Frisky Business
By : Juliet D. Golden
Along with fast food, hypermarkets and the internet, in the 10 years since the fall of communism more and more consumers are embracing another convenience: pet food.
While a decade ago most pets were dished up homemade grub concocted from leftovers found on store shelves or the dinner table, today "people food" is increasingly becoming an anomaly, if not a luxury, for many city-dwelling pets. This is largely due to the presence of giant international companies operating on the market.
"The world prior to 1989 (was completely different) to the world we see now as far as feeding animals is concerned," said Artur Buczkowski, sales manager for Stopa, the official distributor of the U.S. IAMS, which produces the Eukanuba brand of dog and cat food. "Those are two different worlds."
The rapid change in consumption patterns has not only driven the sales of giants such as American Master Foods or Swiss Nestle the two main players on the market but it has also caught the eye of other multinationals like Ralston Purina or Cargill, eager to get their share of what is shaping up to be one of the prime pet food markets in Europe. Since last year, Cargill has been marketing its top-of-the-line Pro Premium products at specialty stores around the country, and its new Nutrena and Favorit brands of dried food are slated to hit grocery store shelves later this month.
But Cargill is not just betting on hawking imports from Argentina or the United States. By year's end, the American agro-food business giant will launch pet food production at a greenfield plant now under construction near Czestochowa. When completed, the Cargill plant will be the second single-largest investment in the pet food sector in the country, following the Master Foods factories opened in Sochaczew in the early and mid-1990s.
The investments of these companies not only prove how quickly Poles have grabbed onto the convenience of pre-prepared dog food, but also signals the explosive growth of the market and its long-term potential. While in the early 1990s annual sales of pet food were estimated at $12 million, today that number is just under $2 billion, according to Teresa Palaszewska-Reindl, president of Psyma Warszawa, a market research company that does product testing for Master Foods. Moreover, while some companies are experiencing annual increases in turnover of more than 40%, overall the market is growing at an annual rate of 20%.
"This is extraordinary in relation to other markets," Palaszewska-Reindl said.
In addition, with roughly 12 million dogs and cats, Poland has one of the largest pet populations in Europe, comparable to France and England. But with only 15-20% of pets receiving store-bought food even on an irregular basis, the market still has an enormous capacity for further expansion. "There isn't such a large market anywhere in Eastern Europe," Palaszewska-Reindl said.
Dog fight
Despite the explosion in consumption, the battle for market share is not an easy one. Growth among individual companies depends not only on consumer consumption, but also on how much market competition there is.
As the early starter, Master Foods is the unquestioned leader. Not only has the company cleaned up over the last decade with hit brands such as Pedigree, Chappi, Whiskas & Kitekat, but it also essentially founded the pet food market in Poland by being the first to convince wary and cash-strapped Poles to fork out part of their monthly earnings to feed their furry friends.
"Master Foods created that market," said Stanislaw Sulecki, president of Pupil, a Polish cat and dog food producer.
The key to Master Foods' success, market watchers said, was bringing the sale of pet food into the mainstream by creating venues for products to be sold in food stores around the country. In the early 1990s, the peddling of ready-made products was largely the domain of small mom and pop specialty pet shops or traders in outdoor bazaars.
"People were wary about buying pet food," Palaszewska-Reindl said. "Master Foods succeeded in winning a corner in food stores for animal products to be sold. That was the turning point."
This victory earned Master Foods brand loyalty and the unchallenged market leader position. However, the competition has sharpened in recent years, with Nestle increasingly grabbing shares with its Friskies and Darling cat and dog food brands, Palaszewska-Reindl said. While estimates of shares vary widely, market research company MEMRB's breakdown of value and volume of sales for the last year shows Master Foods in the lead with just shy of 80% of the market, followed by Nestle with slightly more than 7%. Other international and local players split the remaining 13%.
Little fish in a big sea
While it is unlikely that Polish Davids will conquer the international Goliaths, domestic pet food products have found a place in consumers' shopping baskets by offering acceptable quality at a low price. Following in the wake of large international concerns, Polish producers are experiencing enormous growth in sales and brand recognition, proving that there is room for more than just the big fish on this nascent market.
