Supermarket operators will benefit from the recent consolidation in the pet food manufacturing industry, according to industry consultants and securities analysts surveyed by SN.
The industry, they predicted, will develop upscale products that compete against pet stores, consolidate weaker brands and stockkeeping units and produce a more aggressive marketing environment
Last month H.J. Heinz Co., Pittsburgh, completed its acquisition of the pet food division of Quaker Oats Co., Chicago. That came on the heels of Glendale, Calif.-based Nestle Foods' acquisition of Alpo Pet Foods, Allentown, Pa., from Grand Metropolitan late last year.
As a result, the industry is now consolidated in the hands of four key players: Ralston-Purina, Mars, Heinz and Nestle. Consultants and analysts said the consolidation will allow the industry to better compete against specialty lines like Hills Science Diet, produced by Colgate-Palmolive Co., New York, and Iams, Dayton, Ohio, which have been taking share away from supermarkets.
"I don't think the aisle will become any less competitive. There is a lot of stockkeeping unit proliferation, and maybe under Heinz there will be some consolidation," said Bill Spencer, president of Gage Marketing's Consulting division, Minneapolis.
"Quaker was not prioritizing the pet food business relative to the other items in its portfolio. Heinz will get much more aggressive with that franchise, and we expect significantly more competitiveness in an already competitive section," said Jeffrey Hill, managing director of Meridian Consulting Group, Westport, Conn. Burt Flickinger III, an industry consultant with A.T. Kearney, New York, said Heinz's purchase "will be a huge benefit for the supermarket industry because Quaker was just a little too small to fully invest in the category.
"Heinz has really streamlined operations and put a lot of marketing muscle in the Heinz Pet division, and is really turning that business around. With the addition of the Quaker portfolio, Heinz has more resources to bring to supermarkets and develop store-within-a-store and specialty pet programs," he said.
Flickinger said he expects the consolidation to make the industry more akin to the soft drink industry, where manufacturers invest heavily in promotions.
Ken Harris, a partner in Cannondale Associates, Evanston, Ill., and Westport, Conn., said the consolidation will lead to a "concentration of effort and dollars" and make the whole category more competitive.
"The company that will win in this game is the one that can figure out the formula for the retailers on how to capture more of sales back in the supermarkets. I think that with its acquisition of Quaker, Heinz may be in a pretty good position to do it."
Harris noted that as the industry coalesces it will force manufacturers to become more competitive in terms of quality and new product development, and not so much in terms of price.
"That's a good thing for retailers because they are not particularly enamored of the 3 for $1 cat food promotion and some of the deflation they've seen in pricing of pet food over the last five years. We may start to see that competitive multiple pricing go away because manufacturers are not going to feel as compelled to do it."
But Hill of Meridian Consulting believes that, at least for the short term, pricing may become more competitive.
"Heinz will need to step up to the plate now and prove to its management that the acquisition is a good decision. So you can anticipate a lot of very aggressive introductory initiatives from them," he said.
Naomi Getz, a securities analyst with Goldman Sachs, New York, disagreed, noting that Heinz doesn't normally engage in price competition unless forced.