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A category at risk.

You may not be able to teach an old dog new tricks, but every day, alternative trade channels are teaching owners of old--and new--dogs, along with cats and rats, ferrets and parrots, and snakes and skates, to purchase pet food and supplies in new retail formats. Confronted by the growth of category killers such as PetsMart, Pet Food Warehouse, Pet Care Superstore and other similar formats on one side, and increased sales in mass merchandisers on the other, many traditional food operators are making the mistake of conceding the war for pet category sales before the final battles have even begun.

Is it realistic to believe that the supermarket's pet section will ever become a true destination category in the classic category management sense? The quick answer (issued with full realization of the danger of predicting any retail possibility) is probably "no."

It's simply implausible to assume that pet owners will bypass traditional pet stores, with their full array of food, supplies and accessories and, of course, pets; or category killers, with their hot prices on superpremium pet foods; or mass marketers, with their discount prices on supplies and accessories, in favor of a supermarket offering a limited assortment of SKUs, generally geared to more mainstream pets with more mainstream owners. Does this mean that supermarket operators ought to concede defeat in the pet aisle and concentrate their efforts on perimeter departments?

The answer is an unequivocal "no," because the market is simply too big. Pet care is a critical category--in its own terms and even more so when the total purchase potential of the pet-owning universe is considered. Pets live in more than half of all American homes.

While it's difficult to pinpoint exact industry sales (due to the fact that pet superstores don't report specific sales data and that sales data for independent pet stores isn't readily available), it has been estimated that in 1994, the total pet category was worth about $17 billion at retail. Pet foods represented about 53% of those sales (about $9 billion); services accounted for an additional 29% of sales ($5 billion); and approximately 18% of the market (or about $3 billion) went for supplies.

Sales in the foods segment, largely driven by sales of superpremium and "all other" brands, were up about 7%. Sales of grocery brands were essentially flat. The services segment increased about 19% and the supplies business jumped by about 25%.

Pet aisle items can be categorized into four groups: maintenance, health/problem resolution, training/play and start-up. Maintenance items include dog and cat foods, cat litter and accessories, bird, fish and small animal edibles, grooming aids and feeding dishes. Health/problem-resolution items include chemicals, insecticides, flea and tick collars and aquarium remedies. Training items include toys, rawhide, collars and leads, treats and housebreaking pads. Start-up items include small animal habitats, aquarium kits, aquarium accessories, aquarium pumps, filters and heaters, aquarium gravel and ornaments, and pet carriers.

The primary pet care issues facing supermarket operators revolve around the "whys" and "hows" of pet care category management. Should supermarkets fight new--as well as established--competitive factors? And once that decision has been made, what's the most effective strategy for mounting an attack? Perhaps, most importantly, to help prevent future supermarket channel erosion, what lessons can be learned from the business that has already been lost?

As these questions are examined in this special Progressive Grocer Sector Report, remember that the erosion of supermarket share in the pet category can't all be laid at the feet of either PetsMart or Wal-Mart. Three other factors are responsible for share dislocation:

1 New product trends, including scooping cat litter, I.G.R-based insecticide systems, the growing popularity of private label pet food, and the mass popularization of superpremium pet foods.

2 Demographic trends, including the fact that changing lifestyles and work habits are resulting in a dramatic shift in the composition of the pet population. Simply put, it's difficult for inhabitants of dual-income homes to rush home every few hours to let out the dog. At the same time, DINK (dual income, no kids) households are finding pet ownership a viable emotional alternative to filling their empty nests.

3 And, finally, the complacency of the supermarket channel itself is responsible for much of the erosion. Any category that is taken for granted is a category at risk. If supermarket operators continue to sit back and watch sales walk out the door, that's exactly where they will continue to go.
   The popularity of pets
   Cross-pet ownership

                Who also own...        Fresh
Owners                                 Water    Small
of              Dogs   Cats   Birds    fish     animals   Reptiles

Dog             100%   46%     69%     65%       62%        66%
Cat              39    100     44      52        51         58
Bird             12      9    100      20        17         28
  water fish     20     19     35     100        36         46
  animals         9      8     13      16       100         26
Reptile           5      5     11      10        14        100

Source: American Pet Product Manufacturers Assoc.

How large is the pet-owning universe? More than half of all
U.S. households own pets and, in fact, many own several
kinds. Dogs reside in 36% of all households; 30% of all
households own cats; 10% of all households have fresh water
fish; birds live in 6% of all homes; 5% of all Americans own
small animals; 3% own reptiles; and marine fish reside in
1% of homes.
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Title Annotation:Rethinking Pet Care
Author:Mathews, Ryan
Publication:Progressive Grocer
Date:Jan 1, 1996
Previous Article:Focusing on fresh.
Next Article:The face of the new competition.

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