What is new at the Interzoo?

The industry is preparing for its main bi-annual event: the Interzoo in Nuremberg!
Some of us will go there as exhibitors, others as visitors.
And all of us will see an offer which will be again unprecedented in the history of the industry.
The real challenge – for exhibitors and visitors alike - will be: how to absorb this enormous amount of information while separating chaff from wheat? Those visitors who have prepared themselves for the exhibition by focussing on a certain product-category or by having a list of must see’s and must do’s will find being at the show more relaxing than those that go unprepared; the latter will be so surprised that they may go home slightly disappointed, concluding “I didn’t see anything really new!”

Is that why people visit the exhibition: to find and see new and exiting? New can be new for the industry, or just for the visitor. New can be a minor alteration to an already well-known theme. Is that enough to get exited or does one expect a genuine breakthrough which will significantly change the life of the animal, its owner or both?

And to which extent do visitors take new trends in demographics, in the human/animal relationship, in human lifestyle into consideration. Or should I ask, does the industry do so?
Will we see easy to carry – by elderly people - bags of dogfood; will we see fresh prepared cat meals for the affluent dinky’s; will we see ……………?
The list of examples can be a long one. But I fear that the list of affirmations will be sensitively shorter.
And of course we must make a clear division between a hype and a trend. If something is extremely fashionable for a very short period of time and shared by a great number of animal-owners you can of course smell the business opportunity. That’s what hypes are for! However, the second container you ship in from a low-cost country may already arrive too late: the hype is gone!

We all tend to look at trends as something that happens to us, as something we can or must react to. But somebody or something else provides the stimulus: the trend. How do these trends emerge? In the case of demographics they tend to grow over a longer period of time; the greying society is a.o. the result of healthier living and more developed life-sciences. Other trends – such as life-style – only take a short period to become influential. Flower power struck us in the 60’s of the last century more or less overnight. It needed only a few icons and a lot of media-attention to become the “in” thing. Which lasted long enough to make some people believe that it’s still there.
Now the question is: can we create a trend ourselves, to the advantage of our business specifically or the industry in general? I think we can, with focus, dedication and commitment.
Paul Iams did so (although the genesis may have been a bit of Eureka) when he started Eukanuba, because he believed in feeding dogs (and later cats) in the best way possible, without the market having set standards for him! He set his own! There were no socio-demographic or other tangible trends that he could use as a coat-hanger. He just believed and put his barriers high! So instead of following a well-defined trend, Paul Iams created one that has lasted until today.

So, what to do with the cornucopia of products and ideas one will be overwhelmed by at the Interzoo. Select on the basis of yet small but growing trends and take a leading position in new niches or follow the main stream to avoid risk?
Choices you as the entrepreneur will have to make taking into account the kind of business you wish to run. Or will no choices be made in the end because the exhibition-euphoria is caught up by the daily worries and routine. Whatever the case may be, let the visit to Nuremberg be illuminating.

It’s now about a year ago that the petfood industry faced – at least in certain parts of the world – massive recalls, probably unprecedented in the history of the industry.
Since then a lot of debate broke out with the aim to try and solve “the problem” for good.
Solutions brought to the table range from new committees, new regulations, additional ……. etc!
It looks as if the industry puts the blame of the disaster outside of its own court; is this justified?
Guided by some introspection the industry might come to the conclusion that it is not.
The chain reaction probably starts with somebody deciding what the end-buyer is prepared to pay for a product; whereas some consumer-research clearly indicates that price is not the key decisive factor for choice. Provided that the end-buyer perceives an added value relevant to her/him. Do 2 dollar-cents really make the difference?
Because the distributive trade is becoming more demanding re. margins (stockbrokers’ analysts are watching over their shoulders), manufacturers are forced in a situation of extreme cost-diligence; they also have their stockbrokers’ analysts who need to say some wise things each and every 3 months.
And, because manufacturers outsource, where can they put the burden of cost? Exactly!
After all, bonusses and careers dictate that the performance of the companies must be better than last year and taking market-circumstances into account would therefore be a silly thing to do.
So in a situation of – probably structurally – rising ingredient prices where can the compensation be found? Upstream?
Without wishing to imply that this has been the case with last year’s recalls, I ask myself this:
“is the industry prepared to sacrifice the love for the animals - to which everybody in the industry pays at least lip-service - for just that little bit of extra profit?”
If so, we need only wait for the next disaster to hit us; it’s consequence being diminishing consumer-confidence in industrially prepared petfoods: our business!
If players in the industry are prepared to shoot themselves in the foot for the sake of the quick buck, they will thus have lost the right to complain about being crippled.

There appears to be some statistical evidence that in mature markets (no market is saturated before having achieved close to 100% penetration and calorific coverage), the majority of growth is represented by new products. In fact, new products and their introductions drive our business. More from a value than from a volume point of view.
One of the key implications of this is however that product lifecycles become shorter.

How to define new?
How you define new is obviously open for debate. Is it new for the industry, is it new for the company? Is it a minor change to an already long existing theme or is it a major breakthrough that will change the life of the animal, its owner or both forever? The question is: do you take the initiator position – with its inherent risks – or are you satisfied with following; the latter is a good way to avoid risk. Both are very legitimate positions, but the higher risk one tends to be more rewarding than taking the position of the follower.
The choice between these two is fundamental to any New Product Development (NPD) process you want to embark on.

