Breeder's Own Pet Food Case Analysis 5v4m3r

Breeder’s Own Pet Foods, Inc. Case Analysis Report Business 8106: Marketing Submitted By Afsal Aboobacker 201589611

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Introduction First in Show Pet Foods, Breeder’s Own Pet Foods Inc. has been a major producer of dog food for show dogs within the dog show circuit for several years. Breeder’s Own Pet Foods, Inc. decides to break into the retail dog food market in the Boston, Massachusetts & Major metropolitan area and subsequently into the national wide market. Not only does Breeder’s Own Pet Foods intend to enter an already established market with hundreds of brands competing against each other, they want to introduce and dominate the 4thcategory, frozen dog food. Breeder’s Own Pet Food, Inc.’s product ‘Breeder’s Mix,’ a blend of 85% federally inspected frozen fresh uncooked meat and 15% high quality fortified cereal that will be marketed in the freezer section of supermarkets. It will be the first pet food that is sold right next to human food. Food Brokers within the targeted launch area, believe not only is this an untouched category but also the fact that Breeder’s Mix is made with only high quality, all natural ingredients, makes Breeder’s Mix very appealing to customers with their preference for natural pet foods now days. The company is targeting a 15% return on sales during their introductory year.

Problem statement Breeder's Own Pet Foods Inc. is planning to introduce a new frozen dog food product into the market and requires a strategic marketing plan to launch the product successfully. There are many concerns about how they should go about breaking into the retail channel, who to target, how to promote their product with most of customers are not aware frozen dog food, how much to allot to this initiative, and where to start selling their product. Breeder’s Own Pet Foods, Inc. executives are carefully considering how to launch their Show Circuit brand dog food into the greater Boston market and they must decide whether to accept or reject the proposed marketing plan put forward by the Marketing Momentum Unlimited.

Dog food Market U.S Market In the year of 2011, dog food sales will climb to roughly $14 billion. This number only s for the dogs that are fed prepared food on a regular basis. More than 50% of the dogs in the U.S. do not consume prepared food regularly. Continued growth in the industry is dependent on the perception of dog ownership. The number of dogs owned in the U.S. is currently 78.2million and counting. As per the calculation illustrated in appendix 1a, an average dog owner will spend $179 on dog food annually. Supermarkets for 36 percent of total dog food sales measuring $5.04 billion and mass merchandisers for the remaining 64 percent averaging $8.96 billion (appendix 1b. Out of the 64% of the sales of mass merchandisers, Walmart s for 25% ($3.5 billion), Pet Superstores (ex. PetSmart/PETCO) for 20% ($2.8 billion), Farm/Feed Stores for 7% ($980 million), Veterinarians for 6% ($840 million), Internet Retailers and Independent Stores also for 6% ($840 million) (appendix 1c).

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Boston Market Boston consists of 1.2% of the total dog population in U.S, i.e. 1.2% of 78.2 million approximately about 938,400 dogs. The total dog food sales for the Boston market can be approximated at 1.2% of total dog food sales for the US market, i.e. 1.2% of $14 billion measuring $168 million. In Boston area follows the same trend as the national market, supermarkets for 36% of dog food sales ($60.48 million) and mass merchandisers rest of the 64% of sales ($107.52 million) as shown in appendix 1d. Out of the mass merchandisers, Walmart s for 25% ($42 million), Pet Superstores (ex. PetSmart/PETCO) for 20% ($33.6 million), Farm/Feed Stores for 7% ($11.76 million), Veterinarians for 6% ($10.08 million) and Internet Retailers and Independent Stores for 6% ($10.08 million) (calculations shown in appendix 1e).

Four Major Trends Within Dog Food Industry Increasing Dog Ownership There are currently 78.2 million dog owners in the US and this number will continue to rise in the coming years. Pets as Family Pet owners see their animal companions as a part of the family and assign human characteristics to them. 75% of dog owners consider themselves mom and dad and 95% of dog owners pet and hug their dog every day. As a result, dog owners in the US spend $25 billion a year on vet bills, dog toys, dog medications, clothing, accessories, and furniture. and Super Dog Foods Increasing consumer’s preference for higher-quality which lead to formation of and super dog food brands. This has also fueled the increase in dog food sales growth. All Natural Dog Foods There is an increasing trend in consumer preference for all-natural, no additives, no preservatives, and vitamin and mineral enriched dog food products. Despite the industry’s growth, looking in to fact that only fewer than half of the dogs are regularly fed dog food. Thus, it is understandable that the industry has it reached its full potential yet.

