Animal Health Care News and Forecast

Consolidation in big pharma is changing the landscape of the companion animal health market. Merck (NYSE:MRK) and Schering Plough (NYSE:SGP) will combine their respective animal health companies Merial and Intervet. Pfizer's (NYSE:PFE) acquisition of Wyeth (NYSE:WYE) includes Fort Dodge, which combined with Pfizer Animal Health would form the largest animal drug provider in the world. According to Pfizer's first quarter 2009 results, the company has "had productive discussions with the [FTC] regarding the possible divestiture of some animal health products." So it seems part or all of Fort Dodge may be for sale.

What do these mergers mean for growth in veterinary services and pet care spending? Competing products may disappear, jobs may be lost, and supply chains may be disrupted. For instance, in fiscal year 2008, MWI Veterinary supply (NASDAQ:MWIV), Pfizer products accounted for 23% of sales, Fort Dodge 12%, Merial 60% and Intervet 9%.

On the flip side, however, it's clear that pet (and livestock) drugs have become an important part of the new diversified business models of big pharma. Pfizer plans to give the group "more autonomy" and global moves imply additional investment as well. Pfizer Animal Health does business in 60 countries and in the first quarter of 2009 opened a new Shanghai office, expressed interest in acquiring an Indian veterinary health company, and announced new product launches in certain countries.

Long term consumer spending forecasts on veterinary services, prescription and over-the-counter drugs are quite positive. We estimate veterinary services spending to grow 4% in 2009 and 8% in 2010, reaching $16.4 billion by 2011, compared to $13.6 billion in 2007. Compelling demographics will drive future growth. In 2003, the $8 billion spent on vet services was split 50/50 by pet owners making less than $70,000 per year and those making more than $70,000 per year. But by 2007 almost $14 billion was spent, and that ratio changed to 28/72, favoring higher income consumers. Married couples without children are the biggest spenders at the vet, according to the Bureau of Labor Statistics, spending over $4.5 billion in 2007 alone.
 

Dog Friendly Car Unleashed by Honda

Honda showed off the Dog Friendly Honda Element concept car at the New York Auto Show today, with integrated dog amenities and safety equipment including restraints, hardy fabrics, an access ramp, a cushioned bed, a spill-resistant water bowl and dedicated doggie cooling system.

Appealing to the broad spectrum of dog owners who increasingly treat their pets like family definitely separates this model of the Element from the pack.

Honda has been developing its pet-themed marketing since 2005, when it launched a dog friendly concept car at the Tokyo Motor Show. Soon after, the company launched Honda Dog in Japan, pitching cars and its Travel Dog line of pet accessories to its 1.5 million monthly visitors.

Not to be outdone, Toyota also has a Japanese website for dog owners featuring the Corolla called C Loves Dog.

Closer to home, DogCars.com helps American pet parents choose the best pet-friendly cars, by reviewing new models specifically from a dog owner's perspective.

Pet Industry Market Research 2009

The Pet Industry 2009 Strategic Outlook report from Dillon Media LLC has been published.

This market research report charts and analyzes aggregate pet owner spending demographics in the U.S., covering the four main industry segments: Pet Food, Veterinary Services, Pet Supplies and Pet Services.

It includes forecasts and analysis of the recession's impact on pet industry trends and consumer behavior.

Pet owner spending demographics are charted by income, age, general region and family composition from 2000 - 2007 (the latest available) with totals forecasts for 2008 - 2011. Data are from the Department of Labor, Bureau of Labor Statistics, forecasts are by Dillon Media.

The critical higher income brackets are also included for available years.

Published: Feb 18, 2009
Format: Adobe PDF file
Delivery: Emailed to you within 2 hours of purchase.

Why Buy It?
Align your product, customer or business with the strongest demographic groups in the U.S. pet industry. Read more and buy online: Pet Industry 2009 Strategic Outlook
 

PetSmart Q4 and Fiscal Year 2008 Results

PetSmart, Inc. (NASDAQ:PETM) announced $5.07 billion in net sales in 2008, up from $4.67 billion in 2007. Comparable store sales grew 3.8 percent in 2008, and pet services continued to stand out, growing 15.8 percent in 2008 to $526.7 million. The year 2007 had one extra week added to the fiscal year in the fourth quarter.

During the fourth quarter of 2008, pet services sales grew 6.9 percent. Net income for the fourth quarter was $78.4 million, compared to $75.4 million for the fourth quarter of 2007.

PetSmart is the nation's largest pet specialty retailer with over 1,000 stores in the U.S., and announced a more cautious approach to new store openings in 2009, in line with the prevailing mood these days about the rest of this year. In 2008 the company opened just over 100 stores and 45 new PetsHotels, on par with the previous couple of years. For 2009, however, the company plans to open 40 to 42 new stores and 20 new PetsHotels, or about a 60% reduction in new store openings and a 50% reduction on new pet hotels.

These results and the 2009 outlook confirm, in our opinion, that pet spending will be impacted, but to a lesser degree than consumer spending in many other industries.

Read more and listen to the PetSmart, Inc. conference call.

Pet Owner Buying Habits Changing

Even though pets may be toward the bottom of the list of things to cut back on, consumers are still forced to rethink many pet industry purchases these days. Pet food sales seemed to survive mid-2008 price increases and reduced portion sizes, but other segments may not be so lucky as consumers cut back on optional products and services.

The New York Times reports on the do-it-yourself (DIY) trend among consumers, how it's affecting services businesses, including pet care services, and how retailers like Target are adjusting marketing strategies to meet this rapid change in consumer behavior. (Outsourced Chores Come Back Home, by Catherine Rampell, The New York Times, Jan 19, 2009).
 :

Helmsley's Trust Leaves Billions of Dollars To Dogs

In June, a New York judge reduced the amount of money available to Leona Helmsley's dog, Trouble, from $12 million to $2 million, ordering the remaining $10 million to go to her charitable foundation.

But the New York Times reports that the charitable trust has been assigned to the care and welfare of dogs, according to a mission statement that may or may not be legally binding. Being the only clear direction for the donor's intent, however, means that the entire trust, valued at $5 to $8 billion, may indeed go to the dogs ("Helmsley Left Dogs Billions in Her Will," by Stephanie Strom, The New York Times, July 2, 2008).

May I suggest outlets that uniquely benefit both dogs and humans, such as service dog programs, public assistance through HSUS and ASPCA funding, a national disaster fund (FEMA for pets), veterinary student grants, a centralized database linking CDC, vets, FDA and the public, and research that also benefits humans?
 

Pet Business Trade Shows

Attending a Pet Industry Tradeshow?
Dillon Media can help with booth design, web and print marketing material. Learn more...

Global Pet Expo 2009
Feb 12-14, Orlando, Florida
Presented by the top industry manufacturers and distributors' trade organizations, over 800 companies will launch dog, cat, bird, aquatic and small animal products at this show.

H.H. Backer Winter 2008 Trade Show
Oct 3-5, Rosemont (Chicago), Illinois
New this year is an expanded aquatics section and an All-Natural area of the tradeshow, featuring eco-friendly and green pet products.

Pet Fashion Week 2008
Aug 23-24, New York City.
A smaller trade show focusing on fashion, Pet Fashion Week has quickly grown in the last two years and now includes an annual show in Tokyo. The market in Japan remains strong for luxury dog collars, apparel and supplies.

Pet South America is an international trade show for the Latin American market
Sep 17-19, Sao Paulo, Brazil

Pet Fair Asia has grown steadily over the last couple of years, from 280 to 350 exhibitors. It seems international visitors are interested in the export market; that is, sourcing, manufacturing and shipping from China.
Sep 3-5, Shanghai, China
 

Toyota and Honda Dog-Friendly Cars

Honda's dog-friendly concept car introduced in 2005 has evolved into a comprehensive marketing campaign that is creating sales in Japan, according to Reuters ("Dog-lovers of the world unite...around Honda," by Chang Ran-Kim, Reuters, May 29, 2008).

Honda Dog uses its 1.5 million monthly website visitors to sell cars and its Travel Dog line of pet accessories.

Not to be outdone, Toyota also has a Japanese website for dog owners featuring the Corolla called C Loves Dog.

In case you don't read Japanese, it's still fun to click around these sites. I assume it's just a matter of time until the U.S. versions come out as the auto industry aggressively seeks to differentiate products while appealing to broad demographics.

Closer to home, DogCars.com helps American pet parents choose the best pet-friendly cars, by reviewing new models specifically from a dog owner's perspective.

Read all posts about dog cars.




 

Business Resources

The largest trade organization in the industry, the APPMA has updated their website with some valuable information for pet businesses and about the pet industry.

Check out the new blog written by Bob Vetere, president of the American Pet Products Manufacturer's Association. This should be a good way to stay informed about the latest trends and issues.
 

Pet Business News

VCA Antech, Inc. (NASDAQ:WOOF) reported a profitable first quarter of 2008 as it continues to acquire animal hospitals and grow its laboratory business. Although elective procedures tend to diminish when consumers cut back, this strength highlights the fact that the bar is moving; some services once considered elective are now being considered necessities. VCA seems to be on its way to becoming the managed care company for pets, primarily dogs and cats.

Utilizing the pet industry to differentiate a business in a crowded market has been a popular strategy the last few years. Check out Peninsula House Hound dog-friendly real estate website, with features like 'Search Homes Near Dog Parks'.

Anyone watch Nascar this weekend? Dog food marketing is big business in the U.S., and Mars, Inc.'s Pedigree brand is prominently featured on Kyle Busch's number 18 car. This sports sponsorship by Mars draws an average of about 6 million viewers per race, according to ACNielsen ratings for April and May of 2008. But the company didn't stop there; Mars' Nascar marketing campaign is directly tied to its adoption drive, illustrating the importance of the adoption channel for generating long-term brand loyalty in the pet sector.
 

Ralph Lauren Dog Accessories

More than four years after introducing a popular dog polo shirt and cashmere sweater, Ralph Lauren now boasts 16 different dog accessories, including a wider range of trendy shirts, a hoodie, a trench coat, and leather collars and leashes.

Catering to the broad swath of American consumers that own dogs, every retail store allows dogs. And the company's website has vastly improved since I last blogged about it three years ago.

It seems to be a solid strategy to appeal to certain pet parents, with dog products and marketing co-ordinated at the retail level and online. This picture, for instance, is for a human tote bag sold on a Mother's Day page.
 

Pet Vacuum Cleaners

Browsing Williams-Sonoma's website, I noticed a $799 Miele Dog & Cat vacuum cleaner, made specifically to handle pet hair.

It seems the response to pet owner demographics, or at least Consumer Reports testing in 2006, has been swift, with pet-specific lines now available from Bissell, Eureka and Dyson, all retailing for under $200.



