Soft Dry Food Low Growth, An Interim Category Share and Sales Declining Moist Food Concentration of the Top Brands in the Dog Food

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1 INTRODUCTION... XVI REASONS FOR THIS STUDY AND ITS IMPORTANCE... XVI OBJECTIVES OF THIS STUDY AND ITS CONTRIBUTION... XVI THE AUDIENCE FOR THIS REPORT... XVI SCOPE AND CONTENT OF THE REPORT... XVII METHODOLOGY AND INFORMATION SOURCES... XVII SUMMARY... XVIII PETS AND THEIR OWNERS... 1 DEFINITION OF PETS... 1 PET OWNERSHIP TRENDS IN THE U.S DOGS AND DOG OWNERS... 3 Profile of Dog Owners... 4 CATS AND CAT OWNERS... 5 Profile of Cat Owners... 6 FISH AND FISH OWNERS... 7 BIRDS AND BIRD OWNERS... 7 SMALL MAMMALS AND THEIR OWNERS... 8 REPTILES & AMPHIBIANS AND THEIR OWNERS... 9 CONSUMER EXPENDITURES ON PETS... 9 PROFILE OF THE BEST CUSTOMER WILL THERE BE ENOUGH BEST CUSTOMERS IN SHORT AND MEDIUM TERM? Demographic Trends Age Demographic Trends Household Types Demographic Trends Home Ownership Demographic Trends Income CONSUMER ATTITUDES TOWARD PETS PET INDUSTRY OVERVIEW SUMMARY FORCES SHAPING THE INDUSTRY CONSOLIDATION IS CHANGING THE COMPETITIVE LANDSCAPE COMPETITION AMONG RETAIL CHANNELS HAS INTENSIFIED Comparison of Primary Retail Outlets for Pet Products Pet Superstores Victims of Their Own Success? PetsMart and PETCO The Dominant Players Performance Comparison Store Growth Trends PetsMart, Inc Business Segments... 28

2 PetsMart Revamping Its Strategy Expansion into Foreign Markets Put on Hold PetsMart Invested Heavily into Its Net Ventures PETCO Animal Supplies, Inc PETCO Doing Better than PetsMart, though Will Be Adversely Affected By the Iams Expanded Distribution Company s Decision to Go Private Seen as Part of a Larger Trend PETCO s Alliance with petopia.com Less Costly than Petsmart s Net Venture Supermarkets Continue Losing Share to Other Channels Mass Merchandisers Achieved Spectacular Growth During the 1990s The Independents Channel Experiencing a Shakeout GLOBALIZATION OF THE PET INDUSTRY DIVERSITY OF PET CARE MARKETS GLOBALIZATION OF PET CARE MARKETS Changes in Social Trends and Attitudes to Pets Worldwide TRENDS IN THE PET INDUSTRY E-COMMERCE IS REDEFINING THE PET BUSINESS E-SALES STILL REPRESENT A VERY INSIGNIFICANT FRACTION OF TOTAL INDUSTRY SALES THE NEW BUSINESS MODEL FOCUSES ON ENHANCING CUSTOMER EXPERIENCE THE SHAKEOUT IS IMMINENT, AND THE BRICK RETAILERS ARE WELL-POSITIONED TO BENEFIT FROM IT Performance THE PET INDUSTRY IN THE NEW DECADE PET FOOD SUMMARY DOG AND CAT FOOD DOG FOOD Classification of Dog Food by Product Type Largest Share, Fastest Growth Dry Dog Food High Growth, Second Largest Share Treats Slight Decline in Sales Overtaken by Treats in Share Canned Food... 51

3 Soft Dry Food Low Growth, An Interim Category Share and Sales Declining Moist Food Concentration of the Top Brands in the Dog Food Segment CAT FOOD Classification of Cat Food by Product Type Largest Share, High Growth Canned Food Large Share, High Growth Dry Food Fastest Growing, Share Increasing Treats Share and Sales Declining Moist Food Concentration of the Top Brands in the Cat Food Segment DOG AND CAT FOOD MANUFACTURERS Consolidation Among Dog and Cat Food Manufacturers Performance of the Top Manufacturers During the Second Half of the 1990s Largest Manufacturers Profiles Ralston Purina Company Overview Major Developments in E-Partnerships Introductions, Friskies PetCare (Nestlé) Company Overview Major Developments in Introductions in Heinz Pet Products Company Overview Major Developments in Introductions in Hill s Pet Nutrition Co Company Overview Major Developments in Impact of Increased Competition in the Premium Food Segment on Hill s Introductions in Doane Products Co Company Overview Major Developments in The Iams Co Company Overview... 75

4 Major Developments in P&G Acquisition Introductions in Kal Kan Foods Company Overview Recent Developments Introductions in Nutro Products, Inc Company Overview and Major Recent Developments Introductions in NEW PRODUCT TRENDS Premium Foods Manufacturers of Premium Foods Other New Product Trends Nutraceuticals Foods for Special Needs Natural and Organic Products Recent New Product Introduction Trends DISTRIBUTION CHANNELS OTHER PET FOODS BIRD AND SMALL MAMMAL FOOD Bird Food Small Mammal Food Bird and Small Mammal Food Manufacturers Central Garden & Pet Co Kaytee Products, Inc FISH FOOD Fish Food Manufacturers Tetra/Second Nature REPTILE FOOD PRODUCT TRENDS IN OTHER PET FOODS DISTRIBUTION CHANNELS REGULATION OF THE PET FOOD INDUSTRY FDA REGULATIONS AAFCO REGULATIONS AAFCO Labeling Regulations The 95 Percent Rule The 25 Percent Rule The 3 Percent Rule The Flavor Rule

