keeping the pet market afloat - pet humanization and premium demographics, says Packaged Facts. Premium demographics account for over half of all pet market spending. The growing clout of this group matters not just because it shows that marketers fielding higher priced, upscale and luxury fare are handily hitting their demographic mark, but also because higher-income consumers are in a better position to weather the economic downturn.

In many cases, these more affluent consumers are also the same better educated consumers most likely to read labels and pay attention to health claims, and to therefore appreciate why many higher priced products and services are worth the extra dollars in terms of potential pet health dividends.

Fueled by these factors, the US pet market is enjoying a momentum not likely to cease anytime soon, although Packaged Facts believes that the down economy will temper annual sales gains during the next one to two years.

Compared with most established consumer packaged goods (CPG) markets, the pet market's 6%-7% rate of growth during the past five years is well above average. This momentum is largely a function of demand for better quality products.

Storm chasers

Challenges and new opportunities both will remain the two most important things to tackle during the rest of 2009. Manufacturers need to consider balancing issues like downward pricing pressure from consumers and price increases from ingredient suppliers.

One of the best ways to track just what consumers want from you is the Internet. Since the 2007 recalls, the Internet is viewed much like an educational venue to many pet parents. Mobile websites offer activities and information in the form of online advertising/promo approaches, podcasts, cell phones, nontraditional media/branded projects, and online communities and blogs. Utilize them. Your customers sure are.

See market value equations for the short- , medium- and long-term .

How to market in 2009

Recent marketing trends in the industry point to more transparency, clearer labels and some good ol' fashioned glitz and glamour:

  • Celebrity Marketing - From TV personalities to English race horses, a recognizable name and a recognizable face translate well for bringing instant attention to your product.
  • Cause-Related Marketing - While engendering goodwill for your product, the green-friendly approach is cost effective as well.
  • Professional Endorsement - Using claims such as "developed with veterinarians" is something consumers are scanning labels for.
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