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Honest Kitchen Goes to Petco – Who PetCares?

As a retailer, defining yourself via ‘trends’ lead by marketing claims will burn you every time. Likewise, letting any brand comprise a large chunk of your business (for me the rule is no more than 5%) will also burn you nearly every time simply due to risks of recalls, out of stocks, formula changes, the DCM scare…and let’s not forget the famous moves to mass market. The most recent industry saga the entry of Honest Kitchen pet food into Petco. This isn’t the first time an “indie” brand burned the stores that built them. Let us not forget some of the other major channel jumpers – Merrick to Petco, Nature’s Recipe to mass market, Nutro to mass market, Blue to mass market, Champion to Petco and Chewy and more recently Earth Animal No-Hides to Chewy. It is crucial for us to remember all of these since these will not be the last ones to “burn bridges” by channel jumping when we were often promised this would never happen and they “supported” independents only.


Like many other brands, countless retailers that have carried Honest Kitchen for a number of years are largely offended and downright hurt by this announcement and are actively voicing their discontent via social media channels, e-mails to Honest Kitchen and by bashing and/or tossing the brand out of their store. But should we be as hurt and reacting the way many of us are? Or should we be position ourselves to be resilient to brands as they grow and continue their lifecycle? Are the ‘wounds’ caused by this move something that could have been prevented if we did our homework?


Are sales hurt, or is it just feelings?


Taking a few steps back and analyzing independent pet behavior over the last several years it is clear that many independent pet store owners are becoming more and more reliant on whether a product can sell itself or not. They ask themselves if the product has recognition, and at the same time want independent pet exclusivity. Unfortunately, in most cases we can’t have both – it’s one or the other. Honest Kitchen was one of those brands that seemingly had both due to their consistent advertising which fostered consumer brand awareness. As a result, many independent pet store owners invested into the brand educating consumers and relied on it as a driver to have customers return to their store. Sounds like a good plan right? Wrong.


There are several reasons why this this plan was flawed with the largest being that said retailers weren’t doing their homework - because if they had they would have known that Honest Kitchen ran a campaign to drive the store’s customers to purchase their food direct. Yes, literally driving a campaign to steal them from your stores! Sometimes they were very bold and included coupons in the very boxes of product sold in your stores.


Moral of the story:


Manufacturer advertising and consumer brand awareness are huge positives – but not when a manufacturer is using independents as drivers of their own direct-to-consumer business. Especially when it occurs right under our noses and many may not be aware it is going on. In short, most were comfortable with Honest Kitchen being an ‘indie’ brand and didn’t consider what was going on beyond their own walls or what future growth for the brand would look like. Similar to the example brands we discussed earlier. Further, instead of embracing the introduction of their less expensive ‘clusters’ retailers should have seen this as a major red flag. This was nothing more than a ‘cheapened’ format of their original food that was a more appealing price point for the shelves at big box outlets.

Figure 1: Date Accessed December 17, 2020: https://www.thehonestkitchen.com


Even worse, that direct-to-consumer advertising that Honest Kitchen conducts really is for the benefit of Honest Kitchen company and did nearly nothing to drive traffic to independent pet. For example, if you go to their website you are incentivized with a $5 coupon off your first purchase of $30 or more, as well as future purchases when you join their email list (fig. 1). Once you search Honest Kitchen via any internet avenue, you’ll be promptly targeted via social media for 50% off too (fig. 2)! That doesn’t appear to be a deal that independent pet stores were offered and is further proof that Honest Kitchen was largely targeting all customers to purchase direct. Sure, you could argue that they did offer several coupon campaigns driving traffic to brick and mortar, however these did nothing to help customer loyalty to independent pet since the coupons were and continue to be much more fruitful when the customer buys direct. This is not the only ‘indie’ brand engaging in this practice – so if you’re an indie pet store you may want to pay close attention to brands like Open Farm, Answers & Grandma Lucy's.

Figure 2: DTC Facebook Ad: December 17th, 2020


Novelty or did it actually sell?


In talking to many retailers who carried the product, most have admitted Honest Kitchen was never a big seller, so why are the indies so upset? We’ve let products like this define us, instead of defining ourselves and our reputation by setting standards that we hold ourselves and brands accountable to. Honest Kitchen was novel when it was first introduced, retailers quickly learned that it took a fair amount of education and time spent with the customer to earn the sale. Whether retailers realized it or not, subconsciously you (or your staff) may shy away from such products that take such a large effort to get moving – especially when you don’t see those customers coming back and sales grow exponentially…(maybe due to the coupon in the box directing them to the Honest Kitchen website?)…


The ultimate problem is that if you go and do the math on the traditional ‘grain free’ Honest Kitchen products you’ll find that a 10lb box, at $89.99 has an average carbohydrate content of about 40%. Kibble products with similar carbohydrate content sell for half the price per pound, or less. It is arguably an easier and more respectable sale to convert the customer to raw product than convince them to purchase Honest Kitchen since honest kitchen requires more prep time, and raw relieves that pain point and is generally less expensive.


