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CREATURE COMFORTS

Who owns the pet aisle?r is "the consumer," all too often it's a battleground between the grocery and nonfood departments.This and other topics relating to the nonfood pet supply category were discussed at a recent roundtable produced and moderated by veteran supermarket journalist Glenn Snyder.Participating in the roundtable were:Jim Donnelly, president, General Merchandise Services, Bellefontaine,

Who owns the pet aisle?

r is "the consumer," all too often it's a battleground between the grocery and nonfood departments.

This and other topics relating to the nonfood pet supply category were discussed at a recent roundtable produced and moderated by veteran supermarket journalist Glenn Snyder.

Participating in the roundtable were:

Jim Donnelly, president, General Merchandise Services, Bellefontaine, Ohio, a division of Nash Finch, Minneapolis

Anthea Jones, GM director, Bi-Lo, Greenville, S.C., a division of Ahold USA.

Paul Kuny, corporate vice president, sales, Hartz Mountain Corp., Secaucus, N.J.

Pat Linton, GM/photo category manager, Valu Merchandisers, Kansas City, Mo.

David Lowe, former director of GM/HBC/specialty foods, K-VA-T Food Stores, Abingdon, Va., who recently became senior buyer, GM, C&S Wholesale Grocers, Avenel, N.J. (Lowe speaks on behalf of K-VA-T in the roundtable.)

Don Polsi, vice president, marketing development, seasonal/promotions, Imperial Distributors, Auburn, Mass.

Dan Spears, GM director, Ingles Markets, Asheville, N.C.

Preceding the roundtable discussion, Kuny of Hartz gave an overview presentation on key trends in pet supplies.

Citing data from Information Resources Inc., Chicago, Kuny noted that although pet food sales have declined in the grocery channel over the past two years, the pet supplies category has increased. The top-selling segments in pet supplies are rawhide and natural treats, with a 34% share of sales; dog and cat accessories, 30%; and animal health, 17%.

Kuny added that 62% of all U.S. households own pets, and 50% of all pet owners have more than one type of pet. "So about half the shoppers coming down the aisles are looking to buy for more than one type of pet. That's good. It helps get that basket ring up," he said.

According to Kuny, pet owners can be grouped into four segments: "Pet Lovers," 33%; "Emotional Plus, No Fuss," 25%; "Reluctant Owners," 23%; and "Nurturers," 19%. "The good news is that one-third of your customers are 'Pet Lovers.' Pets are an integral part of the owner's life as a family member. They really care about their pet and its health, and they have a strong category involvement. They buy a lot because they want the best," he explained.

The "Emotional Plus, No Fuss" group, he said, "really like their pets, give them unconditional love, and accept them as family members. But they're not quite willing to spend quite as much money." Meanwhile, the "Nurturers" are the opposite. "They are less emotionally attached, but concerned about the quality of what they provide the pet. Many of these people own birds and/or fish," he said.

"Reluctant Owners" are not as emotionally attached to their pets and don't invest as much in them, Kuny said.

The roundtable got under way with an in-depth look at how Bi-Lo reorganized and manages the pet aisle to improve sales, profits, promotions and efficiency.

SNYDER: Anthea, you were telling me how Bi-Lo has melded pet foods and pet supplies. Could you describe it for the rest of us?

JONES: At the beginning of the year, we at Bi-Lo decided to reorganize the nonfood department. We moved several grocery lines into GM and HBC, including pet food, baby and household supplies. And one thing we decided to do differently is have the pet buyer buy both pet food and pet supplies.

In the past, as you know, pet was always in grocery, which was 85% of the business. The GM side was bound by whatever grocery did. If grocery decided that they wanted to reset the aisle, they'd take what they wanted and given us what was left over.

SNYDER: That's an old story for GM.

JONES: With the reorganization, I took pet supplies away from one of my GM guys and moved it to the pet food buyer, who came over to nonfood. I told him we're going to do some creative things with pet, since you're now going to be buying pet supplies as well as pet foods. We wanted to look at doing promotions to tie in both. So whenever we run pet food in the gatefold -- for National Pet Month, for instance -- we'll always tie in pet supplies.