5 AAFCO Nutritional Adequacy Statement Requirements Recent AAFCO Regulations State Regulations PET SERVICES SUMMARY VETERINARY SERVICES VETERINARY CARE UTILIZATION AND EXPENDITURES FOR DIFFERENT PET TYPES SEGMENT STRUCTURE CONSOLIDATION IN THE SEGMENT CONTINUES Veterinary Centers of America, Inc Company Overview VCA s Acquisition Strategy VCA s Operational Model Vet s Choice Veterinary Centers of America Has Gone Private Again Competition and the Future of VCA VETERINARY CARE IS GETTING HUMANIZED Continuing Specialization of Veterinary Services Increasing Need for Senior Health Care Wider Popularity of Alternative Treatments Wider Availability of Pet Health Insurance New Forms of Pet Care Management VETERINARY SERVICES ARE INCREASINGLY DELIVERED THROUGH OTHER CHANNELS Web-Based Veterinary Service Delivery REGULATION OF VETERINARY PRACTICES AND VETERINARY MEDICINE The Animal Drug Availability Act Animal Medicinal Drug Use Clarification Act Regulations on Dispensing Veterinary Prescription Drugs OTHER PET SERVICES PROFILE OF PET SERVICE USERS GROOMING AND BOARDING SERVICES Overview of the Boarding and Grooming Businesses The New Trend in the Segment Is Toward the Upscale, Humanized Establishments DOG TRAINING SERVICES Overview of Dog Training Businesses BREEDING SERVICES Overview of the Breeding Businesses PET-SITTING SERVICES Overview of the Pet-Sitting Businesses

6 IS THE PET SERVICES SEGMENT RIPE FOR CONSOLIDATION? ONE-STOP SHOPS A TREND OF THE FUTURE? SALES OF OTHER PET PRODUCTS THROUGH THE SERVICE CHANNEL PET SUPPLIES DEFINITION OF PET SUPPLIES BY PRODUCT CATEGORY CONSUMER EXPENDITURES ON PET SUPPLIES PET SUPPLIES SECTOR STRUCTURE HARTZ MOUNTAIN CORP New Product Introductions and Modification in DOG AND CAT SUPPLIES CAT LITTER Leading Marketers in the Segment Clorox Co Ralston Purina Co American Colloid Oil-Dri Corp. of America New Product Trends In The Cat Litter Category OTHER DOG AND CAT ACCESSORIES DOG AND CAT TOYS/GIFTS FLEA AND TICK PRODUCTS Product Types and Trends in the Flea and Tick Category Prescription Versus OTC Products Marketers of Flea and Tick Products New Product Trends in the Flea and Tick Segment DISTRIBUTION CHANNELS FISH SUPPLIES SEGMENT STRUCTURE DISTRIBUTION CHANNELS BIRD SUPPLIES BIRD SUPPLIES SEGMENT STRUCTURE DISTRIBUTION CHANNELS SMALL MAMMAL AND REPTILE SUPPLIES SEGMENT STRUCTURE DISTRIBUTION CHANNELS TRENDS IN THE DISTRIBUTION CHANNELS SUPERSTORES ARE HAVING A DIFFICULT TIME COMPETING IN THE SEGMENT MASS MERCHANDISERS CONTINUE TO DEMONSTRATE SPECTACULAR GROWTH SUPERMARKETS ARE FOCUSING ON PET SUPPLIES TO PREVENT FURTHER SHARE EROSION

7 INDEPENDENTS HAVE SURVIVED COMPETITION FROM OTHER CHANNELS, THOUGH SHARES AND MARGINS HAVE DECLINED THE PET SUPPLIES BUSINESS IS ONE OF THE MOST COMPETITIVE AND HEAVILY FUNDED SECTORS OF E- COMMERCE GOVERNMENT REGULATION FDA Animal Drug Regulation EPA EPA Regulations Concerning Improved Label Directions For Dog And Cat Pesticide Products INTERNATIONAL ASPECTS EXPORTS OF U.S. PET PRODUCTS OVERVIEW OF EXPORT TRENDS PET FOOD EXPORTS Dog and Cat Food Other Pet Food PET SUPPLIES EXPORTS Cat Litter Dog Accessories IMPORTS OF PET PRODUCTS INTO THE U.S OVERVIEW OF IMPORT TRENDS PET FOOD IMPORTS Dog and Cat Food Other Pet Food PET SUPPLIES IMPORTS Dog Accessories Cat Litter OVERVIEW OF THE LARGEST MARKETS CANADA Trends in Pet Ownership Pet Industry and Trade with the U.S EUROPEAN UNION Trends in Pet Ownership The Pet Industry and Trade with the U.S Pet Foods The Largest Segment Largest Pet Food Manufacturers JAPAN Trends in Pet Ownership The Pet Industry and Trade with the U.S Pet Food Pet Supplies

8 APPENDIX I: U.S. BASED PET INDUSTRY ASSOCIATIONS APPENDIX II: FOREIGN-BASED PET INDUSTRY ASSOCIATIONS APPENDIX III: PET INDUSTRY: U.S. TRADE AND CONSUMER PUBLICATIONS APPENDIX III