Counting on a rebound in pet care

Despite a recession that is hitting the industry where it counts, many remain optimistic about the pet care category.

By Nora Caley

Consumers are not giving up on their pets, even as the lingering deep recession takes a deep grip on their wallets and disposable income. But they do seem to be spending a little less on their animal companions.

According to industry data, the overall pet care category, including pet toys, showed a slight downturn in sales, a result, many say, of the effects of the recession and a determined move by most consumers to cut as many incremental non-necessary sales as possible. Consumers say that they are looking at everything on their shopping list and, it appears, that after several years the pet care category is finally getting hit.

According to New York-based The Nielsen Co., for the 52 weeks ended Dec. 26, in food, drug and mass merchandiser stores including Wal-Mart, sales of pet care products dropped 2.6%, from $3.73 billion to $3.63 billion, compared to the same period the previous year. Within the pet care category, some products performed better than others. Sales of litter increased 2.5%, from $1.33 billion to $1.37 billion. Sales of flea collars increased 6.5%, from $167 million to $178 million. Sales of pet care items, which includes internal and external treatments as well as rawhides and accessories, decreased 6.4%, from $2.23 billion to $2.08 billion.

Supermarkets seem to be faring a little better than other mass retailers. In the grocery channel, the dips were not as severe as in the larger food/drug/mass category. Also according to The Nielsen Co., for the 52 weeks ended Dec. 26, in U.S. food stores with $2 million and over in sales, excluding supercenters, sales of pet care products were down only 0.3%, from $1.162 billion to $1.158 billion, compared to the same period the previous year. Sales of flea collars were up 3.6%, from $45 million to $46.6 million and sales of pet care items were down only 0.6%, from $488 million to $485 million.

Still, on the eve of the Global Pet Show in Orlando this month, industry officials seem to be as optimistic as ever about the pet care category. A number of them contacted by Grocery Headquarters say the dip in pet care sales is only momentary—a sign of just how deep this recession is—and sales will rebound as soon as the overall economy improves.

In fact, some of the larger pet care companies say that sales have remained strong during this tough period. Officials at Hartz Mountain, for example, note that sales of its flea and tick products sales are strong and the company is eager to introduce items to the marketplace to be in a better position when the economy turns. Sergeants’ officials, voicing a parallel tone, say the Omaha, Neb.-based company is also actively introducing items to the marketplace.

Other suppliers have similar opinions. “I see it as being very healthy,” says Chris Gatto, vice president of sales for food/drug/mass for Ethical Products Inc., based in Bloomfield, N.J. “We’re kind of going through a transition stage where our retailers are looking at the category and seeing it’s a very profitable section.”

Mark E. Johnson, executive vice president of TFH/Nylabone, based in Neptune City, N.J., agrees that the pet category in grocery is healthy. “Pet is a category still growing in the face of the very significant recession because consumers have refocused on home, family, children and pets.”

But Johnson says that the pet industry—retailers and suppliers—must pay attention to the key trends driving sales to keep the momentum going. “Consumers are looking for natural, organic and healthy products,” he says. “‘Made in USA’ is a more important feature than ever. Essentially as we recognize the need to eat a healthier diet ourselves and we treat our pets with the same attention.”

Leslie R. Yellin, director of business development for Multipet International, also says that sales at the Moonachie, N.J.-based company are up. To maintain those sales increases, the company is working with retailers to introduce items regularly and refresh the selection in the stores. “When the shopper is going to the same grocery store every day and seeing the same toys, you see declines in sales,” she says. “You bought a toy and your dog liked it, then you bought it a second time and the dog liked it and now you want to buy something different.”

One trend she’s noticed lately is that consumers have been seeking not just different toys but whimsical toys. For Multipet, that means nostalgic toys such as the sock monkey plush dog toy and the Mister Bill toy that contains a squeaker that yells, “Oh, no!” like the old Saturday Night Live character.

The key to keeping things going is to correctly position the merchandising strategy, according to experts. Yellin says some retailers are paying close attention to their pet sets and analyzing them carefully. “The challenge for the buyer is how to grow without resetting the whole section, which could cost thousands of dollars,” she says. “They look at dollars per square inch. More and more they are looking at the best value for that real estate.”

Getting aggressive

Retailers are becoming more aggressive with the chain as well. Some suppliers say that even Wal-Mart, which has signaled its intent to gain market share in the pet category, has proceeded slowly with its growth plans. The chain, they say, is more carefully choosing vendors with which to partner and trying to pair supplies with pet food to maximize the return on investment in the department.

Wegmans is also taking a more strategic approach to the category in recent years. The chain, according to suppliers that work with it, has requested a lot more data from them and is also asking that vendors get more aggressive with planograms and cross-merchandising opportunities.

Of course, some say that retailers should simply go in a different, more dramatic, direction. Darlene Frudakis, president and COO of PetAg Inc., based in Hampshire, Ill., says savvy grocers see opportunity in expanding their pet sections. “They are diversifying with hybrid pet sets and stocking more pet specialty items,” she says. “The growth of the pet health and wellness category is grabbing their attention as it is an avenue to increase revenue.”

Gatto says new items are the lifeblood of the pet industry in mass retailer outlets. He says certain retailers are eager to update their pet sections with new items and are working to promote the section more than in past years. “Several national and prominent chains are starting to make their pet aisles destination categories,” he says. “We will continue over the next year to two years to see increases in signage and point-of-sale materials that will help drive the customer to the section.”

He adds that retailers are looking for high quality, innovative products and consumers are looking for value. Of course that does not necessarily mean the lowest price. “Value doesn’t have to be perceived as a $1.99 toy,” Gatto says. “It can be a $4.99 toy that is multifunctional and well made.”

Frudakis says retailers need to carry the highest quality products at reasonable prices to appeal to today’s consumer. “Private label products are growing in number especially in commodity oriented categories. Consumers are really watching what they spend and comparing prices,” she says.

The Nielsen Co. reports that sales of branded pet care products in food/drug/mass merchandisers, including Wal-Mart, totaled $255.5 million for the 52 weeks ended Dec. 26, 2009. For private label pet care products, sales totaled $67.5 million, an increase of 14.9% compared to the year before, when sales were $58.7 million. Private label made up 20.9% of the pet care segment, compared to 16.7% the previous year.

The right mix

Johnson says retailers should focus on the right assortment. “If space is limited make sure to have premium brands and competitive new items,” he says. “Multiple product assortments give the consumer choice and don’t overstock the retailer with too many of any one item. Several branded pet supply manufacturer offer half and quarter pallet programs that are logistically efficient also.”

Johnson says the future will bring growth in sales and margin for the pet category. “Pet has been a productive category in grocery for decades. With growth forecasted to be above the all commodity average, pet is a definite category to support, expand and promote.”

Gatto thinks grocery chains will pay more attention to the pet category. “They are starting to realize the pet category is one of few categories that total sales continue to be strong and it is much more profitable than many other sections and items in the store,” he says.

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