Petfood: A healthy market

by Emily Wilson
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When it comes to pet food, think dog and cat. The global market for these two companion animals is US $30.5 billion, about 71% of total market value, and is dominated by just five major players. To offset the effects of market saturation and a descent into commodity status, manufacturers are concentrating on the development of high-margin, nutrient-specific products and convenience in packaging.

MARKET OVERVIEW

As might be expected, the wealthiest nations spend the most on their pets. The latest Euromonitor International Pet Food Markets Report shows global sales of dog and cat food extremely concentrated among the 15 major markets, which accounted for a combined value share of 89% in 2000, with U.S., Japan and the major markets of Western Europe in the lead (Table 1).

The U.S., with its vast pet population and affluent pet owners, is by far the most valuable market, with sales of US$11.6 billion in 2000, equivalent to almost 38% of total global sales. In 2001, 55% of all American households were home to at least one pet dog or cat. The U.S.-based Pet Food Institute’s "Pet Incidence Trend" report, which has tracked the increase in pet ownership in the past two decades, found that last year, there were more than 75 million pet cats and more than 60 million pet dogs in the United States.

Despite the maturity of the market, sales in the U.S. continued to rise in 2000, climbing nearly 1% — an increase of US $434 million — thanks to sustained innovation in the development of premium products.

Japan is the second-most valuable national market, with sales of dog food and cat food exceeding US$3.1 billion in 2000. The market showed dynamic growth in 2000, rising by US$365 million, a growth rate of 7% and the second-largest value increment after the U.S.

The reasons for this growth are similar to those in the U.S.: rising pet populations and indulgent owners, who spend on average US$176.4 per pet, making American owners look stingy by comparison, at US$86.

In Europe, 55 million households are home to about 47 million cats and 41 million dogs. Growth in constant, local currency terms varied. Sales of cat and dog food among the major markets of Western Europe all fell in 2000, because of adverse currency movements favoring the dollar over the Euro, although maturity of demand saw sales stagnate in the three core markets of the U.K., France and Germany.

LEADING PLAYERS

In a scenario typical of most mature markets and one very familiar to the feed and grain industries, recent mergers and acquisitions have seen the already small handful of companies that dominated the pet food sector reduced to just five premier-league players, accounting for 60% of the world market. Increasing market penetration of the specialty and nutritionally advanced formulation segments has been the driving force behind these dynamics.

Heading the table is Mars Inc., with a 22.6% share of the market, boosted by its purchase of France’s Royal Canin earlier this year. Royal Canin was a pioneer in creating pet diets for specific life-stage-related requirements. Mars’ position may soon be ceded to Nestlé, SA, when the merged companies will be forced to sell Royal Canin’s exclusive pet food brands and two manufacturing plants, with an annual output of 150,000 tonnes, to Spain’s Agrolimen, to satisfy antitrust objections.

Last year, Nestlé, a leader in canned cat food, purchased U.S.-based Ralston Purina, a major dry dog food producer, for $10.3 billion, giving the company a 22.2% share of the global pet food market. To remedy the potential anti-competitive impacts identified in the overlapping markets for dry cat food in the U.S., Nestle was required to divest both Ralston’s Meow Mix, the best-selling dry cat food brand in the country, and Alley Cat brands, to J.W. Childs Equity Partners. It also was required to relinquish all international trademarks related to the brands and to co-pack both brands for Childs for a set period of time.

Colgate-Palmolive, through its Hill’s Pet Nutrition subsidiary, is the leading producer of premium pet food in the world. The company’s Science Diet pet food is available in pet stores and other retail outlets. It has more than 30 prescription diet products available only through veterinarians. Its products, which are sold in the U.S., Japan and more than 65 other countries, give the company a 5.2% market share.

In 1999, Procter & Gamble acquired the Iams company and by 2001 had moved its health-based products beyond specialist pet retailers and onto supermarket shelves, taking premium and tailored nutrition into the mainstream and capturing 4.9% of the market.

Close behind is Del Monte, which in June purchased the H.J. Heinz Company’s pet food interests, giving it 4.5% of the world market and second place in the U.S., with such established brands as Nature’s Recipe, IVD LifeStages diets, Kibbles ‘n Bits and 9-Lives.

MARKET TRENDS AND DRIVERS

As prepared pet food draws closer to saturation in many of the high-value, developed markets, manufacturers have sought to increase value growth through the introduction of super-premium special-purpose products that justify higher prices. These include life-stage and lifestyle products such as diets specifically for kittens or puppies, adult and senior cats and dogs and products for more active breeds and small and large dogs.

Pet owners’ preoccupation with healthy food for themselves and an increasing trend of seeing pets as family members have fueled the emergence of functional food for pets as a rapidly developing growth niche. Brands making a "natural" or "holistic" claim are estimated to represent up to 10% of the specialty pet food sector, with a value of about $200 million.

The development of these specialized diets goes back to the 1970s and 1980s, when small niche brands offered natural formulas, natural preservatives, such as herbs or vitamins E and C, fresh ingredients, and alternative protein and carbohydrate sources, such as lamb and brown rice, which were marketed as hypoallergenic. Today, the nutraceutical pet food market has become a battleground for the big-name companies.

