Slide 1 Presented by Louis McCann PIJAC Canada Executive Director - - PDF document

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Presented by Louis McCann PIJAC Canada Executive Director 2011

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Portrait of our industry New generation of pet owners Legislating the future

Thank you for joining us. We have invited you here today to discuss coming changes in our

• industry. We have put together a presentation based on information we have gathered from

various marketing research and government colleagues as well as intel gathered during our own 24 years experience as an association. We have watched the industry for over two decades and this presentation is about what we see happening in the future. We offer this to you as insight into what our industry, your business may encounter in the coming years. We will cover 3 areas, portrait of our industry, new generation of pet owners and legislative trends.

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Watch dog? Enforcer? Activist? Lobbyist?

To begin, PIJAC Canada has been referred to as many things. watch dog, enforcer lobbyist activist

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In reality we are a trade association. Our role is to support Canadian pet industry businesses by offering , trade events, professional development, networking opportunities and representing the interests of your business at all levels of government, the media and the public. We also collect statistics and information on our industry through our connections and relationships with other organizations, which is why we are able to make this presentation to you today.

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Can anadian Pet Industry Break akdown 2011 2011

Vets 25.3% Animal Protection/Shelter 2.2% Retail 31.7% Pet Services 14.5% Grooming 20.6% Manuf/Dist 5.7%

Lets begin by taking a look at the current state of the industry. Based on our data, we were able to create this graph to illustrate a general breakdown of the Canadian pet businesses. Retail is estimated at 31.7% Manufacturing and Distribution is estimated at 5.7% And if you add up the pet services categories: pet sitting, grooming, consulting you will notice that they account for a significant section of the industry as well at an estimated 35.1%. The pet services sector is one that has seen significant growth in terms of new businesses

• appearing. As the trend toward the humanization of pets continues, entrepreneurs are finding

new ways to cater to pet owners and compete for a piece of the pie. With competition from the grocery and mass market sector and with 32% of pet specialty retailers reporting an annual loss according to industry Canada, it has become a natural move for some retailers to diversify the services they offer to their clientele. You may note that breeders are not included in this. The reason is because we did not feel we had enough data on this segment to give a proper estimate. This is one of many projects we are working on.

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0% 10% 20% 30% 40% 50% % val alue shar are Global Pet Car are Val alue Sh Shar are By Key Re Retai ail Format ats (1998/ (1998/200 004/201 010) 0) 1998 2004 2010

Euromonitor International

Grocery and mass market sectors have been a main distribution channels for pet food because

• f convenience and being able to offer a wide selection of popular brands including some

premium products. While specialized pet retailers hold 27% of the value share in cat and dog food their edge comes from specializing in a wide variety of pet products, accessories and expert advice as you can see by balance shift illustrated in this chart. This edge will be an ace in the hole with the next generation of pet owners.

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Pet ownership Pet humanisation

Premiumisation

Health and wellness Luxury pet pampering Pet Travel

Source - Euromonitor

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Estimated over 3000 pet speciality retail stores in Canada Estimated 850 pet speciality retail stores in Quebec

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 National Average

• 48.5% of homes have a pet.
• Average of $890 spent per pet annually

Lets flip the discussion now and compare pet ownership and the amount spent on pets Based on information from the 2009 Statistics Canada Household Spending Report: 48.5 of Canadian households reported pet expenses averaging $890 per pet per year Keeping in mind this includes all type of pets not just cats and dogs. This amount spent is probably higher as the survey relies on the best guess of pet owners.

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The average rate of growth for our industry in this country has been 4.5% overall up until 2009 where there was a slight decrease in spending according to Stats Can. Despite this blip, in July Euromonitor International shared their 2011 pet report with us which indicates that spending on pet food and products is continuing to increase by about 4%. They do not include pet services such as grooming and veterinary care in their data. After checking with the CVMA there was indeed a 13% dip in veterinary visits in 2009 which may help account for the slight decrease indicated by Stats Can. The 2009 Petlynx Responsible Dog Ownership study also supports this theory. Based on our numbers form our contacts at Statistics Canada and Euromonitor we estimate the value of our industry to be about 6 billion dollars although other sources put it upwards of 8 billion. Having hosted 54 trade shows we have been tracking the growth and diversity of the products

• available. The sophistication and quality of products has been increasing over the years and will

need to continue to meet the expectations of the new generation of pet owners which now brings us to our next section.

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Who are these up and coming pet owners? Looking forward. Through our own events, participation in international shows and regular correspondence with

• ur colleagues abroad, one things has been consistent everywhere,

Our industry has successfully enjoyed catering to one of the most affluent groups of pet owners in history, baby boomers. Generation X has closely followed suit and Generation Y pet owners, as they come into their career stability, will continue to spend to maintain the wellbeing of their companions. Some shifts to watch for are as boomers age they may become more likely to have lower maintenance pets or none at all with X and Y moving into their place. With the increased pace

• f life, what will be interesting to watch is whether generation Y will continue to select cats and

dogs at the same level as their predecessors, or also switch to lower maintenance pets to accommodate their busy life styles. Let’s have a look at this newest generation of pet owners.

