superzThe fall trade show season for the retail segment of the pet industry has come and gone.  From a macro perspective, the industry continues to thrive.   Not only is innovation accelerating, but the core themes around humanization, health and wellness and convenience remain relevant.   That said, things are not all sweetness and light.   Of greatest significance is the reality that the economic contraction is having an impact on the industry, maybe not in the most obvious ways.  Additionally, the H.H. Backer Pet Industry Trade Show was flat relative to SuperZoo, just two weeks prior.   In the balance of this post, I discuss the key observations from walking the floor in Las Vegas and my interpretation of front line accounts from those attending H.H. Backer.

Recession Resistant, But Not Proof

Anyone who pays attention to pet media has been inundated with articles touting the industry as a safe haven from the downturn in the economy.  While, technically speaking, the industry continues to grow, it is by no means moving along unscathed.   The show season provided ample evidence that the industry is feeling the pinch.   Notably in this regard, paid attendance was down across the two shows both in terms of buyers and exhibitors.   Many who normally exhibit at both shows chose one or the other, but not both.  Second, growth rates for most of the industry has slowed, in  the majority of cases significantly, though outliers still remain and in a world where “flat is the new up” any movement up and to the right should be commended.  Third, buyers (in the retailing sense as opposed to the M&A transaction sense) were clearly more cautious, many were there to browse and keep updated on the evolution of the merchandising mix,  but we saw a lot of “wait and see” from people in independent pet specialty who normally travel with their checkbook.

When one factors in that access to capital is currently quite limited, especially for small companies, these signs point towards consolidation in the industry.  Or at the very least a bifurcation of the market into leaders and laggards.  Cash flow generating businesses who can attract capital will drive growth through marketing spend, while those who cannot access funds will be challenged to allocation their limited resource base.

I’ll Take a Treat As Opposed to a Meal

While subtle it is notable; I felt the “presence” of the treat companies exceeded that of food companies at SuperZoo.  That is not to say there was an absence of food folks on the floor of the show.  In fact they were there in force, as always.   However, their participation was much less extravagant and a number of up-and-coming brands were absent.   Part of my conclusion is that there has been limited innovation among the major independent players, they are too busy duking it out  for shelf space.

The most notable innovator in my mind has been Merrick, which launched Whole Earth Farms.   Whole Earth is a premium natural line of dog food targeted to the value oriented consumer.  On one hand this makes complete sense to me, as consumers are forced to trade down, this product offers product attributes that are very appealing at an attractive price per pound.   Possibly of greater significance it may be attractive enough to pull up consumers who generally buy mass, but would prefer to feed their dogs natural.   With Pet Promise going away a healthy percentage of these customers are looking for a new home.  At the same time, I wonder if these two groups can live harmoniously.  Value orientated natural has not been highly successful in the human realm.  I offer Whole Foods 365 Everyday Value as Exhibit A.

I give runner up accolades on the food side to Mulligan Stew’s launch of their baked soft kibble and Honest Kitchen with their display of feathers signifying their move to free range chicken in their chicken based diets.  For the later, it made the point nicely.

At the same time we were more impressed with the evolution and innovation in treats, not only in terms of ingredients but also in terms or blurring the line between reward and core wellness.   At the show we saw an increasing number  (relative to the prior year) of treat companies promoting their offerings (or an offering) as “source verified”.    Further, numerous treat companies are marketing formulations with an ingredient count that only requires a few fingers.  Fruit and vegetable based treats are also on the rise.  Finally, many treat companies now have offerings that  promote general wellness or help alleviate specific issues experienced by companion animals — joint health, dental wellness, skin and coat support, digestive health.  Kudos to the likes of Zukes, Fruitables, Pegetables, Terrabone,  Petit Four Legs  (shameless plug) and a host of others.

LOHAS Movement A Foot in Pet

The lifestyle of health and sustainability movement continues to gain momentum within the pet industry.   Nearly every company I visited with that offered bedding and toys has a product incorporating some form of recycled material.   Sustainability has become more prominent in marketing, especially for companies where the link is less obvious.

Of greater significance is the proliferation of health related offerings.  Not only is the supplement space gaining in competitors, but sophistication from a product formulation and branding standpoint has also evolved.  New comers such as 3M and The Brampton Companies (which purchased Vet’s + Best) were just two of the more notable booths, coupled with industry incumbents Nutri-Vet, NaturVet, Ark Naturals, PetAg, and a handful of others.  Of the condition specific issues being addressed most prominently, dental health and weight management have joined hip and joint as the most commonly addressed.

Finally, there were a host of other target specific health solutions ranging from pet first aid kits to electronic emergency pet reference manuals to ear thermometers to therapeutic treadmills.   Most notable was Anti-Lick Strips from Nurtured Pets.  These all natural peel and stick bandages deter unwanted behavior and prevent small problems from becoming big problems.

Better Branding

A final note, packaging and associated branding in the pet industry has come a long way in the past 2 years.  This is consistent with my thesis that more companies have entered the market with traditional consumer packaged goods experience and who are looking at the industry as a business (the professional trumps the enthusiast).   It used to be that packaging was a source of competitive advantage.  Now, in some segments, sophisticated presentation is the bar for entry.  Anyone who knows Vets + Best pre-Brampton, can attest to what a makeover can do.   Other notable packaging came from the Get Naked line of health supplement from NPIC, Zupreem, Flexi, and Nutramax.  I expect more innovation next year as others refresh their image to keep up with their competitors.

/bryan

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