Stepping out of the box.
Only recently Debbie Phillips-Donaldson (PFI) wrote a blog about the decreasing relative value of pet food. At least, that is how I read it. On the one hand continued premiumisation boosted the value of the market, on the other like for like volume dropped slightly in value. It must be noted that these are USA data, but I have no doubt that something similar is happening in W. Europe, an almost saturated market as is the USA one.
What can be the reasons for this phenomenon? Online sales no doubt play a role. As does a more efficient down-stream supply-chain. And of course, the more the total product-offer becomes “premiumised” the lower the positive effects of value-increase. After all, if everything is premium the discriminating effect of being so is zero. Sheer mathematics will put an end to the positive effects of premiumisation. Therefore premiumisation is not anymore the strategic life-buoy it once was.
Also, what should not be forgotten is that premiumisation is partly also inflation; i.e. part of the effects of premiumisation would have been there anyway because of rising ingredient prices and operational cost (general inflation). So, the proper effects of premiumisation could very well be lower than so far believed.
And what is there left to premiumise. We’re already walking further and further into a dead-end street where we are facing Gossen’s law of diminishing marginal utility. We need to invest more in R&D/SPD in absolute terms and get a lower yield per ton in relative terms. I do believe that we must stop thinking about premiumisation as a strategic direction for product and brand development. Because as long a we continue to use the same technologies as we use today, the effects of what we do become more and more marginal. And the price-deterioration will go on; probably more forceful than we observe today!
In my mind the only way to get out of this downward trend is to have breakthroughs in pet food processes. Something we are in control of ourselves. Which we need to be; because most of the reasons for the downward trend are external influences which the pet food industry can do nothing about.
But who takes the lead in developing these breakthrough processes? The big companies will not do so (they are already nowadays late followers of new trends) because over the years they have accumulated an enormous amount of vested interests. The small operators mostly do not have the time nor the money to engage in fundamental developments. So it’s a window of opportunity for the medium-sized companies, right? Probably so. And when you mention the necessity of having = developing new processes for pet food to the top management of these companies the nods of agreement are unanimous. Until push comes to shove. All of a sudden “reasons why not” start to penetrate the conversation. But what it really boils down to is that people are risk-averse. They like to leave the initiative to try out new to others; and when things are full proof they will follow.
So, who stands up with the desire to become a new champion in pet food by applying meaningful processes that our industry has hitherto not seen? Who wants to be the leader in a new category? Who looks at our industry’s axioms from a different angle? Who takes nothing for granted? Who says “let’s suppose the industry didn’t exist, where would I start, what would I find important?” Because the only way to create a break-though is to step out of the existing box.
Anybody who needs help with this can of course contact me at: firstname.lastname@example.org