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BOOMER: 1946-1964 GENERATION X: 1965-1976 GENERATION Y: 1977-1994

Just to clarify this chart will illustrate the different generation classifications.

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What do they value? What do they want? How can they be marketed to?

What do they value? What do they want? How can they be marketed to?

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 Enjoy the highest standard of living ever

experienced

 Time-stretched bunch  Keep up with things using technology on

which they are completely dependant on

 Love of instant gratification  Value social connections, doing things in

groups and being able to share things with their social circle

Understanding what their priorities, stresses, enjoyments and ways they communicate play an integral part to knowing how to make a connection with them. Generation Y enjoys the highest standard of living ever experienced They are a time stretched bunch and use technology to keep up their lives They are dependant on technology and love instant gratification which is why everywhere you find this generation you also find social media. I will not get into giving lessons on social media as I am continuing to learn about it myself, but what I do know is that in order to connect with and stay in the forefront of the minds of this generation you need to use it. Like it or not, it is here to stay. Another point is that they value social connections, doing things in groups and being able to share things with their social circle. They develop social connections around pets which is a perfect business opportunity to tap into. Communicate with them in a way that they will hear

• you. Successfully become part of their community and you can reap the rewards of word of

mouth advertising. Some of the most valuable P.R. you can ever hope to obtain.

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Keep up with communication technology – Again, social media They are hungry for information relevant to them and their pets. As a business you already have that information, it is the delivery of it that will make all the difference. For example blogging may be the greatest medium to help you listen to your customers needs and concerns, attitudes and perceptions giving you free market research. They love doing things in groups: look at community events and use the technology to get the word out or reach out to online communities and create ways for them to participate. Identify with organic – This generation has been raised to be very environmentally conscious with respect to the earth and to their health. Many natural, green, and organic products are already available in stores, but make sure you are prepared to answer questions because you will get asked. As I said before they are hungry for information. Socially aware – this works for any audience. Let your clients know about all the things your company does to help communities and social causes. For example, Pedigree donated $1 to participating shelters in Canada up to a total of $50,000. It does not need to be anything this big, but link your brand or business to a social cause such animal welfare and it will go a long way to build and maintain loyalty in a competitive environment. Generation Y is reported to be blind to nationality. When you are looking at images to use in your marketing or product development keep this in mind. We will touch on different nationalities again in a moment.

They know they are being marketed to – be honest and true. Marketing needs to be focused on authenticity and honesty, they can see right through slick and manipulative campaigns and do not appreciate them. Keep in mind how people are expected to act on facebook, anyone who misrepresents themselves is rejected. This is what they appreciate as it helps to build trust and loyalty. One last note with respect to branding and marketing, gen Y is attracted to clean uncluttered looking packaging and store environments.

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Generation Y is interested in pets. Pet ownership has hovered around 50% for over a decade so it is no surprise that this generation is also interested, but here has been some concern about whether or not technology is replacing the need for pets. There are two schools of thought on

• this. One side says that young people are more interested in games rather than taking on the

responsibility of a pet the other side of the coin says that technology may be strengthening the need for pets, as they provide non judgemental and easy in person social interaction. My money is on the pets and here’s why.

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Trends in pet spending and product and service development show that pet owners are value their pets more than they ever have before. It is predicted that Generation Y will spoil their pets more than we have ever seen before. For example, according to an article in verterinarymarketing.com things like vaccinations will no longer be seen as optional. The triple A Pet Book – Travelling with your pet lists 13,000 approved pet friendly hotels in North America while petfriendly hotels.com claims over 25,000 pet friendly hotels in their database. Ipad and Iphone have also developed apps for cats and dogs such as the one seen above where cats can watch and chase fish. Better and more niche pet services are popping up every day, as illustrated by pet services making up 35.1% of the Canadian industry which you saw earlier.

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Generation Y see pets as a reflection of themselves and will go to the lengths necessary to care for them. Many pet owners are now realizing that their pets can suffer from some of the same afflictions they do such as diabetes, cancer, obesity and food intolerances. With options now available to treat these issues for pets and extend their lives, many owners will do what ever they can to make this happen. It is a simple as walking around the show floor to see first hand the variety

• f health related products available

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One continuing trend from Generation X is that Generation Y is also waiting longer to have children and do see getting a pet as a surrogate child.

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2010 010 New Permanent Resid idents

Canada: 280,618 Quebec: 53,982

Going back to nationality for just a moment. Give some thought to this, It is interesting to note that in 2010 Canada received 280,681 new permanent residents and of those 53,982 settled in Quebec. You are all keenly aware of your traditional markets, but it is important not to discount new

• pportunities.

The top nationalities to enter Quebec in 2010 were: France Morocco Algeria Haiti China When you consider nationalities such as Algerian or Moroccan and the prevailing muslim faith existing in those countries, this presents an opportunity to open a new marketing approach and product niche development. Just for fun consider the following example.