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Frozen Dog Food Industry The frozen and refrigerated dog food s for 1% ($140 million) of US dog food sales. The demand for frozen dog food is growing rapidly evidenced by the increase in dollar sales by 133% in this category from 2008 to 2010.Research indicates that 1/10 dog owners regularly purchase frozen/refrigerated dog food, i.e. 7.82 million dog owner purchase this product. More over, Research also shows that an additional 15% of dog owners (11.73 million) are interested in trying frozen/refrigerated food, but currently do not use it. Hence, it is clear there is growth potential for this category of the dog food. Number of Firms In the US, there are approximately 50 dog food manufacturers and 350 dog food brands. Although, the major five companies ing for 75% of U.S. dog food sales: Nestle Purina Pet Care, Iams, Hill’s Pet Nutrition, Master Foods USA, and Del Monte Foods. Nestle Purina Pet Care, Master Foods USA and Del Monte Foods are most prominent brands in supermarket and mass merchandisers channels. Whereas, Hill’s Pet Nutrition is prominent in pet stores and veterinarian offices. Due to the intense competition and already established major five companies control the 75% of the market, it is really difficult for a firm like Breeder’s Own Pet Foods, Inc. to compete in this market with introduction of a new product (Breeder’s Mix) in frozen food section that’s generally not aware to the public. However, not many competitors in the frozen/refrigerated dog food market Breeder’s Own Pet Foods, Inc. desires to enter. Major sections of dog food market The dog food market is divided into four main sections: Dry food, Canned food, Treats and Frozen/Refrigerated Food. Dry food    

The most economic option for pet owners. Approximately 95% of the dog owners feed their dogs dry food during the course of the year. Dry food s for 60% of total US dog food sales measuring $8.4 billion (appendix 2a). In Boston market, it s for $100.8 million in sales (appendix 2b).

Canned food     

Offered as a both complete food or supplement food. Approximately 33.33% of owners feed their dogs canned food. Canned food s for 20% ($2.8 billion) of U.S. dog food sales (appendix 2a). In Boston market, it s for $33.6 million in sales (appendix 2b). More expensive than dry food and treats. 4

Treats    

Not recommended for use as a complete food. Approximately 80% of owners feed their dogs treats. Treats for 20% ($2.8 billion) of U.S. dog food sales as same as canned food (appendix 2a). In Boston market, it s for $33.6 million in sales (appendix 2b).

Frozen/Refrigerated Food     

Approximately 10% of dog owners feed their dogs frozen/refrigerated food Frozen/refrigerated food s for 1% ($140 million) of US dog food sales (appendix 2a). In Boston market, it s for $1.68 million in sales (appendix 2b). 133% increase in dollar sales during the last three years. This is a relatively untapped market with limited competitors.

Major players in each section Dry food  

The five major companies constitute 68% of market share in this category. Private label stores for 7% of market share and the rest of 25% is maintained by the local and regional brands. Thus, it is clearly shows that the local and regional brands are enjoying a fair amount of market share despite considering the intense competition from big five.

Canned food  

The national brands enjoy 88% of the market share in this section,20% higher than the dry food category. Hence, it is utterly dominated by the five major ones. Private label brands (8% market share) and the local & regional brands (4% market share) are not all appealing to consumers in this category.

Treats  

The national brands have 73% category share. Private label brands make up 12% share and the rest 15% share by regional and local bands.

Frozen food 

There are only two notable competitors in this category is a frozen dog treat called frosty paws made by Nestle Purina Pet care and Bil Jac, a frozen dog food sold in selected super 5

markets of Texas. Frosty paws will be only the main competitor for Breeder’s mix in Boston market.

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

   

Super- quality. Recommended by professional show-dog owners. Located next right to people food in supermarket. All organic with no preservatives and additives.

    

Costly to produce. Product requires thawing time and freezer space. Lack of consumer appeal for frozen dog food. Low margin for retailers. Company has limited distribution resources.