SNYDER: Aside from the gatefold, do you do this in your main part of the circular, too?

JONES: We've seen the rawhide numbers jump as well as the treats and the toys we run in those ads. Now most of the time when you run a pet ad, it's pet food only; it's not margin positive. So by adding those items in there, it's been good for us.

SNYDER: How was the transition for the pet food buyer into pet supplies?

JONES: It was a challenge. The pet food buyer was used to buying high-turn, low-margin items and low-turn, high-margin items were an afterthought. So to resolve the situation, you have to throw some challenges in front of that person and say, "Hey, these are the targets you've got to hit. If you miss, there's going to be a penalty."

So far, we've been in pretty good shape. We've done some real nice, creative things. Even better are things coming up in the third and fourth quarters. A main event will be pet sidewalk sales. The idea is to wake up the entire pet category. Aside from promotions, we're expanding assortments. We've learned that if pet shoppers can't get their pet food at your location, they will go somewhere else to buy it. Then you will also miss the incremental sales and profits of pet supplies.

SNYDER: How do you develop a pet food assortment that pet owners want?

JONES: We work closely with a leading supplier. But the main thing is being in stock. That's the biggest challenge when you start looking at the bag sizes, especially on the bottom shelves, especially on Friday evenings, Saturdays and Sundays.

SNYDER: Can't you have some backup stock?

JONES: We try to do that, but there's been some resistance, even on promotions. They don't want extra inventory around and complain that the buyers send too much -- that sort of thing. We have to show the losses from out-of-stocks and talk about disappointed customers. Sometimes, even before the order is unloaded off the truck, they're screaming, "I didn't order this."

SNYDER: Is the overall program working?

JONES: We have some good results, and I'm real pleased with that. But a full year hasn't passed yet, so we have to wait for a full cycle before we'll be really able to see the fruits of our labor. We've had to change the mentality and not do some things the way we always have done them. It starts with the pet buyer. I've had to remind him to order extra rawhide, pet treats and to get them in the ad along with the pet food specials.

SNYDER: Not many people can do big things and small things at the same time.

JONES: We've worked the same buying policy with all baby products: baby food, diapers and supplies. They're under nonfood now. We wanted to create a total nonfood department because we, as grocery retailers, have seen the erosion to drug and mass. SNYDER: You told me that these switched product lines are credited to grocery when they go through the cash register up front, so grocery does not lose the sale.

JONES: That's correct, and grocery also stocks the items as before.

SNYDER: Coming back to pet, what is a typical ad, how many items usually, and do you have more shelf space for pet than before?

JONES: Yes, we do have more shelf space. In advertising, every six weeks we run what we call a "pet-gate" -- we take the narrow flap on the side of a page and devote an entire side to it to pet, and we rotate that with baby, and have "baby-gates."

SNYDER: How did you manage to sell this category-switching program to top management?

JONES: Top management decided that's what we needed to do.

SNYDER: They sold it to you?

JONES: Yes. We restructured the departments. That's what they said we needed to do. POLSI: Which is one of the reasons why it is probably working.

SNYDER: Yeah, right. What do you guys think? Could you do that in your stores? Would you want to?

LINTON: It would have to come down from top management because our grocery division handles pet food. We could do it, but we would need to start there. SNYDER: Could you do that at Ingles?

SPEARS: Yes, I suppose we could, but I don't know that we would want to do what Bi-Lo's doing. But let's talk about pet supplies competition. Dollar stores, for instance. I've been looking at some of them, and I've seen more pet supplies showing up than before.

KUNY: Typically, dollar stores have a basic selection of pet toys, some rawhide items and some flea products, so they are another player in pet supplies. But for grocers, the pet superstore is a major factor. Our research finds that pet buyers shop in an average of about two outlets. What do people have in mind for pet care products in each channel? In grocery, convenience first -- they're in your stores anyway. The second thing was value. Shoppers have a high regard for grocery value in pet supplies.

SNYDER: Convenience and value. It's good to have a high reputation there.

