What’s next in the pet food supply chain?

It’s safe to say that the pandemic swiftly and significantly affected every aspect of supply chains. Heightened demand, trade restrictions, factory closures, rising freight rates and reliance on ‘just-in-time’ inventory systems led to severe shortages and disruptions.

After several years of logistics disruptions, production delays and doubling down on technology investments, supply chain leaders in the pet industry are pausing for breath and looking at what’s next. Here are 5 trends that we think warrant special attention this year.

1. Growth

While no one can predict the future with 100% accuracy, we do know for sure that the rise in pet ownership brought on by the pandemic will continue to fuel growth in the pet industry for some time. According to The American Society for the Prevention of Cruelty to Animals (ASPCA), more than 23 million American households – equivalent to nearly 1 in 5 nationwide – adopted a pet during the pandemic. This surge in pet ownership has led to a lot of changes in the way the pet industry distributes products.

Research from Fortune Business Insights predicts that supermarkets, hypermarkets and other mass merchandisers will remain a dominant force in sales channels globally. The main reason for this is “high consumer preference for buying products from large retail stores, where they are offered an abundance of choices in terms of brands and prices”, according to the findings. However, growth in this segment is likely to be boosted by attractive displays in specialty pet food retail stores, coupled with the availability of premium food products. These are growing in popularity as the rising per capita income of consumers motivates higher spending on healthy and organic food products.

The sale of pet food products through online channels is also anticipated to intensify globally. This can be attributed to millennials’ preference for online purchasing and the overall convenience it offers to all consumers.

2. Industry consolidation

As the pet industry continues to grow and outsized returns are realized, capital inflows are driving expansion and competition. Today, 5 major players hold more than 60% of the global market share. These market players are continually making efforts to increase their market share and establish their dominance. Innovative product launches, brand strengthening and a focus on online distribution are just some of the ways the major players are putting pressure on smaller players.

Some of these are responding with acquisitions of their own. For example, Pet Food Experts, a leading distributor of pet food and supplies, has grown from running a single retail shop to servicing a vast network of over 6,500 independent pet retailers in 39 US states largely

by acquisitions. But with growth come distribution network challenges. Pet Food Experts has tackled these challenges by opening a new distribution center in Pennsylvania to service the East Coast and modernizing a facility in Washington to service the West Coast.

3. SKU proliferation

As the demand for e-commerce continues to grow, order profiles are being impacted. “After completing more than 50 Storage Type Analysis projects, we’ve noticed one consistent trend,” says Michael Wohlwend, Managing Principal at Alpine Supply Chain Solutions. Storage Type Analysis is an exercise that considers detailed SKU data, including size, shape and turnover rate.

“Traditional order profiles have more items and the quantity of each item is higher, which allows for easier picking. In contrast, e-commerce order profiles average 1.8 items per order, which requires significantly different, more complex picking strategies.” To adapt to this, pet food distributors should take a look at their entire layout and audit their space, flow and usage. Areas to focus on include:

• The physical environment: Consider what can be done to accommodate higher SKU count/order picking velocity from the same footprint. Evaluate how changes to the warehouse layout, racking, shelving and bins can accommodate smaller orders.

• Automation: Evaluate technology that can be harnessed to accommodate higher SKU count/order picking velocity.

4. Rising demand for fresh food

The size of the US fresh pet food market, which was $5.89 billion (€5.53B) in 2017, is estimated to progress at a yearly growth rate of 23.71% to reach $11.1 billion (€10.5B) by 2027. Handling more refrigerated products often requires changes in the warehouse, as Alpine Supply Chain Solutions knows from experience.

When the integrated logistics services provider engaged with Pet Food Experts, the company’s temperature-controlled business was increasing so much that more freezer space was needed. Pet Food Experts had been using chest freezers and reefers, but they decided the time was right to add a permanent 6,000 sq foot freezer to their distribution center. This meant reorganizing how their bulk dry goods and smaller non-food items and assortments were stored to make space for the new freezer.

Alpine conducted a Storage Type Analysis to determine the best storage option for picking and replenishment locations based on each SKU’s unique characteristics. This resulted in the decision for a new pick module

option for smaller non-food items and the relocation of about 1,000 SKUs from the dry goods area. Besides making room for the new freezer, this also created both picking and replenishment efficiencies.

5. Labor challenges

Labor challenges are a reality that all distributors will continue to face, irrespective of their industry. Those who expand their use of systems and technology will be best positioned to drive consistency and improve product placement in the market.

“The labor pool has been shrinking for years, yet most of our customers’ shipping volumes have continued to grow year over year,” says Ron Rafe, Managing Director at Alpine Supply Chain Solutions. “A lack of labor is a problem for all businesses and a huge factor leading to an interest in warehouse automation.” 2 of the automation options that may be worth considering are:

• Automated material handling: In typical non-automated operations, over 60% of an operative’s task time can be taken up by moving around the warehouse. It is critical to minimize this non-value-adding ‘travel time’ by bringing products to them, whether by using conveyance systems, co-bots, automated guided vehicles (AGVs) or other solutions.

• Pick-to-light: This illuminated system visually directs the worker to the correct location, item and quantity while allowing them to keep their hands free. This increases productivity, accuracy and safety.

According to Lisa Chai, Partner and Senior Research Analyst at ROBO Global, 80% of warehouses today have no automation at all. Another 15% have some automation, while just 5% have implemented more advanced technologies. Despite this seemingly low uptake, many industry experts believe adoption will start to increase over the next 5 years, driven by several trends including the ongoing labor shortage, warehouse integration and the growing availability of better and more affordable solutions.