Reported 133% increase in dollar sales in the frozen dog market from 2008 to 2010. Prepared dog food market has yet to be fully tapped. Growth in and super dog food sales. Growing popularity in organic and all natural dog foods. Increased dog ownership within the United States. Pets increasingly viewed as of the family. Opportunity to be first in Boston market. Successful Boston market launch lays groundwork for national launch. Limited competitors in frozen food.

   

5 biggest dog food producers own 75% of market share. Competitors heavily . Dog owners are generally price sensitive. Difficulties convincing retailers to provide freezer space.

      

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After evaluation of the SWOT analysis, it is clear that there are enough opportunities for the company to capitalize on the dog food market with an overall trend of consumer preference for high quality and all organic dog food with increase in number of dog owners over the years. In addition, in frozen food market, there is only two notable competitors and this market is growing at a high pace. Lack of appeal for frozen dog food among consumer is a major concern for the company growth. However, Marketing experts have indicated that the problem of low appeal can quickly be turned into an asset with “the first dog food made to appeal only to dogs” marketing campaign. Due to the low margins for retailers for the product, the food brokers have hardest task in their hand to convince supermarket frozen buyers that relatively low margins will be offset by higher product turnover to provide freezer space. Hence, promotional and advertising campaigns are key for the company in translating their weaknesses to strengths and succeed in the business.

Alternatives Breeder's Own Pet Foods, Inc. has three options in regards to adopting the introductory program for the company's entry into the market  Alternative A: Accept $500,000 Marketing Proposal  Alternative B: Accept $700,000 Marketing Proposal  Alternative C: Reject Marketing Proposal While analyzing the three alternatives, it is need to take into the major concerns of the executives. Is market adequately defined and segmented? 

The market seems to be well defined and segmented.



Single Adults and Married Couples that view their dog as part of their family. These customers want to take care of their pets the best, willing to spend extra money for that.



The company should target Singles and married, aged 21 – 54 with household income greater than $25,000, with or without children, located in Boston area, and shop at supermarkets. A high percentage of the target market is actively spending money on their pets and those outside of target market are not actively spending money on their pets as illustrated in appendix 3a and appendix 3b.

What is a reasonable estimate of market potential? 

As stated before in the report, 10% of dog owners (1 in 10) or approximately 7.82 million people currently purchase frozen / refrigerated dog food and 15% of dog owners or approximately 11.73 million are interested in purchasing frozen/refrigerated dog food in the U.S market (appendix 3c). 7



An average dog owner spends $17.90 on frozen dog food product annually (appendix 3d).



Boston market constitutes 1.2% of total US dog population or 938,400 dogs which s a total of $ 168,000,000 dollars spend on dog food (appendix 3d).



Total dollars spent in Boston Supermarkets is $60,480,000 (appendix 3d)



Total dollars spent on refrigerated dog food in Boston (1% of the total dollar sales) is approximately $1,680,000 (appendix 3d). Thus, a reasonable estimation of market potential for frozen dog food in Boston market is $1,680,000.

Can the food brokers get distribution in supermarkets given the sales program? In order to attain freezer space in Boston supermarkets, two key problems must be over come: 

Persuading the frozen-food buyer to stock Breeder's Mix and that a greater product turnover will make up for a potentially lower margin of the product.



Breeder's Mix will be placed right next to the people food. However, the idea won’t be completely new to the supermarket or consumer thanks to Frosty Paws, a similar product by Nestlé Purina Pet Care currently in the market.

Given the potentially lower margin and likelihood of failure (80% of new product failure), slotting fees of approximately $30,000 will be required to gain distribution in the supermarket. What should be the recommended selling list price to the consumer for Breeder's Mix? Since Breeder's Mix is a high quality product with no preservatives and additives, it should be priced at relatively higher. However, it needs to make sure that it shouldn’t be priced so high as to price itself out of the market. 

Industry average price per pound can be estimated at $2.28 per pound of dog food (appendix 4a).



Bill Jac currently sells their product between $1.30 and $1.80 per pound (appendix 4b).



By analyzing the current market, Breeder's Mix suggested list price should be



between$2.00 - $3.00 per 1lb bag. The average price per pound of treats would not be not taken into to price the product since treats are viewed as a special, infrequent purchase, while, Breeder's Mix is a staple item which purchased regularly.