That’s what it is: a process! Necessary to bring new and successful products to market. A structured, well-defined and well-planned approach rather than the spark of genius while sitting in the bathtub (Eureka).
And, as importantly, this process is not the monopoly of a few big players in the pet food industry. Any company that takes itself seriously can start an NPD process for dog food, the more so if it is prepared to join forces with peer companies also in search of new products, but servicing different geographical markets. With a bit of guts a lot can be done!

Your position in the market
The choice between initiating “new and exiting” vs. “we want the same as the benchmark” is of course heavily influenced by the way in which the company positions itself in the market.
Does it want to claim psychological leadership or is it focussing on following other initiatives.
If the latter is the case, price, more often than not, becomes a decisive factor: “as good as X, but (significantly) cheaper.” Price-erosion will set in before long and the initiator needs to react. How? By revamping the product, while trying to find new attributes that appeal to the end-buyer.
But all based on technologies that are already in existence for at least 40+ years and which are in essence available to everybody who is in the industry or who wants to come into it. So the technology is or will not provide a Sustainable Competitive Advantage

How to start?
So, what’s new, what’s unique? And what is the starting point in your thinking process? The vested interest in the technology that you have or feeding a dog in a way which is pleasing both the animal and the owner irrespective of the technology necessary to manufacture that food? Provided of course that the product is nutritionally sound and keeps the animal in excellent shape.
In the first case you can not expect a breakthrough!. What you do is limited by and to your technology.
If you however want to feed dogs in a pleasant and nutritionally sound way but differently, a plethora of opportunites opens up. Just by looking at an adjacent industry: human food! New (for pet oriented foods) technologies become available as do – probably - new ingredients. And do dog foods (for animals that increasingly are part of the family and are treated as such) have to have a 12 to umpteen months shelf-life?; in an era where the trends in human foods are fresh, chilled cabinet, short shelflife, no chemicals, less processing etc.

With focus, perseverance and commitment new dog foods can be brought to the market successfully if you take the initiative to step out of the box of existing technologies and start to use the technological alternatives. Not necessarily by investing yourself in this technology, but by coming to an alliance (co-packing or more) with a company that has the alternative(s) available.
No more Eureka (reactive), but a deliberate and well-planned step in the direction of being meaningfully different (pro-active) will give you the icing on your future cakes.

Note: the essence of the above does of course not only apply to dog foods

It has been prophesied before: the industry is on the eve of another round of consolidation.
Until now it was the league of the big players that dominated the acquisition-scene, but I am convinced that the time has come for the 2nd league to enter a consolidation-phase; because companies in this league, the incorporation of which traces back to the late 60s and early 70s of the last century have reached their peak and find it increasingly difficult to outgrow the market and find their ways in an increasingly brutal business-environment..

A consequence of consolidation.
In general, one of the key reasons for consolidation is cost-savings through synergies. One often sees sales and distribution set-ups overlapping after the acquired company gets integrated into the parent. Or brands become obsolete (or for sale) because they do not have any further strategic relevance in the combined portfolios of the acquiror and the acquired.
In those instances where sales and distribution of these products and brands are largely dependent upon the traditional route through the (national) distributors – in my point of view still a significant slice of the total pet industry – the latters’ positions are threatened, in it that the acquiror will start to consolidate the distribution-network as well; or decides to integrate the acquired products and brands into his own portfolio and have his own – sometimes well-established – salesforce deal with these products and brands in the future.
The consequence of such is not only that the distributor stands to lose sales and margin by the discontinuation of representation(s), but also because the remaining portfolio of the distributor is weakened and thus less attractive for the retail-clients. And also the distributor will find it difficult to take important cost-cutting measures, because most of his cost will to a great extent be fixed. His cost per call are stable, whereas the average order-size is likely to diminish.

React or pro-act?
Is the distributor in a position to take fate into his own hands or does he just have to accept the status quo? Reaction is in my point of view not only a possibility, but from a business standpoint often also a necessity. But how to react? And, can the distributor only take a reactive position or also a pro-active one? And, equally important, can one distributor act just by himself?
It’s all about which initiatives are taken when! Why would a distributor have to wait to take initiatives until he gets the boot by the manufacturer? If he wants to develop and implement his own way forward, pro-activity is a pre-requisite!
In most cases initiatives can only be taken by a group of like-minded distributors, facing the same challenges, because more often than not just one national market does not justify and can not absorb the investment in new initiatives, whether defensive or offensive.

How to go about it?
Whichever the options are, it is critical that the distributors are prepared to act as marketeers (which is more than just cutting corners in copying the products “lost” and sell them under a fancy name) and that the classic prejudices such as “my market is different from yours “ are eliminated; because nationalistic thinking limits the options and in reality does not or at least should not exist from a business point of view.
Together with colleague-distributors (beware of possible territorial conflicts) one can and should develop products and brands. A joint approach is essential to provide the venture with strong enough a basis for a powerful international distribution and with that an acceptable pay-back period for the joint investment.

