Breeder’s Own Pet Foods, Inc. Case Analysis Sarah Lehman
I. Situation Industry
Size of Industry Industry US Market In !"", do# $ood sales will total a%%ro&imately '"( )illion US*. • +he aera#e do# owner will s%end '"- on $ood. /A%%endi& "a0 • S1%ermarkets acco1nt $or 234 or '5.!( )illion o$ do# $ood sales. /A%%endi& ")0 • Mass merchandisers acco1nt $or 3(4 or '6.3 )illion US* o$ do# $ood sales. • O$ these, 7almart 7almart acco1nts $or 54 /'2.5 )illion0 o Pet S1%erstores /e&. PetSmart8P9+CO0 acco1nt $or !4 /'.6 )illion0 o Farm8Feed Stores acco1nt $or -4 /'6 million0 o :eterinarians :eterinarians acco1nt $or 34 /'6( million0 o Internet ;etailers and Inde%endent Stores also acco1nt $or 34 /'6( million0 o
Boston Market Boston makes 1% ".4 o$ the total do# %o%1lation, a)o1t 26,(!! do#s. +here$or do# $ood sales $or the Boston market can )e a%%ro&imated at ".4 ". 4 o$ total do# $ood sales $or the US market, or '"36 ' "36 million. 9&%endit1res $or %et %rod1cts in Boston a%%ro&imate the national aera#e. S1%ermarkets acco1nt $or 234 /'3!,(6!,!!!0 o$ do# $ood sales. /A%%endi& "c0 Mass merchandisers acco1nt $or 3(4 /'"!-,5!,!!!0 o$ sales. o O$ these, 7almart 7almart acco1nts $or 54 /'( million0 o Pet S1%erstores /e&. PetSmart8P9+CO0 acco1nt $or !4 /'22.3 million0 o Farm8Feed Stores acco1nt $or -4 /'"",-3!,!!!0 :eterinarians :eterinarians acco1nt $or 34 /'"!,!6!,!!!0 o Internet ;etailers and Inde%endent Stores also acco1nt $or 34 /'"!,!6!,!!!0 o • •
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Growth Pet Prod1ct Ind1stry +he %et %rod1ct ind1stry is in a #rowth %hase d1e to a steady increase in %et ownershi%. • *es%ite ind1stry #rowth, $ewer than hal$ o$ do#s are re#1larly $ed %re%ared do# $ood. • +here$ore, the ind1stry has not reached its $1llest %otential.
Fro
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;esearch indicates that "8"! do# owners re#1larly %1rchase $ro
Number of Firms In the US, there are a%%ro&. do# $ood man1$act1rers and 25! do# $ood )rands. • o *es%ite this, the ind1stry is hi#hly concentrated, with $ie c om%anies acco1ntin# $or -54 o$ US do# $ood sales> ?estle P1rina PetCare, Iams, @ill’s Pet ?1trition, MasterFoods USA, and *el Monte Foods, Inc. ?ot many com%etitors in the $ro
+he do# $ood market is diided into $o1r main sections> *ry Food, Canned Food, +reats, and Fro
Canned Food A%%ro&. 22.224 o$ owners $eed their do#s canned $ood. Canned $ood acco1nts $or !4 /'.6 )illion0 o$ US do# $ood sales /'22.3 million o$ Boston do# $ood sales0 • •
+reats • •
A%%ro&. 6!4 o$ owners $eed their do#s treats. +reats acco1nt $or !4 /'.6 )illion0 o$ US do# $ood sales /'22.3 million o$ Boston do# $ood sales0
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Players *ry Food ?ational Brands hae 364 cate#ory share. • Priate La)el Brands hae -4 cate#ory share. • Other /;e#ional8Local0 Brands hae 54 cate#ory share. •
Canned Food ?ational Brands hae 664 cate#ory share. Priate La)el Brands hae 64 cate#ory share. Other /;e#ional8Local0 Brands hae (4 cate#ory share. • • •
+reats • • •
?ational Brands hae -24 cate#ory share. Priate La)el Brands hae "4 cate#ory share. Other /;e#ional8Local0 Brands hae "54 cate#ory share.