Can the company achieve a 15% return of sales in its introductory year? 

Breeder's Mix can achieve a 15% return of sales if full market potential is achieved. If full market potential is reached, $1,680,000 will be spent on frozen food. 8



Assuming a $2.50 retail selling price and 22% Supermarket gross margin, manufacturing price will be $1.95 per lb. (appendix 5a).



At a $1.95 manufacturing Selling Price, total dollar sales of $1,680,000 would translate into 861,539 units sold (appendix 5a) and net income will be $967,374 before advertising expenditures (appendix 5b)



If proposed advertising and promotional plan with cost of $500,000 is employed, return on sales would be approximately 27.81% (appendix 5c).



If proposed advertising and promotional plan with cost of $700,000 is implemented, return on sales would be approximately 15.92% (appendix 5d).

Evaluating The Alternatives While evaluating the alternatives, it should take into consideration of benefits, drawbacks and potential sales needed to make break even. Alternative A: Accept $500,000 Marketing Proposal Benefits 

Breeder's Own will be able to launch product as scheduled, and will serve as basis for national launch.



Advertising has potential to generate $25,000,0000 in sales (appendix 5e).

Market share and sales needed to make break even 

In order to make breakeven sales, Breeder's Mix will need to obtain a .53% market share of total Dog Food Sales in Boston (appendix 5e).



In order to breakeven sales, Breeder's Mix will need to obtain a 1.48% market share of total Dog Food Super Market Sales in Boston (appendix 5e).



Breeder's Mix must sell 459,471 units to breakeven (appendix 5e).



Breeder's Mix must have 53% of market potential purchase the product to breakeven in sales (appendix 5e).

Alternative B: Accept $700,000 Marketing Proposal Benefits 

Breeder's Own will be able to launch product as scheduled, and will serve as basis for national launch.



Advertising has potential to generate $35,000,0000 in sales (appendix 5f). 9

Market share and sales needed to make break even 

In order to breakeven, Breeder's Mix will need to obtain a .73% market share of total Dog Food Sales in Boston (appendix 5f).



In order to breakeven, Breeder's Mix will need to obtain a 2.03% market share of total Dog Food Super Market Sales in Boston (appendix 5f).



Breeder's Mix must sell 632,857 units to breakeven (appendix 5f).



Breeder's Mix must have 73% of market potential purchase the product to breakeven sales (appendix 5f).

Alternative C: Reject Marketing Proposal Benefits 

Eliminate advertising cost completely and gain opportunity to generate new and better marketing proposal.

Drawbacks 

Postpone launch of new product, must use additional funds and time to generate new marketing plan, and inability to gain entrance into supermarkets.

Recommendation My recommendation would be to accept the $500,000 marketing proposal (with $30,000 slotting fee). As per data available, the Boston market follows the US market, the frozen/refrigerated dog food market contribute 1% of total dog food sales, the reasonable market potential would be $1,680,000 as stated earlier. Breeder's Mix need to obtain 53% of the market share (in frozen food market) in order to reach break even point. Since Breeder's Mix will have no direct competitors (only competitor Frozen Paws) to compete with for the 1% market share in Boston, it is likely that Breeder's Mix can reach breakeven without much difficulty. Moreover, the company would make 28% return on sales (appendix 5e) by adopting this plan if able to achieve the full market potential. In contrast, if the company decided to go with $700,000, it will be only able to deliver 15.92% return on sales. In addition, this proposal poses more risk and greater losses for the company in the event of failure. All estimations are done assuming a maximum of 1% market share for frozen dog food market. Since the dog owners are becoming more willing to spend extra to purchase quality items for 10

their pets, the Breeder’s mix has a huge potential to attract those customers with its high quality and healthy nature. Subsequently, it can also attract customers to switch from dry food and canned food to their product and gain more market share outside of the frozen food market. As mentioned previously, the average dog owner spends only approximately $17.90 annually on frozen dog food. This clearly indicates that customers view it as special purchase that is not part of their repeated purchase. Thus, Breeder’s Own Pet foods, Inc. has the opportunity to change this perception and persuade dog owners to regularly purchase their product. By changing this perception, the average annual dollar amount spent on frozen dog food will increase. As per research, another 15% of dog owners are interested to buy frozen dog food who are not currently buying it. The company has the opportunity to persuade these customers to purchase their product and increase their market share. By approving the current marketing proposal, the product will be launched on schedule. If the marketing proposal were denied, a new proposal would be needed. Breeder's Own would run the risk of other competitors entering the marketing during this time.