Everyone Has to Grow


At this point in the game, it should be easy for us, as indie retailers to recognize the companies that are apt to make such moves to big box (Champion, Blue, Earth Animal and now HK) long before they do. The clues usually look something like, acquisition by an investment group, multiple line extensions and/or introduction of new lines (often times without nutritional rationale), hard push for increased sales and store placements, distribution exclusivity (which eliminates price competition) and/or increased direct to consumer advertising to increase brand awareness. You see, Petco, PetSmart etc. want brands that have a large recognition with the public because they do not have the ability to educate the consumer like we do, so the public already has to be at least marginally convinced before they bring the product in (e.g. Champion). For these reasons we should expect many brands to eventually make the jump to mass market, our job is not to hold on to the nostalgia of particular brands, instead we should be seeking to evolve with consumer needs, the science of nutrition and evolution of products too! We shouldn’t be hostage to relying solely on them for sales either.


While not all brands will make the jump to mass market, many will – especially once an investment group is on board. The founders of many small companies truly start their companies to help make the pet industry better and do right by pets, but much of their controlling interest is lost when funds are needed. Investment groups invest to make money – plain and simple. Once the ‘ceiling’ is reached within independent pet stores we then often see new manufacturing plants being built, marketing team expansions and ultimately the move to mass market. Don’t believe me? Blue, Champion and Earth Animal are all excellent recent examples! Foreshadowing, it likely means that Farmina, with the announcement of their new U.S. plant, Stella & Chewy with massive plant investment and line extensions and likely Fromm with line extensions are next!


Diversify, not just brands, but products AND distribution!


Whether we like it or not we DO need a healthy mix of mainstream brands, niche brands and everything in between. While it doesn’t mean you have to carry all brands (or all SKU’s) it does mean, that a healthy assortment keeps your customer coming back, and their confidence in you high. The wrong move would be doubling down on brands like Farmina and Fromm because it is setting yourself up for failure due to the inevitable. And unfortunately, I’ve seen many retailers this last week tout their “Wall of Fromm”, and profess their love for Farmina and that they carry every SKU of one or both brands. Now I’d love to see inventory and turn reports for those stores because I can almost guarantee that half of those SKU’s do not have financial rationale to be on the shelf other than that they look pretty. These types of moves can be a huge liability for a pet retailer. What if Fromm had a contamination issue, formulation error, sourcing problem, manufacturing catastrophe or jumped to big box? How did the DCM scare impact your sales, especially if your store was heavily stocking one or more of the top 16 brands? How would these situations impact the percentage of sales that come from that brand? Could your business survive if you had to stop selling it immediately or if your customers lost trust in the brand? If the answers to the last question is no it’s likely you should diversify your product offerings so you could survive. These are the reasons why it is so important to never let ANY brand represent a large chunk of your overall sales. What would the “Wall of Fromm” look like if they jumped to a big box store or went back to Chewy? How would you sell off and rebuild that shelf space?


Don’t become a victim of your distributor!


Is your distributor doing their homework? Are they vetting products for safety and nutritional adequacy? Are they making sure supplements and toys are safe? Did your distributor double down on ancient grains and line extensions when the DCM scare was at its peak in an attempt to save market share? Or did they actually make any tangible moves to address the root cause of the problem (e.g. hold manufacturers accountable to providing the data we need to support nutritional claims)? These are mostly rhetorical, because none of the major distributors did. They are very much just as guilty as manufacturers who hastily released unvalidated ancient grain foods and products with supplemental taurine – in essence digging the hole even deeper for retailers to fight. Also, many of them remained just as silent as the manufacturers during the height of the DCM scare and to this day on grain-free products. Doesn’t it make you wonder why?


Why do I bring this up? Because larger distributors are the next step toward big box stores, and they had to help save market share for their core brands in order to save their own business, and this was the cheapest and easiest way to save face (at least in their minds) and the burden on the retailer was irreverent to them. In other words, don’t limit yourself to purchasing the majority (or all) of your products from main distribution channels. How many of these distributors were big pushers in the food examples I mentioned before that jumped channels?


In Summary


Diversify BOTH your product offering AND your distribution channels so if there is ever an interruption in a product, brand or distributor you’re not caught up a river without a paddle. Do not shy away or be afraid of ordering direct from the manufacturer (you will actually have better margins), and using smaller distributors, as these are where you can find and ‘invest’ in novel brands that offer true innovation, exclusivity and transparency instead of just a semi-annual line extension. You’ll find brands and unique products here years before they make their jump to main distribution and big box which leaves you plenty of time to use it to grow your business and find the next thing to replace them!





Nicole Cammack

Nicci is the founder & owner of award winning NorthPoint Pets & Company, in Connecticut. She is also the Founder & CEO of Undogmatic Inc. Her undergraduate and graduate education includes biology, chemistry, business and nutrition. She has worked in the pharmaceutical industry on multiple R&D projects and has had the privilege to learn from leading international figures in the human and pet health industry. She regularly lectures at national conferences, including federal, state, and municipal K9 events. Her current research involves identifying pathogenic risk factors and transmission among raw fed pets through a comprehensive worldwide survey.


www.northpointpets.com


www.undogmaticinc.com

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