oligopolies breed oligopsonies


It's still early days in the process, but the retail pet supplies industry is becoming an oligopoly. It used to be that pet stores were exclusively a mom-and-pop local enterprise. But two massive chains, based on the models of other megaretailers like Toys 'R' Us and Circuit City, are grabbing market share through massive superstores dedicated only to pet supplies. It's a growth industry, as 62% of all American households now have a pet , and those pets are more pampered than ever, according to Forbes article (“Dog Days”, 6/21/2004).

One of the great sillinesses of the Internet bubble was the proliferation of highly-capitalized Internet pet supply services (like Pets.com and Petopuia), all of which in the end failed miserably. But the then disdained bricks-and-mortar equivalent has prospered wildly, with the leaders seeing double -digit growth in sales.

As the Forbes article puts it: “Two bigger retailers are consolidating a fragmented business: $3 billion (revenue) PetSmart and $1.7 billion Petco Animal Supplies. … The third force is Wal-Mart.” In other words, the same pattern as in books (Borders, Barnes & Noble), home supplies (Loews, Home Depot), and electronics (BestBuys, Circuit City). And, as in all the others, there's Wal-Mart taking business from the specialists.

PetSmart and Petco have followed the model of by buying out competitors and building megastores. Petco bought over 20 regional pet operations in the 1990s. It currently has 659 stores with plans to reach 1,250 outlets. PetSmart has 643 stores. As the article points out, they have room to grow, as they control only 15% of the total pet market at present.

These companies go far beyond selling dog biscuits and scratching posts. They sell all kinds of luxury pet items, from clothing to furniture. They are involved in the grooming and training businesses. One of the areas noted in the article is the explosive growth of gourmet dog and cat foods, including “Grandma Newton's baked-fresh-daily dog biscuits.”

And, as oligopolies breed oligopsonies, the same kind of concentration has taken place in the pet food industry, where retail giants industry giants like Nestle (which now owns Ralston Purina and Alpo), Procter & Gamble (Iams, Eukanuba), and Colgate-Palmolive (Hills).

[Oligopoly Watch]

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