Eastern Europe: An emerging petfood market with significant potential
Russia leads the way in a part of the world worth investing in
Eastern Europe may be right in the middle of the pack when it comes to regional market performance in the petfood industry-US$5.3 billion in 2012 according to Euromonitor International, ahead of Australasia and the Middle East and Africa (MEA)-but it's a market that bears close watching and potential investment for the global petfood manufacturer.
Emerging markets are expected to play a significant role in the global economy through 2016. Sixty-six percent of global Gross Domestic Product (GDP) growth will come from emerging markets between 2011 and 2016, as 88% of the world's population lives (and their annual disposable income grows) in those markets, according to Euromonitor. In her April 2013 presentation, "Maximising Opportunities in Global Pet Care," Paula Flores, head of pet care research at Euromonitor, demonstrated that the global GDP of emerging and developing countries evened out with that of developed countries in 2012, at a 50%/50% split. Since then, The GDP of emerging and developing countries has continued to gain ground, while the GDP of developed countries is on a steady decline in terms of percentage of the total. This trend, according to Flores, will carry on through 2020.
Emerging markets will then, predictably, remain key to the future of pet care. Eastern Europe is edging out Asia Pacific (US$1.4 billion) in terms of absolute retail value gains through 2017 (US$1.6 billion), also significantly beating out MEA (US$200 million) and Australasia (US$100 million). Clearly, if someone in the industry is looking to focus on a single emerging market, money invested in Eastern Europe would not go amiss.
The top countries in Eastern Europe in terms of pet care retail sales in 2012 were Russia, Poland and the Czech Republic (see Figure 1). Russia was by far the top player, coming in at US$3.024 billion, according to Euromonitor. Poland reached US$723 million, while the Czech Republic contributed US$402 million. Hungary, Romania and Bulgaria rounded out the main countries invested in the pet industry.
Russia in particular is a country to watch, according to Flores' presentation. The country's cat food sales, which are known to be the most significant portion of Russia's pet care sales, reached US$1.8 billion in 2012 (see Figure 2). Dog food came in second, lagging behind at US$836.5 million, while pet products reached US$366.3 million. Other pet food reached US$21.1 million in 2012.
Cat food sales in Russia are also the country's best-growing pet market, up from US$1.49 billion in 2011. Dog food grew as well, though not as significantly, from US$706.7 million in 2011. Pet products inched up from US$327.9 million in 2011, while the fairly stagnant "other pet food" category increased very slightly from US$18.9 million.
How dependable is Russia's upward momentum? Between 2007 and 2012, according to Euromonitor, Russia was third of the emerging world leaders in pet care when it came to cat and dog food-behind Brazil and Argentina and ahead of Mexico. Between 2012 and 2017, Russia's estimate now has the country in second place, still behind Brazil and ahead of Mexico, while Argentina has fallen to fourth place. It is also second on the top ten list of the strongest emerging pet care markets overall, at US$1.1 billion. Brazil remains in first with US$2.2 billion, while Mexico and China are tied in third at US$500 million. Poland, another market within Eastern Europe, also makes the top ten emerging pet care countries, in eighth place with US$200 million expected through 2017.
Russia may have the most prominent expected growth, but the smallest markets within Eastern Europe are making headway of their own. Armenian feed company Manana Grain intends to launch a production line of petfood for cats and dogs-the first such line in Armenia. "Such goods in Armenia have not yet been produced at all, so we think that we can take our place on the market," said Gurgen Nikoghosian, director of Manana Grain. "We will try to sell it on the domestic market and in the packaging with the proper marketable style, so the consumers can consider our products at the same level as well-known foreign brands."
The company launched a line of fish food in October 2013, and plans to produce cat and dog food in the same plant. According to statistics, in 2012 Armenia imported about 355 metric tons (US$770,000) of food for dogs and cats. The total volume of the market in 2013 is estimated between 380 metric tons and 450 metric tons. "The Armenian market is small enough, and it has grown very slowly over recent years," said Russian analytical agency Agrorucom (see Figure 3). "The launching of new, low-cost production petfood will have a very positive impact on the general state of the market, and it is likely that this step will spur sales. Residents traditionally spend a small amount of money for petfood because of the low purchasing power of the population, so price is a determining factor in this product category."
Belarus is focusing on gathering a larger share of the country's petfood market, something that can be done through the development of new manufacturing technologies and expanding the range of provided products, according to the Belarusian Ministry of Economy. Right now, Belarusian producers control up to 40% of the national petfood market, a substantially higher percentage than Russia controls of its own market (10%). Belarus' largest petfood manufacturer, Zhabinka Feed Mill, holds up to one-third of the country's market.
"The purchasing power of the [Belarusian] population is less than in Russia, so the average citizen of Belarus spends only about US$350 on petfood per year (compared to Russia's US$500)," said Agrorucom. "For citizens the price is a determining factor when choosing a product." In 2006, Zhabinka Feed Mill launched the production of dog food "Rex," based on the American line Insta Pro. More recently it launched a line for the production of petfood under the brand, Reks plus, also for dogs; and started production for puppy food, Reksik; food for small and medium-sized dogs, mini Reks; and cat food, KOTiKORM. Currently, all of these brands are most popular types of petfood in the country in their segments.
The worth of Belarus' petfood market currently comes in at US$18 million, and is expected to reach US$22 million by 2020 (see Figure 4). By then, the share of domestic petfood production is anticipated to grow to at least 50%, according to Agrorucom.
Information on the Armenian and Belarusian petfood markets, including charts in Figures 3 and 4, contributed by journalist Vladislav Vorotnikov.