Breeders Own Pet Foods, Inc.

Case Analysis
Sarah Lehman
I. Situation
Industry
Size of Industry
US Market
In 2011, dog food sales will total approximately $14 billion USD.
The average dog owner will spend $179 on food. (Appendix 1a)
Supermarkets account for 36% or $5.04 billion of dog food sales. (Appendix 1b)
Mass merchandisers account for 64% or $8.96 billion USD of dog food sales.
o Of these, Walmart accounts for 25% ($3.5 billion)
o Pet Superstores (ex. PetSmart/PETCO) account for 20% ($2.8 billion)
o Farm/Feed Stores account for 7% ($98 million)
o Veterinarians account for 6% ($84 million)
o Internet Retailers and Independent Stores also account for 6% ($84 million)
Boston Market
Boston makes up 1.2% of the total dog population, about 938,400 dogs.
Therefor dog food sales for the Boston market can be approximated at 1.2% of total dog
food sales for the US market, or $168 million.
Expenditures for pet products in Boston approximate the national average.
Supermarkets account for 36% ($60,480,000) of dog food sales. (Appendix 1c)
Mass merchandisers account for 64% ($107,520,000) of sales.
o Of these, Walmart accounts for 25% ($42 million)
o Pet Superstores (ex. PetSmart/PETCO) account for 20% ($33.6 million)
o Farm/Feed Stores account for 7% ($11,760,000)
o Veterinarians account for 6% ($10,080,000)
o Internet Retailers and Independent Stores also account for 6% ($10,080,000)
Growth
Pet Product Industry
The pet product industry is in a growth phase due to a steady increase in pet ownership.
Despite industry growth, fewer than half of dogs are regularly fed prepared dog food.
Therefore, the industry has not reached its fullest potential.
Frozen Dog Food Industry
Frozen and refrigerated dog food accounts for 1% ($140 million) of US dog food sales.
Dollar sales increased 133% from 2008-2010.

Research indicates that 1/10 dog owners regularly purchase frozen/refrigerated dog food.
Research also indicates that an additional 15% of dog owners are interested in trying
frozen/refrigerated food, but currently do not.

Number of Firms
In the US, there are approx. dog food manufacturers and 350 dog food brands.
o Despite this, the industry is highly concentrated, with five companies accounting
for 75% of US dog food sales: Nestle Purina PetCare, Iams, Hills Pet Nutrition,
MasterFoods USA, and Del Monte Foods, Inc.
Not many competitors in the frozen/refrigerated dog food market, but two noted
competitors are Frosty Paws and Bil Jac.
Nature of Competition
The dog food market is divided into four main sections: Dry Food, Canned Food, Treats, and
Frozen/Refrigerated Food.
Dry Food
Approx. 95% of owners feed their dogs dry food.
Dry food accounts for 60% or $8.4 billion of total US dog food sales ($100.8 million of
Boston dog food sales)
Canned Food
Approx. 33.33% of owners feed their dogs canned food.
Canned food accounts for 20% ($2.8 billion) of US dog food sales ($33.6 million of
Boston dog food sales)
Treats
Approx. 80% of owners feed their dogs treats.
Treats account for 20% ($2.8 billion) of US dog food sales ($33.6 million of Boston dog
food sales)
Frozen/Refrigerated Food
Approx. 10% of dog owners feed their dogs frozen/refrigerated food.
Frozen/refrigerated food accounts for 1% ($140 million) of US dog food sales ($168,000
of Boston dog food sales)
This is a relatively untapped market with limited competitors.
Players
Dry Food
National Brands have 68% category share.
Private Label Brands have 7% category share.
Other (Regional/Local) Brands have 25% category share.

