*Special Global Pet Expo Coverage*
From your perspective, what is the state of the pet care industry?
Bob Vetere: Every indicator I’m seeing says that the industry is still going strong. It’s amazing how many manufacturers I talk to that say they hear about all the woes in other industries, but they’re still doing fine. There is a lot of optimism out there in the pet industry.
A good indicator of the health of pet product manufacturers is that this year’s Global Pet Expo is ahead of last year’s edition of the show, which set a record for booth space sales. So we’re going to set another record this year.
Another good sign is that organizations that usually don’t talk to each other are starting to get together to work for the common good of the industry.
While the industry has seen steady growth overall, what are some of the dynamics at play within the various pet spending categories?
Vetere: There have certainly been some shifts in the segments we track. For example, we’re seeing a decrease in veterinary spending, but we’re also seeing a big increase in spending on over-the-counter health products—things like vitamins, supplements and preventative medications. So, total spending on health is pretty consistent, it’s just a matter of where the money is being spent.
I still think there is a lot of polarization going on among pet owners. There are some consumers who are trading down to the more value-priced products, but there are also a growing number of pet owners who are moving toward the higher end.
Through all of this, we’re still seeing healthy, organic growth in the market.
When you mention growth on the higher end, are you referring to luxury-type items or more-premium functional products?
Vetere: It has definitely been on the functional side. Especially with people getting back to active lifestyles, they’re looking for the things that will help babysit their pets—whether it’s electronic fences, timed feeding devices or video cameras that allow them to keep an eye on their pet while at work. It’s those kinds of products—not necessarily things like diamond-encrusted collars—that are seeing the growth I’m talking about. It’s about convenience. It’s about giving the pet owner more freedom while ensuring that their animals are still being well taken care of.
How have ongoing economic woes changed the landscape of pet product retailing?
Vetere: An increasing number of small mom-and-pop pet stores haven’t weathered the storm nearly as well as other retailers have. Many chains were able to tighten their belts a little bit. Petco, for example, closed some stores that weren’t doing as well and came up with a smaller store format [Unleashed by Petco]. I think PetSmart got rid of some stores that just weren’t working and really focused on optimizing their operations. Now it is building back up again. We saw similar moves from a lot of the bigger chains—getting rid of the underperforming stores and really bolstering up their better-performing locations.
We’re also seeing a change in how and where the pet chains are growing. Instead of just going where the other guy is, they’re starting to find unique locations that fit their customer demographics.
While that has been going on, there have been a bunch of small retailers that have taken a hit, and I’m not sure if there are as many small, independent stores going into business as there were in the past. So, the replacement rate has gone down. With that said, based on the numbers I’ve seen, it looks like the total number of single-unit retailers is on a downward trend.
However, there were a whole lot of small independents that were smart enough to recognize what pet owners needed during this tough period, and many of them got stronger and were able to grow. They were able to provide the type of service that the big-box pet stores and mass retailers can’t provide. So, it’s not like the small retailers are in danger of becoming extinct; I just think it’s been a matter of survival of the fittest for single-store retailers.
How has the American Pet Products Association (APPA) fared as an organization over the past year? Last year, we discussed that new members were joining APPA at a record pace, while your turnover rate was dropping. Are you still seeing that same kind of growth in membership?
Vetere: Five years ago, we predicted that we would be pressed to find new companies to add to our membership moving forward, but that simply hasn’t been the case. This year, we’re still on pace with last year, when we added a record number of new members. At the same time, our turnover rate is actually lower than it was last year. It really has been the result of a big effort on our part to reach out to every single company that isn’t renewing its membership to find out why—unfortunately, in many cases, it’s because they’re going out of business. And when we do find a company that is thinking about dropping out, we’re making sure they truly understand the package of services that we offer our members.
So many companies joined APPA just because of Global Pet Expo and never paid attention to anything else we do. A lot of them were pleasantly surprised to hear that we do so many other things for our members. We have the pet-owners survey. We provide help with importing, exporting and in a variety of other business areas. They hear all of these different things and suddenly they’re saying, “Well, let me take another look.” We are very pleased with how many members renew after one of those conversations, and I’m convinced that our turnover will continue to go down.
Is your success in lowering turnover due to offering more to members, or simply communicating those benefits more effectively?
Vetere: It’s a combination of both. We’re refining the benefits package that we offer. In fact, we just took on a new director of member benefits and relations. The bulk of her job is developing the optimum benefits package for our membership, and the best ways to communicate that to all of them. Like I said, we’re finding our efforts in both areas to be successful, so we’re putting our money where our mouth is by hiring a seasoned person to take that bull by the horns and continue to lower the turnover year after year.
What are your expectations for the pet industry over the next 12 months?
Vetere: If a couple of the initiatives we’ve started continue to go as positively as they have been going, I think you’re going to see a lot more collaboration within the industry. HABRI [the Human Animal Bond Research Initiative] has really taken root and is starting to get a lot of media coverage and a lot of positive feedback, especially from the government, on the human-health benefits of pet ownership. We’ve seen a lot of articles popping up about how dogs are being used in various kinds of therapy, whether it was after the tragedy in Newtown, Conn., or with people affected by Hurricane Sandy. I think that all of this is going to cause an uptick in pet ownership in this country.
At the same time, we’re directing a lot of our viral media programs toward the growing demographics within the United States where pet ownership rates haven’t traditionally been strong. We’re also big supporters of the Pets in the Classroom program. Unfortunately, we’ve been seeing pet ownership drop off with younger people, and I think Pets in the Classroom can have a real impact in changing that trend.
There are a lot of programs like these that are starting to bear fruit. And I think over the course of 2013, as these initiatives continue to build momentum, you’re going to see renewed strength in this industry.
