International Pet Industry Summit 2012, Shanghai

IMG 1423My key note speech at the International Pet Industry Summit (October 2012, Shanghai) had as objective to share with the audience of the summit my personal views – which are based upon 30 years in the industry – on the future developments in the global pet food industry.

After explaining a bit of history and describing the current situation, I arrived at hopefully provocative statements about the challenges the industry is facing.

Until recently pet foods was essentially a “win-4-all” industry. Entry barriers were relatively low, the market provided for healthy growth perspectives, the trade was easy-going.

But gradually things started to change, particularly in the more developed markets; there was no more “guarantee” for growth, competition got fiercer, the trade got much more powerful and private labels started to take a sometimes significant slice of the market-pie.

One would expect that suppliers to the market would have readily adapted to these new business-circumstances. But quite a few of them didn’t. Which eventually led to a bigger divide than ever between the truly global players and the 2nd tier companies. Furthermore a wave of mergers & acquisitions went through the industry. Partly to create the mass and the size to counter the ever-increasing power of the retail-trade. The balance of power changed dramatically from a supplier-market (you sell what we have) to a retail-buyer market (we sell what sells).

With this in mind we can look at the challenges the industry is facing. Even more than is already the case today, the industry will have to step up its New Product Development programs and investments. Certainly in the mature markets where NPD is one of the main drivers for growth. This implies shorter life-cycles for products and implicitly shorter earn-back periods as far as the NPD-investment is concerned.

But New Product Development without New Process Development will ultimately prove to be a game without winners. We have an industry that is extremely energy-intensive in processing raw materials that in itself have a low value.

Technology-breakthroughs will be required to bring the industry to the next level. Maybe by starting to “borrow” technologies that are already common and proven in the human food industry.

Another very tangible challenge is the procurement of ingredients and raw materials in an increasingly demanding global environment. Are we sure that we need to have the highest quality ingredients to feed our pets? Have we tried to find adequate alternatives for the at this moment common and well-known raw materials? Because competing on the global commodity market with the human food and energy industries will prove to be a lost cause in the long run.

Is it all that bleak? Of course it isn’t. Key regions in the world still offer excellent growth-opportunities because of the low PPP (= Prepared Petfood Penetration) these regions experience today.

We deal with a much better informed (and therefore more critical) consumer who has 24/7 access to mountains of information; and these consumers are likely to drive some of the important changes the industry will go through. Certainly natural, functional and humanisation will remain the other key drivers for growth.

However, a new set of rules in and for the industry is imminent.

Adjusting to this new set of rules paves the way for continued success!

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