Canned Food
National Brands have 88% category share.
Private Label Brands have 8% category share.
Other (Regional/Local) Brands have 4% category share.
Treats
National Brands have 73% category share.
Private Label Brands have 12% category share.
Other (Regional/Local) Brands have 15% category share.
Company
Size and Sales/Market Share/Growth
Breeder's Own is launching a new product, Breeder's Mix, into the market.
Currently, Breeder's Own is a major producer of dog food for show-dog kennels.
Segments
Breeder's Own will be exclusively competing in the frozen/refrigerated dog food market
Breeder's Own plans to launch in Boston, Massachusetts in the frozen food section of
supermarkets.
Competitors
Direct competitors include national brands, private labels/store brands, regional/local brands that
sell dry food, canned food, and treats. Also those who produce frozen goods like Frosty Paws
and Bil Jac.
Trends
Overall Trends
Dog food industry has benefited from increasing dog ownership (expected to continue
growing steadily.
Pet owners attribute human qualities and characteristics to their pets (pet/hug them
daily), view them as a member of the family (consider themselves Mom and Dad),
and are willing to spend more money on them (spend $25 billion for dog products not
including food).
Growth in Premium and Super-Premium dog foods.
Growing Emphasis on All-Natural, No Additives or Preservatives, and
Vitamin/Mineral Enriched Claims made for new Product Innovation.
o Organic Dog Food sales grew 64% in 2010.
Opportunities for Breeder's Own
Breeder's Own offers a fresh, no additive or preservatives dog food product made of real meat
and Breeder's Own has a well established reputation as a show dog food supplier.

II. Problem Definition

Breeder's Own Pet Foods Inc. is introducing a new frozen dog food product into the market and
needs a strategic marketing plan to launch the product. Executives must decide whether to accept
or reject the proposed marketing plan presented by Marketing Momentum Unlimited.
III. Alternatives
Breeder's Own Pet Foods, Inc. has three options in regards to adopting the introductory program
for the company's entry into the market.
Alternative A: Accept $500,000 Marketing Proposal
Alternative B: Accept $700,000 Marketing Proposal
Alternative C: Reject Marketing Proposal
When analyzing the alternatives, we want to keep in mind the concerns of the executives:
1. Is market adequately defined and segmented?
The market appears to be well defined and segmented.
Market Definition: Single Adults and Married Couples that view their dog as part of their
family. These individuals want the very best for their pet, and are willing to spend extra
money to attain that product.
The target market is aimed at consumers:
o Singles and married, aged 21 54, household income greater than $25,000, with
or without children, located in Boston area, and shop at supermarkets.
A high percentage of the target market is actively spending money on their pets.
(Appendix 3a)
Those outside of target market are not actively spending money on their pets. (Appendix
3b)
2. What is a reasonable estimate of market potential?
In the US market, 10% of dog owners or approximately 7,820,000 people currently
purchase frozen / refrigerated dog food. (Appendix 3c)
In the US market, 15% of dog owners or approximately 11,730,000 are interested in
purchasing frozen/refrigerated dog food. (Appendix 3d)
The average dog owner who purchases refrigerated dog food spends $17.90 on the
product per year. (Appendix 3e)
Boston contains 1.2% of total US dog population or 938,400 dogs
Total dollars spend on dog food in Boston is 168,000,000 (Appendix 3f)
Total dollars spent in Boston Supermarkets is $60,480,000 (Appendix 3g)
Total dollars spent on refrigerated dog food in Boston is approximately $1,680,000
(Appendix 3h)

A reasonable estimate of market potential is $1,680,000

3. Can the food brokers get distribution in supermarkets given the sales program?
In order to obtain freezer space in Boston supermarkets, two major problems must be
overcome:
o Persuading the frozen-food buyer to stock Breeder's Mix and that a greater
product turnover will compensate for a potentially lower margin.
Breeder's Mix will be located away from normal dog food products, however, thanks to
Frosty Paws, the idea wont be completely outrageous to the supermarket or consumer.
Given the potentially lower margin and likelihood failure, slotting fees of approximately
$30,000 will be necessary to gain distribution in the supermarket.
4. What should be the recommended selling list price to the consumer for Breeder's Mix?
Since Breeder's Mix is a high quality product it should be sold at a relatively higher price.
However, it shouldnt be priced so high as to price itself out of the market
By analyzing the current market, Breeder's Mix suggested list price should be between
$2.00 - $3.00 per 1lb bag
o Bill Jac currently sells their product between $1.30 and $1.80 per pound
(Appendix 3i)
o Industry average price per pound can be estimated at $2.23 per pound of dog food.
(Appendix 3j)

Since Breeder's Mix is to be viewed as a staple item to be repurchased regularly, the average
price per pound of treats would not be considered to price the product since treats are viewed
as a special, infrequent purchase.

