Guest Blog by Professor Ger Hofstee Dean of our MBA Program for Veterinarians
The global pet food market was worth around US$ 94 Billion in 2017 growing at a rate of around 5% per year during 2010-2017. History is proof enough that animals have played an important role in the lives of humans since ancient times. They were used by humans to serve multiple purposes such as food, clothes and transportation. But, the last few centuries have observed an attitude change in people resulting in the maturation of the role of animals in human lives. An increase in number of pets, especially dogs and cats, has been recognized worldwide. Humanization of pets have led the owners to treat their pets as family and feed them the right food according to their age and breed.
A growing concern among pet owners regarding their pet’s health has increased their expenditure on nutritious pet foods. They are essentially looking for specialized and higher quality of pet food. This had led to a radical increase in the production of pet foods worldwide. Premiumization has also led to a number of innovations in the taste and flavour of the pet products with recipes showing a strong influence from human dining. This has provided a great scope of expansion for the pet food market globally.
Pet products have been in increasingly high demand, thanks to more people becoming pet owners and owners having more complex requirements regarding the ingredients in pet food and other pet care items. Like most industries, the pet product industry has a number of vendors, each with different offerings that cater to specific types of pets and their various needs. Pet care vendors also have to go the extra mile in that they need to fully understand both their end-users and their buyers; in other words, they have to create products that are safe and enjoyable for pets, and appropriately market them to their owners. Analysts at Technavio identify 5 of the key and prominent vendors in the market.
1. Ancol Pet Products
Ancol is an independent, family owned company specialising in the supply of pet accessories for dogs, cats and small animals. From its West Midlands base in Walsall, Ancol has been developing both functional and luxurious products for discerning pet owners for almost 40 years, using its unrivalled experience, passion and knowledge to become the market leader in pet accessories. The company has established a highly effective wholesale distribution network allowing its products to be freely available throughout the UK.
2. Beaphar
Beaphar, founded in 1942, has been passionate about pets for more than 70 years. During this time, it has developed, manufactured and marketed pharmaceuticals, healthcare products and super premium complete foods to help improve the lives of all types of pets. Beaphar is proud of this heritage and the high quality, extensive range of products that it now offers to pet owners all over the world. Today, Beaphar is established across multiple territories and is one of the leading pet manufacturers.
3. JM Smucker
The J.M. Smucker Company is a leading marketer and manufacturer of fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk and natural food products in North America sold under iconic brands including Smucker’s, Folgers®, Jif®, and Crisco®, among others. In 2015, Smucker acquired Big Heart Pet Brands, a producer, distributor and marketer of premium quality, branded pet products for the U.S. retail market.
4. Mars
Mars Incorporated is a US family-owned business and one of the leading global manufacturers of branded products. Established in the late 1940’s, the company is divided into the following business segments: Petcare, Chocolate, Food, Drinks, and Symbioscience. Mars is ranked the 6th largest privately-held company in the United States based on its 2015 revenue.
5. Nestlé
Nestlé S.A. is a Swiss transnational food and drink company headquartered in Switzerland. It is the largest food company in the world measured by revenues. Nestlé’s products include baby food, medical food, bottled water, breakfast cereals, coffee and tea, confectionery, dairy products, ice cream, frozen food, pet foods, and snacks. In terms of pet care, it is most widely known for its Purina brand, which includes products such as Beneful, Alpo, and Dog Chow.
Top player Mars is integrating animal hospitals into her business Established in 1986, VCA Animal Hospitals is a trade name of veterinary company VCA, Inc. ( Veterinary Centers of America), has around eight hundred animal hospitals and sixty diagnostic laboratories in the United States and Canada. This makes it one of the largest companies in the field of animal health care. In 2017 Mars acquired VCA. Mars already owns Banfield Pet Hospitals. The Mars group has a total annual turnover of approximately 35 billion dollars, thanks in part to well-known candy brands such as Mars, Twix, Snickers, M & M’s and Doublemint. Mars Petcare is a diverse and growing business with 75,000 associates across 50+ countries dedicated to one purpose: a better world for pets. With 75 years of experience, their portfolio of almost 50 brands serves the health and nutrition needs of the world’s pets – including brands PEDIGREE®, WHISKAS®, ROYAL CANIN®, NUTRO™, GREENIES™, SHEBA®, CESAR®, IAMS™ and EUKANUBA™ as well as The Waltham Centre for Pet Nutrition which has advanced research in the nutrition and health of pets for over 50 years.
Mars Petcare is also a leading veterinary health provider through a network of over 2,000 pet hospitals including BANFIELD™, BLUEPEARL™, PET PARTNERS™, VCA™ and Linnaeus. They are also active in innovation and technology for pets, with WISDOM PANEL™ genetic health screening and DNA testing for dogs, the WHISTLE™ GPS dog tracker, and LEAP VENTURE STUDIO accelerator and COMPANION FUND™ programs that drive innovation and disruption in the pet care industry.
This year Mars Petcare acquires the veterinary clinics AniCura in Europe AniCura, a group of 200 animal hospitals and clinics in seven countries in Europe, will be added to the Veterinary Health Group of Mars Petcare. According to Mars, the acquisition of AniCura marks the entry into the European market for veterinary care, ‘so that we are present in eight markets of the second largest veterinary care region in the world. This brings together the high-quality veterinary expertise of Mars Petcare in North America with the high quality of established practices in
Europe, “said Mars. AniCura was founded in 1911 and employs more than 4,000 veterinary professionals specializing in veterinary care for animals in more than 200 animal hospitals in seven countries in Europe: Sweden, Norway, Denmark, Germany, Austria, Switzerland and the Netherlands.