Two-thirds of American households own a pet of some sort. Forty percent of U.S. households own a dog. That's a large market, with lots of pet hair, suitable for an expensive dog & cat vac. Eight hundred bucks is a lot for a vacuum cleaner, but they are really nice. Even the lowest-end Miele model (the one I own) is fantastic.
 

Home Depot To Stop Selling Pet Products

Home improvement retailer The Home Depot, Inc. (NYSE: HD) plans to stop selling pet products in 2008. Overall, the company reported it's first ever yearly sales decline in 2007 yesterday, so perhaps it's wise to re-focus on core competencies. Especially with the state of the housing market.

Home Depot's pet product selection was highly limited in scope and brand selection anyway, with no dog houses, beds, indoor barriers, ramps or other common products a pet owner often adds to a home. Even so, this move signals a broader theme that may play out again soon: large retailers cutting back on pet products discretionary to their business models, but not necessarily to the consumer.
 

Pet Owner Spending Trends in the U.S.

A new report has just been published on nationwide pet owner spending trends.

The aging population, childless consumers and the ascendancy of high-income baby boomers are analyzed by their pet spending habits. Charts and tables are included using data from the Department of Labor, Bureau of Labor Statistics that highlight core trends in U.S. consumer spending by income, age, general region, and family composition.

The Pet Industry 2008 Strategic Outlook is our annual report, written for businesses marketing to pet owners.
 

Standard & Poor's Take on the Pet Industry

In a research note upgrading PetSmart (PETM) today, Standard & Poor's Equity Research notes "while we expect a slowdown in consumer spending to impact sales of discretionary pet supplies, we continue to believe underlying demographic trends for the industry remain very strong." Well put.
 

Looking Toward 2008

The pet industry has been called recession-resistant by many people, myself included, as it stood up to economic shocks in 2002 and again in 2005 after hurricane Katrina.

This year may test that theory, however. A decade of strong growth has created some fluff in an industry that has been growing like a balloon, in every direction at once. Balloon, bubble...we think slowing growth or contraction in certain segments is inevitable in 2008.

Sure, pet owners will continue to spend money on their companions in tough times, but on what? The latest available data from the Department of Labor show spending on pet purchases and supplies declined 20% in 2006 from the year before, while the other segments of food, services and veterinary services grew but at a much slower pace.

Just like humans, spending constraints will probably result in cutting out non-essential products and services, but with some interesting twists. Higher income demographics are supporting more and more of the industry each year.

Two new reports on U.S. pet owner spending are out.

Pet Food Consumer Spending Data Tables

How much money Americans spend on pet food by age, income, region and family composition.

Veterinary Services Consumer Spending Data Tables

How much we spend at the vet each year.

Pet Owner Spending by Income

The latest available data from the Labor Department show the first decline in pet industry spending in over 10 years.

Check out the new report Pet Industry Spending by Income which includes new 2007 and 2008 forecasts by Dillon Media and charts of expenditures on all segments by income bracket through 2006.

Pet Trade Shows

It's trade show season for the pet industry. This list will be updated throughout the year as schedules are finalized and websites go online, so bookmark it and check back.

Global Pet Expo 2008
Feb 14-16, San Diego, California
Presented by the top industry manufacturers and distributors' trade organizations, over 800 companies will launch pet products at this show.

H.H. Backer Spring 2008 Trade Show
May 16-18, Baltimore, Maryland
Traditionally in Atlantic City, show organizers moved this event to Baltimore, citing improved logistics and metropolitan city services for the participants.

Interzoo 2008
May 22-25, Nurnberg, Germany
Floor space is already 85% sold as of this post date. This biennial international pet trade show drew almost 1,300 companies from 56 nations in 2006, and 2008 should be even better.

Attending a Tradeshow?
Dillon Media can help with booth design and marketing material. Learn more...
 

Dog Friendly Cars

These days, consumers are taking pets into consideration when making large purchasing decisions, and the market has responded.

Last year, home and garden stores and catalogues, as well as custom home builders, ramped up marketing to pet owners, and now, a new company helps dog owners buy a new car.

DogCars.com reviews new automobiles from a dog owners perspective. Dog friendly cars tend to be roomy: SUVs, trucks, wagons, hatchbacks and crossovers, and there are some pleasant surprises on the site like the Suzuki Forenza and Honda Fit reviews.

Surveys indicate up to 50% of dog owners consider a pet's needs when buying a new car.

[Update Jan 2008] DogCars.com is seeking advertisers for its new website. Check them out to reach a niche market of high income pet owners in the market for a new car.

Read all posts about dog cars.

  

Handmade Leather Dog Collars

A small company poised for growth is Paco Collars. Run by leather artisans and dog owners, they create and sell custom and handmade leather dog collars. These collars are beautiful but also highly functional, with tapered neck widths for smaller dogs and multiple sturdy leash attachments. Each order is handmade to each dog's specifications and takes 6-8 weeks for delivery. The company also sells leashes that match the collar in color, leather and brass or silver hardware.

The depth of commitment to the human-animal bond (and to the customer) is on display, from the initial order process to a lifetime guarantee on parts. When the dog passes the company can make the collar into a bracelet for the owner.

When asked who's buying these expensive collars, founder Ana Poe responded, "The one really interesting trend that we've found in our sales is that there is no one demographic that's buying. When we think we've got the consumer pegged, there's a whole new crop of people that surprise us.  Rich, poor, young, old, you name it and they're buying."

Maybe this widespread appeal is why a Paco Collar was recently spotted in a television ad for Proctor & Gamble's Febreze air fresheners.

It seems Paco Collars is well-positioned in the pet industry as it moves forward. By offering premium, well-designed, custom products to pet parents across demographic groups, the company is aligned with core trends in spending and consumer behavior.

The Pet Economy

BusinessWeek dedicates its August cover story to Americans' spending spree on pets. The article has lots of great pet industry statistics. For instance half of all dog owners consider the pet's comfort when buying a car.

The Pet Economy, by Diane Brady and Christopher Palmeri, BusinessWeek, August 6 2007.
 

Petco Expands Services Offerings

Petco announced a partnership with Sittercity.com today, adding in-home pet sitting services to its lineup. While PetSmart (NASDAQ:PETM) focuses on bringing the customer to the store for daycare and PetsHotels, where they subsequently load up on high-margin tennis balls and the like, Petco is going in the other direction, extending its reach directly into the consumer's home. Here's the press release.


Photo: PR Newswire Photo Service/Sittercity.com

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Marketing Pet Services?
The Pet Industry 2008 Strategic Outlook is an affordable market research report on current and emerging trends and demographics for pet businesses.

Kansas City Animal Health Corridor

Last year's unique initiative by Kansas City to attract animal health companies keeps paying off. MWI Veterinary Supply, Inc. (NASDAQ:MWIV) based in Idaho is the most recent company to sign up, announcing plans to open a 105,000 square foot distribution facility in the area.

In fact, the KC Animal Health Corridor contributes 32 percent of total sales in the $15.2 billion global animal health market by hosting company divisions including Bayer HealthCare, Hill's Pet Nutrition, Del Monte and Cargill.

Pet health has become one of the driving trends in the industry. Even though pharmaceutical companies have been in the animal health segment for years, there's been a recent acceleration in interest, as previously reported in this blog and on our company website.

A good article on the subject: "Big Pharma Chases Dogs and Cats," by Rachel Petkewich, Chemical & Engineering News, June 25 2007.

Central Garden & Pet

Central Garden & Pet Co. (NASDAQ:CENT) may be rapidly losing interest in acquiring some assets of Spectrum Brands, Inc. (NYSE:SPC), according to the Financial Times. Bad news continues to dog both companies. Central Garden & Pet experienced "softness" in lawn and garden as well as pet retail sales in April and May, and told investors to expect results below expectations ("Spectrum Brands could face new complications to asset sale process, sources say," by Aja Whitaker-Moore, Financial Times, June 13 2007).

Sony Hopes The Puppies Will Help

On the paws of successful titles like Nintendogs and Sims2 Pets, it's become clear: pets in video games attract women. Nintendo credited its game for attracting female market share, and Sims2 Pets sold over 3 million units in three months (which is a good number for a video game, by the way).

The New York Times reported this week that Sony Online Entertainment, in trying to diversify the demographic profile of its 85% male customer base, has added puppies to its new release, Free Realms.

Marketed toward girls, the game is free but relies on paid registration and microtransactions like buying virtual pets. Puppies, that is. Apparently the male design team wanted pets with fighting capabilities until someone came to their senses ("Sony's Other Games Division Makes Push in New Direction," by Seth Schiesel, New York Times, June 11, 2007).
 

Pet Food Recall: Week 7 Update

Seven weeks later, the pet food recall keeps growing. It's already exposed massive holes in the US food chain, including intentional contamination overseas that apparently has been going on for years, and a stunning lack of inspection procedures on both food and nonfood imports at US ports.

The only reason melamine was detected at all may be due to its chemical reaction with another contaminant in the pet food, cyanuric acid. Each of these falsely raises the protein content of wheat gluten and rice protein concentrate. Each chemical alone may not kill a dog or cat, but the combination of the two apparently does, forming crystalline structures that block kidney function.

Leftover bad pet food was sold to farms. Health officials at FDA and USDA say a minimum of 2.5 million chickens ate contaminated feed and entered the human food chain in February.

I believe that means we ate them.

While acknowledging they have no idea how this combo-contaminant impacts human health, with or without 'dilution' factors, they refuse to recall any chicken or pork that may be left on shelves or in freezers around the country.

Forget trying to stay up to date on FDA's website. They are too slow adding newly recalled brands in a timely fashion, which is frankly pathetic for a health issue. It takes one web monkey 5 minutes to update a webpage, not 5 hours or 5 days. In fact, I am training monkeys to type right now, and will send them off to help the FDA with this task in the morning.
Itchmo's List of All Recalled Cat and Dog Food
The Pet Food List

U.S. Senator Dick Durbin (D-IL) introduced an amendment to the FDA Reauthorization Bill strengthening human and pet food monitoring, labeling and inspection standards. The Reauthorization Bill, S.1082, is now on the Senate floor.

Barking at Google

Sometimes being independent sucks. Having no investments in any of the pet industry companies I write about gives my company legitimacy and allows me to maintain a truly independent market research firm.

But watching companies like VCA Antech Inc. (NASDAQ:WOOF) grow over the last four years sometimes makes me jealous. VCA Antech outperformed Google Inc. (NASDAQ:GOOG) over the last 12 months.

Note the interesting inverse relationship between these two very different companies as they rise. Click on the chart to enlarge.

Interested in the Pet Industry?
Check out the Pet Industry 2008 Strategic Outlook for an independent overview of emerging pet owner demographic and spending trends.
 

