Developing into alliances part 1

As virtually every industry on the road to maturity and consequently saturation, also the pet industry shows - sometimes clearer, sometimes weaker - signs of consolidation.

The dog & catfood category is most advanced in this respect. Masterfoods and Nestlé have acquired through autonomous growth and an aggressive acquisition-policy such power in the marketplace that for these companies anti-trust legislation will most likely prove to be a stumbling-block for further expansion through acquisition, apart from maybe buying into some smaller niche-operators of regional importance.

Other product-categories – obviously not of the same size as the dog & catfood category, but yet of a fair size if taken from a global point of view – sofar hardly show signs of consolidation. Partly because entry-barriers for some categories are still low, as is the perceived requirement for sophistication.

But there are reasons to think that also the non dog & catfood categories will become subjected to the need of further consolidation; because the drivers for this development generally apply to the pet industry as a whole.

One key driver is the global consolidation of the retail-trade – that turn improved manufacturing- and marketing-efficiencies into a vital component of the business-strategies of the suppliers to this trade. Shorter product-lifecycles is definitely another key driver for the consolidation-process, because they impel manufacturers to boost their R&D efforts to such a level, that they need a greater mass to cover this R&D investment.

Certainly for the dog & catfood category increasingly stringent regulations and legislation on the raw-material and processing-side are bound to lead to further investments which can only be absorbed if the manufacturing-company has the appropriate critical mass.

The market suffers from an overdose of brands; most of them being "names on a bag" because they have no strict relevance for the end-buyer. The days that new so-called brands could easily be launched - and got some shelf-space - are over. The retail-trade stops being the test-farm for manufacturers' brands. In fact, because of their increased power, they seek and find opportunities to further enhance their own house-brands; and in doing so leave less room for manufacturers' brand operations. Isn't it in this respect interesting to observe that Wal-Mart's Ol'Roy brand is most likely the biggest selling petfood-brand on this planet?

One could argue to say that retailers' house-brands are potentially a bigger threat to a manufacturer's brand than the brand of the manufacturing rival!

Where does this lead us?

More than likely to a further polarisation on the manufacturing-side. Big will get bigger, niche will thrive and medium-sized operators will face turbulent times!

The rationales: big has the power to effectively deal with an increasingly demanding retail-trade, niche will initiate new developments and will primarily operate under the radarscreen of the big operators and the medium-sized companies will have difficulties "to go" big or start up a niche operation. So, how what can the latter do to cope with this threatening future set of circumstances?

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