It’s raining cat and dog food – competition in pet food industry; includes related 2 articles
It’s raining cat and dog food!
Just think what it might be like, if, as Iams’ pet food commercials suggest, dogs and cats ruled the world. Dinner-time conversation might go something like this:
“Meowwwww. We’ve made our dinner selections, James. I’ll start with a little ocean fish with shrimp in aspic–you know, the Unique brand. And then bring me one of those darrrrrling little Sheba entrees-salmon, I think. Oh, and James, I’ll take my scratching post in the library. And then, of course, a little Pounce treat before bed with warm milk.”
“Fine, madam. And for you, sir?”
“Kibbles’n Bits! Kibbles’n Bits! I just can’t wait to get me some Kibbles’n Bits!”
“Ahem … your diet, sir?”
“I guess you’re right–I am getting a little thick around the collar. You better bring me Fit & Trim–it does have one-third less fat and less salt.”
“Very good, sir, and the usual bedtime treat?”
“That’s right, James–a couple of mint-flavored Milk Bones. There’s nothing worse than waking up in the morning with, uh, doggy breath.”
Sound like a bad episode of the Twilight Bone? Perhaps, but actually it’s more than just whimsy. Anthropomorphism aside, the fact is that pampered pets eat better than many people.
Last year, Gorman’s New Product News tracked 100 new dog and cat food products, the likes of which cater to every finicky taste in the animal kingdom.
There’s food for fat cats, small dogs, and senior dogs. There’s ice cream for dogs. Carnation even offers home delivery of pet food.
Ruling the kingdom
Is there a method to the madness? Pet food manufacturers say there is. First of all, at $5.6 billion, the dog and cat food market is big business–second only to the $6-billion cereal category in the prepared foods market.
A study by Packaged Facts, a New York research firm, predicts that the market for all pet food will grow to $7.2 billion in 1992.
Perhaps more important, for manufacturers that can weather the dog days of increasing raw material costs, pet food can be a cash cow.
“It’s an extremely profitable business, and the bigger you are the more profitable you are,” says John McMillin, an analyst with Prudential-Bache Securities in New York. He estimates that market leader Ralston Purina will reap more than $400 million in profits from pet foods this year, with operating margins exceeding 20%.
Domination is the key in the animal food kingdom, and manufacturers have implemented the strategy they’ve used for prepared people foods throughout the 1980s: introducing value-added pet products as a way to improve margins.
Faced with stagnating dog food sales, and America’s new penchant for felines, pet food manufacturers are unleashing a new breed of center-of-the-bowl fare for both dogs and cats.
“It’s a trend of the ’80s,” says Dick Curd, a spokesman for Carnation, which was the first cat food company to launch an upscale single-serve canned cat food, called Fancy Feast, in 1982.
Indeed it is. Just as quality, convenience, and variety are buzzwords in the people-food market, they are also the keys to marketing in the animal food kingdom.
Although there are hundreds of products to choose from, the pet food market is controlled by a handful of established food companies like Ralston, Carnation, Quaker, Heinz, and M&M Mars (Kal Kan).
The pet food category is divided into four main segments–dry, canned, semi-moist, and snacks–and each company has devised a different strategy to carve a piece of the pet food pie.
With pet food sales of $1.5 billion, Ralston, for example, is clearly the market leader, but the company’s main emphasis is dry products. Heinz, Carnation, and Kal Kan are clawing it out in the canned cat food category, and Quaker competes in the dry, canned and semi-moist categories.
Dog gone, it’s a cat’s world
Several trends have coalesced over the last few years to change the way these manufacturers approach the pet food market.
One key factor is that, over the last decade, Americans have come to fancy felines. In 1982, there were 48 million dogs in U.S. households and only 44 million cats, according to the Pet Food Institute. Over the next six years, cat displaced dog as man’s best friend. In 1988, the 57 million cats outnumbered dogs by 7 million.
The shift has taken its toll on dog food sales, particularly the dry segment, which has captured about $1.7 billion a year since 1983. In the dog food segment, SAMI reports the biggest 1988 gains in canned products (up 4.2% to $890 million) and dog snacks (up 7.4% to $402 million). The semi-moist category, which includes products like Quaker’s Gaines burgers, dropped 9.8% to $165 million.
At the same time, cat food sales have been increasing. Spurred by sales of “gourmet” products like Carnation’s Fancy Feast and Heinz’ Amore, sales of canned cat food moved up 4% last year to $1.2 billion. Dry cat food gained 5.9%, reaching $799 million. As in dog food, semi-moist products lost share, down 4.4% to $214 million.
