WAL-MART TO MARKET PREMIUM PET FOODS

LISA SAXTON

BENTONVILLE, Ark. -- Wal-Mart Stores here is planning to market premium store-brand pet foods, which could deal another blow to the supermarket industry's already-staggering pet food aisle.

The mass merchandise chain unveiled its plans for a new push into premium pet foods during a presentation to securities analysts, who visited the company's headquarters earlier this month.

Wal-Mart declined to give details on the proposed line of pet foods during the meeting and did not return phone calls. However, analysts who were at the meeting reported that Wal-Mart officials said they will aggressively market and promote the premium line.

Gary Giblen, an analyst and vice president at Paine Webber, New York, told SN that Wal-Mart's presentation did not make clear whether the line will be a completely new brand or a revamping of its Exceed label, which Giblen termed a "quasi-premium" product.

However, it is crystal clear that the marketing move is a direct challenge to pet superstore chains and their premium private-label brands, Giblen said.

"It's probably private label vs. private label. PetsMart has made it an explicit part of their policy to meet or beat the Wal-Marts and clubs, and so forth. They may have to bring their price down if they're going to beat Wal-Mart's price," he said, referring to the Phoenix-based chain of pet care superstores.

Giblen added that the giant mass merchant's more aggressive focus is likely to have a negative impact on supermarkets.

"It can't help supermarkets to

have another product being emphasized by Wal-Mart, especially because it will tend to legitimize the category of premium pet food. People respect Wal-Mart for delivering value to the customers, so they'll be more likely to try a premium than just any old dog food," he said.

In addition, Wal-Mart is no stranger to strong pet food sales, having had "great success" with its current private-label products, named Ol' Roy after the late Sam Walton's favorite dog. "That's one of their biggest items," Giblen said.

SN learned that Doane's Products, Joplin, Mo., the manufacturer of the Ol' Roy line, will also supply the new premium products to Wal-Mart. A source at Doane's confirmed that the firm is being tapped by Wal-Mart for the project.

Ol' Roy, however, is not positioned as premium pet food. The new line will bring Wal-Mart into the market's cutting edge in the search for profits.

"Clearly, the super premium area, occupied by the likes of Hills and Iams, is one of those areas that have been a profit sanctuary in a category which has been distinctly difficult for the last few years," said Les Pugh, an analyst with Salomon Bros., New York.

"So, for [Wal-Mart] to show an interest in that, I think, is going to cause a few people to speculate how difficult it's going to be for the supermarkets to maintain a high margin," said Pugh. "I think the answer is it's going to be very difficult for them."

The owner of at least one pet superstore chain isn't quite shaking in his boots, even though he competes head-to-head with Wal-Mart.

"I don't believe that a premium pet food introduced by Wal-Mart is going to be any more successful than the O.N.E. and Expert in the supermarkets," he said.