managing new product presentation

organic rascalsNYU – STERN

Introducing & Managing New ProductPet Industry

organic rascalsInitial Concept

Nutrient-balanced meals designed by you with natural and organic ingredients fitting your pets’ age and lifestyle. Your pets’ personalized meals are packaged at peak freshness in resealable pouches, delivered to your location of choice.

organic rascalsThe shift towards smaller pets (dogs and cats) is led by changing lifestyles and demographic patterns:➢ urbanization is forcing people into smaller spaces

where large pets are not practical➢ longer working/commuting hours where high

maintenance pets are not feasible➢ young singles are looking for a small, easy to care

for pet for companionship

Leading to:➢ pet owners who are happy to spend heavily on

ensuring they have the best possible quality of life➢ Overall humanization: pet owners talk to their pets,

treat them like children, confide secrets in them, set up social networking profiles for them, and share photos, videos, and trust them more than they trust their partners

70% consider pets as beloved members of the family and as ”kids”

27% pets are well cared for but still animals

Trend #1: Pet Humanization

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Treats are a major growth area, and one that is open to high levels of humanization - taps into trends towards indulgence, which are particularly prominent among the humanizing pet owner

More pet owners are trading up to premium pet foods and productsThe trend is expected to continue

Foods is marketed with the human appeal of enticing sounding recipes and echo trends in human food of organic, sustainable ingredients

Industry Trend: Pet Humanization

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Pet Humanization Psychographics

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Pet humanization is not a passing fad and is here to stay!

Industry Trend: Pet Humanization

organic rascalsTrend#2 – Going Natural and

Organic

$1.7B market

Labels such as “natural,” “organic” and “grain-free” increasingly command larger portions of shelf space, and buzzwords like “superfoods”, “high protein”, or “freshly made” have migrated from human food into pet food

Pet Humanization Human Natural and Organic Food and Beverage

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Natural and Organic PsychographicsWhat are their human food trends that can migrate to pet food?

If target Millennials and GenY

If target Boomers and WWII Gen

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Pet Food Market Overview

Pet Food$12 Billion

(14% CAGR in next 5 years)

Wet food$2.2B (18% of total)

Dry food$7.1B (59% of total)

Treats$2.8B (23% of total)

Overall picture for the dog food market is positive, with sales expected to grow by 14% between 2014 and 2019, increase driven by growth in premium moist/wet food

All organic ($970M, 8% of total)

Some Organic & Natural ($727M, 6% of total)

Non Organic & Some Natural ($10.4B, 86% of total)

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Pet Food Market Growth

Mintel estimates sales of pet food will reach $20.8 billion in 2014, with 12% growth between 2008 and 2014. Year-over-year growth has been consistent and is expected to remain so, increasing the pet food market to $23.3 billion by 2019

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Pet Food Market Annual Spending

Spending on pets in the US in 2014 will be around US$60 billion by the end of 2014 (APPA)Spending increased by 5% between 2012 and 2013, despite the pet population increasing by only 0.4%. This indicates a strong increase in spending per pet. Most of this spend was on food.

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Industry Cycle: Natural and Organic• While organic food is growing in the human world, it still does not approach mass-market size

• The organic pet food market is also may be just the beginning as all pet food aspects lag somewhat behind their human trend counterparts

Organic & Natural Human Food IndustryOrganic &

Natural Pet Food Industry

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Pet Food Natural and Organic - Demographics

Although “All Natural” claim is valid for many customers Organic pet food buyers tend to be mostly younger Millennials, and wealthier Gen Y

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Going Natural and Organic Customer NeedsMillennials: “How important are the following factors when choosing which pet food?”

What Can We Satisfy?

