Pet food costs on the rise

The Record (Hackensack N.J.) (MCT) - Hill's Science Diet, a popular brand of dog and cat food, won't be on the shelves much longer at Allwood Pet Center in Clifton, N.J.

Store owner Lydia Grossman said she plans to stop selling the food because Hill's has raised its price "a few times" over the year and a 7.4 percent jump is coming Jan. 1.

Nutro, a dog-food brand, boosted its price 26 percent in three phases since fall 2007 while the company reduced bag sizes. The price increases have come more often and in larger amounts than previous years, store owners say.

"I'm making less to absorb some of the increase," said Grossman. "I cannot keep raising it (prices) the way they raise me."

Sales for her store and grooming business combined are down 20 percent since last year, she said, and the food-price surges have forced profit down to 20 percent or 25 percent from around 40 percent.

Gregg DePhillips, director of operations for J-B Wholesale Pet Supplies Inc. in Hackensack, Hawthorne and Oakland, N.J., said manufacturers used to raise prices only 5 percent to 7 percent once a year or every 18 months.

"I've been in industry for 25 years and I don't remember this happening like this before," he said.

Surging pet-food expenses are pinching the profit margins of pet-store owners and many say the cost increases and the declining economy are driving customers to cheaper supermarket or price club brands.

With Americans expected to spend $16.9 billion on pet food this year, it is the biggest slice of the pet-products industry, estimated to be $43.4 billion in 2008 by the American Pet Products Association Inc. in Greenwich, Conn.

Pet-food makers point to rising costs of energy, ingredients, packaging and transportation. Corn, a main ingredient in many dog foods, climbed to a record $7.99 a bushel on June 27, abetted by the push to use corn-based ethanol in gasoline. Oil prices surged to more than $147 a barrel in July, driving up transportation costs.

"If our input costs increase, sometimes there's a need to increase prices of our products," said Keith Schopp, a spokesman for Nestle Purina PetCarein St. Louis. Other manufacturers either declined to comment or didn't return calls for comment.

Industry experts and analysts have cited the pet-products industry as one of the few to be insulated from economic troubles.

"Even during these tough economic times, pet food is no longer considered a discretionary purchase, because pets are considered members of the family," said Kurt Gallagher, communications director for the Pet Food Institute, a Washington D.C.-based association representing companies that manufacture in the U.S.

But many small pet store owners believe the economic slump has finally caught up with pet owners and that they are shifting to the cheaper supermarket and price club brands.

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They could be right. Earlier this year Wal-Mart Stores Inc. in Bentonville, Ark., said it would invest in its pets segment, a leading category, by increasing the visibility of the products.

At discount retailer Target Corp., dog and cat food sales have been up in the past 12 months and "are performing above our projections and exceeding expectations," said spokesman Joshua Thomas.

Montvale, N.J.-based supermarket chain The Great Atlantic and Pacific Tea Co. said dog and cat foods are getting more space and the chain is focusing efforts on pricier natural and organic dog and cat pet food because of customer demand.

Bergenfield, N.J., Pet Center owner Mitch Markowitz believes higher prices and the economic slowdown are why his regular customer traffic has stopped recently. Until this fall, customers swallowed food-price increases all year because of brand loyalty. But sales have tumbled 50 percent and food profits are down 5 percent to 10 percent.

"I eat it (the price increases) when I can and when I have to, I increase," said Markowitz.

Pet-store prices are higher than most brands sold in supermarkets and price clubs _ $10 or more depending on the brands _ because they sell "super-premium" dog and cat foods, where meat is the largest ingredient.

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As if rising food prices aren't enough, owners are paying more in fuel surcharges on deliveries. Markowitz said he now pays $3 and $6 more per delivery, depending on the distributor.

Janet Kaine, owner of Oak Ridge Pet Food and Supply in Newfoundland, N.J., said the higher prices drove some customers away so she offers specials and gives away sample food of customers' pets' brand to lure them back.

She's trying to keep her profit margins the same, but it's difficult, she said.

"I can't make money if people stop coming in because things are too expensive," she said.

Store owners say they sell food to attract pet owners to toys, accessories and other pet supplies, but store owner Susan Boudrot said customers are cutting back on treats and toys at Westwood Pets Unlimited in Westwood, N.J.

"They do take it personally," she said. "We're trying to not go any higher than we absolutely must." But prices of super-premium dog foods have risen twice in six months and even the price of rabbit food has gone up, she said.

Profit margins are down 5 percent to 8 percent, she said, so she can stay competitive with the price clubs. She doesn't see customers shifting to lower quality foods.

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The outlook is not so bleak at The Wayne Pet Place in Wayne, N.J., where owner Sal DeMenna said he is selling more food and has lifted stock minimums despite a $10 price increase on larger bags.

He attributes that to customers shifting to higher quality foods after the 2007 pet food recall and the closing of three other pet stores.

But in Clifton, N.J., Grossman is considering consolidating her two storefronts into one because sales have declined over the years.

"Pets are a luxury, and they're not going to go the extra mile for their pets," she said.

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