Business Builder: Private Label’s Profit Potential
Offering private label pet foods can bring exclusivity and value to the shelf space shuffle.
By Cheryl Reeves
Gone are the days of generic-looking packaging intended for those on a tight budget. In both human and pet food markets, private labels—also known as store brands—are no longer judged as merely low-cost alternatives to big names.
Increasingly, these are high-quality products that represent options for consumers and feature premium ingredients in a range of formulas, packaging and price points. However, while the human private label sector is showing strong, upward sales growth, it’s a different story in the pet food category: private label growth recently has stalled.
According to the market research firm Packaged Facts’ Pet Food in the U.S. 11th Edition, subcategories in private label pet products decreased from 2013 to 2014, with dog food down 4 percent and cat food down 5 percent. The biggest gain in private label pet products was frozen and refrigerated dog food, with a $0.5 million increase.
Despite these numbers, industry sources said that many retailers can successfully tap into profits gained from stocking private label foods. The good news, they said, is that the pet industry follows closely on the heels of trends in the human market. Additionally, mass retailers such as Petco and PetSmart continue to find value in offering private labels and invest aggressively in their brands.
For an independent retailer with significant cash to invest and stores to distribute to—as well as passion and a manufacturing partner—the exclusivity of a private label can be a profit-boosting opportunity.
Evanger's Dog & Cat Food Co.
“Private brand offerings are growing in all segments, and pet food and pet care is no different,” said J. Chris Jayne, senior vice president of sales for Pro-Pet, a St. Mary’s, Ohio, manufacturer of premium and superpremium private label pet foods. “Yes, private label products are on a decline right now due to the competitiveness of national brands, but private label will resume growth once competitive pressures relax.”
Private Label Planning
Given today’s tight cannery schedules, high production volume minimums and fewer small distributors, diligent research is a must before giving a private label the green light.
“I would advise retailers interested in private labels to really understand the process of creating their own line of pet food through researching,” said Holly Sher, president of Evanger’s Dog & Cat Food Co., a cannery in Wheeling, Ill., that is expanding its facility to accommodate more orders. “I get at least a few calls a day from retailers interested in creating their own brand, so there’s lots of interest. I tell them that they really need to think about the science, partnerships to test and manufacturer products, as well as production costs and distribution.”
Shawna Abrams, co-owner of Party Animal Inc., a manufacturer in West Hollywood, Calif., said she and her husband partnered with Evanger’s to bring their organic pet food to market months before the 2007 recall hit.
“Marketing our new food to retailers would have been a tougher sell,” Abrams said, “but with news of the recall, suddenly everyone wanted untainted, natural food like ours.
“My suggestion for retailers considering going into the food business?” Abrams asked. “Be very sure you know what you’re getting into; it’s a lot of time and effort. We have a passion for it, so it’s fun for us. We also went through the rigorous process of getting organic certification, which contributed to our success as a trusted product.”
Filling a Niche
When Dave Ratner, owner of Dave’s Soda & Pet City, a seven-store chain in New England, launched his line of Dave’s Pet Food, he wanted to offer formulas that weren’t already on the market.
“Twenty years ago, I started with dry food, and now my private label offers both wet and dry formulas and is available in 4,000 stores nationwide,” Ratner said. “To make my private label’s profits lucrative, it’s important that other stores carry my brand, too.
“My best advice for those new to private labeling is to fill a niche,” he said. “For example, Dave’s Delicate Dinner is for a pet that has an upset stomach and diarrhea. When people have a sick pet, they usually have to mix up rice and chicken from scratch. This product offers convenience and fills a big need.”
Ratner noted that when he took his label to market, costs were lower. He said retailers interested in doing a private label should figure startup costs now to be about $80,000.
“You also have to produce a lot of product or a plant won’t take you on,” he said. “Because of this, start with canned products because they’ll keep longer in inventory. Lately though, I’ve seen plants getting better at meeting demand by hiring second-shift workers.”
Party Animal Inc.
Mark Boonark, co-owner of Healthy Spot, a Southern California retailer with six locations, said, “We don’t private-label food right now, but we do private-label other items. For us, what’s most important is that if we are going to put our name and brand on something, then it has to be of the highest quality in terms of sourcing and ingredients. We also want it to be unique or innovative so there is added value, especially since it will be competing for the consumer’s attention against familiar brands in its category.
“Price point is important as long as you are not too far off,” Boonark added. “People will be willing to pay a slight premium if there are some added benefits.”
For the clients he serves at his veterinary practice, White Oak Animal Hospital in Fairview, Tenn., Casey Damron, DVM, created a private label called Pet Tao pet food. He said the rationale behind the brand was anchored in reflecting his practice through nutrition.
“We integrate properties of Eastern and Western therapies and wanted to offer nutritional formulas with all-natural ingredients to promote and maintain energetic balance within the body,” Dr. Damron said.
Damron sells his brand lines, Harmony and Solutions, at his clinic and online.
Due to consumer demand for the health benefits of coconut oil, Abrams recently expanded her Party Animal brand to include Cocolicious, a selection of foods formulated with coconut oil. She advised retailers to stand out by having fun with labels and brand names to attract interest.
Large distributors are most interested in a brand with potential to hit big or that offers some kind of innovative cachet, Sher of Evanger’s said, adding that another big cost is packaging.
“Labeling cans is cheaper than labeling bags,” she said. “The other big factor is pricing; the more you can sell, the lower you can set the price.”
Marketing Private Label
Sher said Dave’s Pet Food is a successful brand because of its quality, and that Ratner’s ongoing marketing expertise is key in building the brand’s sales.
“He optimizes his branding by cross marketing on all channels: social media, website, radio and print ads,” she said.
Besides quality, Ratner said setting the price point is the most important element in making good sales with a private label.
“I’m a retailer, so I know exactly what price will keep my products competitive with the other brands I stock at my stores,” he said. “My tag line is ‘Great Food at a Reasonable Price.’ When other retailers ask me about private label management, I tell them to bring the brand in at the right price so you can make a good margin. That eliminates a lot of the risk.”
Pricing must be competitive, agreed Pro-Pet’s Jayne, who advised setting it at least 20 percent lower in cost than the national brand.
Other ways to market, Sher said, are offering samples and displaying prominently. Ratner said he even invested in a promotional wrap for a distribution truck and takes out ads in national pet magazines.
“I’m a big fan of independent retailers as the trusted voice of the pet business,” Ratner said. “Radio is one great way to spread the word about your product because you can personalize it. When I do a radio spot, I’m the guy who makes the food and I feed this food to my own dogs and cat. This goes a long way in reaching out and inspiring trust. While there is a lot of competition from, say, Walmart and Target, an independent retailer is a more accessible and pet-focused source of information.”
“Commit to market your private label like a brand,” Jayne said. “Yours should always be shielded against other brands and be heavily displayed. Package deals work well. You can also cross-coupon with national products that do not compete but that bring validity to the private brand products you’re trying to sell in your store. Above all, a private label is about quality, distinctiveness and trust.”