Is there a worthwhile opportunity?
Would the distributors have reasons to be afraid to play second fiddle in an orchestra that is dominated by manufacturers in the industry? Certainly not; the key asset of a distributor is his numerical and weighted distribution , which can be fully exploited, whereas the establishment (read manufacturers) needs the distributors to have access to this key asset.
There is an interesting terrain lying open for the distributors who want to become less or not at all dependent upon the strategy of their principals and who have the guts to take - in an international setting - product- and brand-initiatives that contribute to the sustainability of their businesses.

In conversations I have with people in the industry, searching for and selecting distributors occasionally is a topic. And so it turns out that different people have - sometimes very - different ideas as to the definition of distributor.
To some a distributor is nothing but a logistics vehicle, maybe stocking product for their own account and risk, whereas for others a distributor is the all-in-one service-provider who takes care of sales, marketing, finance and logistics on behalf – but not for the account - of principal(s). Any variation between these “extremes” seems to be possible and negotiable.
The profile of the distributor.
In smaller countries it normally suffices to have one national distributor (in whatever shape or form) whereas in bigger countries (or in countries with complicated logistic requirements) it maybe wise to have more than one distributor to cover the territory effectively.
The latter can work, provided that the principal doesn’t have to act as the referee between regional distributors in cases of disputes about e.g. territorial exclusivity.
I strongly believe that in most cases it is wisest – assuming that the choice for distributorships is the best option – to go for one national distributor and let him sort out the necessity (or not) of having a sub-distribution network. The advantage for the principal is having one point of contact on which the entire effort for the territory can be concentrated.
Why go the distributor-route?
Let’s assume that if you have made the deliberate choice to build your national and international business through a distributor-network and you start to explore the options, the first question is: what do I expect to find? To assume that distributors in foreign countries are a blueprint of what you are accustomed to in your home market will prove to be a capital mistake. Some markets are more advanced than others and that reflects itself a.o. in the degree of “professionalism” of the distributors available and who are prepared to take on your product(s). Whatever the situation may be, go for the best, even if the distributor’s set-up appears to be below your standards; after all, the set-up may be well above the standards of the country in which it operates. And if still in doubt, put the whole idea on the back-burner.
Is there a profile a the “ideal”distributor?
What does the ideal distributor look like? In the case of a full-service distributor I recommend to think about at least the following aspects:
- degree of introduction in the country (what is their estimated numerical and weighted distribution),
- logistics set-up (can they effectively store my products, also in a growth-situation?),
- what should my product-range represent in their turnover? (do I get the required attention of the sales-force if I only represent X% of their consolidated sales?),
- do they have the right contacts in the (franchise-)chains,
- can they deal with local marketing-issues,
- what is the size and calibre of the sales-force,
- are they accustomed to selling “my type of products?”,
- are they financially sound (and even more importantly, can they finance growth?).
I recommend that once the profile is ready, to weigh the aspects mentioned! E.g. degree of distribution gets maximum 30 points out of the 100 in total for the profile.
Whichever the number of points that a candidate-distributor may “collect”, the main criterion for selection is and remains the chemistry between distributor and principal.
How to build and enhance the relationship.
Assuming that the principal has chosen for a network of full-service distributors, how is he going to build and sustain the relationship? Very simple, by providing the support that the distributor needs to do a very good job.
E.g. by helping the distributor to put the annual sales/marketing plan for your (the principal’s) product-range together, by helping to implement programs that have proven their value in other countries, by training your distributor’s people about all relevant aspects surrounding your products. There are in fact many areas of management where principals can contibute to enhance the professional approach of the distributor.
How to put the relationship in jeopardy?
There are – at least in my book – a few things a principal should never do when there is a relationship with a distributor. Do not go behind the distributors back to an important client;
do not exclude interesting clients from arrangements you have with a distributor; do not “provide” the distributor with an annual plan which is in fact a dictate. After all, your distributor is an entrepreneur – that’s why you have chosen him in the first place - who doesn’t like too much interference from the principal’s side!
Formalising the relationship.
So, the distributor of choice is selected, the plans are agreed upon, the principal and the distributor get on like a house on fire; what more can one want?
Well, maybe an agreement to formalise the relationship? Of course the issue of coming to an agreement has been mentioned during previous conversations between principal and candidate, but when it comes to reality, mindsets can start to differ.
The distributor wants a 10 years’ contract, whereas the principal thinks in terms of 1 year with annual renewals. The distributor wishes to pay in 60 days and the principle is accustomed to pre-payment. Make sure that (these) things are dealt with - assuming full consent from both parties – before any concept-agreement is sent to the distributor. Agree on the principles of the contract and if required let the legal department deal with putting these principles in the right legal language; but not more than that!
And – this is sometimes forgotten – have standards of performance as an appendix to the contract. These provide the basis for the plan and are the yardsticks to measure the effectiveness of the distributor and to judge whether or not the relationship should be continued.

There are many ways to come to conclusions as to the desirability and implementation of a distributor-strategy. But, the effectiveness of the relationship is based upon one simple thing: mutual commitment!