"There are large whales and small fish that swim alongside them," Pupil's Sulecki said.
As a small fish, Pupil started pet food production on a 3.5 hectare site in Kalisz in 1996. Since then, Pupil's average sales have been growing faster than the market at a pace of 40% a year. In 1999, total net sales reached zl. 13 million ($3.33 million), Sulecki said.
With hypermarkets accounting for roughly half of all pet food sales in the country, getting onto grocery store shelves not only gave start-up Polish operations a grand debut, it also served as a major engine for growth.
For Ben, a producer near Wroclaw, sales to international supermarket chains have been the main force behind the company's strong introduction to the market. Just barely 2 years old, Ben prospers by producing mostly generic economy brands especially labeled for outlets such as Tesco, Geant and Carrefour, said Ben President Zbigniew Ilski.
"Our philosophy is that we produce our own brand, but we also produce for others," Ilski said.
While sales for companies like Pupil and Ben have been relatively easy so far, Polish companies are being forced to focus more on improving product quality and bolstering assortment to ensure a long-term presence on the market. In addition, taking the lead from the international companies, local producers are also having to invest heavily into marketing to make sure their products are visible on increasingly crowded shelves.
Having set up its own R&D department in 1998, Pupil's management devoted the next year and a half to building a full range of products from low-cost economy brands to more expensive, higher-quality premium products. Having worked out its recipes in cooperation with the animal nutrition department at Warsaw's Agricultural University (SGGW), the company also received technical know-how from CHT, a German food industry supplier. At present, the company is also working on HAACP certification, which would permit exports to Europe and the United States.
With a full assortment of freshly re-labeled Pupil products now on the shelves, this year the company's management has put aside $1 million to expand its distribution network, set up an internet presence and carry out a national advertising campaign to build brand awareness and loyalty.
"Our ambition is to be the No. 1 Polish brand," Sulecki said.
To build market share in the future, Sulecki has his eye in particular on expanding sales to the smaller Polish food chains and neighborhood stores that will have a chance of becoming the other chief venue for pet food purchases in the next couple of years.
"(National supermarket) chains will account for a maximum of 55% of the market," Sulecki said. "This business is very important for us, but there is a whole other market out there that will be important the other 50%."
Old habits die hard
With only 20% of the pet food market taken up, growth prospects for both Polish and international pet food companies look promising. But the continuity of the fast-track growth of the last decade is far from certain. With so much capacity left, the key question becomes how long it will take for the market's full potential to be realized.
"It's hard to guarantee that the market will continue (to grow) in this way," Palaszewska-Reindl said.
When Cargill started production in Argentina in the 1970s, consumption levels there were comparable to those found in Poland today. But despite so much room for expansion, Cargill and other international players had to wait nearly 30 years before market penetration reached 60%. "There might be big potential for growth (in Poland), but on the other hand, no one ever knows how fast the market will grow," said Adam Chorowski, head of the pet food division at Cargill Polska.
Barriers to growth include the relatively low purchasing power of Polish consumers, combined with a high percentage of dogs and cats that live outside urban areas. According to a study carried out by the research institute Osrodek Badania Opinii Publicznej (OBOP) in 1999, six times more cats and three times more dogs live in the countryside than in the city. And not only do village pet owners have lower incomes on the whole than their urban counterparts, they also lag in making the switch from a table scrap-based diet to a ready-made pet food scheme.
Even for city dwellers, old habits die hard. Anna Kejna-Janczyk, an accountant from Wroclaw, feeds her 13-month-old Newfoundland a mixture of Darling canned food and Eukanuba for roughly half the dog's meals. The other half of the pet's diet comes from Kejna-Janczyk's kitchen. "Doctors recommend Eukanuba, but breeders are opposed to giving just dry food," Kejna-Janczyk said. She estimates that she spends roughly zl. 500 a month to feed her dog Sana. "I buy meat for us and for (the dog) too."