5. Can the company achieve a 15% return of sales in its introductory year?
Breeder's Mix can achieve a 15% return of sales if full market potential is obtained.
If full market potential is reached, $1,680,000 will be spent on frozen food.
Assuming a $2.50 retail selling price and 22% Supermarket gross margin, manufacturing
price will be $1.95 per lb. (Appendix 3k)
At a $1.95 manufacturing SP, total dollar sales of $1,680,000 would translate into
861,539 units sold. (Appendix 3l)
Net income can be assumed as $967,374 before advertising expenditures (Appendix 3m)
If proposed advertising plan with cost of $500,000 is implemented, return on sales would
be approximately 28% (Appendix 3n)
If proposed advertising plan with cost of $700,000 is implemented, return on sales would
be approximately 16% (Appendix 3o)
Alternative A: Accept $500,000 Marketing Proposal
Advantage:
Breeder's Own will be able to launch product as scheduled, and will serve as basis for
national launch.
Breeder's Own will not have to generate additional marketing plan

Advertising has potential to generate $25,000,0000 in sales (Appendix 3p)

In order to breakeven, Breeder's Mix will need to obtain a .53% market share of total Dog
Food Sales in Boston (Appendix 3q)
In order to breakeven, Breeder's Mix will need to obtain a 1.48% market share of total
Dog Food Sales in Boston (Appendix 3r)

Disadvantage:
Fixed Cost are higher than estimated (advertising and slotting fees)
Breeder's Mix must sell 459,471 units to breakeven (Appendix 3s)
Breeder's Mix must have 53% of market potential purchase the product to breakeven in
sales (Appendix 3t)
Alternative B: Accept $700,000 Marketing Proposal
Advantage:
Breeder's Own will be able to launch product as scheduled, and will serve as basis for
national launch.
Breeder's Own will not have to generate additional marketing plan
Advertising has potential to generate $35,000,0000 in sales (Appendix 3u)
In order to breakeven, Breeder's Mix will need to obtain a .73% market share of total Dog
Food Sales in Boston (Appendix 3v)
In order to breakeven, Breeder's Mix will need to obtain a 2% market share of total Dog
Food Sales in Boston (Appendix 3w)
Disadvantage:
Fixed Cost are higher than estimated (advertising and slotting fees)
Breeder's Mix must sell 632,857 units to breakeven (Appendix 3x)
Breeder's Mix must have 73% of market potential purchase the product to breakeven in
sales (Appendix 3y)
Alternative C: Reject Marketing Proposal
Advantage:
Eliminate advertising cost completely and gain opportunity to generate new, better
marketing proposal.
Disadvantage:
Postpone launch of new product, must use additional funds and time to generate new
marketing plan, and inability to gain entrance into supermarkets.

IV. Recommendation
My recommendation would be to accept the $500,000 marketing proposal.
If the Boston market follows the US market, the frozen/refrigerated dog food market will be 1%
of total dog food sales. In order to breakeven, Breeder's Mix must obtain a .53% market share.
During its launch year, Breeder's Mix will have no competitors to compete with for the 1%
market share. Therefore, it is possible and likely that Breeder's Mix can breakeven at a .53%
market share and obtain a higher market share for a profit.
All projections were calculated assuming a maximum of 1% market share for refrigerated dog
food. However, Breeder's Own could take market share from both dry food and canned food.
Since the frozen dog food industry is relatively new with few or no competitors, Breeder's Own
has a high potential to grow the industry. If the product is perceived as a higher quality with
better benefits, Breeder's Mix has the potential to cause consumers to switch to their product.
As stated previously, dog owners are becoming more willing to purchase high priced items for
their pets since they are viewed as part of the family. Breeder's Mix is a very high quality product
that is healthy for dogs. This product will appeal to the average dog owner, and appeal will grow
as owners become more attached to their pets.
As stated previously, the average dog owner spends approximately $17.90 per year on frozen dog
food. This is relatively low considering that 10% of dog owners purchase frozen dog food. This
means owners view frozen dog food as a special purchase that is not part of their repeat
purchases. Breeder's Own has an opportunity to change this perception, and persuade dog owners
to regularly purchase the item. By changing this perception, the average annual dollar amount
spent on frozen dog food will increase.
Currently, 10% of dog owners purchase frozen dog food. However, research indicates that
another 15% of dog owners are interested in the product. Breeder's Mix will appeal to this
segment, and has potential to persuade these individuals to purchase frozen dog food.
Breeder's Own plans to enter the market in 2011. By approving the current marketing proposal,
the product will be launched on schedule. If the marketing proposal were denied, a new proposal
would be needed. Breeder's Own would run the risk of other competitors entering the marketing
during this time.
If Breeder Mix does not succeed in the market place, Breeder's Own will only lose up to
$530,000. If Breeder Own approved more spending for a larger advertising budget, the risk and
loss would be greater in the event of failure.

