Tyler Pet Foods, Inc.
Tyler Pet Food Inc. is a major distributor of dog food for show-dog kennels in the United States. After some researches and discussions, Tyler Pet Foods(TPF) decided to enter into the household dog food market in the Boston, Massachusetts, metropolitan area. TPF hired a consulting firm to help it promote and distribute its product. The programs included situational and competitive analysis, the problems and opportunities of the company, and creative strategies to promote its product.
The sales of dog food will total almost 3.835 billion this year, with 2.5 billion in sales coming from supermarket chains. The Boston area has 1.5% of the U.S. population, and 1.5% of the dog population. The dog food industry has been growing rapidly because of owners desire for companionship or need for protection. Dog owners are generally price sensitive, yet they spend more than 120 million annually for veterinary fees and medications for dogs. Approximately 65% of all dog food sales are made in supermarkets, which provide 25% gross profit margin to the retailer. Typically, all pet foods are located in one area of the store, separate from human foods.
There are about 1,000 dog food manufacturers in the United States. Ralston Purina, Carnation, Mars, Heinz, Quaker Oats, and Grand Met USA, together capture 83% of all supermarket sales. Traditionally, dog food comes in five forms: Canned, Dry, Soft-Dry, Moist, and Treats. The prices of these forms of food can range between, $.60 per can, up to $7.19 per 12 lb. Bag. Because dog food is heavily advertised, competitors must follow suit to remain competitive in the industry.
IV. PROBLEMS TO BE ADDRESSED
After meeting with representatives from Marketing Ventures Unlimited, these questions were left to be answered:
1. Was the market itself adequately defined?
2. What position would Show Circuit seek in the market? Should the program be targeted toward all dog food buyers or toward specific segments?
3. Could the food brokers get distribution in supermarkets given the sales program?
4. What should be TPF's recommended selling list price to the consumer for Show Circuit?
5. Could TPF at least break even in the introductory year and achieve a 15 percent return on sales in subsequent years?
V. PROBLEMS ADDRESSED
On the question about the market itself being adequately defined, we believe that it was narrowed down adequately to the single and young married couples between the ages of 21 and 30, and people 50 years of age and older. This represents a focused target market but it is questionable whether the market is large enough to be profitable.
On the question about the market positioning, Show Circuit will be marketed as a high-quality food that has for years, been exclusively sold to owners of show dogs. The product is also differentiable from other forms of pet food, since it is a frozen pet food, and one of the first organic dog foods. This dog food would be found along side the food that you would serve to other family members, in the frozen food section of a supermarket.
The problem of the food brokers getting distribution in supermarkets, represents the greatest challenge for TPF. However, the pioneering work has already been done by a frozen dog treat called Frosty Paws. Frosty Paws has already gained freezer space next to ice cream, in Boston area supermarkets. It is difficult to convince supermarkets to give up a proven product's space, for an unproven, untested product. It may be necessary to offer higher profit margins to the frozen food buyers, to encourage them to free up space to sell Show Circuit.
The recommended selling list price to consumers should be approximately $9.95 per case(12 tubs). This includes the $6.37 manufacturing cost, $1.59 which is a 25% markup for TPF, and $1.99 which is a 25% markup for the supermarket. This price is only slightly higher than the other types of dog foods, but is justified by the premium quality of the product. Canned dog food is approximately $.043 per oz., Dry dog food is approximately $.042 per oz., Moist dog food is approximately $.06 per oz., while Show Circuit would be approximately $.055 per oz..
In order for TPF to break even in the introductory year, they would have to sell 188,679 units to cover a $300,000 promotional budget, and 314,465 units to cover a $500,000 promotional budget. This would represent a 5% and a 8.3% market share, respectively, of the Boston area dog food market.
Promotional Budget $300,000 $500,000
Divided by Markup $1.59 $1.59
Units to Break Even 188,679 314,465
Times $9.95 Price $9.95 $9.95
Dollar sales Show Circuit $1,877,356 $3,128,927
Boston Total Sales(2.5b*1.5%) $37,500,000 $37,500,000
Market Share 5% 8.3%
To attain this level of market share, would be great, but we don't think that it is likely in the first year. We do not feel that TPF will break even in the first year, and it may be a year or two before TPF achieves a 15% return on sales.
Although, a $500,000 promotional budget would definitely increase consumer awareness, we believe that it would be too risky to expect a 8.3% market share in the Boston area for Show Circuits first year. A $300,000 promotional budget is a safer bet, and although 5% is still a high amount of market share for the industry, it is lower and more attainable than the 8.3%.
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