KUNY: Customers in pet superstores are looking for assortment and leadership in ideas and new products. In mass, it was really value first and convenience second. So one of the opportunities for grocery operators is not so much in huge assortments, but projecting a caring image about pets: the best items, careful selection of products, attractive setups, nice graphics, and so on.

SNYDER: David, what do you think about the changes Bi-Lo made?

LOWE: I have the supplies, another person has the food, but we run ads together all the time on baby and on pet, no problem. We have an exclusive program with Hartz with the exception of a couple of items that we have to have to complete the mix. Our sales have been great -- double-digit increases in sales, units and profits last year. It was a good year for us.

SNYDER: Did you give pet supplies more shelf space?

LOWE: We have expanded our space for pet supplies because we recognize that the pet business is huge. The pet aisle does more dollars than most aisles in the store. SNYDER: That's right. According to IRI data that appeared in the Aug. 6 issue of SN, total dollar volume for the pet aisle for the 12 months ended June 13, 2004, was $5.4 billion compared to $3.5 billion for soap, $2.5 billion for laundry detergent, $2.5 billion for toilet tissue, and $1.7 billion for paper towels.

LOWE: But we are a little different than most stores -- rawhide and toys are about 73% of my business -- and we have a lot of people with hunting dogs. But it really bothers me that the No. 1 dog food is Ol' Roy.

SNYDER: Tell us about it.

LOWE: Ol' Roy is Wal-Mart's private-label brand. It's the No. 1 dog food. Period. Nobody gets close to it. That bothers us. So we did what we could in pet supplies: added lots of interesting and high-retail items like beds, pet taxis, dog houses, watering stations, and display most of them above the dog food shelves. In 36 stores, they did 60% of my business last year. That's only for half a year, and it's growing. I can hardly keep up with doghouses and those type items in the stores today.

SNYDER: What do they sell for?

LOWE: I'm under the rest of the planet. I'm cheaper than Wally World. For example, $59 for a big doghouse.

SNYDER: That's a big sale, isn't it? But what's that got to do with Wal-Mart's dog food brand?

LOWE: Nothing. It just bothers me that if they're getting that much of the dog food business and they're in front of 45 of my stores. Yet we still have same-store sales increases. We combat Wal-Mart on dog food by doing things they won't do. Gimmicks: cents-off; buy-one, get-one free; things like that. You just can't give up. If you give up on some categories, they'll take more and more from whatever's left. We don't have the space for pet stations like they have. But if we can hold what we've got and then get that little bit of extra business with the doghouses, carriers, beds, and stuff like that, that's great.

SNYDER: I find it discouraging to see a large-space ad for pet food items and not a single item for pet supplies. Jim, what do you think about food and supplies ad coordination?

DONNELLY: We do some of that, probably not as much as we could. Too bad, because pet supplies is one of the best GM categories we have. It's one of the few that we still have strong growth in year after year. Space-wise at retail, however, we've seen that department shrink because we don't control the space. Still, we do an awful lot of promoting and off-shelf merchandising on j-hooks, power panels and floor displays. We've got something going all the time out there.

Dollar stores were mentioned earlier. Well, we have a dollar program in many stores, and pet supplies sell amazingly well in the dollar sections. We're also selling more pet food in dollar departments, in some cases more than the brands in the regular shelves. Within a 74-foot section, pet food is just blowing out of the stores. We knew the consumers were going somewhere to get lower-priced product, and we're filling that need.

SNYDER: How's it going at Imperial?

POLSI: We're doing good. But it's a story of ups and downs. I can remember seven or eight years ago some of our larger, high-volume stores went as long as 120 feet for pet supplies. Even I, as a distributor, thought that was too much for a good thing. Well, the bubble burst when they started to look at the sales per foot. They had overreacted and took the 120 feet and made it 36 feet instead of looking at something in the middle. I think that really hurt the category.