A little more than five years ago, the industry saw a lot of mergers and acquisitions among manufacturers, a trend that slowed after the recession hit. Now, we seem to be seeing a little more activity in this area again, though not at pre-recession levels. What do you expect the M&A climate to be like in 2013?
Vetere: Yes, it’s nothing like we saw in 2007/2008, but I think that we’re starting to see a lot more activity, especially with so many new companies coming into the industry and making a mark for themselves. I have more and more investors approaching me to talk about how they want to get out of some of the poorer-performing retail segments. They keep seeing how well the pet category is doing, and they’re looking to find ways to get into the business. So, in addition to the mergers and acquisitions, I think you’re going to see more outside investors infusing capital into companies that look promising.
What do you see as the biggest challenge facing the pet industry?
Vetere: The big battles that continually go on between animal-welfare groups and the industry are just becoming so counterproductive. In fighting the way they’re fighting, not only is neither side accomplishing what they want to accomplish, they’re actually encouraging bad things to happen. For example, a lot of animal-welfare groups are so fed up with puppy mills that their approach is to just ban the sale of pets. But that doesn’t work to get rid of puppy mills, because the guys who run puppy mills—the really bad breeders—aren’t going to be slowed down by legislation. Also, that strategy does nothing to diminish the public’s demand for puppies, and they will get those puppies somewhere. So, all it is ultimately going to do is put good breeders out of business and open the door for disreputable sources to sell over the Internet.
If these groups don’t figure out a way to get together and improve the quality of breeding operations, improve the welfare of the animals being bred for sale, it is really going to take a toll on all of us.
Recently, APPA, the Pet Industry Distributors Association, Pet Industry Joint Advisory Council, Petco and PetSmart joined forces with animal welfare organizations to improve conditions for dogs and puppies sold to consumers. What can we expect from this partnership?
Vetere: It is an informal group, but our goal is to start doing some meaningful work. We want to move beyond simply agreeing on what a puppy mill is or what separates a good breeder from a substandard breeder. We want to develop a real set of standards that every quality breeder can attain, as well as standards for the way retailers handle pets in their stores—all with the common goal of increasing responsible pet handling and responsible pet ownership. I really think we’re going to make it happen.
Over the past several years, APPA has significantly increased the scope of issues in which it gets involved. How is this evolution going?
Vetere: All of the various areas we are getting involved in—whether it’s HABRI, the Pets Add Life campaign or government affairs—we see as being so important to the perpetuation of the pet industry as a whole. We are now formally trying to put together a leadership council that will span all facet of the industry. It will basically be an independent organization, but we will use APPA staff and funding to help get it going until the council finds other ways to fund itself. The goal is to have this council in place to help coordinate all the great initiatives that are popping up across the industry and make sure everyone’s voice is heard. I think it will go a long way in helping us operate like the $57-billion industry that we are, instead of like 57 thousand million-dollar businesses.
What are the latest developments from the Human-Animal Bond Research Initiative (HABRI)? What can we expect to see from HABRI over the next year?
Vetere: We grew the steering committee in 2012; we recently added Nestlé-Purina and Bayer. I think the inclusion of Bayer is indicative of the direction we want to go in, which is to bridge into the human-health side. We met with about seven different government agencies last year—everything from the Department of the Interior to the Department of Defense—and every one of them received the HABRI program enthusiastically. It seemed like every meeting ran over, because they didn’t want to let us go. We were invited to speak at several different government functions that will be taking place this year. We’re finally getting a great level of recognition where people are coming to us, instead of the other way around. That includes not only government agencies, but organizations like schools, medical associations and even health insurance companies.
We’ve identified seven or eight major human-health areas where pet ownership is having an impact, and we are preparing a marketing campaign that will focus on a few of them. We’re starting to reach out to different research institutes to encourage them to do more studies in areas that we have identified as being particularly promising. Purdue University has gathered more than 14,000 research studies under the HABRI umbrella and is currently categorizing all of them based on whether they’re scientifically validated or simply anecdotal, and everything in between. The goal is to identify areas that are bearing a lot of fruit, and help coordinate further study in areas that seem to have a lot of potential.
There is just so much going on that we’ve reached the point where we’re looking to hire some full-time staff. It really has developed a life of its own.
This year, Global Pet Expo will feature its second-annual Retailer Excellence Awards (REA) at the Pet Industry Breakfast tomorrow morning (8:00 – 8:45 a.m. in the Valencia Ballroom, Level Four of the convention center). How did the REA program go last year? Has the program changed at all this year? What are your expectations?
Vetere: Last year, the program went phenomenally well. Everybody was thrilled with it. I think it’s a program that has a permanent place at Global Pet Expo.
This year, we expanded the number of awards categories a bit to make sure that we can recognize all of the different types of excellent retailers out there. For example, we split the Best Overall Retailer Award into three separate categories—Best Overall Single-Unit Retailer, Best Overall Multi-Unit Retailer (less than 10 stores), and Best Overall Multi-Unit Retailer (10 or more stores). Also new this year is the Best Overall Animal Specialty Store, which we added to honor a retailer that has demonstrated excellence in selling live animals.
I’m really looking forward to emceeing the awards ceremony tomorrow. It’s going to be a lot of fun.
Who will be honored with this year’s “Excellence in Journalism and Outstanding Contributions to the Pet Industry Award?” Why did you pick this year’s honoree?
Vetere: This year we will be honoring pet lifestyle expert Sandy Robins, and she is really a great choice. Sandy has an excellent reputation in the industry. People just love her, and she really loves the industry. Sandy puts out a lot of positive press about not only the animals, but also the people in the pet industry. She is insightful enough to see what is important and what’s not, and she gives that guidance to millions of people.