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Appendix Appendix 1a. Average annual spending per dog Average annual spending per dog = Total dog food sales / owned dog population = 14,000,000,000 / 78,200,000 = $179.028 per dog Appendix 1b. Distribution of dog food sales in U.S market

Distribution Channel

Percentage of Sales

Dollar Sales

Super market

36%

$5.04 billion (14 billion x 36%)

Mass Merchandisers

64%

$8.96 billion (14 billion x 64%)

Appendix 1c. Dog food sales by Mass Merchandisers (U.S Market)

Distribution Channel

Percentage of Sales

Dollar Sales

Walmart

25%

$3.5 billion (14 billion x 25%)

Pet Superstores

20%

$2.8 billion (14 billion x 20%)

Farm/ Feed Stores

7%

$980 million (14 billion x 7%)

Veterinarians

6%

$840 million (14 billion x 6%)

6%

$840 million (14 billion x 6%)

Internet

and

independent

retailers

Appendix 1d. Distribution of dog food sales in Boston market Total sales = 1.2% x 14 billion = 168 million

Distribution Channel

Percentage of Sales

Dollar Sales

Super market

36%

$60.48 million (168 million x 36%)

Mass Merchandisers

64%

$107.52 million (168 million x 64%)

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Appendix 1e. Dog food sales by Mass Merchandisers (Boston market)

Distribution Channel

Percentage of Sales

Dollar Sales

Walmart

25%

$42 million (168 million x 25%)

Pet Superstores

20%

$33.6 million (168 million x 20%)

Farm/ Feed Stores

7%

$11.76 million (168 million x 7%)

Veterinarians

6%

$10.08 million (168 million x 6%)

6%

$10.08 million (168 million x 6%)

Internet

and

independent

retailers

Appendix 2a. Sales distribution of various sections in U.S market

Product

Percentage of Sales

Dollar Sales

Dry food

60%

$8.4 billion (14 billion x 60%)

Canned food

20%

$2.8 billion (14 billion x 20%)

Treats

20%

$2.8 billion (14 billion x 20%)

Frozen/ Refrigerated

1%

$140 million (14 billion x 1%)

Appendix 2b. Sales distribution of various sections in Boston market

Product

Percentage of Sales

Dollar Sales

Dry food

60%

$100.8 million (168 million x 60%)

Canned food

20%

$33.6 million (168 million x 20%)

Treats

20%

$33.6 million (168 million x 20%)

Frozen/ Refrigerated

1%

$1.68 million (168 million x 1%)

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Appendix3a. Target market(Demographics)

Target Group

Percentage of income spent on pets

Parents with school-age children

79%

Parents with younger or older children

71%

Roommate households

72%

Young couples with no children

73%

Household with annual income greater than

63%

$50,000

Appendix 3b. Demographic group outside of target market

Demographic outside of target market

Percentage of income spent on pets

Older singles

30%

Retired couple

41%

Household with annual income less than

48%

$25,000

Appendix 3c. Assume that 1 dog = 1 dog owner, thus, 10% of dog owners currently purchase frozen/refrigerated food. Therefore, 78.2 million total dog owner’s x 10% = 7.82 million people It is also known that 15% of dog owners are interested in trying frozen/refrigerated dog food. Hence, 78.2 million total dog owner’s x 15% = 11.73 million people Appendix 3d. Total money spent on frozen dog food / Total owners who buy frozen dog food = $140,000,000 / 7,820,000 = $17.90 $14,000,000,000 x 1.2% = $168 million (Boston sales) $168,000,000 total Boston dog food sales x 36% spent in supermarkets = $60,480,000 Therefore, $168,000,000 total Boston dog food sales x 1% estimated market share for frozen dog food = $1,680,000 spent on frozen dog

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Appendix 4a. Price per pound of different brands Product Category Product Name Dry food Dog Chow Dry food Purina One Dry food Iams Canned food Alpo Prime Cuts Canned food Mighty Dog Canned food Cesar Select 1 oz. = 0.0625 lbs. Average price of all six brands = 13.37/6 = 2.28

List Price $14.99/17.6 lbs. $13.49/8 lbs. $19.45/8 lbs. $1.50/22 oz. $.80/5.5 oz. $1.09/3.5 oz.