PetSmart, Inc. Nears All-Time High

PetSmart, Inc. (NASDAQ:PETM) celebrated its 20th anniversary this month by announcing a three cent dividend, payable on May 11, 2007, to shareholders of record at the close of business on April 27, 2007.

The stock is quickly approaching its highest point in 140 years. Dog years, that is.

Another company well-positioned after two decades in the pet business is VCA Antech, which also celebrated its 20th this year, as noted in an earlier post.
 

Bad Pet Food Kills Thousands of Cats and Dogs

Two groups presented data confirming a sharp spike in kidney failure from December through March. Dr. Paul Pion of the Veterinary Information Network conducted a survey of veterinarians and estimates 5,000 to 10,000 affected pets, with 1,000 to 2,000 dead. Banfield hospitals saw a 30% rise in kidney failure over the 1 million pets it treated during the same time, mostly in cats, and estimates 39,000 pets to be affected overall. Read the article here

The FDA indicated it will rely on these numbers moving forward.

In a separate development, Pet Connection points to the Marin Independent Journal reporting a top UC Davis lab identified melamine in three Nutro products not on the recall list.

And a Forbes commentary on PR damage control by pet food companies.
 

Senate Hearing on Pet Food Recall

United States Senator Dick Durbin (D-Ill.) announced a Senate oversight hearing on pet food regulations, stressing the need for stronger FDA involvement and better modes of communication between consumers, manufacturers and the government.

Here's the official announcement.
 

Three Weeks Later, Recall Still Growing

The pet tragedy continues to unfold three weeks after the first public announcement on March 16. Menu Foods, the first of six companies to recall product, and after several attempts to reassure the public of its safety, today expanded the date range of its original recall.

Sunshine Mills today announced a recall of its products but failed to mention brand names. Sound familiar? Yes, that is exactly what Menu Foods did on March 16, prompting retailers to pull too many products and consumers to panic.

Tracing just one of the supply chains: the tainted wheat gluten came from unknown sources, through a known middleman in China, to a distributer in the US named ChemNutra, then to Menu Foods' two processing plants. There are other routes, possibilities and companies involved. So the difficulty in finding exactly where the contaminant entered the supply chain is obvious.

Listen to a discussion on pet food manufacturing and animal nutrition with a vet, a food safety expert and a pet food maker, from KQED Forum.

The damage to established brands is yet to be determined, but it seems clear from the news that consumer confidence has been shaken.

I can't keep up anymore.

Pet Connection can.

[update: Sunshine Mills recalled brands have been posted on their website and include Wal-Mart's (WMT) Ol' Roy Puppy Biscuit and Peanut Butter Biscuit.]
 

Pet Food Recall: More Questions Than Answers

What's next? After finding traces of rat poison and large amounts of a chemical used to make plastic in over 100 brands of dog and cat food, the FDA has not ruled out finding yet more contaminants. And I imagine they will, submitting dog food to such a massive battery of tests.

USA Today has an interesting article on the pet food recall, discussing food inspection standards and recent announcements by the FDA.

To stay updated on the recall go to Pet Connection.
 

Pet Food Recall: Supplier Identified

Thanks to Pet Connection and Itchmo for digging this bone out of the media junkyard.

The FDA issued an import alert that names the supplier of tainted wheat gluten as Xuzhou Anying Biologic Technology.

Itchmo has the details and points out that other companies using this importer should contact the FDA immediately.

The implications from all this bring into question the current standards for food quality, testing, importing and labeling. In a global marketplace, maybe the U.S. needs to tighten screening procedures, using data from the supplier country as the least common denominator in determining standards.
 

Pet Food Recall: 2nd Chemical Found

The FDA cannot confirm the presence of aminopterin in the recalled pet foods, but announced today it found a second chemical possibly responsible for kidney failure. Melamine is a chemical used in the manufacturing of plastics, and was found in the affected wet food, in the kidneys of animals, and in the wheat gluten imported from China.

It is not clear exactly which of these chemicals, if any, is causing kidney failure in cats and dogs. The FDA also announced that a maker of dry pet food potentially received a shipment of contaminated wheat gluten. Obviously that referred to Purina and Hills, who expanded the recall to certain Alpo and Science Diet products.

CNN has an update.
 

Kidney Treatment Centers for Pets

The Washington Post reports on the differences between acute and chronic kidney failure, concluding "if your pet ate any of the tainted foods recalled by Menu Foods and is not showing symptoms, that does not necessarily mean your pet is safe."

Newsweek offers an interview with an expert with an interesting perspective on issues about pet food safety and feeding dogs and cats in general.

As noted in an earlier post, the UC Veterinary Medical Center-San Diego's unit for treating acute and chronic kidney failure is one of only two veterinary clinics in California and five in the nation equipped to provide dialysis for cats and dogs.

Another source of advanced veterinary care is the University of Pennsylvania, School of Veterinary Medicine feline renal transplantation program. A cat kidney transplant costs $8,000.
 

Pet Food Contaminated by Rat Poison

ABC News reports on the pet food recall:

"A source close to the investigation tells ABC News that the rodenticide, which the source says is illegal to use in the United States, was on wheat that was imported from China and used by Menu Foods in nearly 100 brands of dog and cat food."

The name of the chemical is aminopterin. A press conference is scheduled for later today by experts in New York, whose food laboratory found the contaminant.

[Update] New York State officials confirmed in a news conference that the name of the chemical is aminopterin. Menu Foods confirmed they do not know where or how it entered the supply chain to contaminate its wet foods products (see complete list at www.menufoods.com/recall. The company said it will take responsibility for pet owner bills for cases they determine are related to the recall.

Officials continue to investigate and expect the number of affected pets to increase.

The New York State Food Laboratory equipped to discover the toxin is a member of the food emergency response network setup by the Department of Homeland Security after 9/11. Aminopterin and other chemicals like Aluminum Phosphide and Ammonia are on a DHS list of extremeley hazardous substances.

 

Expect More Bad News From Pet Food Recall

Read the latest on the recall here.

March 22, 2007 - A pet food recall almost one week old continues to grow in scope. Menu Foods, the largest supplier of wet pet food in North America and private label manufacturer for widely used brands and retailers including Iams and Wal-Mart, still has not figured out the cause.

Official statements by the FDA refer to 16 pets dead, but the true number will most likely be much higher. Cat and dog owners who used the recalled brands are advised to stop immediately and go to the vet for tests. Menu Foods says it fielded 47,000 phone calls over the weekend, but most news reports tell of people unable to contact the company due to overloaded phone lines.

Sixty million packages of wet dog and cat food were recalled, representing 1% of all pet food sold in the United States. Menu Foods own tests showed an alarming mortality rate of 1 in 7, meaning 7 out of 50 animals that ate their food died. Using highly conservative numbers, Dillon Media LLC estimates a minimum number of total deaths that still has three zeros after it, as reported in The Economist. That said, it is important to remember that the vast majority of pets in America are safe.

Anecdotal evidence is beginning to back this up, with six lawsuits already reported in four US states and Canada, Petconnection.com reports over 800 pet deaths in their self-reported database, and news organizations around the country have no problem finding affected people to interview. Many pet owners lost a cat or dog weeks ago, only realizing the cause after the recall was announced.

The San Francisco Chronicle reported this morning that the FDA is not asking vets to report suspected cases of recall-related deaths. This is a mistake. In the lightly regulated industry of pet food manufacturing, official documentation of the toll of this pet disaster will help craft the regulations and legislation that will inevitably follow. The last pet disaster - hurricane Katrina - resulted in new federal and state laws incorporating pets into disaster planning. [Update Mar 23: this FDA FAQ encourages vets to file cases]

This one exposes the manufacturer as a weak link in the chain. Few people probably knew just how many brands Menu Foods produced until they were forced to post the affected labels on their website. Private label pet food manufacturers tend not to name their customers. In fact, Doane Pet Care, who manufacturer's Wal-Mart's Ol' Roy dry dog food, does not even mention on its website that it is owned by Mars Inc. Doane is not involved in this recall.

Read the latest post on this topic here.

Click on a Label to learn more about the topic:

Pet Food Recall Update: Affected Brands

Menu Foods fixed their website and posted the affected brands at http://www.menufoods.com/recall.

Thirty-eight different cat food labels and 46 brands of dog food are listed.

The FDA has posted additional information.

 

Pet Franchises

Franchising.com writes about some popular pet franchisees, including pet services like daycare, grooming and training. Check it out here. But if you're interested in buying a pet business or franchise, don't forget to research the entire industry first with independent market research.

PR Strategy Needs a Recall

Menu Foods, one of the largest pet food manufacturers in North America, announced a recall this morning but failed to name affected brands, saying they will be available tomorrow morning on their website that currently doesn't function. Since they make pet food for Wal-Mart (WMT), Safeway (SWY), Kroger (KR), and many more, people were left understandably confused.

So far, Proctor & Gamble Pet Care (PG) and Safeway have taken the proactive move of recalling their labels possibly affected by their manufacturer, possibly compelled by Menu Foods vague press release that resulted in Friday night newscasts in major cities across the nation asking questions but getting no answers.

[update]
Purina (Nestle), Hills (CL), Petco and PetSmart (PETM) also made proactive moves before the affected brands were announced.

Pet Industry News

PetSmart, Inc., the nations largest retailer of pet supplies, announced 2006 fiscal year results. Net sales in 2006 grew 11% from the previous year, to $4.23 billion. Pet services sales and revenue continue quarterly growth above 20%, generating $376 million in revenue in 2006.

The company will close all 180 State Line Tack departments, exiting the equine business to make room for higher margin pet supplies or PetsHotels.

Earlier this month, PetSmart increased its number of stores in Canada by 58% to 42 with the acquisition of 19 Super Pet stores.

One current advertising campaign directs users to the Nutrition Selector on the website, featuring highly differentiated premium dog and cat foods. Pet food is the largest segment of the industry - American's spend about $14 billion each year on pet food - and a primary driver of the consumer into the store.

Petco, the nation's second largest pet specialty retailer, went private last year but refuses to sit, expanding on services and pampering themes. The company announced a nationwide fashion show marketing campaign, and was reported to be exploring the mobile grooming business in Las Vegas.

Central Garden & Pet, the largest supplier of pet items to PetSmart, Petco, Wal-Mart, Target and many others, has been impacted recently by rising grain prices and Wal-Mart's decision to stop selling live fish. But it continues to innovate and grow across many segments of the industry, winning nine New Product awards at the 2007 Global Pet Expo.

Nestle, the world's largest food company, will open its first pet food factory in China this year as it tries to take a bite out of Mars Inc's Chinese market share. Mars has been in China for 10 years, and sells a lot of Pedigree and Whiskas to the local market through an alliance with a Chinese company, in this case Effem Foods (Beijing) Co. Ltd. Nestle may benefit from newer foreign ownership regulations.

