Animal Instincts
Progressive Grocer, ECRM and Ainsworth Pet Nutrition hosted a roundtable discussion of thought leaders in the pet category on April 25 near Chicago.
The discussion ranged from consumer trends, including the “humanization” of pets, to the growth of super-premium pet foods, to the conversion of pet specialty shoppers to the grocery channel, to future disruptors in the category.
Retailers on the panel were Kerian Adamo, pet treats and vet diet buyer for Plymouth Meeting, Pa.-based Pet360 Inc.; Scott Brackney, GM category manager, and Jan Winn, director of HBC/GM, for Springfield, Mass.-based Big Y Foods Inc.; Jessica Calvillo, own brands buyer, Martha Cantú, buyer, and Veronica Sanchez, business development manager, for H-E-B Mexico; Toby Nelson, president of Altoona, Iowa-based R.T. Nelson Sales and Marketing; and Becky Shipp, pet category manager for Carlisle, Pa.-based Ahold USA. Also participating were Drew Clarkson, VP of channel sales; Walt Wdowiak, VP of innovation; and Steve Joyce, VP of marketing, with Meadville, Pa.-based Ainsworth Pet Nutrition.
The session was moderated by Jim Dudlicek, PG editor-in-chief, and Meg Major, PG chief content editor. The following is an edited transcript of the discussion:
Dudlicek: The humanization of pets really has been a strong trend. Pet owners have become pet parents — they are constantly looking for ways to treat their animals more like members of the family.
Clarkson: I think we will see that trend increasing. When you look at what’s driving segment growth these days, with higher nutrition for premium brands, [shoppers] are coming into the category at the high end. We’re seeing human food trends continue into pet food: zero grain, limited ingredients. People consider diet much differently than they used to — now it’s all about healthy eating, not just cut the calories and cut the weight. We’re seeing those trends also in pet food.
Wdowiak: We’re not seeing a lot of [demand for non-] GMO … We have seen a lot of interest with superfoods and different types of grains, simple things that have very specific health benefits that are becoming very popular among pet owners as well.
Winn: We’ve sort of seen that in grocery. … We have to develop a [private label] super-premium brand. I challenged our pet group to develop one … I think, like for humans, organic is huge and growing. I think we have to develop a brand and promote it.
Shipp: I think the biggest opportunity is the perception of customers right now, because customers believe, and I believe, that healthy ingredients take care of healthy weight. I think that’s how specialty’s done such a good job. Customers just think that that’s where they have to go in order to get the right items and the right ingredients. Customers don’t understand that they can come to grocery stores to get good brands. There’s this whole perception that we have to get through — it’s a big problem.
Nelson: Stores that I call on are very progressive in the pet area. I have stores that will put up $3,000 to $6,000 end caps — it surprises the heck out of me. … What I have proven is by having a lot of the lines that they carry and helping the stores understand that you don’t need to undercut them significantly, but they can make a very nice margin — we’re talking $6 to $10 a unit — it will still be well below PetSmart or Petco. When it comes to all-naturals, I do a lot. In fact, I have hand-decorated dog cookies, I have a store that goes through 1,200 every month.
Adamo: We’re not seeing this bigger growth in value brands. We’re under the assumption that they’re going to grocery to pick up their Friskies or Fancy Feast. We’re definitely seeing more growth in the specialty, freeze-dried, dehydrated, really following the humanization of trends, the superfoods.
Winn: I think customers really are looking for natural, organic, local — it’s huge. Not only in pet food, but in general. I can’t imagine that trend will reverse itself. Regarding Millennials — I’ve heard they’re into cats more than dogs. They’re young, they’re just getting married, they’re just starting to have families.
Brackney: They’re waiting to have children, and they’re feeling that need with the pet, and they have more disposable income as they get older, and they’re willing to spend the money on their pet. It’s their child, really.
Adamo: I have been told by my big manufacturers that [the trend toward] small dogs [is] really, really growing. I just keep thinking that that’s taking tons out of the business, which scares me. Dry dog [food] is going to be harder to grow, because [small dogs] just eat less. At some point, I feel like that’s going to hurt us. We’re also not seeing growth in ultra-premium cat food.
Major: I just find cats are so picky with what they eat. They’re not interested in a gourmet experience. But I think concerns for aging cats are a trend as well.
Dudlicek: I think that’s relevant for other species as well, determining special needs for specific health purposes.
Adamo: I think [manufacturers] haven’t nailed that down yet as far as getting the right ingredients for cats.
Cantú: It’s a very similar story [in Mexico]. We are starting to see the trend toward natural and super-premium food. There is also a trend in Mexico for pet clothes. They’re very good quality; you’d think they were for kids. And they’re having birthday parties for dogs.
Adamo: Yes, we sell dog cookies and birthday hats. We actually just had an email go out last week about National Pet Parent Day.
Dudlicek: What do you see as the biggest opportunity for the pet category?
Calvillo: The premium brands right now, they’re really growing. We’re developing some of our own brands. One of the initiatives that we’re working is having a vet in the pet aisle, so the doctor can explain things to the customers, because I think that they really don’t know about the benefits or the nutrition. I think maybe that will help them.
Clarkson: I would say the biggest opportunity is around space allocation and setting the shelf up for next year and two years from now. I think that we talked a lot about the brands that are in decline, the premium and value brands that are falling. Yet if you look at a lot of stores, a lot of space is dedicated to those brands. It’s not just items and brands, but sizes, too. [Food retailers] have drawn a lot of shoppers out of pet specialty with some of the things they’ve done, but they’re not coming, because the sizes aren’t there — they’re big-bag shoppers.