Company
Size and Sales/Market Share/Growth Breeders Own is la1nchin# a new %rod1ct, Breeders Mi&, into the market. • C1rrently, Breeders Own is a maor %rod1cer o$ do# $ood $or show=do# kennels. • Segments Breeders Own will )e e&cl1siely com%etin# in the $ro
*irect com%etitors incl1de national )rands, %riate la)els8store )rands, re#ional8local )rands that sell dry $ood, canned $ood, and treats. Also those who %rod1ce $ro
!erall "rends *o# $ood ind1stry has )ene$ited $rom increasin# do# ownershi% /e&%ected to contin1e • #rowin# steadily. Pet owners attri)1te h1man D1alities and characteristics to their %ets /%et8h1# them • daily0, iew them as a mem)er o$ the $amily /consider themseles EMom and *ad0, and are willin# to s%end more money on them /s%end '5 )illion $or do# %rod1cts not incl1din# $ood0. Growth in Premi1m and S1%er=Premi1m do# $oods. • Growin# 9m%hasis on All=?at1ral, ?o Addities or Preseraties, and • :itamin8Mineral 9nriched Claims made $or new Prod1ct Innoation. Or#anic *o# Food sales #rew 3(4 in !"!. o pportunities for #reeder$s wn
Breeders Own o$$ers a $resh, no additie or %reseraties do# $ood %rod1ct made o$ real meat and Breeders Own has a well esta)lished re%1tation as a show do# $ood s1%%lier.
II. Problem Definition
Breeders Own Pet Foods Inc. is introd1cin# a new $ro
III. Alternatives
Breeders Own Pet Foods, Inc. has three o%tions in re#ards to ado%tin# the introd1ctory %ro#ram $or the com%anys entry into the market. Alternatie A> Acce%t '5!!,!!! Marketin# Pro%osal Alternatie B> Acce%t '-!!,!!! Marketin# Pro%osal Alternatie C> ;eect Marketin# Pro%osal • • •
7hen analy ". Is market adeD1ately de$ined and se#mentedH +he market a%%ears to )e well de$ined and se#mented. Market *e$inition> Sin#le Ad1lts and Married Co1%les that iew their do# as %art o$ their $amily. +hese indiid1als want the ery )est $or their %et, and are willin# to s%end e&tra money to attain that %rod1ct. +he tar#et market is aimed at cons1mers> Sin#les and married, a#ed " 5(, ho1sehold income #reater than '5,!!!, with o or witho1t children, located in Boston area, and sho% at s1%ermarkets. A hi#h %ercenta#e o$ the tar#et market is actiely s%endin# money on their %ets. /A%%endi& 2a0 +hose o1tside o$ tar#et market are not actiely s%endin# money on their %ets. /A%%endi& 2)0 • •
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. 7hat is a reasona)le estimate o$ market %otentialH In the US market, "!4 o$ do# owners or a%%ro&imately -,6!,!!! %eo%le c1rrently %1rchase $ro
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A reasona)le estimate o$ market %otential is '",36!,!!!
2. Can the $ood )rokers #et distri)1tion in s1%ermarkets #ien the sales %ro#ramH In order to o)tain $ree Pers1adin# the $ro
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(. 7hat sho1ld )e the recommended sellin# list %rice to the cons1mer $or Breeders Mi&H Since Breeders Mi& is a hi#h D1ality %rod1ct it sho1ld )e sold at a relatiely hi#her %rice. @oweer, it sho1ldn’t )e %riced so hi#h as to %rice itsel$ o1t o$ the market By analy
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Since Breeders Mi& is to )e iewed as a sta%le item to )e re%1rchased re#1larly, the aera#e %rice %er %o1nd o$ treats wo1ld not )e considered to %rice the %rod1ct since treats are iewed as a s%ecial, in$reD1ent %1rchase.
5. Can the com%any achiee a "54 ret1rn o$ sales in its introd1ctory yearH Breeders Mi& can achiee a "54 ret1rn o$ sales i$ $1ll market %otential is o)tained. I$ $1ll market %otential is reached, '",36!,!!! will )e s%ent on $ro
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%lternati!e %& %''ept ()**+*** Marketing Proposal
Adanta#e> Breeders Own will )e a)le to la1nch %rod1ct as sched1led, and will sere as )asis $or national la1nch. Breeders Own will not hae to #enerate additional marketin# %lan •
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Adertisin# has %otential to #enerate '5,!!!,!!!! in sales /A%%endi& 2%0 In order to )reakeen, Breeders Mi& will need to o)tain a .524 market share o$ total *o# Food Sales in Boston /A%%endi& 2D0 In order to )reakeen, Breeders Mi& will need to o)tain a ".(64 market share o$ total *o# Food Sales in Boston /A%%endi& 2r0