.

VCA Antech Gets an Optimistic Diagnosis

What better way to celebrate a twentieth anniversary than by watching the share price hit an all-time high? VCA Antech, Inc. (Nasdaq:WOOF) did just that, beating 2006 estimates and providing upbeat 2007 guidance, citing increases in just about everything from margins to revenues to average order size.

The company bought it's first animal hospital in 1986, and now owns 379 veterinary hospitals in 37 states, operates 33 laboratories that serve all 50 states, has about 10,000 employees and over a billion dollars in annual revenue.

Actively consolidating the veterinary channel, VCA Antech noted in its 4Q and Full Year 2006 conference call very strong growth in digital radiography (high-resolution digital x-ray images) equipment. Recent market penetration has established the company as a leader in this growing area.

Management attributes the company's 2006 growth to "the great market that we're in" and to the core execution of business processes and strategic plans

Source: VCA Antech
Video: WOOF Report

Marketing Veterinary Services?
Check out the Pet Industry Strategic Outlook by Dillon Media.
 

Eli Lilly Enters Pet Health Market

Leveraging existing strengths in human and production animal medications, Eli Lilly and Company will launch a new business group focused on companion animal health. The first products will address obesity and separation anxiety and launch by the end of the year, according to the company's website. Lilly will expand ties to practitioners and schools of veterinary medicine, and hire staff to expand strategy, development and sales at Elanco Animal Health, its production animal division.

Pet Industry Trade Shows 2007

Read the 2008 Update Here

A sure sign of industry growth is tradeshow growth, and the Global Pet Expo, hosted by trade organizations APPMA and PIDA, has quickly become one of the most significant. Industry publication Tradeshow Week recently named the Global Pet Expo one of the top 50 fastest growing trade, association, and consumer shows of the year.

International trade shows are also growing in popularity. In 2006, the number of international companies exhibiting at Germany's Interzoo was up 75% from the previous show. The leading nations besides Germany were China with 160 companies, up from 126 in 2004, and the USA with 129 companies, compared to 111 in 2004.

Below is a partial list of some more:

North American Veterinary Conference
January 13-17, 2007, Orlando FL

PIDA Management Conference & 39th Annual Meeting
January 20 - February 2, Dana Point CA

Groom & Kennel Expo 2007
February 9-11, Burbank CA

International Council of Shopping Centers trade shows include the 2007 ICSC Specialty Retailing Conference on Feb. 20-23 in Palm Springs, CA.

International Home & Housewares Show
March 11-13, 2007, Chicago IL

AAHA Yearly Conference 2007
March 17-21, Denver CO

Global Pet Expo 2007
February 22-24, Orlando FL

H.H. Backer Spring 2007
March 30 - April 01, Atlantic City NJ

WWPIA hosts SuperZoo on Sep. 18-20 in Las Vegas, and America's Family Pet Expo.

Pet Fair Asia consists of Pet Fair Professional and Pet Paradise Asia on Sep. 19-22 in Shanghai, China.

Pet South America
September 26-28, Sao Paolo, Brazil

Marketing to Pet Owners?
Check out the Pet Industry 2008 Strategic Outlook by Dillon Media.

PetSmart 3Q results highlight services growth

PetSmart Inc., the nations largest pet specialty retailer, posted higher earnings in its third quarter 2006 results. Net income grew1.9% to $31.7 million on net sales of $1.0 billion, up 14% from the same period in 2005.

Comparable store sales grew 6.8% in the quarter, compared to 2.4% during last year's third quarter. Pet services sales were up 25.4% to $89.7 million.

Source: petsmart.com

In earlier conference calls, CEO Phil Francis has said services customers on average spend more money and return to the store more often than others, and that dog grooming is the primary driver of the services-oriented pet parent into the store.

Pet services spending has grown consistently over the last decade. These days, both the busy professional and the empty nester happily spend record amounts of money on dog grooming, boarding and training.

And the aging demographic of American househoulds should continue to drive this trend in the future. Click on the chart to enlarge.

Pet Health Reference Search

Check out this search engine tailored to pet health symptoms, diseases, medications and information.

 

Animal Planet adopts Petfinder

Animal Planet, owned by Discovery Communications, adopted Petfinder.com and PetsIncredible as it expands its reach into consumer channels. Earlier in 2006 the company announced plans to bring its Animal Planet Expo to twelve locations in the U.S. PetsIncredible sells DVDs for pet owners and trainers, and the popular adoption site petfinder.com generates 120 million page views each month, according to Mediaweek.

Starbucks targets dog owners

Starbucks, in a localization trend, has started to appeal to dog owners. According to the Wall Street Journal, a Starbucks in Portland responded to strong dog owner demographics by adding an outside window counter so customers can purchase coffee without bringing their pets inside ("At Starbucks, Coffee Comes With New Decor," by Janet Adamy, The Wall Street Journal, Nov. 10, 2006).

Coach pet accessories in 2006

New for the 2006 holiday season from Coach is a private label pet carrier costing $398. This continues a relatively slow expansion into pet supplies for the company.

Related Posts:
Aug 2007 Paco Collars - Handmade Leather Dog Collars
Sep 2005: Coach dog collars and leashes online
Jun 2005: Coach pet accessories in 2005

Luxury Pet Products

Retailers continue to appeal to pet owners. Whether looking for broader customer reach or attracted by high profit margins, this trend is evident across the range of retailers, from dollar stores to luxury boutiques. Even Target and Wal-Mart are moving upmarket, but what's at the top?

Neiman Marcus just released the new Christmas Book, featuring a much larger selection of luxury pet accessories than last year, including a $185 dog leash that matches personal accessories and an Italian-designed dog house for $8,000. Notably, there's also a Neiman Marcus-branded pet throw costing from $485 to $800.

Macy's launched it's second pet department in Philadelphia last month. The first 'Pet on the Woof' boutique opened in NYC last year.

Harrod's in the UK holds an annual pet fashion show called Pet-a-Porter.

And one of my favorite online luxury retailers, Pampered Puppy, recently wrote about brand extensions from the likes of Kate Spade, Von Dutch and Burberry.

Read More:
Neiman Marcus
Marco Morosini
Pampered Puppy

Not in the Pet Industry? Maybe You Are

The independent product evaluators at Consumer Reports magazine seem to be paying more attention to pets these days. Besides reporting on dog and cat products and services recently, including airline policies for pet travel, they are beginning to address the impact of a dog or cat on household products they test.

The October 2006 rating of vacuum cleaners includes a sidebar explaining how they are adjusting methodology to allow for pets, most notably they collected six months worth of cat hair and mashed it into a rug. The surprise is how poorly some top-rated vacuum cleaners performed.

Just another reminder that a large percent of almost everyone's target market owns pets.

Source: www.consumerreports.org

Dog Grooming Laws

The Wall Street Journal reported last week on the changing nature of the pet services industry. High demand and more competition for dog grooming has increased deaths and injuries in a lightly-regulated environment, so animal welfare groups and lawmakers are pushing for changes ("Deadly Incidents Prompt Concern About Pet Salons," by Sara Schaefer Muñoz, The Wall Street Journal, Aug. 2, 2006). Laws being considered in New York and Pennsylvania would require training and licensing for groomers.

Pets are considered property by the legislative system for the most part. Even though animal welfare laws continue to evolve, mirroring the humanization trend, as a piece of property, a dog is not much different than an appliance when it comes to damage and loss. According to the Wall Street Journal, many attorneys refuse to take on cases involving pets, and those who do, and win, often get just above the market value of the pet.

Marketing Pet Services?
New research from Dillon Media shows demographic info by age, income and more, for consumer spending on pet services in the U.S. Includes a current pet industry overview.
 

Petco Turns Private

Petco Animal Supplies (NASDAQ:PETC) will be acquired by two private equity firms for $1.68 billion. Leonard Green & Partners, L.P. and the Texas Pacific Group, who previously took the company private from 2000 to 2002, have agreed to do it again, adding Petco to their portfolios of investments.

Removing analyst pressures and vagaries of public sentiment seems to me a wise strategic move at this juncture, allowing the company to better focus on its strengths and dynamically adjust the business in the market. A low stock price and emerging indications of new consumer behaviors may be two factors involved in the decision.

Read more:

PETCO Animal Supplies, Inc. to be Acquired by Texas Pacific Group and Leonard Green & Partners, L.P. for $29.00 per Share in Cash, Petco Animal Supplies, Inc., July 14, 2006.

Petco Agrees to $1.68B Buyout by Group , by Elliot Spagat, The Associated Press, July 14, 2006.

Disney Expands into Pet Market

Reuters reports that The Walt Disney Company (NYSE:DIS) plans to expand its range of pet products globally, producing collars, clothing and bedding for pets by licensing its valuable portfolio of characters.

Current lines include a Pirates of the Caribbean aquarium and an Old Yeller private label dog food. Details on the expansion plans were not provided.

Licensing arrangements generate about 70% margins for Disney, and consumers worldwide bought $21 billion of products branded by Disney last year ("Disney barking up a new tree with pet products," by Jeffrey Goldfarb, Reuters, June 7, 2006).

PetMed Express

PetMed Express continues to increase the dosage. As the largest pharmacy for dogs, cats and horses, PetMed is well positioned in the prescription and non-prescription pet health segments.

PetMed won the 27th spot on BusinessWeek's list of the top 100 Hot Growth companies. By focusing on their best-selling products and their relationship with vets, PetMed grabbed 1.3 million customers in the past two years, each spending about $76 ('Hot Growth: 100 Sizzling Companies to Watch,' by Arlene Weintraub, BusinessWeek, June 5 2006).

And Standard & Poor's on June 5 announced that PetMed Express, Inc. (NASDAQ:PETS) will be added to the S&P SmallCap 600 GICS (Global Industry Classification Standard) Catalog Retail Sub-Industry Index on Monday, June 12.

Besides the natural alignment with pet health trends, I think PetMed is also decently positioned against high gas prices simply because of its online business model.

Marketing Pet Health Products or Services?
A new report is out, with trends and demographics by age, income, region and family size, called 'Consumer Spending on Veterinary Services 2000-2004.' Check it out.

Organic Pet Food by Wal-Mart Stores, Inc.

The pet food industry continues to evolve at a fast pace. Just two months after Target Corp. (NYSE:TGT) introduced a private label premium pet food, Wal-Mart Stores Inc. (NYSE:WMT) launched a private label, all natural, organic pet food called Natural Life.

Moving further upscale, Wal-Mart is also stepping up competition in the $14 billion market for pet food. It already sells Ol' Roy dog food in the non-premium dry segment, and has now entered the organic pet food market, which is growing at high double digit rates annually.