Price Per Pound $0.85 $1.69 $2.43 $1.09 $2.33 $4.98

List Price $3.59/ 2 lbs. $6.49/5 lbs.

Price Per Pound $1.795 $1.23

Appendix 4b. Price per pound of Bil Jac Product Category Frozen food

Product Name Bil Jac

Appendix 5a. Supermarket margin Gross Margin = Retail Selling Price - Retail Cost of Goods Sold /Retail Selling Price .22 = $2.50 - COGS/$2.50 COGS = 2.50 - .55 COGS = $1.95 (retailers COGS becomes the manufacturers SP) Therefore, potential dollar sales divided by manufacturing selling price gives us the number units to be sold. 1,680,000 total sales/ $1.95 per unit = 861,539 units Appendix 5b.Net income before advertising Net income before advertising =Total sales – stocking fee – Variable Cost – commission = $1,680,000 - $30,000 - $565,026 - $117,600 = $967,374 Variable cost = $7.87/12 bags per case x 861,539 units = $565,026 Broker Commission = .07 x $1,680,000 = $117,600 Appendix 5c.Net income and Return on sales after plan A ($500,000 advertising) Net income before interest and tax = $967,374 – 500,000 = 467,374 Return on sales (ROS) = Net income before interest and tax/ total sales = 467,374/$1,680,000 = 27.81%

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Appendix 5d.Net income and Return on sales after plan B ($700,000 advertising) Net income before interest and tax = $967,374 – 700,000 = 267,374 Return on sales (ROS) = Net income before interest and tax/ total sales = 267,374/$1,680,000 = 15.92% Appendix 5e. Break even and contribution margin for plan A Assuming total spending for advertising in the dog food industry is about 2% of sales: $500,000 / 2% = $25,000,000 sales Assume FC = $530,000 (advertising proposal + slotting fees), manufacturing SP = $1.95 VC = VC per 1 lb bag +7% sales commission per 1 lb bag = 7.87/12 + 1.95 x .7 = .66 + .1365= 0.7965 Contribution Margin Ratio = (Sales – VC) / Sales = (1.95 - .7965) / 1.95 = .591 Breakeven in Sales = Fixed Cost / Contribution Margin Ratio $BE = $530,000 / .591 = $896,785 Market Share needed = $BE/Total Boston Dog Food Sales MK Share = $896,785 / $168,000,000 = 0.53% Market Share needed = $BE/Total Boston Supermarket Sales MK Share = $896,785/ $60,480,000 = 1.48% BE as % of Market Potential = $BE/$Market Potential (Boston market) BE = $896,785/$1,680,000 = 53% Breakeven in Units = Fixed Cost/ (Unit Selling Price - Unit Variable Cost) Unit BE = $530,000/ (1.95 - .7965) = 459,471 units Appendix 5f. Break even and contribution margin for plan A Assuming total spending for advertising in the dog food industry is about 2% of sales: $700,000 / 2% = $35,000,000 sales Assume FC = $730,000 (advertising proposal + slotting fees), manufacturing SP = $1.95 VC = VC per 1 lb bag +7% sales commission per 1 lb bag = 7.87/12 + 1.95 x .7 = .66 + .1365= 0.7965 Contribution Margin Ratio = (Sales – VC) / Sale = (1.95 - .7965) / 1.95 = .592 Breakeven in Sales = Fixed Cost / Contribution Margin Ratio $BE = $730,000 / .592 = $1,233,108 Market Share needed = $BE/Total Boston Dog Food Sales MK Share = $1,233,108 / $168,000,000 = 0.73% Market Share needed = $BE/Total Boston Supermarket Sales MK Share = $1,233,108 / $60,480,000 = 2.03% BE as % of Market Potential = $BE/$Market Potential BE = 1,233,108/$1,680,000 = 73% Breakeven in Units = Fixed Cost/ (Unit Selling Price - Unit Variable Cost) Unit BE = $730,000/ (1.95 - .7965) = 632,857 units

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