Develop via flavor offerings

Home delivery + FreshDirect

Keep up with online reviews & post relevant product information

Make vitamins a part of the ingredients

Organic & Natural Ingredients Claim

Package design and shape

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Pet Food Channel Overview

“OTHER” will be our channel of distribution: A. limits competitive response B. more control over price/marginsC. more control over quality

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Pet Food Channels of Distribution

Current Offer:A. Convenience

Emerging Purchasing Locations: Drug stores showed significant growth of 15% during 2012-2014, though they only have a 1.2% share of the market. Drug stores currently offer neither the one-stop shopping opportunity of a supermarket, nor the selection of other retailers such as mass merchandisers and specialty pet stores, but can be an attractive option for city dwellers looking for convenience

B. Pet parents seeking the best food are discovering organic through smaller brands set up close to human organic food shopping locations

Competitor in South, 1st to market organic pet food market - Kriser’s, owned by Brad Kriser, is a rapidly growing upscale pet food chain; launched in 2013. Kriser’s revenue was forecasted to grow 40% as of April 17, 2013, per Bloomberg’s BusinessWeek. “the Whole Foods of pets” and tries to set up shop by Whole Foods stores as they serve similar customers.

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Pet Food SeasonalityGoogle Trend shows little to no seasonality on “pet food”, slightly higher demand from May-September month

Google Trend shows a slight decline in search from October - March on “organic” and “natural”, and slightly higher demand from April-September = Warm time trend. Otherwise seasonality does not play a large role in product sales

2007 pet food recalls due to the contamination

organic rascalsCompetitor Value Proposition

organic rascalsCompetitor Value Proposition

organic rascalsCompetitor Value Proposition

organic rascalsCompetitor Value Proposition

organic rascalsCompetitive Product AnalysisProduct Natural &

Organic? Customization? Packaging Channels of Distribution Price

Organic Rascals

Yes Yes Fresh Home Delivery Fresh Direct

$$$

Freshpet Yes No Fresh Specialty Boutique $$$

Orijen Yes No Shelf Stable Specialty Boutique/Online

$$$

Merrick Yes No Shelf Stable Specialty Boutique/Online

$$

Blue Buffalo

Yes No Shelf Stable Mass $$

Nature’s Recipe

Yes No Shelf Stable Mass $

Wellness Yes No Shelf Stable Mass $

organic rascalsPet Food Market Structure

organic rascalsCompetitorsOrganic Rascals faces multiple national brands in ingredient sourcing transparency and premium positioning

organic rascalsFresh & Natural AdvantagesFreshpet Inc. is the only national brand competitor to Organic Rascals in the Fresh & Natural Organic segment

organic rascalsSustainable AdvantagesOrganic Rascals has the competitive advantage over national

brands in customization and convenience

organic rascalsInitial Concept Boards

organic rascalsBASES Results Summary• 49% respondents own dogs and 38% own cats• Ingredient Identification (Natural, Organic) is the most important

element in deciding brand selection set, followed by Easy to Find• 55% respondents learn online about pet food brands, followed by

Veterinarian Recommendation at 53%• Source of Ingredient is the number one reason for change pet food

brand• Nutrition Balanced is the most valuable product claim• Pet kid’s Taste Preferences determines 60% pet parents’ SKU purchasing

within a brand, followed by Pet Kid’s Age• Highlight Product Claims is the most important package function,

followed by Resealable and Easy Storage

organic rascalsRevised Concept Board

organic rascalsBrand Positioning Statement

To pet owners who take to heart their pet kids’ food

quality, Organic Rascals is the nutrition balanced

organic pet food that is customized by you and home

delivered at the peak of freshness which is good because

it ensures your pets get the essential nutrients they need

and the taste they like just like you want for your family.

organic rascalsTarget Purchaser Segmentation

- 25 to 65 years old - High-income- Urban dwellers- “Pet Parents” - care for their dog and cat’s

diet just as much as they do for their own- Current premium pet food users

organic rascalsIdeal Customer – meet Doug● 35 year-old male● Partner at Goldman Sachs - works

60+ hours/week● $500M+ annual income● Lives in Tribeca● Organic food enthusiast● Married, social and no kids● Has 1 dog - Bowser● Bower goes to D Pets Hotels

everyday while Doug is at work

organic rascalsIdeal Customer – meet Kat

● 55 year-young female● Lives in Upper East Side● Retired and Empty Nester● Has a lifelong kitty child -

Whiskers● Kat is extreme health conscious

for herself and Whiskers● Only eats natural and organic

food

organic rascalsBASES Consumer Insights

Natural & Organic Ingredients

Veterinarian Recommendation

ConvenienceFriends Recommendation

Nutrient balanced

Resealable Packaging

Key factors that influence our target consumers’ purchasing behavior

High Quality Protein

Country of Origin

organic rascalsPackaging• Resealable Clear packages• Color Coded Flavors• Customized Serving Size• Stackable Storage