Ol' Roy is a Wal-Mart private label manufactured by Doane Pet Care Co., a leading supplier of private label food to many companies. Doane announced today that it is being acquired by privately held Mars, Inc., owner of Pedigree, Sheba and Whiskas pet foods.

So Mars now owns the company that makes Wal-Mart's top-selling dry dog food. Mars launched a $200 million advertising campaign for Pedigree in '05, which is not sold at Wal-Mart and does not directly compete with Ol' Roy, but Wal-Mart's new entry into the premium space should be interesting to watch. I would assume (but don't really know), that Doane's also manufactures brands that compete directly with Pedigree.

Del Monte Foods Co. (NYSE:DLM) recently bought the Meow Mix and Milk-Bone brands for over $1 billion.

The Proctor & Gamble Company (NYSE:PG) bought Iams in 1999 and brought it out of veterinarian offices and into 25,000 retail outlets, developed a tartar control coating using processes from Crest toothpaste, and turned Iams into the nations top pet food brand by dollar sales according to AC Neilsen with 10% of retail sales in Sep 2005. In 2006 P&G will debut a tartar control pet treat and possibly pet shampoos and odor removers as well ('Pets are People Too, You Know,' Businessweek Online, Nov 28 2005).

Colgate-Palmolive Company (NYSE:CL) owns Hill's Science Diet, which was sold primarily in the vet channel until last year when it became available in PetSmart, Inc. (NASDAQ:PETM) retailers with in-store Banfield hospitals. Similar to Procter & Gamble, it seems Colgate-Palmolive is well positioned to use existing processes and technologies to produce odor control products from pet shampoos to fabric cleaners.

Colgate today announced first quarter 2006 results. Sales rose 5 percent to $2.87 billion from $2.74 billion, with the oral, personal and home care segment up 4.3 percent to $2.49 billion and the pet nutrition segment up 7 percent to $385.3 million. Hill's sales accounted for 13 percent of the company's total sales.

Nestle Purina PetCare owns many brands including Alpo, Beneful, Pro Plan, Purina One, Puppy Chow, Fancy Feast, and Friskies. Headquartered in St. Louis, Missouri, where Ralston Purina Company was founded more than a century ago, the company is part of the Swiss-based Nestle S.A. - the world's largest food company.

Marketing to Pet Owners?
Check out the Pet Industry Strategic Outlook by Dillon Media.

Pet Care in the 21st Century

Advances in veterinary medicine, new screening and treatment options, and consumers more educated than ever about pet diseases continue to drive the market for pet health care products and services.

Dog and cat owners in San Diego, California now have access to top-quality care at the new clinical facilities for the UC Veterinary Medical Center-San Diego.

The unit for treating acute and chronic kidney failure is one of only two veterinary clinics in California and five in the nation equipped to provide dialysis for cats and dogs. Other services includes behavioral, pharmaceutical, and nutritional specialty care.

The center was established in 1998 by UC Davis and UC San Diego to collaborate on teaching and research and to promote emerging specialty services in Southern California.

Related links:
UC Davis School of Veterinary Medicine
Marketing veterinary services? - Charts of vet spending by age, income and family makeup. Purchase online.
Pet Health Reference Search - A customized search engine for symptoms, conditions and treatments.

40 Percent of US Households Own a Dog

The pet industry recovered nicely from a slight slowdown last fall and winter, and continues to exhibit strong and resilient growth patterns.

The overall industry reached $36.3 billion in the U.S. in 2005, according to the APPMA, up 5.5 percent from 2004, and up 27 percent since 2001.

Segments in 2005 that beat earlier estimates include food ($14.7 billion), veterinary care ($8.7 billion), and services like grooming and boarding ($2.5 billion).

The APPMA estimates that 63 percent of households own a pet of some sort, and that 39.2 percent of American households own 74 million dogs.

Market Research Report:
Check out the Pet Industry Strategic Outlook by Dillon Media.

Target Launches Premium Pet Food Label

Target Corporation (NYSE:TGT) announced today the launch of a 'super-premium' private label pet food, firmly placing itself as a competitor to PetSmart and Petco in the pet food and supplies category.

According to the company press release, 'The LIFELong line of pet food features five scientific formulas, each offering high-quality protein such as real lamb and chicken; antioxidants such as vitamins E and C and selenium; omega fatty acids such as linoleic acid, and other premium ingredients. Designed to provide unconditional pet nutrition, LIFELong pet foods help to support healthy immune systems and cardiovascular health, promote strong muscles, bones and teeth, freshen breath and maintain visibly healthy coats' (source: target.com).

Related posts:
Jun 2005: Target Pets TV Ad Campaign
Apr 2005: Target Unleashes Pet Website

Small Dogs Gaining Popularity

New American Kennel Club (AKC) data for 2005 show that small dogs are getting big respect. Labs and retreivers are still the number one and two most popular purebred, but the registration numbers for retrievers declined while Yorkshire terriers gained 9% to reach the number three spot (Pets: My Little Puppy, by Elise Soukup, Newsweek, Feb. 20, 2006).

Small dogs featured prominently at the Westminster Kennel Club Show, apparently behaving better than the people, as reported by David Segal in the Washington Post (Humans Unleashed, Washington Post, Feb. 16, 2006).

And the Financial Times recently reported on the rising popularity of 'designer' dogs in Australia, where the popular Labradoodle (Labrador x Poodle) was developed in the 1970s to create a non-allergenic service dog. Currently, most of the popular crossbreed canines are small, including bichoodles, schnoodles, spoodles, roodles, shih-poos, and puggles (Pug x Jack Russell), and come at a premium price even compared to purebreds ('All the Rage in Australia,' by Rebecca Tse, Financial Times, Oct 22, 2005).

Marketing Research Report:
Check out the Pet Industry Strategic Outlook by Dillon Media.

Pet Industry Trade Shows 2006

(CHECK OUT THE UPDATE: 2007 Pet Industry Shows)

February 2006
Pet Industry Distributor's Association (PIDA)
PIDA 2006 Management Conference and 38th Annual Meeting
February 8-11, 2006
Hyatt Grand Champions Resort and Spa, Indian Wells, California

March 2006
International Home and Housewares Show
March 12 - 14, 2006
McCormick Place, Chicago, IL

American Animal Hospital Association (AAHA)
AAHA Annual Conference
March 18 - 22, 2006
Long Beach Convention and Entertainment Center, Long Beach, California

Global Pet Expo
March 23 - 25, 2006
San Diego Convention Center, San Diego, CA

April 2006
H.H. Backer Spring Show
April 7 - 9, 2006
The New Atlantic City Convention Center, Atlantic City, New Jersey

May 2006
Interzoo 2006
May 11 - 14, 2006
Exhibition Centre Nurnberg, Nurnberg, Germany

September 2006
Pet South America 2006
September 20 - 22
Transamerica Expo Center, Sao Paolo, Brazil

Pet Fair Asia and Pet Paradise
September 20 - 24
Shanghai New International Expo Centre, Shanghai, China

October 2006
H.H. Backer Christmas Show
October 6 - 8, 2006
Donald E. Stephens Center, Rosemont, IL

Pet Business Opportunities in Los Angeles

An article in the Washington Post about a $10 billion facelift for downtown Los Angeles mentions some interesting statistics suggesting potential opportunities for pet industry franchises and businesses:

There are more pets than children living in downtown Los Angeles.

There is a shortage of retailers and services for that area.

Residential units are forecast to grow 300% in the next 4 years.

Major development of retail, hotel and commercial space is planned.

Read the full article here.

Looking toward 2006

The large pet specialty retailers took a hit in consumer traffic this summer due to a shift in consumer shopping behavior. High gas prices forced people to consolidate trips around a central shopping destination like the grocery store or home supplies store, resulting in fewer trips to PetSmart, Inc. (NASDAQ:PETM) and Petco Animal Supplies, Inc. (NASDAQ:PETC) and fewer purchases of high margin goods.

No kidding. Over the summer I found a coupon in the mail to visit the new PetSmart across town. It was for $3 off a large sack of premium food. Considering it would cost nearly that much in gasoline to drive there ($3.17 a gallon at the time), this hardly seemed worth an extra trip.

But pet services proved resilient to these changes, growing at over 20% all year. Petco announced in its 3rd Quarter conference call on Nov 22 that services customers also return to the store more often, and spend more per trip, than the average customer. Grooming is the major driver of this trend, according to Bruce Hall, president and COO of Petco.

The industry remains healthy and I believe will see 2005 overall growth above 4 percent. Central Garden and Pet Co. (NASDAQ:CENT), a major creator and supplier of pet supplies, forecasts net sales growth of 5-6 percent for 2006. While Petco and PetSmart's stock prices have declined over the last year, significant gains were seen in health-related pet companies like PetMed Express, Inc. (NASDAQ:PETS), VCA Antech, Inc. (NASDAQ:WOOF) and MWI Veterinary Supply, Inc. (NASDAQ:MWIV) during 2005.

Segments like premium food and health care saw a huge boost in consumer awareness and acceptance in 2005 due to mass-marketing and are poised to continue strong growth next year in a more competitive environment.

For businesses selling pet products and services, check out The Pet Industry Strategic Outlook Report by Dillon Media LLC.
 

Pet Insurance 2006

The market for pet insurance continues to exhibit strong growth and shows no signs of letting up in 2006, with both consumers and corporations buying more policies than ever before. The Wall Street Journal reports that pet insurance is currently offered by 5% of companies, up from 1% in 2000, and that Google (NASDAQ:GOOG), Hilton Hotels (NYSE:HLT) and Mercedes-Benz USA (a wholly-owned subsidiary of DaimlerChrysler North American Holding Corporation) plan to offer it as an employee benefit in 2006. The newspaper also reports on the fees submitted to VPI, the largest pet insurance provider in the U.S., for the most frequent claims. For dogs, the number one claim is for soft-tissue trauma costing an average of $88 each ("More Employers Are Offering Pet-Insurance Benefits," by Kerry Hannon, The Wall Street Journal, Nov. 12-13, 2005).

I think the primary driver of this segment is still the trend of humanizing pets, not only for insurance but for medications, veterinary care, pet health products and clinical trials. Treating pets just like their own children, pet owners are increasingly willing to spend large amounts of money on medical care.

The potential impact of the trend of humanizing pets may change the pet insurance industry in 2006. Pet industry followers currently cite the lack of lawsuits in the pet insurance industry as another factor in its growth, but assuming pet industry trends will once again mirror human trends implies a potential increase in lawsuits against veterinarians and pet insurance companies.

Marketing Vet or Health Services?
Market research explores health trends and consumer spending in the pet industry. Ideal for marketing, advertising and product development.

