February 8, 2013

German pet food chain Fressnapf bites online

Torsten Toeller, CEO Fressnapf (photo: Georg Lukas)
Torsten Toeller: "If our prices are undercut, we will match them mercilessly"
Online competitors are making it a dog's life for category killers. Even Fressnapf, Europe's largest specialist chain for pet food and accessories, is starting to feel the heat.

Pure players still only take around 6 per cent of the biscuit, but they are on the prowl and rapidly growing market share. Clearly, these dachshunds could become Great Danes.

So how does Fressnapf founder & managing partner Torsten Toeller intend to keep them in their kennel?
 
To date, Fressnapf, which means "feeding bowl" in German, has done a pretty good job defending its patch of bricks & mortar territory.

After seeing off most of the smaller zoo retailers since its creation in 1990, the group has also met the challenge from up-and-coming rivals Futterhaus and Zoo & Co.

As Fressnapf's annual revenues and market share continue to rise, even the big German High Street grocers and DIY groups, who still make up around two-thirds of the pet market, seem to have lost their enthusiasm for the category. So why worry?

Fly in the ointment

The only fly in the ointment is that many a line sold by Fressnapf can easily be marketed online. The pure players haven't proved they can make big money yet, but they've certainly shown that they can push sales.

For instance, zooplus.de probably made €320m in revenues last year and might already have broken even in terms of operating profit.

As in other segments, there is always the looming figure of Amazon.com. Growing at a whopping annual rate of 21 per cent, the US online retail giant posted more revenues in Germany last year ($8.7bn; €6.5bn) than in any other foreign market.

Currently, the Americans are not a force to be reckoned with in pet food and accessories, but successful forays into different sectors in the past confirm its status as bogeyman.

Fressnapf has reacted to date by boosting its own e-commerce activities since 2009 while meshing these even more closely with its physical store base. It may be the right decision, but the market leader doesn't really have a choice.

A multi-channel strategy is easier to formulate than to implement. Customers at specialist stores generally expect to be advised by well-trained staff, but they are usually not prepared to pay much of a premium for the service.

Pricing in a cyber world

Therefore, the bitter reality is that the retailer must offer more or less the same prices in his online shop as in his physical stores. The art is to do this without nose-diving profit; and the dangers are obvious.

One only needs to look at the negative example of Media-Saturn, the former earnings star in the now very much dented Metro Group crown. The decentralised, store-based pricing model of Europe's largest electronics entertainment retailer has been unhinged by recent company attempts to create national online prices.

An answer to lower earnings are accessories, own label and new assortments, but these can't be conjured out of a hat.

Fressnapf, though, is fighting from a position of strength. The company, which, in addition to its operations in nine other European countries, already runs 823 stores in Germany (720 of which under franchise).

External revenues grew by a healthy 7 per cent last year to €1.5bn. Like-for-likes in Germany were also up (plus 4 per cent).

Sales at recently modernised stores have grown by 5 per cent, and the store base is being revamped at a rate of around 150 units per year. A further 19 outlets will open this year.

Heavy investment

A double-digit million sum has been ploughed into the business over the last two years. Investment has included the upgrading of IT and customer relations management systems. Despite this, managing partner Torsten Toeller claims that earnings have remained stable at a high level.

As per the end of this year, however, the Fressnapf empire will embrace a total of 842 outlets. This is getting pretty close to the 900-store-mark which the company sees as its maximum potential. "We can't grow in leaps and bounds anymore in Germany," says Toeller.

Such a sober appraisal is behind the new cross-channel offensive. Fressnapf is already running a pilot outlet in its home town of Krefeld where, for instance, customers can order online via store-based touch screens.

Toeller aims to achieve €350m in annual online revenues by 2018. Fressnapf is therefore investing €10m in marketing and intends to lower prices by 5 to 10 per cent. "We are cutting them ourselves before we are forced to do so by others," says Toeller.

The spirited entrepreneur hopes to offset pressure on the bottom-line by maximising price efficiency and upping the current own label share of 35 per cent.

Toeller's new online offensive comes when pure-play competitors are boosting revenues but still struggling to break even. He knows he has a limited timeframe in which to stop them. Once they start making a profit, pussy cats will already have become tigers.

 
Related article in German: Lebensmittel Zeitung, no. 6, 08.02.2012, by Manuela Ohs & Hans-Jürgen Schulz

 

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