8 oz. 16 oz.

organic rascalsBASES Sales ForecastFirst Year: No. Households in NYC have pets= 33% x 3,063,393= 1.02 Million

http://www.businessinsider.com/cat-and-dog-ownership-maps-2014-7http://www.nycedc.com/blog-entry/new-york-city-s-pet-populationhttp://quickfacts.census.gov/qfd/states/36000.html

organic rascalsSource of Volume(1)Freshpet Inc., NJ: 2013 Revenue $63 million (2)National natural pet food brands

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Secondary Source of Volume: Substitute

• 1 oz = $0.38 (highest in the market is $0.36)• 1  pound retail price = $6.09 (highest in the market is $5.76), which will include a base with

nutrition and vitamins (50%), and 2 base meats ingredients (25% each)

Organic Rascals is 20% cheaper and 50% healthier and tastier than home prepared combo

+ additional 25 min freed to play!

*prices are based on Whole Foods price per Ibs.

Substitute for

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*The information is based on in part on data reported by IRI through its Market Advantage service for the 52 weeks ending January 26, 2014*https://www.justrightpetfood.com

For Added Value Comparison across brands:1. Stat with Market Average MSRP = $4.352. Add more ingredients3. Add organic / natural 4. Add Home delivery5. Add Humanitarian donations that come with purchase

Price (MSRP): As Added Value

Organic Rascals MSRP $6.09 is right on price perception target

organic rascalsAdded-Value Calculation

*The information is based on in part on data reported by IRI through its Market Advantage service for the 52 weeks ending January 26, 2014*https://www.justrightpetfood.com

Method:1. Start with Market Avg. MSRP2. Across 4 market segments add value3. Each “value” assign a weight based

on importance % from survey4. Sum up values added by each

segment and add them to the Market Avg. MSRP to get to perceived value

5. Compare Perceived Price to Actual Price

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Channel Risk due to high MSRP:

• Observation: Online msrp is too high (we are highest in the market i.e. $6.09 us vs. $5.76 premium market average), observed limited very limited

Action: Can lower msrp up to be close to cost $2.91 (but quality perception will suffer)

• Observation: Daycare and Organic Ave msrp is too high Action: can sell to 3rd party channels at lower cost, hence lower msrp = up to $5.00 (below premium price), will be perceived less premium, but still above market average At $5.00 MSRP, Organic Rascals margin drops from 43.8% to 32.3% in Y5

*The information is based on in part on data reported by IRI through its Market Advantage service for the 52 weeks ending January 26, 2014*https://www.justrightpetfood.com

Price (MSRP): Price/Margin trade off Analysis

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Finished Goods Average Cost Calculation

*Financial industry data provided by MicroBilt Corporation, www.microbilt.com/firstresearch

A. Average retail for premium dog food = $5.76 sold via premium retailerB. Market average for “small premium pet retailer” gm = 38.4%; C. Market average for “small premium pet manufacturer” gm = 19.7%

D. Average cost/ldp for “small premium pet manufacturer” = ($5.76 * 1) / 2.02 = $2.85

E. Organic Rascals avg. cost/ldp = premium average market cost $2.85 + 1% of the retail price that will be given to charity ($6.09*1% = $0.06) = $2.91

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Domestic Market“Pet Food Retail Sales & Organic”Pet Food Retail Sales $ (in 2014) Organic Food Use (in 2013)

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Domestic Market“Rental & Leasing Top Cities”

ALL RESULTS SUM UP TO:

#1 NEW YORK – Test Market and Expansion market Year 1 -5

#2 LOS ANGELES – secondary market to enter Year 3-5

organic rascalsChannel of Sales: Online with Home delivery Option

Gross Margin on this channel = 52.2%

Primary channel of distribution will be online, where our human customer can, not only customize the pet food, but also blog, post and share their experiences - from which we will learn what our customers value the most and pivot on those attributes

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Domestic Market Test Variables:

• Too High? Test with short term promotions online and in-store

• What yields more purchase? Test online as “call to action” banner

• popular variations to offer vs. never used. Why? Ask for customer feedback

• What channel mix yields more sales and gross margins?

Home delivery vs.