Related Links
Pet Health Reference Search
Pet Care in the 21st Century
 

SpongeBob and his pet snail

SpongeBob SquarePants, the popular children's tv show on Nickelodeon, is showing a special 30 minute episode tonight with a pet-related theme.

SpongeBob's pet snail, Gary, runs away when his owner becomes distracted, only to be reunited when SpongeBob realizes he cannot take his pet for granted. Pretty simple, and looks funny. Read more here.

Being the top show in the 2-11 age range, and with over 12 million adults also watching, I wonder if pet snail sales are booming.

Some snail resources:

Apple Snails - a common aquarium pet.

Wikipedia on Snails - general snail info.

Man and Mollusc - some info on pet snails.

Snails for Kids - snail facts for children and teachers.

MWI Veterinary Supply Q4 and 2005 Results

With solid numbers for the fourth quarter and 2005 year, wholesale distributor MWI Veterinary Supply, Inc. is rapidly establishing itself in the pet health market. Net income for the quarter rose 112 percent compared to last year, while net income for the full year rose 80.5 percent to $4.6 million.

According to President and CEO Jim Cleary, vet supplies sales have resisted the changes in consumer spending behavior seen by other retailers in the wake of higher energy prices. Like the pet services market, which retained strong growth rates relative to pet supplies over the summer, it seems to me one more indication that pet owners are unwilling to compromise on the health, wellbeing and appearance of their pets.

Along with increased market penetration, the growth of its companion animal business is positively impacting the company. Citing growth rates "above market" for both companion animal and production (eg. cattle) lines, Jim Cleary noted that the fourth quarter saw the companion animal business grow at a "significantly higher" rate than the production business. These higher margin products boosted the bottom line.

The company shows signs of moving up the value chain. With strategic plans for distribution logistics, customer service and value-added services, 2006 will also bring an expansion into private label products. With three current private label products at "relatively low" sales levels, the company mentioned several additional products are in the pipeline for 2006.

I believe the company is also riding two strong trends within the pet industry, namely pet insurance and medications. Only last year, pet insurance underwent a fundamental shift, from being marketed traditionally through veterinarians to being mass-marketed by retailers like Petco. Similarly, pet medications are produced by some of the largest pharmaceutical companies in the world that spend significant amounts of money on this segment.

Related Links:
Consumer Spending on Vet Services - purchase charts of pet owner spending trends by age, income, family size, and more.

Related Posts:
MWI Vet IPO
Dog Flu Info

Pets around the globe

Countries around the world are undergoing legal, cultural and industry-related changes involving pets as they continue their integration with our lives.

In the U.S. the fact that a dog serial killer in Hong Kong made the front page of yesterday's Wall Street Journal - a story with no tangible business angle but evoking a strong gut reaction - emphasizes the growing trend of humanizing pets ("On a Hong Kong Trail, A Serial Dog Slayer Terrorizes Pet Owners" by Kate Linebaugh, The Wall Street Journal, Oct 27, 2005). Anyone up for a stakeout?

In China, the number one consumer of dog meat in the world, there is a concerted effort underway to remove it from stores and menus before the international community arrives for the 2008 Olympics in Beijing. The government has relaxed pet ownership rules as a burgeoning monied class in a one-child society seeks companionship and retail therapy.

The result is a country with restaurants that serve dogs as well as restaurants that simply serve dog. The pet industry in China has exploded and I expect it to maintain strong growth for the next few years. At least.

Photo by Elizabeth Dalziel, AP

In Rome, citizens must now walk their dogs at least once a day, or face a fine. Expect a spike in sales of dog collars and leashes in Roman retail stores, just in time for the holidays.

In London, the government recently announced an animal welfare bill touted as the most significant in nearly a century. Provisions include increasing fines and prison time significantly for cruelty violations and prohibiting sales of animals to minors.

In Taiwan, the Council of Agriculture recently announced new policies regulating the import, export and sale of pets in response to strong pet ownership statistics.

Related Posts & Links:
Airline pet law goes into effect
The family dog
 

Dog Flu Info

Just like humans, dogs get the flu, and one is spreading around the country, impacting services like daycare and boarding kennels as pet owners begin to stay away, as reported in The Washington Post (link removed: article is no longer available).

The virus, first noticed in racing greyhounds and initially confused with the common "kennel cough," has now infected pets in nine states from California to New York, apparently taking veterinarians by surprise. With no vaccine and an estimated 5% mortality rate, dog owners are becoming increasingly concerned ("Pet Owners Worry About Dog Flu's Spread," by Jim Fitzgerald, The Associated Press, Oct 14, 2005).

Considering the unprecendented awareness of pet health issues, media reports of bird flu, and cyclical flu seasons in general, events like this may begin to impact the pet industry more frequently or strongly in the future.

Halloween Dog Costumes

The American Kennel Club (AKC) reported that 10% of owners will dress their dogs in costumes for Halloween, 49% like the idea, and that women are 6% more likely than men to do so.

The survey, conducted for the AKC by Kelton Research, sampled 1,000 adults in the U.S., 500 dog owners and 500 non-dog owners.

Separately, a survey of shoppers conducted by August Partners for The Macerich Co. reported that 21% of 4,300 respondents will dress up their pets for Halloween ("Trick or Treat. Arf!" Retail Traffic Magazine, Oct 1, 2005).

This implies an interesting marketing experiment: selling pet products to non-pet owners. For example, amongst the ubiquitous Halloween-branded packages of candy at every grocery store in the nation could be similarly packaged dog treats targeted at people who do not own pets, but may find some at their door on Halloween. Also, "Trick or Treat" from a dog's point of view could have devastating effects on your flower garden or lawn.

My question is, has this been attempted in any pet product category, and if not, is it only a matter of time?

Halloween tips for pet owners by the American Kennel Club.

Some dog costumes on the web:

Pampered Puppy is always a source of great dog accessories.

Petco's website has been heavily Halloween'd

PetSmart has a small image on the lower right of the page for dog costumes.

Target has dog costumes but they are difficult to find on their site.
 

Honda Introduces Pet Friendly Cars

The Wall Street Journal reported this morning that Honda Motor Co. will unveil a minivan designed for dog owners later this month at the 2005 Tokyo Motor Show. [Update: Honda Dog Website Launched]

The concept car, currently being tested for consumer reaction, includes amenities like a built in dog dashboard carrier, washable seats, a third seat row that reconfigures into a holding pen for larger dogs, and tire treads shaped like paw prints.

Honda will also introduce the "Travel Dog" line of car accessories in Japan, including a $440 "pet cargo cover" that pulls out into a dog bed, according to the newspaper.

Source: "Honda Caters to Japan's Pet Population Boom," by Jathon Sapsford, The Wall Street Journal, Oct. 5, 2005

Related Posts:
Aug 17, 2007 Dog Friendly Car Reviews by DogCars.com
 

Coach dog collars and leashes online

Well in advance of the holiday season, Coach, Inc. (NYSE:COH) has begun selling a new line of dog collars and leashes on its website.

Costing between $42 to $68 may seem expensive for dog collars, but these high-end pet accessories should appeal to the existing Coach customer, who might be used to paying the same amount for a keyring.

Related Posts:
Paco Collars - Handmade Leather Dog Collars
Coach dog carrier for 2006
Coach pet accessories in 2005
Polo Ralph Lauren dog apparel
Isaac Mizrahi and Michael Graves at Target.

Pet Evac Roundup

A rapid understanding and acceptance after the horrific aftermath of Katrina on people and pets has resulted in equally rapid movement to make things better.

In the face of Rita, preventive action was taken by informing people to get out of town and bring their pets. It has been widely reported, on CNN, the BBC, RAI Italy and the Financial Times among others, that cars evacuating Texas are full of pets this time around, unlike Katrina where many people left their pets assuming they'd be back in a couple of days.

But most hopeful is the legislation sponsored by Representatives Tom Lantos (D-Calif), Barney Frank (D-Mass) and Christopher Shays (R-Conn) that would condition state and local disaster preparedness plans on having provisions for companion and service animals. Read more here.


Related Posts:
PetSmart and FEMA
No-pet policy is 'a lousy plan'
Lesson for FEMA: feed the dog
Pets and hurricane Katrina
The dog as part of the family

PetSmart and FEMA

PetSmart and FEMA tried to work together after Katrina to help rescue pets as detailed in the Newsweek article Cash and 'Cat 5' Chaos. It didn't work out very well as FEMA dropped the ball after placing a $28,000 order.

But it's a start. In preparation for Rita, the Mayor of Galveston said pets in cages would be allowed on evacuation buses, a proactive move that should be imitated in other disaster evacuations, and one signalling a fast response to public sentiment on the issue.

Maybe privatizing disaster recovery and relief isn't a bad idea. At least companies that excel in supply chain logistics often also have people in charge with relevant experience. Instead of no-bid contracts and reductions of consumer and worker protections in the name of 'recovery' - which is a recipe for fraud - why not hire those most skilled at the task and provide incentives for quality work. This is how highway 10 in Los Angeles got rebuilt over 90% ahead of schedule after the Northridge earthquake, saving the state from losing an estimated $600,000 per day for two years.

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No-Pet Policy is "A Lousy Plan"

"A plan to evacuate and care for the victims of a natural disaster, if it doesn't include their pets, is a lousy plan."

A quote from a letter written to the Washington Post by Jim Perkins, who commanded the U.S. joint task force that evacuated 21,000 Navy and Air force family members and their pets from the Philippines after the eruption of Mount Pinatubo in 1991.

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Lesson for FEMA: feed the dog

Should FEMA, state and local agencies include pets in future evacuation plans? Some people will say that's stupid, but the fact remains that many people risked their lives - and others' - for their pets (read more from the Washington Post: Strays of Hope), dramatically highlighting the difficulties in forcefully separating companion animals from their owners.

Yes, many people view their pets as children, and yes, images of pets are easy attention-getters. But the situation in the Gulf is beyond that; after losing one's home and all one's possessions, everything except a pet, imagine being told to abandon Fido to a slow death. Besides being illegal under state law, this might just seem insane to an evacuee who has lost so much already.

Kudos to the Navy people who built a kennel and solved the problem instead, and to every volunteer out there trying to help.

As noted in the first post of this blog, the family dog is not a watchdog any more, but more like a child to many owners. And a legislative trend is already underway in the U.S. shifting pet ownership from property rights to guardianship laws, reflecting the cultural norm of pets as 'one of the family.'

This is nothing new according to pet industry statistics. In fact, a staggering 93 percent of owners said they would risk their life for their pet, according to the American Animal Hospital Association's 2004 Pet Owner Survey.

So listen up, FEMA. Or at least turn on CNN. Fido may not be a child, but sure isn't a toaster oven either.

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Pets and hurricane Katrina

The aftermath of hurricane Katrina is taking its toll on pets as well as people. The sheer number of news stories on people abandoning pets or refusing to leave them behind is telling. The Louisiana SPCA alone has rescued over 400 animals.