Vertical forward integration
In a supply chain, all links that a product goes through are shown schematically. From the moment, for example, a seed is planted from a tree until the moment that a wooden bench is made of the mature tree that stands on the shelves at IKEA. A supply chain thus provides a simplified representation of all production phases that a good or service goes through from start to finish. Every link in the supply chain is called a section. Examples of articulations are a tree nursery, a sawmill, a furniture workshop and furniture boulevards such as IKEA. Due to developments in the market, the supply chain will become shorter or longer over the years. For example, a sawmill can decide to make furniture yourself, which will shorten the supply chain. In that case, there is a forward integration. In the event of integration two or more sections are merged. Merge can be forward or backward. In the case of backward integration, a company takes over the activities of a subcontractor. The sawmill decides, for example, to take over a tree nursery. In the case of forward integration, a company takes over the activities of a section that they are selling to. An marketeer would say that in the case of backward integration, business activities are taken over in the direction of the original producer and that in the case of forward integration business activities are taken over in the direction of the consumer. In this Mars case, integration means nothing more or less than ‘merging’, which shortens the supply chain.
Examples of forward integration
The examples of forward integration are too many to mention. Fashion designer Marlies Dekkers, for example, became very successful with the Undressed lingerie line, both at home and abroad. She supplies her lingerie to e-stores like Zalando. In 2007, Dekkers decided to open its own stores. In addition, Dekkers simply continued to supply current customers. The ‘Marlies Dekkers Stores’ were mainly intended as a marketing strategy to create more brand awareness. Companies that have opted for vertical forward integration for marketing reasons are Apple, Ralph Lauren and Porsche.
Commodity producers choose for reasons other than marketing for forward integration. Oil companies, for example, take over petrol stations to secure the purchase of their oil supplies. Incidentally, backward integration for oil companies is impossible because they are the primal producers at the beginning of the production chain.
Shell, Exxon, and BP have taken over an increasing share of the supply chain through acquisitions. They always buy their ‘customers’, which means that the supply chain is getting shorter and shorter. In some cases, almost all production from ‘oil well’ to ‘petrol pump’ is carried out in-hand. Oil producers more often opt for the horizontal acquisition of existing refineries and petrol stations instead of setting them up themselves.
A final example of forward integration is French grape growers who increasingly produce their own wine. This makes them less dependent on the purchase of grapes from large wineries such as Moët et Chandon (Champagne), Georges Duboeuf (Beaujolais) and Domaine Cazes (Roussilon). In this example, primary producers themselves take care of the production of the semi-finished product (wine) or the end product (bottle of wine).
Vertical forward integration is certainly no guarantee of success. Marlies Dekkers was still in financial trouble in 2013 and had to close part of her stores. The main reason was that too rapid a growth of the organization caused problems in controllability. Oil companies also had to contend with bankruptcies, because they had too little knowledge of managing retailers. There are also other ways to integrate forward. For example, a company can choose to set up a production line on its own or set up a distribution channel. Apart from ‘taking over’ and ‘doing it yourself’, ‘collaboration’ is the third form of forward integration. This is usually called a partnership. This form of cooperation has been growing rapidly in recent decades because taking over or doing it yourself involves more financial risks. A partnership can take the form of joint development of new products or by jointly attracting large investments.
It is also possible that in mutual consultation a financial interest is taken in the declining company. The latter usually occurs in the form of shares. By acquiring shares, the supplier gains more influence on the activities of the buyer. It is also possible that a company sets up a franchise formula. In this form of cooperation, a producer gives the right to another to open a business under his name. This often happens at supermarkets and restaurants (Gauchos grill restaurant, Subways and Humphrey’s).
The franchisee (supermarket or restaurant) then uses the trade name, goods and services and credit facilities of the franchisor (producer/distributor). Forward integration can have several reasons. A common reason is those producers do not want to be (completely) dependent on their customers. A distribution channel can decide not to buy the products anymore, resulting in losses or even bankruptcy as a result. A second common argument is that a company wants to exert more influence on the quality of the distribution. This often occurs in articles where quality control is an important aspect, such as meat, pastries, bread, and vegetables. Many large meat processors choose to organize their own transport and sales so that they can keep an eye on the quality of their product from moment to moment. The consequences for the continuity of the company are incalculable when it comes in the newspaper or on TV. A third and not unimportant reason for forward integration is achieving greater efficiency. The fewer links, the less money can stay ‘hanging’ in every link. After all, each section counts a profit margin and by eliminating a section, a product can ultimately be delivered cheaper to a customer, which increases the competitive position with respect to other companies.
The second form of efficiency can be achieved in the logistics process. The aim is or a company to gain more control over the design of the production process and the allocation of production resources. The goal is not necessarily to be cheaper, but above all to deliver faster. Finally, marketing considerations can opt for forward integration, as is the case in the above example of Marlies Dekkers. By opening your own stores, you can directly influence the image of the brand or company.Another marketing consideration of opening own stores is to be able to test new products with the public. Products that do not catch on are not further developed and successful products are then also offered through other distribution channels. In this case, forward integration is chosen to learn more about the needs of the customer in order to develop new products as successfully as possible.
These kinds of stores are often called flagship stores. Sony, for example, has a gigantic store in the center of Tokyo where the latest products are shown and tested on the public. The most common reasons for forward integration are: less dependence on customer loyalty affects the quality of the product supplied, the influence on the quality of the product, the logistics and sales process influence the efficiency of the logistics and sales more influence on the image of the product to find out more about the needs of customers.
Sources: Technavio, BusinessWire, veearts.nl, Telegraph, finler.nl, Mars, Google, Wikipedia and Amazon.