*isadanta#e> Fi&ed Cost are hi#her than estimated /adertisin# and slottin# $ees0 Breeders Mi& m1st sell (5,(-" 1nits to )reakeen /A%%endi& 2s0 Breeders Mi& m1st hae 524 o$ market %otential %1rchase the %rod1ct to )reakeen in sales /A%%endi& 2t0 • • •
%lternati!e #& %''ept (,**+*** Marketing Proposal Adanta#e> Breeders Own will )e a)le to la1nch %rod1ct as sched1led, and will sere as )asis $or • national la1nch. Breeders Own will not hae to #enerate additional marketin# %lan • Adertisin# has %otential to #enerate '25,!!!,!!!! in sales /A%%endi& 210 • In order to )reakeen, Breeders Mi& will need to o)tain a .-24 market share o$ total *o# • Food Sales in Boston /A%%endi& 20 In order to )reakeen, Breeders Mi& will need to o)tain a 4 market share o$ total *o# • Food Sales in Boston /A%%endi& 2w0
*isadanta#e> Fi&ed Cost are hi#her than estimated /adertisin# and slottin# $ees0 Breeders Mi& m1st sell 32,65- 1nits to )reakeen /A%%endi& 2&0 Breeders Mi& m1st hae -24 o$ market %otential %1rchase the %rod1ct to )reakeen in sales /A%%endi& 2y0 • • •
%lternati!e C& -e.e't Marketing Proposal
Adanta#e> 9liminate adertisin# cost com%letely and #ain o%%ort1nity to #ene rate new, )etter marketin# %ro%osal. •
*isadanta#e> Post%one la1nch o$ new %rod1ct, m1st 1se additional $1nds and time to #enerate new marketin# %lan, and ina)ility to #ain entrance into s1%ermarkets. •
IV. Recommendation
My recommendation wo1ld )e to acce%t the '5!!,!!! marketin# %ro%osal. I$ the Boston market $ollows the US market, the $ro
%ppendi "a.0 Aera#e ann1al s%endin# %er do#> +otal sales $or do# $ood 8 Owned=do# %o%1lation J '"(,!!!,!!!,!!! 8 -6,!!,!!! J '"-.!6 %er do# ").0 *istri)1tion o$ do# $ood sales +his ta)le re%resents the distri)1tion o$ do# $ood sales %er retail channel $or the US market> Retail Channel Sales Percentage Dollar Sales S1%ermarket 234 '5.!( )illion Mass Merchandisers 3(4 '6.3 )illion *o# $ood sales )y mass merchandiser> Retail Channel Sales Percentage 7almart 54 Pet S1%erstores !4 Farm8Feed Stores -4 :eterinarians 34 Internet8Inde%endent 34
Dollar Sales '2.5 )illion '.6 )illion '6 million '6( million '6( million
Calculation /"( )illion & 2340 /"( )illion & 3(40
Calculation /"( )illion & 540 /"( )illion & !40 /"( )illion & -40 /"( )illion & 340 /"( )illion & 340
"c.0 +his ta)le re%resents the distri)1tion o$ do# $ood sales %er retail channel $or the Boston market> Retail Channel Sales Percentage Dollar Sales Calculation S1%ermarket 234 '3!,(6!,!!! /"36 million & 2340 Mass Merchandisers 3(4 '"!-,5!,!!! /"36 million & 3(40 *o# $ood sales )y mass merchandiser> Retail Channel Sales Percentage 7almart 54 Pet S1%erstores !4 Farm8Feed Stores -4 :eterinarians 34 Internet8Inde%endent 34
Dollar Sales '(,!!!,!!! '22,3!!,!!! '"",-3!,!!! '"!,!6!,!!! '"!,!6!,!!!
Calculation /"36 million & 540 /"36 million & !40 /"36 million & -40 /"36 million & 340 /"36 million & 340
"d.0 +he $ollowin# ta)les re%resent the sales each %rod1ct cate#ory is receiin# in the US and Boston markets. Prod1ct distri)1tion in US> Product Sales Percentage Dollar Sales *ry Food 3!4 '6.( )illion Canned Food !4 '.6 )illion +reats !4 '.6 )illion Fro Product *ry Food Canned Food +reats Fro Target Demographic Parents= school a#e children Parents= yo1n#er8older children ;oommate @o1seholds
Sales Percentage
3!4 !4 !4 "4
Dollar Sales '"!!.6 million '22.3 million '22.3 million '"36,!!!
Percentage Spending oney on Pet
-4 -"4 -4
Ko1n# Co1%les= no children @o1sehold Income '5!k
-24 324
2).0 *emo#ra%hics o1tside o$ tar#et market> Demographic !ot in Target ar"et @o1sehold Income '5k Older Sin#les ;etired Co1%les
(64 2!4 ("4
Percentage Spending oney on Pet
2c.0 Under the ass1m%tions that " do# J " do# owner and that "!4 o$ do# owners c1rrently %1rchase $ro -6,!!,!!! total do# owners & "!4 J -,6!,!!! %eo%le who c1rrently %1rchase $ro -6,!!,!!! total do# owners & "54 J "",-2!,!!! %eo%le who are interested in tryin# $ro Product Type Fro
Product !ame Bil ac Bil ac
#ist Price '2.58l) '3.(85l)
'".6! '".2!