On Sep. 6, searching Google News for Katrina pets yielded 3,070 results. One week later there are over 6,000.

The LSU School of Veterinary Medicine has set up an emergency animal shelter to house pets, including horses, until they can be reunited with their owners. Read more in Newsweek: Pets in Peril (Sep 13, 2005).

The American Pet Product Manufacturer's Association (APPMA), one of the main industry trade organizations, has information on how to donate to shelters in need, and another section for shelters in need of donations.

Some organizations helping with animal rescue and care, from CBS News:

Humane Society of the United States
800-486-2631

American Society for the Prevention of Cruelty to Animals
866-275-3923

American Humane Association

Noah's Wish 530-622-9313

Searching for a lost pet? Visit petfinder.com.

Hotline only for New Orleans residents who had to leave their pets behind: 225-578-6111

Hotline for evacuees in the Houston area who need a place to house their pets: 713-802-0555

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Organic pet food industry

The USDA reversed an earlier decision and will continue to certify 'USDA Organic' labels for pet food. Although organic food - made without pesticides, chemicals or hormones - represents only $14 million out of the $14 billion pet food segment, sales increased 63 percent last year, according to the Organic Trade Association.

PetSmart to rebrand with new logo

PetSmart, the nations largest pet retailer, will reposition its brand in the marketplace, introducing a new logo and nationwide advertising campaign on September 7.

"Mart to Smart" represents the culmination of over a year of planning, according to the company, and the new marketing strategy aims to develop brand awareness and bring in new customers in target markets.

Nationwide television, magazine and radio advertisements will emphasize pet food and low prices, introducing the new brand in the company's largest ad campaign in the last few years.

The retailer will emphasize 'Smart' over 'Mart' and has released previews of the new PetSmart TV commercials.

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Dreyers dog treats

The Los Angeles Times reported today that Dreyer's, the nations largest ice cream company, is expanding further into the dog treat market by offering a second flavor of ice cream for dogs.

The first flavor of Frosty Paws Frozen Treats for Dogs has been around for years and, according to the newspaper, has become a $10 million product line generating the highest profit margins of all Dreyer's products.

The article discusses how the new flavor addresses an interesting marketing issue: how to sell dog food and human food in the same aisle, even the same freezer. Since both Purina dog food and Dreyer's ice cream are controlled by Nestle, the result is a peanut butter flavored, Purina branded dog treat.

("Dreyer's Scoops Up a Share of Doggie Treats Market," by Jerry Hirsch, Times Staff Writer, Los Angeles Times, Aug 18, 2005)

The founders of Dreyer's Grand Ice Cream, sold as Edy's east of the Rockies, invented Rocky Road ice cream during the depression from their headquarters on Grand Avenue in Oakland, California.

There's a handy store locator on the website: frostypawstreats.com.

And the San Francisco Chronicle just published (Aug 23) a comprehensive history of Frosty Paws here.

MWI Veterinary Supply

A vet supply company goes public. Although MWI Veterinary Supply, Inc. has been around for over a decade, it was acquired in 2002 by a private equity firm that apparently had its eyes on the pet industry.

Distributors to 14,000 vets of 10,000 products from 350 vendors, MWI Veterinary Supply consolidates a large number of products in a strong growth sector of the still fragmented pet industry. Serving the production animal line (cattle, for example) as well as companion animals, MWI is seeing approximately equal growth in both.

The company said third-quarter profit rose to $1.4 million, or 24 cents a share, from $71 million, or 12 cents a share, in the same quarter last year. Revenue for the quarter rose 30 percent to $138 million.

President and CEO Jim Cleary noted that eCommerce sales as a percent of total sales was 20.7 percent compared to 17.4 percent in the same quarter last year.

This company reminds me of Central Garden and Pet a number of years ago, as it transformed from a distributor to a major producer of pet products by acquiring the best of its suppliers. MWI Vet finds itself in a good position to follow that strategy, and shows signs that it will. Having acquired Vetpo Distributors in January 2005, the company has produced $8.7 million in sales from the transferred sales reps since then, and mentioned in the earnings conference call it will pursue more strategic acquisitions.
 

Pet industry trade shows 2005 2006

Please see the updated post listing pet industry trade shows in 2006.

Get off the beach and start thinking about the holidays and 2006. Its trade show season for the pet industry.

Global Pet Expo 2006
Mar 23-25, 2006
San Diego, California

H.H. Backer Christmas '05 Trade Show
Oct 7-9, 2005
Rosemont (Chicago), Illinois

Pet South America
Oct 5-7, 2005
Sao Paolo, Brazil

Pet Fair Asia
September 21-23, 2005
Shanghai, China

Pets in catalogs

For the first time, IKEA introduced dog and cat accessories in its catalog. Food bowls, cat toys, pet baskets, and a blanket, most priced below $10, with the slogan 'creature comforts at humane prices.' To see all the items, visit the pet section of IKEA's website.

Just received the latest batch of Drs Foster & Smith catalogs for dogs, cats, birds and aquatics, and am impressed. As a case study in marketing techniques, this is the opposite of how its done at the specialty stores. Only products reviewed by veterinarians are included in these catalogs. Walking into any large pet retailer, however, the migraine-inducing blast of color that greets the consumer from the vast selection of products should be a reminder that these products are marketed toward the owner, not always with the pets best interests in mind. Dogs are color blind, remember?

The back page seems to be popular for home improvements, art and design catalogs. Trendy dog collars are found on the back of the latest summer catalog from Flax Art & Design, a San Francisco-based art supply and creative retail store.

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Coach pet accessories in 2005

Coach, Inc. (NYSE:COH) is gearing up for another holiday season full of innovative marketing strategies by once again taking advantage of the $35 billion pet industry. While not currently available, Coach pet accessories will be re-introduced during the critical holiday shopping season in 2005.

"For the holiday period, Coach's popular core assortment of collars and leashes will be back again, both online and in-store through the company's Coach by Special Request gift guide," said Andrea Shaw Resnick, vice president of investor relations at Coach, in an interview with Dillon Media.

Visitors to the website and the store will have 24 hour shipping options available, no doubt in order to quickly raise their pet up to their own fashion standards.

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Neopets or real pets?

The Wall Street Journal reported this morning on Viacom's acquisition of Neopets, a highly popular website for children and teens.

Visitors to neopets.com adopt an animated, made-up pet on the internet and visit the website to play games and engage in other online activities.

With 25 million registered users, "eight figure" annual revenues, and in the top ten "stickiest" website, according to the newspaper, Neopets was sold for $160 million.

Viacom, the cable and film company, plans to bring Neopets into the real world, planning a feature film and a line of toys to be sold by Target Corp.

Source: "Viacom to Acquire Children's Web Company Neopets," by Joe Flint and Nick Wingfield, Wall Street Journal, June 20, 2005.

Airline pet law goes into effect

Today airlines begin reporting how many of the estimated 2 million pets that travel each year are injured, killed or lost during flights.

The new law, enacted by Congress, continues the legislative trend across the country seen over the last few years changing laws governing pets from property rights to guardianship.

Fido is not a watchdog anymore, but a child. That said, since when has Fido been cargo?

This law makes sense, but these legislative trends will continue to create new regulatory issues affecting some pet businesses, especially services like pet sitters and daycare, dog walking and grooming, which already can follow different laws in different states.

A good resource for pet laws is the Pet Industry Joint Advisory Council (PIJAC), a trade organization that monitor regulations and legislation at the state, federal, and international levels.

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Target pets tv ad campaign

Less than two months after launching a new pet website, Target Corp is bringing its pet products into your living room.

CNBC just aired a television commercial by Target featuring nothing but pet products, the first pet-only ad I've seen from the company.

Focusing on mid to high-end dog products with traditionally high margins, as well as multiple pet owner demographics, the catchy ad campaign should drive some valuable customers (the pet parents) into the stores.

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Polo Ralph Lauren dog apparel

See The Update From April 2008: Ralph Lauren Dog Accessories

In 2003 Ralph Lauren had a successful holiday season selling Polo dog shirts. The company has since added a $95.00 cashmere dog sweater to the dog line, which at three times the cost of the shirt suggests continuing popularity with the products.

Appealing to the pet owner who shops in-store, the company notes on its website that all Polo Ralph Lauren retail stores are pet-friendly, offering a gourmet pet treat or a walk while you shop.

The website, however, is not quite so dog-friendly. The dog apparel is not emphasized on the site, to be found only after the visitor clicks on the 'Gifts' link, and then a sub category link.

The inability to instantly find dog apparel from the homepage and other categories seems to this industry watcher to be a missed opportunity in the thriving pet market.

But perhaps this is simply another example of a retail website playing catch up to its own stores and its competitors. Polo displays this symptom by lacking any search functionality on a large e-commerce website, putting it at a strategic disadvantage to its online peers.

Source: www.polo.com

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Do dogs get insomnia?

Royal treatment mint tea spa treatment, honey-kissed banana and oatmeal shampoo...what I get for not being able to sleep is a one hour tv special on pampered pet products on the Home Shopping Network (HSN, owned by Barry Diller's IAC/InterActiveCorp).

But the demographics are impressive, reaching into 85 million households, with 75 percent female viewers making on average $61,000 per year should make this one hour special a highly profitable one, perfectly illustrated this moment by Joan, the latest caller who set her alarm to wake up at 2am, call HSN, and talk about how much she likes the hip and joint duo for dogs.

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PetMed Express 2005 results

The largest pharmacy in America for dogs, cats and horses, PetMed Express, Inc. offers prescription and non-prescription pet medications and health products via website, phone and catalog.

The company reported net income in fiscal 2005 up 38 percent to $8 million, and net sales up 15 percent to $108.4 million, compared to 2004.

The company acquired 510,000 new customers in 2005, down slightly from 2004, but showed increases in gross margins, retail reorders and internet sales, with 53 percent of sales completed online compared to 50 percent last year.

source: www.1800petmeds.com
 

Central Garden & Pet

Central Garden & Pet Co. is also playing ball, today announcing a marketing partnership with the Texas Rangers. This marks the company's second deal with major league baseball this year. The first one was announced in February with the Oakland A's.

The exposure provided by this latest deal should be significantly better than the first. With the Oakland A's, the only season long sponsorship is with the grounds crew, while the Texas deal sponsors a season long retail sweepstakes aimed at the family.

The new deal also features a one day promotion using the big video board at Ameriquest Field, which improves the chances at national TV coverage, especially considering it will show someone's pet dressed in Rangers gear.

Petco, baseball and California

Petco continues to grow its brand presence and customer base in the important California market.

