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What are the key success factors in the pet food industry?

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What are the key success factors in the pet food industry in 1986? Why?

Presence in groceries: 90% of commercially produced pet food sales occurred through grocery stores
Presence in fast growing categories: Cat food sales grew in cities as they were easier to maintain and needed less space
Product branding: People living in cities had to leave their pets alone when at work, and hence were willing to pay a premium on pet foods to overcome guilt. E.g. products that promise to reduce weight or lower stool volume
Product Packaging: Pet owners considered dogs and cats as family members and would feed them whatever looked and sounded good- this made target marketing easier
Wide product portfolio: Pet owners also believed that their pets they would enjoy a variety in diet viz.

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different forms (dry, canned, moist) and flavors, leading to an array of pet foods products in the market, allowing companies to achieve economies of scope and scale
Flexible Manufacturing capabilities: If plant was flexible and could produce any type of product - dry, canned or moist, it resulted in high plant utilization and lower unit costs

Which players are best positioned for competitive advantage and long-term profitability in this industry? Why? Provide the top three picks.

The following companies are strong players in the US pet food industry

Ralston Purina: Not only is it a national & global industry leader with a 27% market share (1985) in the US pet food industry but is present across all segments (dry, canned, moist, snack and soft) of the cat & dog food categories.

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Among all its competitors, it has the highest enterprise level profitability of 7% (Exhibit 3) and its pet food divisions boasts of above industry average margins of 20-25%. It has large scale domestic manufacturing capabilities and robust regional warehouses systems that make it quicker to replenish stock. Its leading presence in the large dry pet food segment helps it to reinvest profits in new product development & compete with private label and niche players on price. It focuses heavily on advertising under its Purina brand by allocating large ad spending budgets & creating barriers to entry.
Carnation (Nestle): Apart from being the 2nd largest player in the pet food industry, it has a strong presence in the high potential category of gourmet dog food. Being a global company and having multiple brands gives it the ability to spend large amounts of money on advertising and promotions (exceeded $45 million in 1983). It presence in other verticals of the grocery business like dairy and breakfast drinks and capabilities in canning and milling gives it economies of scope and higher bargaining power among food brokers, distributors and retailers.
Kal Kan (Mars): As of 1985, it was the third largest player in terms of sales and had presence in established segments like dry and canned food as well as upcoming ones like snack and gourmet pet food. It was particularly strong in canned dog and cat food segments that had 2% higher margins than dry pet food. Because of its presence in other geographies like Australia, Japan, Europe & Canada it can source raw materials at better prices and draw richer product insights for developing new products. It was able to rationalize its marketing spend by being present in the less price sensitive cat food category and was able to acquire market share.

What are the key success factors in the pet food industry?

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