Price Per Pound
2.0 A%%ro&imate do# $ood %rice %er %o1nd> Product Type Product !ame *ry $ood *o# Chow *ry $ood P1rina One *ry $ood Iams Canned $ood Al%o Prime C1ts Canned $ood Mi#hty *o# Canned $ood Cesar Select Aera#e %rice8l) J '"2.2- 8 3 J '.2
#ist Price '"(.8"-.3l) '"2.(86l) '".(586l) '".5!8o< '.6!85.5o< '".!82.5o<
'.65 '".3 '.(2 '".! '(.6 '.22
Price Per Pound
2k.0 S1%ermarket mar#in> Gross Mar#in J ;etail Sellin# Price = ;etail COGS8;etail Sellin# Price . J '.5! = COGS8'.5! COGS J .5! = .55 COGS J '".5 /retailers COGS )ecomes the man1$act1rers SP0 2l.0 '",36!,!!! total sales8 '".5 %er 1nit J 63",52 1nits 2m.0 ?et income )e$ore adertisin#> +otal sales stockin# $ee :C commission J '",36!,!!! = '2!,!!! = '535,!3 = '""-,3!! J '3-,2-(. :C calc1lated as> /'-.6- :C %er case 8 " )a#s %er case0 & 63",52 1nits sold. • Commission /$or $ood )rokers0 calc1lated as> /.!- & '",36!,!!!0 • 2n.0 ?et income a$ter adertisin#> '3-,2-( = '5!!,!!! /Plan A0 J '(3-,2-(
;et1rn on sales J net income )e$ore interest and ta&8sales ;OS J '(3-,2-( 8 '",36!,!!! J -.64 2o.0 ?et income a$ter adertisin#> '3-,2-( = '-!!,!!! /Plan B0 J '3-,2-( ;OS J '3-,2-( 8 '",36!,!!! J "5.4 2%.0 Ass1min# total s%endin# $or adertisin# in the do# $ood ind1stry is a)o1t 4 o$ sales> '5!!,!!! 8 4 J '5,!!!,!!! sales 2D.0 Ass1min# FC J '52!,!!! /adertisin# %ro%osal N slottin# $ees0, man1$act1rin# SP J '.5!, :C J '.-35 /.33 :C %er " l) )a# N ."235 -4 sales commission %er " l) )a#0 Contri)1tion Mar#in ;atio J /Sales :C0 8 Sales J /".5 = .-350 8 ".5 J .5"5 Breakeen in Sales J Fi&ed Cost 8 Contri)1tion Mar#in ;atio 'B9 J '52!,!!! 8 .5"5 J '63,!Market Share needed J 'B98+otal Boston *o# Food Sales M Share J '63,!- 8 '"36,!!!,!!! J .524 2r.0 Market Share needed J 'B98+otal Boston S1%ermarket Sales M Share J '63,!- 8 '3!,(6!,!!! J ".(644 2s.0 Breakeen in Units J Fi&ed Cost8 /Unit Sellin# Price = Unit :aria)le Cost0 Unit B9 J '52!,!!!8 /".5 = .-350 J '52!,!!!8"."525 J (5,(-" 1nits 2t.0 B9 as 4 o$ Market Potential J 'B98'Market Potential B9 J '63,!-8'",36!,!!! J 524 21.0 Ass1min# total s%endin# $or adertisin# in the do# $ood ind1stry is a)o1t 4 o$ sales. -!!,!!! adertisin# e&%endit1re 8 4 J '25,!!!,!!! sales 2.0 Ass1min# FC is eD1ialent to '-2!,!!! /adertisin# %ro%osal N slottin# $ees0, man1$act1rin# SP J '.5!, and :C J .-35 /.33 = :C %er "l) )a# N ."235 = -4 sales commission %er "l) )a#0 Contri)1tion Mar#in ;atio J /Sales = :C08Sales CM ;ation J /".5 = .-3508".5 J "."5258".5 J .5"5 Breakeen in Sales J Fi&ed Cost 8 Contri)1tion Mar#in ;atio 'B9 J '-2!,!!! 8 .5"5 J '",2(,"5! Market Share needed J 'B98+otal Boston *o# Food Sales M Share J '",2(,"5!8 '"36,!!!,!!! J .-24 2w.0 Market Share needed J 'B98+otal Boston S1%ermarket Sales M Share J '",2(,"5! 8 '3!,(6!,!!! J 4 2&.0 Breakeen in Units J FC8 /Unit SP = Unit :C0 Unit B9 J '-2!,!!!8 /".5 = .-350 J '-2!,!!!8"."525 J 32,65-1nits 2y.0 B9 as 4 o$ Market Potential J 'B98'Market Potential B9 J '",2(,"5!8'",36!,!!! J -24