At a recent Merrill Lynch conference on retailing, the company announced that Petco Park in San Diego has generated 865 million Petco-related impressions nationwide. That's a lot of eyeballs.

In the northern part of the state, Petco has bought radio ads highlighting discounts on specialty dog foods using Pet Pals cards.

The company's presence in California has quickly become strong, and it is on pace to open more stores in the first half of 2005 than Petsmart.

The company also mentioned their slogan "Petco, where the pets go" has three times unaided customer retention than major competitors.

With aggressive moves in one of the strongest pet markets in the U.S., Petco is poised to nip at its rivals heels.

Spectrum Brands

Businessweek on May 24, 2005 writes about Spectrum Brands, Inc. diversification into pet supplies as a wise strategic move. Spectrum, formerly Rayovac, has been acquiring pet supply and lawn & garden companies with leading market share or established distribution routes.

Petco on-leash

Petco got beat up at the dog park and ran, tail between its legs. Earnings, a lawsuit, a potential stock market delisting, and then blaming the economy to top it off. All in one day? Reminds me of the bumper sticker "My Dog is Smarter than Your Honor Student." But don't forget what loyal dogs do. Petco will bounce back.

Petsmart first quarter 2005

Petsmart reported a strong first quarter for 2005. Sales rose 13.4 percent to $903.2 million, beating analysts' estimates by over 1 percent. Same store sales comps grew 5.7 percent.

Executives cited pet services like grooming, training and boarding as important drivers of profitability, with services growing 20.8 percent in the first quarter.

Boarding services, or PETsHOTEL, are currently inside 17 stores, or only 2.3 percent of existing PETsMART stores. Doggie Daycamp is currently a concept test in one store in California.

The company will continue to expand in the key markets of the Northeast and California. Fifteen new stores opened in the first quarter.

The company is expanding in the premium dog food sector, announcing that it offers Hill's Science Diet, a popular and pricey food often recommended by vets. Hill's will be sold only in PETsMART's with in-store Banfield Pet Hospitals, which amounts to 450 of the 740 currently open stores.

The fact that pet health trends are following human ones was mentioned on the conference call.

The PetPerks programs seems to be picking up steam, with 8 million customers worth of data to run through the pricing optimization software.

Capitalizing simultaneously on the strengths, both short and long-term, of pet health, premium dog food, and pet services trends followed by the pet owner, it seems PETsMART continues to stay ahead of the curve.

Pets in advertising

Is it just me, or has there been a noticeable increase in television ads appealing to the pet owner?

I've recently seen ads from Disney, Volkswagen, Pedigree, Castrol, Motel 6, Ameritrade, and Scottrade that feature dogs. Volkswagen and Ameritrade highlight a young single woman with her dog, while Scottrade and Castrol target the male dog owner.

Then, of course, there's the Aflac duck, which is not really a pet, more like an independent thinker. But the talking duck, like Disney's anthropomorphized dogs, taps directly into the trend of the humanisation of companion animals.

Let me know what ads you see featuring pets.

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Target Pets

Target Corporation recently launched Target Pets, introducing Isaac Mizrahi and Michael Graves designed lines of accessories for dogs.

The Graves line is interesting, offering one each of a doghouse, a dog bowl, a leash, a toy and a jacket. My guess is they will collect a massive amount of data on the consumer of these products and use it to refine the product line.

The doghouse is the most expensive product at $100.00, and other products are competitively priced. The other categories are Glamour, Sporty, Luxe and Classic. Each category offers a handful of highly visible products.

The website is potentially a good example of how to use the internet to appeal to a specific demographic within a larger brand, as represented even by its web address of pets.target.com. The one problem is the odd user interface where the products seem clickable to the visitor but actually are not. And with the links to shopping for products at the bottom of the page, the entire site seem more like a media kit than a consumer shopping experience.

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Feb 2006: Target Launches Premium Pet Food Label

Wal-Mart opens online pet store

Wal-Mart launched a new online pet store today. Who didn't see this coming?

With products for dogs, cats, fish and small animals, Wal-Mart not only appeals to the convenient one-stop shopper, but according to the press release, "offers even more opportunities for customers to pamper their pets."

Source: walmart.com

Rayovac adds global pet products

Rayovac, soon to be called Spectrum Brands, is at it again, recently announcing a $600 million acquisition of pet food and supplies company Tetra Holding GmbH.

Tetra is active in 90 countries, especially Germany, the U.S., Japan, and the U.K. where it sells fish and reptile products.

Source: "Rayovac Expands Into Pet Business," Reuters, Mar 15, 2005

A new pet business idea

From Animal Planet tv, this looks fun: Dragons are Coming on March 20, at least on my cable network.

I want one.

However, I am seeking funding and partners to pursue pet business ideas that are more down to earth. Interested parties please email mikedillon@gmail.com.

PETCO conference call

How strong is the pet industry? It's so strong, that when a PETCO store explodes, executives not only mention it in a year end conference call but manage to turn it into an example of the success of the company.

In its 4Q and Full Year 2004 conference call on March 10, PETCO Animal Supplies, Inc. said services represent the fastest growing segment of its business, growing at a rate of 21% in the fourth quarter. This is similar to PETsMARTs recent comments about the growth of the pet services segment.

But the language and points of emphasis by PETCO differed significantly from PETsMART. Words like "community involvement," "social responsibility," and sentences about the health and emotional development of children, families and companion animals represent the value the company places on understanding the mind of the customer.

PETCOs overall business focuses products and services on the trend of pets being one of the family, illustrating a "powerful evolution of the pet industry," according to Brian Devine, Chairman of the Board.

The dual demographic of young professionals and baby boomers was directly addressed in the conference call, as was the continued expansion of the pet pampering trend. Data on the industry, customers, stores and vendors seem to be well collected and parsed by the company.

In 2005, PETCO's services offerings will continue to grow. Grooming is already available in almost 90% of stores, the dog day camp will expand from 3 current test locations to 10 in 2005, and "education" services (training) will continue to grow, with the company hiring a huge number of trainers and groomers each year.

Educating the employees is also a high priority at PETCO. Combining companion animal training with a shifting management development strategy (one that de-emphasizes traditional skills to focus on the big picture: how the animals, the customers, the employees and the business vision interact) illustrates the importance the company places on defining the corporate culture.

This tight focus on synergizing the customer's psychology with the business seemed to pay off in 2004, with the company reporting net sales up 12.5% in 2004 to $1.8 billion, and comparable year store sales up 6.2% from 2003.

In 2003 the company opened 3 new stores. In 2004, 17 stores were opened, and in 2005 the company plans to open 90 stores, evenly spread over the first three quarters. This is a very different pace from PETsMART, which said it will open the majority of its new stores in the fourth quarter of 2005. Next year's conference calls may show some interesting data resulting from this mismatch, as all new stores would follow the new Pisces design model.

Make that 91 stores this year, including a replacement for the store in Eatontown, New Jersey that blew up due to a gas leak last Friday, March 04. According to the company, the concerted effort to rescue the animals spoke highly of the community and employees.

Not mentioned in the call, but perhaps even more emblematic of some of its points, is the PETCO employee trapped in the rubble of the collapsed building, talking to 911 on her cell phone and wondering who will take care of her dog if she dies.

We wish her and everyone else affected a speedy recovery. And we know her dog will help.

Source: www.petco.com

PETsMART conference call

Listening to the 4th Quarter and Full Year 2004 conference call of PETsMART, Inc. on March 2, it seemed at first blush that nothing new was reported; key initiatives discussed for 2005 had all been previously announced or rolled out in 2004, management was predictably upbeat, and the analysts' questions focused primarily on how to make the numbers add up (or not) to their expectations.

What I took away, however, was a sense of complete confidence in the next two years of growth for the industry and the company, as well as hints at a longer term strategy targeting the leading edge of the baby boomer retirement in 2008.

2005 and 2006 are all about services, primarily boarding, but also grooming, training, and salon-type treatments. Phil Francis, chairman and chief executive officer, sees services growing at a rate of 20% for the next two years. Key initiatives in 2005 are to grow the services segment, starting with PETsHOTEL. With sixteen hotels already open, the company plans to open 12 more in 2005 and an additional 20 in 2006 (a 67% increase over 2005).

Doggie Daycamp, a standalone day camp within a store, will expand from its single test location to 4-5 new daycamps this year.

In 2005, the company plans to open 100 new stores, 35 in the Northeast and California, the nations two largest markets, in which PETsMART is "significantly understored," according to Bob Moran, president and chief operating officer. Almost half of new stores will open in the 3rd Quarter of 2005.

So confident are they in the success of the new stores that refreshing old stores has been delayed to 2006, which is also when they expect the "fruition" of the data mining program, started last year, that uses customer loyalty cards and pricing optimization software.

So 2007 will see a convergence of geographic positioning, new store remodels, high earnings, pricing controls and most importantly maturation of data collection, coupled with a strong understanding of today's emerging demographic and tomorrow's. Services like grooming, boarding and training are making money today due in part to current lifestyle trends, but are also a perfect match for an aging population that will begin to retire in 2008, providing a nice strategic position for the company.

PETsMART reported $3.36 billion in net sales in 2004, up 12.4% from $2.99 billion in 2003. Not bad for being significantly understored in the nations largest markets.

Source: www.petsmart.com

Batteries...not the next pink

Battery maker Rayovac announced today it will change its name to Spectrum Brands, to better reflect the wider range of products offered this year.

The company will be selling lots of lawn, garden and specialty pet supplies, and maybe the Ray-o-pet and Dog-o-vac brands didn't test well in focus groups.

The new products were acquired last month, along with the name Spectrum Brands, from a $1.2 billion acquisition of United Industries, which itself does about $1 billion in sales per year to Lowe's, Home Depot, Wal-Mart, PETCO, and PETsMART.

Hopefully they'll include batteries with their dog toys.

The family dog

The concept of the pet as 'one of the family' will continue to motivate the buyer of pet products and services in 2005. In fact, this attitude has become so pervasive in the United States that the legal system is changing to address the shift. Fido is not a watchdog any more, but a child. Laws already on the books in Colorado, Massachusetts, California and Rhode Island make pet owners essentially pet guardians.

And our spending habits confirm this trend. According to the American Pet Products Manufacturer's Association 2003/2004 National Pet Owners Survey, the greatest expense for pet owners over a 12-month period is veterinary care. Then food.

Is college next?

(I'm not kidding. I always say to myself, "No more. No new product or idea can surprise me in this industry." And I'm always wrong.)

Products and services in 2005 will truly make the puppy feel like one of the family. Just like us, dogs will eat healthier and more specialty food: organic, low carb, vegetarian and diet foods will be aggressively marketed this year by some large companies.

And, of course, what dog in its right mind would go outside for a pee and to run naked around a park without vitamins, contraceptives, and pet insurance?


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