Appendix
1a.) Average annual spending per dog:
Total sales for dog food / Owned-dog population = $14,000,000,000 / 78,200,000 = $179.028 per dog
1b.) Distribution of dog food sales
This table represents the distribution of dog food sales per retail channel for the US market:
Retail Channel
Sales Percentage
Dollar Sales
Supermarket
36%
$5.04 billion
Mass Merchandisers
64%
$8.96 billion
Dog food sales by mass merchandiser:
Retail Channel
Sales Percentage
Walmart
25%
Pet Superstores
20%
Farm/Feed Stores
7%
Veterinarians
6%
Internet/Independent
6%

Dollar Sales
$3.5 billion
$2.8 billion
$98 million
$84 million
$84 million

Calculation
(14 billion x 36%)
(14 billion x 64%)
Calculation
(14 billion x 25%)
(14 billion x 20%)
(14 billion x 7%)
(14 billion x 6%)
(14 billion x 6%)

1c.) This table represents the distribution of dog food sales per retail channel for the Boston market:
Retail Channel
Sales Percentage
Dollar Sales
Calculation
Supermarket
36%
$60,480,000
(168 million x 36%)
Mass Merchandisers
64%
$107,520,000
(168 million x 64%)
Dog food sales by mass merchandiser:
Retail Channel
Sales Percentage
Walmart
25%
Pet Superstores
20%
Farm/Feed Stores
7%
Veterinarians
6%
Internet/Independent
6%

Dollar Sales
$42,000,000
$33,600,000
$11,760,000
$10,080,000
$10,080,000

Calculation
(168 million x 25%)
(168 million x 20%)
(168 million x 7%)
(168 million x 6%)
(168 million x 6%)

1d.) The following tables represent the sales each product category is receiving in the US and Boston markets.
Product distribution in US:
Product
Sales Percentage
Dollar Sales
Dry Food
60%
$8.4 billion
Canned Food
20%
$2.8 billion
Treats
20%
$2.8 billion
Frozen/Refrigerated Food
1%
$140 million
Product distribution in Boston:
Product
Dry Food
Canned Food
Treats
Frozen/Refrigerated Food
3a.) Target demographics:
Target Demographic
Parents- school age children
Parents- younger/older children
Roommate Households

Sales Percentage
60%
20%
20%
1%

Dollar Sales
$100.8 million
$33.6 million
$33.6 million
$168,000
Percentage Spending Money on Pet

79%
71%
72%

Young Couples- no children

Household Income > $50k

73%
63%

3b.) Demographics outside of target market:

Demographic Not in Target Market
Household Income < $25k
Older Singles
Retired Couples

48%
30%
41%

Percentage Spending Money on Pet

3c.) Under the assumptions that 1 dog = 1 dog owner and that 10% of dog owners currently purchase frozen/refrigerated food:
78,200,000 total dog owners x 10% = 7,820,000 people who currently purchase frozen/refrigerated food.
3d.) Under the assumptions that 1 dog = 1 dog owner and that 15% of dog owners are interested in trying frozen/refrigerated dog
food:
78,200,000 total dog owners x 15% = 11,730,000 people who are interested in trying frozen/refrigerated dog food.
3e.) Total money spent on frozen dog food / Total owners who buy frozen dog food = $140,000,000 / 7,820,000 = $17.90
3f.) $14,000,000,000 x 1.2% = $168,000,000
3g.) $168,000,000 total Boston dog food sales x 35% spent in supermarkets = $60,480,000
3h.) $168,000,000 total Boston dog food sales x 1% estimated market share for frozen dog food = $1,680,000 spent on frozen
dog food.
3i.) Bil Jac price per pound:
Product Type
Frozen food
Frozen food