Though it may not be a dog-eat-dog world for pets, there’s rabid competition among pet food companies. Ralston has the top position in both dog and cat food, but company chairman and CEO William Stiritz describes the dog food market as “a constant struggle for market share.”
Ralston’s sheer size and manufacturing efficiencies have helped the company maintain its top position, explains analyst McMillin. Ralston has also waged a dog fight with Quaker, which has been struggling to integrate the Gaines pet food business it purchased from Anderson Clayton in 1986.
“When Quaker bought Gaines they had close to 80% share (of the semi-moist category),” says McMillin. “Today they’re lucky if they have half.”
The trouble for Quaker started when Ralston bought Benco Pet Foods in 1987 and launched its own attack on the semi-moist category, says McMillin. He predicts that Quaker’s pet food operating margins may only reach about 8% this year. “Perhaps this is the only blemish on an excellent acquisition company,” he says.
Quaker chairman and CEO William Smithburg acknowledges that the company faces some obstacles.
“As we look ahead to the rest of fiscal 1989, we face a key challenge in pet foods, due to the increased competition in the premium canned segment and continuing shrinkage of the semi-moist market,” he told analysts in February. “On the positive side, our restaged Gaines brands–Cycle and Gravy Train–are doing well, and our new premium canned dog food, King Kuts, is gaining market share.”
Ralston’s Stiritz also points to repositioning as an important element of pet food marketing, one that may explain the onslaught of new types of pet food products.
“The nature of this business is that business unit management must always be looking for ways to breathe new life into our existing brands,” he says. “This means that as brand unit volume begins to level off, managers begin the repositioning process. The idea is to get consumers thinking differently about a brand.”
So, like Quaker, Ralston restaged products last year, including Chuck Wagon and High Protein dog foods.
Cats and dogs may be the recipients of these new fancy products, but people do the shopping. And pet foods have inspired some of food marketing’s most innovative ads.
One of Ralston’s ads, for example, plays on the video-age instinct to stay at home and take it easy. As Sparky contentedly pigs out on a bag of dog chow, the ad quips, “Her invitation intrigued him, but Sparky opted instead for a quiet dinner at home.”
To promote Reward, its superpremium canned dog food, Heinz unabashadely lays on the guilt: “When you think about the unique joy your dog brings you, why would you ever want to feed him anything less than America’s finest dog food?”
Products also tie neatly into the lifestyles of the day.
For convenience, there’s home delivery. Carnation will deliver Perform, its new superpremium pet food, right to the consumer’s doorstep.
Or consider the grazing trend. People are eating fewer, lighter meals, and they also seem to be throwing more bones in Fido’s direction. Dog and cat treats are two of the fastest growing pet food categories.
In 1988, sales of dog snacks increased 7.4%, to $402 million, SAMI reports. Cat treats is another emerging category. Last year sales were $33 million, up 27%.
Several companies launched treats for both dogs and cats in 1988. Ralston entered the cat treat category with Whisker Lickin’s, its first in the category, and Heinz launched 9 Lives Finicky Bits for cats and new varieties of Jerky Treats and Meaty Bone for dogs. Quaker competes in these two markets, too, with Pounce treats for cats and Pup-Peroni and other dog treats.
RJR Nabisco’s Milk Bone is top dog in the dog treat market, and Ralston’s Stiritz has made no bones about the fact that he’d be interested in buying the brand should it be one of the Kohlberg, Kravis Roberts spin-offs.
Another people trend, the urge to splurge on expensive foods, has carried over to the animal kingdom. In fact, SAMI has created a whole new subcategory to track superpremium cat food products.
For the nutrition-minded, there’s the growing market of ultra high-priced pet foods, like Iams and Science Diet. These products are sold outside the supermarket, in pet stores and by veterinarians, and are quickly presenting another challenge for traditional pet food marketers (see related story).
As with people food, two of the most popular pet food categories are gourmet and light products.
“It’s kind of a paradox,” muses Tim Phillips, a veterinarian and editor of Petfood Industry magazine, as he points out that veterinarian groups estimate that 40% of dogs are overweight.
So on our way home from the health club, when we stop to pick up a Lean Cuisine and a pint of Haagen-Dazs, we’ll remember that after last night’s bowl of Mighty Dog, Fido needs to diet, too.
COPYRIGHT 1989 Business News Publishing Co.
COPYRIGHT 2004 Gale Group