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Halal complete cat food out of the U.K. Through their research they found that some Muslim cat owners feed their cats a fish based product thinking this will address their religious and ethical beliefs, but some fish based cat food, widely available in shops and supermarkets are coated with animal derivatives such as beef chicken and even pork. Therefore they came up with a cat food that is 100% Halal from the meat source to the coating on the kibbles. ______________________________________________________________________________ _______________

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Despite the numbers we have been speaking about today, there is a perspective out there that feels the industry may hitting a bumpy patch. The American Pet Products Association reports that the average age of pet owners is getting

• lder.

In Australia, it appears that pet ownership is declining. The value of their industry is stable, but

• verall ownership is down.

The Neilsen Company reports that Boomers spend more on pets than Generation Y, which is normal but in time they will catch up as they reach their full spending potential. Currently the economy also plays a role whereby pet owners may not have the disposable income to be spending on pet extras, but rather focus on the basics and skip what they may see as not immediately necessary such as an annual veterinary visit. Everything we have seen for Canada indicates continued growth, but we will be keeping our ear to the ground listening for changes and keeping our members informed as information becomes available.

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As for long term planning you can educate current and future pet owners about the benefits of

• pets. There are so many things competing for your customers time, money and energy, they

need to know about how a pet can enhance their life. The Pets in the Classroom in the States is growing by leaps and bounds. In the past PIJAC Canada has worked with this organization to train retailers and other pet businesses about how to go into classrooms and teach children about how wonderful pets are and of course, about responsible pet ownership. Something we would gladly do again. Planning now to educate future pet owners at schools, and community events will resonate with your current clients and help teach future ones about the benefits of pets and responsible pet ownership, not to mention helping to solidify your brand.

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As I mentioned earlier in the presentation legislation is one area where we put a lot of our

• efforts. It is our role to protect the rights of legitimate pet businesses. In the last 5 years the

government has become much more involved in the way our industry is legislated which has and will continue to impact your business.

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In the past 10 years we have been directly involved in legislating on behalf of the industry on the following issues. Animal Health Invasive Alien Species Zoonoses (tularemia, avian influenza, mad cow) Animal Importation regulations Pet food and pet treat imports Animal Protection laws Municipal bans on pet ownership and sales. At least one, of the topics I have listed will have impacted how you do business. With thousands of man hours spent each year we meticulously, and diplomatically engage the governments through email, phone calls, travel and meetings to ensure the rights of your business is represented. I want to give a clearer picture of what exactly is involved in managing the laws that govern the pet industry in Canada. Thankfully after many years of work, in most cases the federal and provincial governments will now approach us with anything that may impact our industry, but with municipal we do rely on our members to keep us informed. Most of these issues take months and even years to hammer out. Because our industry deals with animals many times we are lumped in with food and agricultural issues, but we are there every step of the way because to let it go could mean serious negative consequences for everyone.

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 Traceability  Accountability  Collaboration

In the next five years we are going to see a focus on Traceability, and accountability. With the tighter regulations on importing and exporting animals and feed this means that the government will continue watch the industry more closely and work to find ways of improving traceability. Companies will be even more accountable and need to be transparent with respect to their business practices. Maple Leaf foods is one example. Another growing issues is In Canada and in many places in the United States there are discussions about removing pets from pet stores and I am not just talking about cats and dogs. As you know our belief is that a reputable pet stores is a good source to find a pet. We have been working with municipalities to help them understand the benefit of a properly run store as a source. Even so, there are stores who have opted to remove certain types of pets from their stores for both financial and public relations reasons, both of which are legitimate.

Either way when it comes to pets municipalities and provinces are now paying attention as illustrated by the new Animal Welfare laws created in Manitoba and New Brunswick and municipal battles in Richmond, Ottawa, and Toronto. There is a lean towards voluntary compliance vs enforcement of regulations as accountability is now driven more by a call for increased scrutiny by the public. There is also more focus on collaboration– taking into account traceability and accountability, it is recognized that everybody has a role to play and it is more cost effective to have everybody working in the same direction. Take for example the new Pet Event Tracking Network launched this month in the US to allow the Food and Drug Administration and federal and state agencies to share information in real time about pet food-related incidents such as food-borne illnesses and defective pet products. The flip side of collaboration that we all need to watch is the pressure for stronger legislation by

• extremists. In other words, banning instead of working together to solve an issue.

These are all things we will keep our members up to date on as they apply to all the current issues listed on the previous slide and to the new ones that come up. Our success rests with the strength of our membership.

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“Coming together is a beginning, keeping together is progress, working together is success.” – Henry Ford

PIJAC Canada is about collaboration. In my office I have a quote from Henry Ford. “Coming together is a beginning, keeping together is progress, working together is success.” I truly believe in this. What I shared with you today is a culmination of our own research and observations with information generously shared by our members, and colleagues. We are proud to be the voice

• f your industry and the link that brings us all together. This presentation along with the notes

will be available to our members on the member section of our website in the next couple weeks. In the past this industry has shown great flexibility, willingness to embrace change and prosper from it. If there is one constant, it is change and so it is my hope that the insight I have shared with you today will help you meet the future with wisdom and enthusiasm. Thank you for your time.