Hero Dog Treats

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Root Cause analysis

There is high demand and increased sales in Canadian pet food market and competition between suppliers, Leendert needs to cut the price and import from low cost countries.

As you can see in exhibit 2, Hero Gog treat share of the market in comparison with other companies is a peanut therefore Leendert has no was other than importing.

A review of the market as shows that compare to wet dog food products, with a smaller selection and an often-higher price point, dry dog food was the most popular choice amongst Canadian dog owners.

Development in dog treat by introducing new and cheaper products has to be considered to increase sales and revenue to the company.

Following SOWT is about Canadian pet food market development:

Strength:

- Pet-related spending is expected to continue increasing over the coming years, as growing disposable incomes allow Canadians to buy more products for their pets, including premium items. According to the Bank of Montreal Capital Markets' economic outlook (April 2012), real disposable income in Canada is expected to increase by 1.9% in 2012. However, Canadian pet owners remain price-conscious, and are turning more and more to grocery retailers for pet food purchases rather than specialty stores, due to the diversity of products and price ranges on offer.

- Dry dog food sales had the highest market share, reaching over $600 million in 2011

Weakness:

- Compliances and industry regulations, products that do not meet regulatory requirements will be refused entry into Canada. Importers must comply with all regulations regarding pet food.

- Canadian pet owners remain price-conscious, and are turning more and more to grocery retailers for pet food purchases rather than specialty stores, due to the diversity of products and price ranges on offer.

Opportunities:

- Canada's pet food market's accelerated growth is explained by the current differentiation of its products.

- The market is segmented by development of new and diverse pet food products that focus on factors such as age, breed and health maintenance.

- Pet owners look for natural, high-quality products and base their decisions on ingredients that are recognizable, and that are similar to food they themselves consume.

- Consumers treat pets as members of their family.

- The pet food industry responded to this pet humanization through product expansions and selections.

Threats:

- New choices are available to the consumer that reflect the demand for natural, organic, eco-friendliness, health and wellness, as well new tastes and flavours.

Qualitative Analysis

The dog population in Canada was just over five million in 2011, with 35% of Canadian homes owning a dog. Over the next few years, dog food sales are projected to grow in value at a CAGR of 2.2%, to a total of C$1.1 billion in 2016.

Canadian dog food sales increased by over 3% in value from 2010 to 2011, rising to over $900 million, while volume sales grew by 0.9%, reaching over 300,000 tonnes.

In terms of value growth, dog treats/mixers recorded a rising of over 4% from 2006 to 2011, followed by 3.9% for dry dog food, and 2.6% for wet dog food. Dog food as a whole is projected to increase at least 2% from 2011-2016, and reach $1 billion.

Quantitative Analysis

Compared to wet dog food products, with a smaller selection and an often higher price point, dry dog food was the most popular choice amongst Canadian dog owners.

Products follow evident health and wellness trends in the Canadian dog food market and are manufactured as natural, organic or "homemade." The consumer's demand for higher quality pet foods fuels the sale of these products.

Alternatives and/or options

Leendert has to benchmark and review the other similar companies such as Natural pet food company.

Hero Dog Treat has to develop new formulas and ingredients and introduce new products to the market.

Following table shows that China and Thailand are the largest suppliers of dog and cat food so Leendert has to perform sourcing from these countries.

[pic 1]

Considering the new product, and Sample Raw Pet Food product flow chart (Exhibit 5) Leendert has following options:

Option 1:

Hog Dog Treat imports row material from china and Thailand through a reputable forwarder and complete the rest of operation in Canada:

Pros:

- They can protect the core competency and keep the ingredient confidentiality.

- Raw materials are cheaper

- It is very good for start with company when the relation is arm length

- Minimize risk of doing business because of short lead time

- They can monitor transaction and persuade supplier with more favorable term of delivery

- Reduced risk on the rate of exchange because of short lead time

- The best option for introducing new products to the market

Cons:

- Hero dog Treat is considered in high risk category for suppliers because they are small (Only 6 employee) without financial strength (only 1M$) in comparison with the other companies

- Suppliers may request a secure line of transaction such as L/C, this will increase total cost of ownership because of banking charges Hero Dog Treat. Also based on company’s credit in the bank, Leendert need to secure a percentage of L/C in an account to open L/C. Also it is hard to manage possible discrepancies in L/C

- Probably the best term of delivery would be DDP

- Additional storage for unfinished products is required