I think category management actually hurts the category. Up in the New England area, they go overboard in giving space to grocery. As for the concept of switching pet supplies to grocery or visa versa to improve merchandising and space allocation, I approve. BUT -- in capital letters -- unless top management really wants it, forget it. Coordinating space and merchandising won't happen. And if grocery takes over, that makes it difficult for Hartz or us or anybody who's trying to sell pet supplies. We have to sell the grocery guy who doesn't have the time, or won't give you the time. Another opinion, I wonder about the basic shelf setup for pet supplies. The trend this week seems to be to separate the various subcategories and put them with the related foods: dog supplies with dog food, cat with cat, bird with bird. Personally, I think that takes away from the impact of putting all pet supplies together.

JONES: We've got a couple of sets out there. We have dog supplies on the other side of the dog food items, and then we have a set where you have the cat on the other side of the cat chow. In some of our other sets, we have separate four-foot sets just for bird and novelty items, and we have the bird items there.

POLSI: Suppliers come out with new items all the time, but try to find them when they're pegged. When shoppers walk down the pet aisle to buy cat food, for example, and see eight feet of cat toys, how do they know what's really new there? Whatever happened to point-of-purchase signs? I'm a big pet owner -- I have five different pets -- and I'm always thinking about finding something new for them to play with. But I don't have time to hunt around. I'm in a rush to get out of the store, like most people are. Put up signs that tell me where the new items are.

JONES: I agree.

POLSI: I've heard it said that health items are big. We have chains in our area up north that want to cut out chemicals because they claim that most of the items aren't selling, yet Paul (Kuny) tells us that's one of the biggest improved categories.

KUNY: That depends on what they're defining as chemicals. There's a lot more to it than just flea and tick. It's shampoos, it's vitamins ...

POLSI: We service a 57-store chain that's asking us to cut chemicals almost 100%.

KUNY: They're crazy. That's 21% of my business. Through our research, we're a lot better armed now to deal with retailers and to talk with them about what we think works and what doesn't. What we see more and more is that the key for most supermarkets is to have a broad assortment that goes across all pet types. But if you say you're going to view things more as a convenience and you're going to have less shelf space, we would say you still want a good assortment, but cut down on depth. So you might have one shampoo, not four or five. Of course, somebody else may say that a good assortment considers sizes.

We studied several retailers -- the number of SKUs, sales per millions in ACV to level the playing field, etc. -- and we found that when we took a group of retailers, who basically have about the same assortment, that their sales levels were very different. So a good assortment is much more than the number of SKUs. It's also a question of what particular items are best for a particular store.

POLSI: We definitely have to get into micro-marketing. For instance, if you have a 24-foot section for pet supplies in a city store, a good majority of that space should be going to cat. Doghouses won't sell well in inner-city stores, but they'll do well out in the suburbs.

LOWE: Don't forget the beds or the little cat condos.

SNYDER: I believe in micro-marketing. I wonder about the demographics of income on pet supplies.

LOWE: It's weird, but I have 36 stores in different kinds of areas with four feet of pet supplies in the dollar section. Well, I can't replenish it fast enough. We also use power panels for dollar items in some stores.

SPEARS: We display all our pet supplies together. We haven't tried it any other way, so I don't know if this is best for sales or not. I do know that having them all together makes servicing a lot easier.

LINTON: We do real well with pet displays and pet supplies in clipstrips. We put out 25, 30 displays at every trade show, and we can get displays up on a shelf over the pet category. That's really pushed our sales.

SNYDER: What about clean-floor policies?

LINTON: I have one of those.

SPEARS: We have one of those, too.

SNYDER: Do you make exceptions?

SPEARS: We make exceptions -- for grocery.

SNYDER: In the pet food aisle, aren't you allowed to have one display, maybe once in a while?

SPEARS: It runs in spells. They'll say clean floor, absolutely. And then a month later, something changes.

DONNELLY: It's not unusual to get one or two displays and put them in the pet aisle without that being considered against the policy.

KUNY: It's always tough to promote when clean-floor policies interfere, but as an example, it really hurts when it eliminates the use of shippers to cross promote flea-tick collars with flea-tick shampoo. This is especially bad as our research finds that 81% of flea and tick shampoo buyers also buy collars.