Day 936 in Captivity...and counting!

In August of 1973, Jan-Erik Olsson walked in to the Sveriges Kreditbank in Stockholm, Sweden, fired his submachine gun into the air and yelled out, "The party has just begun!" Olsson wounded a police officer and then took four bank employees as hostages. He held his captives in the bank's vault for six days. On August 28th (130 hours into the ordeal), police pumped teargas into the vault and Olsson (and Clark Olofsson, a friend of Olsson's that was released from prison as part of Olsson's "demands") surrendered. The four captives walked out of the bank encircling Olsson and Olofsson in order to protect them from the police sharpshooters. As the police approached to apprehend them, the captives shook hands, embraced and kissed their captors goodbye. Within months, psychiatrists named this irrational attachment (being emotionally indebted) to one's captors as "Stockholm Syndrome". The most widely known US case of "Stockholm Syndrome" is Patty Hearst, the granddaughter of newspaper publisher William Randolph Hearst. Forty-Seven years ago TODAY she was kidnapped by the Symbionese Liberation Army, setting up a 16 week manhunt that ended with her arrest for participating in several California bank robberies, side by side with her captors.

So now that you have the history behind the phrase, "Stockholm Syndrome", we can move on into the world of pet and see how it plays out. A few questions that need to be answered: How is the Retailer being held "captive"? Who are the "captors"? and Nine-Hundred and Thirty-Six seems to be an awfully specific number...what's up with that? To properly set this table, I'm going to start with the number 936. It has been THAT long since the FDA first reported they were "investigating" dilated cardiomyopathy (DCM). That was Day 1 of Captivity. Sure, Dr. Joshua Stern at UC-Davis and Dr. Lisa Freeman at Tufts were sharing their opinions on DCM before then, but the FDA announcement was equivalent to Olsson's machine gun fire that started the "party" in Stockholm.

DAY ONE - Independent Retailers accounted for about 15% of total "brick & mortar" pet food sales in the US back in 2018. Indie retailers have a long history (all the way back to the channel's founding) of being a "proving ground" and incubator for brands. With very few exceptions, they are responsible for the "coming of age" and success of several brands. Champion (Orijen and Acana), Zignature, Diamond (Taste of the Wild), Blue Buffalo, Fromm, Merrick and Nutro (just to name a few) were embraced by Indies and cultivated into $50Mn dollar plus brands! When the DCM "party" started, many of these manufacturers "tucked tail" and hid. It's no secret that some of them lost 30-50% of total sales and that they would beg to differ with me classifying them as "captors", but they were and here is why. When given the choice of fighting side by side with retailers, many manufacturers retreated and let their "partners" fight alone! The same brands that sold hundreds of millions through Indie retailers with GF diets (without ANY research or data to prove that it was better for dogs) were now in a free fall. As sales started to disappear, they tweaked their products and touted marketing efforts like, "Now With Added Taurine!" or "Contains Ancient Grains". Why did they do this? I'm guessing it went something like this...DCM effects the heart; taurine is good for the heart; let's add some! Our diet is grain-free (GF) but that is now "bad"; We can't go back to corn; let's add ancient grains! If they truly felt that these things were needed or that they were better for dogs, great...show your data! They didn't though. It was a knee jerk reaction to stem the bleeding.

“Blue Buffalo has been actively working with the FDA and the Pet Food Institute, the leading pet food industry association that represents over 98% of US pet food and treats, to study this issue, and Blue Buffalo scientists have come together with other pet food makers to further advance our understanding of canine DCM and its causes,” - Blue Buffalo statement July 1, 2019

Did you see any industry wide manufacturer reports or research publications by the Big 4? Purina had a sales surge of nearly $3 BILLION; Colgate and Mars each over $1 BILLION during this time. I don't know about published research but I do know that each of those companies has spent up to $1 BILLION dollars on new manufacturing facilities!

When Dr. Freeman coined the term "BEG - Boutique, Exotic, Grain-Free" as the culprit in DCM; nearly 70% of dog food products on the Indie shelves were GF and "boutique" brands by definition. Some estimates have claimed over 2k indie retailers have gone out of business in the last 936 days. Some attrition is normal but between the narrative spun by Freeman and her "minions" and the manufacturer's silence, consumers flocked back in droves to Mars, Nestle Purina and Colgate-Palmolive. Veterinarian after veterinarian converted pet food shoppers on each and every clinic visit by simply parroting Dr. Freeman's OPINION. Welcome to Sveriges Kreditbank in Stockholm!

