An industry on the move

Despite what industry sources have said in the recent past, our industry has gone through turbulent times the last few years; essentially due to what is euphimistically called “the economic downturn” but what others refer to as the economic crisis

Industry observers started with saying that the pet food market (representing 65-70% of the global pet industry sales) was recession-proof.This was followed by the claim that the industry was recession-resistant; and only recently this same industry was mentioned to be recession-resilient. The fact that the BRICS countries showing exponential growth flattered the industry-figures led to the cautious observation that the industry may not be as resilient as global figures seem to indicate.

Although there are no strong – maybe not even modest – indications that the global economy is warming up again, we need to take into account that we will some time enter into a new period of prosperity.

But will this have as a consequence that our industry is getting back to the days when “the going was good?” Most likely not! Disposable income of pet owners (aka consumers) may flourish, but we will not have seen the end of the governmental austrity-measures for quite some time to come. And these will continue to have a negative effect in general, but also on our industry. Grants and subsidies for R&D projects and investments in general will diminish. Taxes and levies are likely to rise.

And this will influence the economic outlook of the individual companies in our industry!

Therefore it’s time to rethink your business. Do you want to go through another round investments, do you want to continue to face a further consolidating retail-trade? Do you want to ……..? Numerous questions need to be raised in this respect; and they all deserve an answer

But which are some of the factors that will increasingly influence the way in which you conduct your business?

More companies will become for sale, because their owners will answer most of the “Do you want to” questions negatively. This leads to intensified consolidation on the supply-side.

Ecology will further grow as an influencer of your business and of our industry in general. Not only through regulation and legislation, but also by the fact that more informed and more critical consumers judge your company and your brands according to your position on the ecology-ladder. Neglecting the consequences of this massive trend will prove to be fatal or at least very harmful.

Furthermore – and this applies more to quasi-saturated markets than to the emerging ones – we will see a further polarisation in our industry. The smaller niche-oriented and often family-owned companies stand very good chances to survive because their specialty is their strengths and not many other comapnies have a similar speciality. The big operators will continue to thrive; also because they have a broader offer than pet foods to bring to the concentrated retail-trade. Mars, Nestlé, P&G, Colgate all offer a big basket of products to their clients, of which pet food is only a (small) part. The consequence is that medium-sized players (particularly in pet foods) are facing tough times. They need to compete with the big boys but their pockets are by far not deep enough. So, what are their chances of longer-term sustainability?

Another possible trend – again this may apply more to the mature and quasi-saturated markets – is downgrading. Does it all have to be “superpremium” or is the consumer likely to stay with premium to which they downgraded during the economic crisis? There will be a large group of pet owners that will ask itself if the perceived differences in added value between premium and superpremium justifies the sometimes substantial price-difference in favour of premium. And part of that large group of pet owners will stick with premium instead of going back to superpremium; despite the fact that they can afford to do so. Remember, we are dealing with an increasingly informed and increasingly critical consumer!

Ingredients are obviously also a further matter of concern. Not only the availability in the strictest sense, but also the availability to whom. We enter an era where cereals - the key ingredient for pet foods representing (remember?) between 65-70% of our industry’s sales – are sold on 3 different markets: human food, pet food and energy. So looking at harvest-predictions to estimate future price-levels is not good enough anymore. Trends in human foods need to be followed and assesed more closely; also in view of more affluence in the BRIC countries that together represent 40% of the world-population. And what about the energy industry? Will the political pressure to become less dependent upon fossil sources increase? It most certainly will; so the trend is towards more renewable energy of which cereals is a part will become an important fact of life. This means that our industry is getting more influenced by factors that we can not influence ourselves anymore.

And that is the main difference with the past. Instead of “going with the flow”, because the market was healthily growing, we now have to try and anticipate the unknown caused by a market in turmoil.

It’s surely all about preparing for your business-future; which must of course be a healthy one if you want to stay in business, and enjoy it.

Therefore rethinking your business becomes relevant as never before. Ask yourself if your business-model of the past can be upheld in the future. Ask yourself to which extent the external factors will influence your business. Ask yourself what you need to do to minimise the probable, negative consequences of these external factors. And above all ask yourself if you are prepared to take the necessary steps to ensure a bright future.

Because after all “It is not the strongest of species that survives, nor the most intelligent that survives. It’s the one that is most adaptable to change” (Charles Darwin)

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