Low-calorie or diet foods for pets gained in popularity in 2000, with launches such as Procter & Gamble’s Eukanuba Adult Dry Cat Food – Weight Control Formula, capitalizing on consumer preoccupation with physical aesthetics, even in pets. Mars’ leading dog food brand, Pedigree, was also extended as a low-fat dog treat range – Light & Tasty, a range up to 98% free.

Other popular nutritional benefits in new functional food include urinary tract health for cats, hair/coat maintenance, circulatory health, joint health and immune-system support, as featured in Hill’s Science Diet Canine Maintenance Dry Dog Food, marketed on the basis of its "superior antioxidant formula." Along with antioxidants, Purina’s recently launched Beneful range boasts long-chain fatty acids and claims to contain "wholesome, real ingredients which provide excellent nutrition, superb taste and happiness all in one food."

Other launches have centered on promoting benefits appealing to pet owners’ own aesthetic standards, such as dog food and treats designed to eliminate the problem of bad breath in cats and dogs. Similarly, a number of products were introduced in 2000 designed to maintain pets’ dental health, a trend exemplified by Japanese manufacturer Yamashisa’s Add Mate Dental Mints, a dog treat designed to clean a dog’s teeth while chewing.

Other common problems among pets were also targeted through functional foods — leading manufacturers, such as Colgate-Palmolive and Ralston Purina, introduced hairball control formulas to their dry food brands in 2000, for example.

Euromonitor sees consumer expenditure on pets, particularly in the more affluent developed nations, as directly related to increased "humanization" of pets, where typically, pet owners project their own taste, preferences and values into choices made on behalf of their pets. This is perhaps most clearly evident in the growth of increasingly sophisticated gourmet flavors in cat and dog food. Value-added, premium status is generated in products that humans may perceive as being palatable, such as veal, salmon or duck, which may be served with rice, pasta or potatoes, clearly designed to appeal to human taste rather than a cat or dog.

WET OR DRY?

Overall, sales of dry food for both cats and dogs continue to rise — largely at the expense of wet varieties — even in northern Europe, where the perception of wet food as being best for dogs has been resistant to change (see Figures 2 and 3). The growth in dry foods over wet can be attributed to its inherent convenience but mainly to aggressive development and promotion of the health benefits of dry products. However, manufacturers of wet food are attempting to win back market share with the introduction of gourmet varieties and health-oriented wet food formulations. Australia is the most notable exception, with wet dog food capturing 65% of dog food sales in 2000.

Wet cat food has traditionally been seen as healthier for cats than dry varieties, but according to Euromonitor, it has also sustained its popularity because of the tradition of first feeding kittens wet products. As the kitten matures, the notoriously fastidious palates of cats often prevent the owner from changing food types. Thus in several Western European and Australasian markets, dry food has assumed a supplementary role. However, in the more highly developed markets, dry cat food is making increasing inroads as improved formulations have come to market and the nutritional and health benefits of dry cat food are being realized.

PACKAGING

Packaging is an important consideration in inflating margins and stimulating growth. Leading manufacturers such as Mars and Nestlé, who are primarily active via their well-established wet brands, have introduced greater convenience to wet food, with single-serve packages and comparatively new packaging formats such as foil bags that require less shelf space and need not be stored after opening.

Taking convenience to a new level, Procter & Gamble has granted a license to Travel Meals to produce, market and distribute new Travel Meals travel packs, featuring Iams Dog and Cat Foods. P.&G. will share in revenue and will supply the food and biscuits for Travel Meals, "on-the-go meals for pets."

The Travel Meals, packaged in a sturdy, plastic container that transforms into food and water feeding bowls, also contain Iams Biscuits and special scoop bags (for dogs) and disposable litter box with litter (for cats). The products will be on supermarket shelves in the U.S. early in August and are expected to retail for under $5 a piece.

Table 1 -- Dog and Cat Food: Value Sales by Major Market 1996-2000

in US$ million

% growth *

1996

1997

1998

1999

2000

1999/2000

U.S.

9,490.00

10,181.70

10,631.40

11,123.00

11,556.90

0.7

Japan

2,406.00

2,261.70

2,244.30

2,770.20

3,134.80

7.3

UK

2,174.00

2,422.30

2,479.10

2,387.00

2,278.50

-0.1

Brazil

1,192.90

1,546.80

2,093.00

1,996.90

2,094.70

-1.6

France

2,201.10

1,972.30

1,993.90

1,945.80

1,718.10

0.2

Germany

2,225.20

1,942.90

1,939.00

1,894.80

1,650.90

-1.3

Italy

1,141.30

1,081.50

1,104.70

1,101.30

991

1.2

Spain

618.6

584.9

635.8

687.2

670.5

9

Australia

809.1

786.2

669.6

707.5

636.6

-4.8

Canada

554.5

582.9

570.1

596.8

616.8

1.3

Netherlands

570.3

509.1

523.6

519.2

468.3

1.5

Sweden

480

409.4

404.6

389.9

357.3

0.2

Switzerland

418.7

360.5

366.9

359.4

327.6

0.9

Belgium

391.1

348.4

350.5

339.2

302.6

0.6

Mexico

179

211

228.8

244.2

275

1.7

Source: Euromonitor

* Note: Growth rates calculated in local currency, constant value terms

 

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