Product Name
Bil Jac
Bil Jac

3j.) Approximate dog food price per pound:

Product Type
Product Name
Dry food
Dog Chow
Dry food
Purina One
Dry food
Iams
Canned food
Alpo Prime Cuts
Canned food
Mighty Dog
Canned food
Cesar Select
Average price/lb = $13.37 / 6 = $2.23

List Price

Price Per Pound

$3.59/2lb
$6.49/5lb

$1.80
$1.30

List Price
$14.99/17.6lb
$13.49/8lb
$19.45/8lb
$1.50/22oz
$.80/5.5oz
$1.09/3.5oz

$.85
$1.69
$2.43
$1.09
$4.98
$2.33

Price Per Pound

3k.) Supermarket margin:

Gross Margin = Retail Selling Price - Retail COGS/Retail Selling Price
.22 = $2.50 - COGS/$2.50
COGS = 2.50 - .55
COGS = $1.95 (retailers COGS becomes the manufacturers SP)
3l.) $1,680,000 total sales/ $1.95 per unit = 861,539 units
3m.) Net income before advertising:
Total sales stocking fee VC commission = $1,680,000 - $30,000 - $565,026 - $117,600 = $967,374.

VC calculated as: ($7.87 VC per case / 12 bags per case) x 861,539 units sold.

Commission (for food brokers) calculated as: (.07 x $1,680,000)

3n.) Net income after advertising:
$967,374 - $500,000 (Plan A) = $467,374

Return on sales = net income before interest and tax/sales

ROS = $467,374 / $1,680,000 = 27.82%
3o.) Net income after advertising:
$967,374 - $700,000 (Plan B) = $267,374
ROS = $267,374 / $1,680,000 = 15.92%
3p.) Assuming total spending for advertising in the dog food industry is about 2% of sales:
$500,000 / 2% = $25,000,000 sales
3q.) Assuming FC = $530,000 (advertising proposal + slotting fees), manufacturing SP = $2.50, VC = $.7965 (.66 VC per 1 lb
bag + .1365 7% sales commission per 1 lb bag)
Contribution Margin Ratio = (Sales VC) / Sales
= (1.95 - .7965) / 1.95 = .5915
Breakeven in Sales = Fixed Cost / Contribution Margin Ratio
$BE = $530,000 / .5915 = $896,027
Market Share needed = $BE/Total Boston Dog Food Sales
MK Share = $896,027 / $168,000,000 = .53%
3r.) Market Share needed = $BE/Total Boston Supermarket Sales
MK Share = $896,027 / $60,480,000 = 1.48%%
3s.) Breakeven in Units = Fixed Cost/ (Unit Selling Price - Unit Variable Cost)
Unit BE = $530,000/ (1.95 - .7965) = $530,000/1.1535 = 459,471 units
3t.) BE as % of Market Potential = $BE/$Market Potential
BE = $896,027/$1,680,000 = 53%
3u.) Assuming total spending for advertising in the dog food industry is about 2% of sales.
700,000 advertising expenditure / 2% = $35,000,000 sales
3v.) Assuming FC is equivalent to $730,000 (advertising proposal + slotting fees), manufacturing SP = $2.50, and VC = .7965
(.66 - VC per 1lb bag + .1365 - 7% sales commission per 1lb bag)
Contribution Margin Ratio = (Sales - VC)/Sales
CM Ration = (1.95 - .7965)/1.95 = 1.1535/1.95 = .5915
Breakeven in Sales = Fixed Cost / Contribution Margin Ratio
$BE = $730,000 / .5915 = $1,234,150
Market Share needed = $BE/Total Boston Dog Food Sales
MK Share = $1,234,150/ $168,000,000 = .73%
3w.) Market Share needed = $BE/Total Boston Supermarket Sales
MK Share = $1,234,150 / $60,480,000 = 2%
3x.) Breakeven in Units = FC/ (Unit SP - Unit VC)
Unit BE = $730,000/ (1.95 - .7965) = $730,000/1.1535 = 632,857units
3y.) BE as % of Market Potential = $BE/$Market Potential
BE = $1,234,150/$1,680,000 = 73%