Store Purchase

Food Customized

Options

PriceOrganic vs. Natural

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Channel of Sales: NYC Test Market and Premium Locations Y2-Y5

# Of Locations in NYC:

Organic Avenue = 10

D Pet Hotel (NYC) = 1

Biscuits&Bath = 9

NYC Dog Spa = 1

D is for Doggy = 1

TOTAL = 22

Gross Margin = 20.4%

Gross Margin = 22.4%

Gross Margin = 20.4%

Gross Margin = 20.4%

These locations do not primarily sell food but provide premium service, little competition is expected. Will capture 50% of Channel Volume

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Sales Channel:Y1-Y3 Sales Estimates (New York)Year 1: Sales will come from A. “Online Sale and Home Delivery” modelB. Omni-Channel partnership with Organic Avenue Retail

Year 2: Sales will come from C. “Online Sale and Home Delivery” modelD. Partnership with Organic Avenue RetailE. Enter high end DPetHotel, B&B premium daycare, D is for Doggy premium

daycare, NYC Dog Spa premium pet spa and doggycare

Year 3-5: Grow and harvest sales from existing NYC locations

See financials on next slide

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Organic Rascals Units Sales in Partner Channels (Year 1-NYC)

Year 1 Partnership : A) on shelf retail sale and B) as order online and pick up in store omni-channel concept

Year 2 Partnerships: premium spa/daycare locations where premium food will be in high demand, but not in competition with other on shelf stable pet food suppliers

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Organic Rascals GM% Expectations

*Financial industry data provided by MicroBilt Corporation, www.microbilt.com/firstresearch

organic rascals5 Year Sales Calculations (NYC)

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Channel of Sales:Y3-Y5 Sales Estimates (LA)

Online:Sales Share = 73%Expected GM = 52.2%

Spas/Daycare:Sales Share = 20%Expected GM = 20.4%

Organic Stores:Sales Share = 7%Expected GM = 22.4%

As Los Angeles is the second best city in all attributes to New York, we expect sales / location penetration and expansion to follow NYC trend from Y1-Y3

organic rascalsRetail Sales Projections Y1-Y5 Calculations

organic rascalsRetail Sales Projections Y1-Y5

Online:Sales Share = 73%Expected GM = 52.2%

Spas/Daycare:Sales Share = 20%Expected GM = 20.4%

Organic Avenue:Sales Share = 6%Expected GM = 22.4%

organic rascalsFinancials Projections Y1-Y5

organic rascalsFinancials: Income Statement

organic rascalsFinancials: Balance Sheet

*Calculations of Assets and Liabilities are assumed to follow Industry Average for Pet Food Manufacturer in USA (size: small company)

* Highlighted on the left are Financial Ratios used in the Balance Sheet, also based on Industry Average

organic rascalsFinancials: Cash Flow

Based on projected sales, Income and Balance Sheet, we expect to have positive cash flow in the end of each year. Major asset investment is currently projected only in Year 1.

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New Product Line Expansions:Year 1 - Year 5

Organic Wet Pet

Food

Dog Food

Organic Ingredients

Taste Customizati

on optimizatio

n

Online Information

on Pet Food

Trends

Become Top Online Source on Pet Food

Add Senior Dogs / Vet Diet

formulas

Consulting on inventory stocks:

to local retail stores companies

Pet Treats Market

organic rascalsBrand Equity Expansions:Year 5 forward

organic rascalsMarketing

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Customized Fresh Wholesome Meals Delivered to Your Pet Kids

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organicrascals.com

Customized Fresh Wholesome Meals Delivered to Your Pet Kids

organic rascalsLet Consumers Speak for Themselves Videos

http://youtu.be/FOlFTW8xOcw

Post videos shared by people on how much their pets enjoy Organic Rascals - let the product bark and meow for itself

Growl Translation:

“ Nobody gonna lay a finger on my Organic Rascals! “

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organic rascalsWhat can go right & wrongGrows too fast!

Market Risk - no market acceptance and insufficient demand for Organic Rascals

Competitive Risk - new competition entry to the market i.e. JustRight petfood by Purina just launched similar market concept product of online customizable food

Operational Risk - Supply chain and manufacturing capacity issues, ingredient issues

Global Warming/Economic issues

organic rascalsThank You!