Joyce: That’s one of the advantages of pet specialty — the customer is going to walk out with a bag of dog food, maybe something else. At the grocery store, they’ve got eggs, groceries — some of those really big sizes just won’t fit [in the cart].
Nelson: As people perceive value in the expensive specialty brands, I also think there are some things that people are willing to invest in. So I’m going to buy cheap mustard, but this dog is my baby and I’m not going to buy that crappy value brand — I want something I perceive to be better.
Dudlicek: How do you as a retailer ensure that you’re staying ahead of purchasing trends, and how do you decide which of the brands that are declining still warrant any space in your store?
Shipp: I use space to sales.
Adamo: We do regular reviews. All brands like to think that because we’re e-commerce, we can list an infinite amount of SKUs, but we still have a warehouse with space issues.
Dudlicek: Are you letting these trends sort of play out organically, or are you actively trying to get consumers to trade up from these other brands to the super-premium brands?
Shipp: We definitely try to get them to trade up, because that’s where we make our margins. You don’t make margins on the value brands.
Adamo: We’re all trying to do the same thing, no matter what channel you’re in. It sounds like everybody has the same problems, and everybody’s just trying to keep the paying customer, because I think there are just so many options for them now. You have grocery stores, you have online, and then you have pet specialty, and everybody’s struggling.
Dudlicek: How are you deciding what new brands to bring into the store?
Calvillo: It depends on the economic cluster. In lower clusters, we are looking for good product with good price and brand name, and in the other ones, we are looking for premium products, and that’s the problem, because they don’t want to sell those like that. … We want to do some experiments in our highest stores with some very good brands and show off that part, like healthy and organic.
Winn: Brands and our own brand have to tell a very compelling story with the package. It’s got to scream “no grain” or whatever the benefits of the food are. That, I think, has to become more prominent, because those are the buzzwords customers are looking for and I think that will help us give customers a chance to try something.
Clarkson: Are you thinking about off-shelf displays? Either end caps or other parts of the store to draw attention to those brands?
Brackney: We try to do an end cap every week in as many stores as we can, just again to remind the customer we’re in the business, and we’re just trying to change that perception that we’re just a grocery store pet aisle. … We’re driving them down the aisle using items that aren’t so sensitive, like GM items, something they wouldn’t mind going down the grocery pet aisle to get, but then they see something else, something that changes [what] they might get in the aisle.
Dudlicek: Looking ahead five years from now, what’s the pet category going to look like compared to what it looks like now, based on what you’ve been seeing?
Clarkson: Better, I think.
Brackney: I’m sure we’ll see dollars. Hopefully, we’ll be up, driven by super- and ultra-premium [offerings], which will be the driver for the core customer. We’ll still have to meet the needs of the value customer, but not in as big a way as we have in the past years.
Clarkson: I agree. I think, in most retailers, five years from now, the majority of the shelf space will be dedicated to super-premium brands; today, it’s fewer than 50 percent in most cases.
Adamo: I think it’s going to keep shifting around between channels, too, and I think that if we can get some of these channels into the data, because, you’ve got to remember, we lose a lot of data, too, so we talk about trends, but we don’t have them all captured. It would be interesting if we could get everybody into the data to really get a capture on the trends.
Dudlicek: How actively are you pursuing the conversion of specialty pet food shoppers to get them in the grocery channel?
Brackney: We look very closely at the aisle and adjacencies, just a way to drive the number that we have [in] pet food and grocery. They’ve got to buy their groceries somewhere, [but] they’re bypassing the aisle. We’ve got to figure out how to get them down the aisle.
Winn: From our experience, a lot of mainstream retailers are very focused on that, and pet specialty shoppers are very vulnerable right now. They are looking to make the switch. The whole notion of one-stop-shopping convenience, of buying for my entire family, including my pet, at one location, is a big deal, and just making them aware of quality and products that mainstream has in their aisles is huge.
Dudlicek: How big of a part is the pet category playing in your e-commerce sales?
Adamo: We have a lot of opportunity. It’s growing, but we have a lot of assortment. My vendors just need to spend time on assortment, pulling people, because we just don’t offer enough to our customers.
Calvillo: We also have opportunity in our e-commerce channel; we’ve been working on it. We’ve done special emailings with offers only online, and we are focusing on the big sizes that people don’t want to buy in the stores because it’s too difficult. It’s growing, but it’s small.
“We try to do an end cap every week in as many stores as we can … to remind the customer we’re in the business. We’re just trying to change that perception that we’re just a grocery store pet aisle.”
—Scott Brackney, Big Y Foods
“Customers really are looking for natural, organic, local — it’s huge. Not only in pet food, but in general. I can’t imagine that trend will reverse itself.”
—Jann Winn, Big Y Foods
“[The trend toward] small dogs [is] really, really growing. I just keep thinking that that’s taking tons out of the business, which scares me. Dry dog [food] is going to be harder to grow, because [small dogs] just eat less. At some point, I feel like that’s going to hurt us.”
—Kerian Adamo, Pet360 Inc.
“Customers don’t understand that they can come to grocery stores to get good brands. There’s this whole perception that we have to get through — it’s a big problem.”
—Becky Shipp, Ahold USA
“We’re seeing human food trends continue into pet food: zero grain, limited ingredients. People consider diet much differently than they used to — now it’s all about healthy eating, not just cut the calories and cut the weight. We’re seeing those trends also in pet food.”
—Drew Clarkson, Ainsworth Pet Nutrition