The DCM issue shed light on the lack of transparency within the industry. Rather than spend the $3k for digestibility tests and nutrient analysis (to show the quality of their products beyond a "formulation") they chose silence and left retailers to fend for themselves! The saddest part; if it wasn't for Indies educating themselves and defending their channel, many of these brands would have gone the way of Natural Balance...selling for pennies on the dollar. Think about it...

IN CAPTIVITY - How are retailers being held captive? Store owners and employees are part of the general public. They too are influenced by marketing, pretty packaging and soundbites. They carry, sell and advocate for the brands that "talk" to them and what their distributors offer. In the brutally competitive world of pet care, retailers NEED distributors and manufacturers. Not only for their product offerings but for their financial support (MDF, TPF, ISO, etc). The dependency on manufacturers and distributors is all encompassing. No matter where they sell (Chewy, Amazon or National Accounts), what they do (over 45 product recalls (some lethal) in the last 936 days) or how quickly they sell out the channel (Champion, Nulo, The Honest Kitchen, etc.) the Indies stay true to them, even when it hurts their own self-interest. So why do they have this "emotional indebtedness" to manufacturers and distributors? I am NOT saying they are all bad - distributors allow retailers better economic order quantities and easier billing. They also provide much needed services for manufacturers (lower distribution costs, streamlined invoicing, and "feet on the street" sales). Manufacturers provide brand marketing and awareness. They make products that sell and create packaging that captures the attention of consumers. Some, albeit too few, are actually transparent about their product's nutritional values and share that knowledge (specific to their brands and broader knowledge for any/all pet care professionals). All "good things" they offer, but the "irrational" part comes in when one (or many) of them betray the trust and relationships forged with the Indies AND THE INDIES STILL SUPPORT THEM! For the life of me, I can't understand why.

Look, distributors are held captive too! They were impacted by DCM as well. If every Indie in a distributor's service area lost $10K in retail sales and the distributor sells to 2,000 retailers, that is an estimated loss of $10Mn in wholesale sales. This would roughly equate to a loss of $1.5Mn in profit. So how did the majority of distributors fight back against DCM? *chirp...*chirp... I could not find one statement from a National distributor that defended the channel or the brands that they were selling. Why? They focus almost exclusively on their bottom line. This isn't wrong...it's good business. As one discussion with a distributor went, "Do you think it is easier for me to see a $10mn dollar brand grow to $11mn or to see a new company attain $1mn in sales?" A new brand requires knowledge, training and time. An existing manufacturer's line extension may only need a promotion or two. So Indies are held captive by their distributors financial metrics who in turn are held captive by manufacturers success! They MUST support the manufacturers, even if it IS a slow financial bleed/harvest. The Indies support the brands as well because they aren't offered any new/exclusive brands because of the distributors financials. What ends up happening is the manufacturer eventually jumps channels, margin goes from low to lower on these brands and the distributors offer retailers "the next in line" and the cycle repeats.

LIBERATION - This isn't a smear campaign against distributors and manufacturers as much as it is a gentle wake-up reminder to retailers. I've heard plenty of Indies say, "If I carry your line, eventually you'll just do what everyone else has done." or "You'll eventually go to Chewy and Amazon and I won't be able to compete on price, so why start?" This has been happening for 20+ years and the prospect of stopping it (especially with the growth and lure of the online channel) is slim to none (and Slim is out of town)! If you allow a single distributor to be more than 60% of your purchases or a manufacturer to be 10% or more of the category sales, YOU WILL be held captive and find yourself "irrationally" attached and defending them! It is important to know what lines you carry and why? Is it health related, financially driven, consumer demand or distributor availability? Each carries with it different expectations, requirements and courses of action. Some brands will generate foot traffic either because of their marketing or their price points. These usually are broadly available and have a lower dollar profit for Indies. Some lines are "channel exclusive" (although that definition needs work - Petco and Chewy are "Specialty", right?). These often have better Indie financials and while not available at the local grocery store, are often running rampant with online retailers and services. There are literally dozens of NEW brands coming up every month because the barrier to pet food entry is so low. If you choose to carry them, figure out what role you want them to play in your store. Lastly, if you want products that aren't carried by your primary distributor, find out who does carry them or ask the manufacturer about "Direct to Retail" sales. It is your responsibility as the retailer to meet your requirements (financial and strategic) and not the needs of the manufacturers and distributors. Ask questions. Demand answers! If you notice yourself defending distributors and manufacturers more than they are defending themselves, you may find yourself in the role of "Tania" (aka Patty Hearst) and end up paying the price for the sins of your captors.