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The five leading international retailers are Wal-Mart, Carrefour, Tesco, Metro Group and A.S. Watson Group. They are already present in many developing markets, and local retailers will have to work hard to compete.
on July 28, 2008

The rise of petfood retailing

Developing retail markets are nuanced but offer valuable prospects

Accelerating urbanization is bringing suppliers, retailers and consumers closer together.

It just keeps getting better for the petfood industry. In emerging markets, the combination of income growth, increasing urbanization and better marketing is creating favorable conditions for petfood sales.

Development drivers

Here is what's happening in many developing petfood retail markets:

1. Rising income levels . Economic development has fueled an increase in consumption, with more consumers trading up to value-added petfood products.

2. Improved market penetration . Accelerating urbanization is bringing suppliers, retailers and consumers closer together. Improving transportation infrastructures are facilitating distribution and large-format retailers are expanding, bringing packaged petfood to new regional and local markets. In addition, there's been more foreign petfood production facilities.

3. More segmented marketplace . Sales remain concentrated among affluent middle-class consumers, with mid-priced brands predominant. However, premium brands can find lucrative and expanding markets in large metropolitan areas. Meanwhile, generally low consumption levels suggest huge potential for growth in China and India, particularly in the economy segment.

4. Increased marketing . Reduced poverty rates are driving petfood volume growth in the economy segment, particularly in Latin America. Mass advertising and westernization are encouraging the substitution of packaged petfood for table scraps.

The big boys

According to Euromonitor, here are the five leading international retailers and where they are based:

  • Wal-Mart (US);
  • Carrefour (France);
  • Tesco (UK);
  • Metro Group (Germany); and
  • A.S. Watson Group (Hong Kong)

Major international retailers are expanding their country coverage to gain sales growth. The UK's leading retailer, Tesco, for example, recently entered the US market. In 2007, Germany's Metro Group opened stores in Pakistan. In India, Wal-Mart, Tesco and Carrefour are all attempting to secure a foot hold.

These large retailers are also refocusing their efforts on markets that offer the potential for market leadership. French giant Carrefour, for example, is leaving Slovakia as it concedes the race for market leadership to Tesco. Meanwhile, Tesco has conceded to Carrefour in Taiwan. As a result, the two retail giants reached an agreement whereby Carrefour took control of Tesco's retail locations in Taiwan, and Tesco took over Carrefour's retail outlets in Slovakia.

The five leading international retailers are all already present in many developing markets. "Local retailers are going to need to raise their game to compete with the rising power of the multinational retailers," says Eurmonitor's Lee Linthicum.

Spotlight on Asia

From 2007 to 2012, Euromonitor predicts four of the five fastest growing petfood markets will be in Asia. The top five are:

  • Vietnam;
  • Russia;
  • India;
  • Thailand; and
  • South Korea.

Though supermarkets/hypermarkets' share of the overall Asia Pacific petfood and pet care market declined between 1998 and 2007, a country-by-country analysis shows the situation to be far more nuanced. Basically, the regional decline for this retail format is due to Japan, with Singapore and Taiwan further contributing.

The decline in Japan is largely because of the continued dominance and expansion of the home center format. Meanwhile, in Taiwan and Singapore, supermarkets/hypermarkets are mainly losing out to the pet superstore channel.

However, in the rest of the Asia Pacific region, particularly in developing markets, supermarkets and hypermarkets are becoming increasingly important for the purchase of petfood. The proliferation of this retail format, especially beyond first-tier cities, is making more petfood available to people in untapped areas. Particularly strong gains have been in India, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

China is also benefiting, but less so given the popularity and expansion of pet superstores like Cool Baby. Furthermore, until 2004, international supermarket/hypermarket operators like Wal-Mart, Carrefour and Tesco faced significant Chinese regulatory obstacles. With these restrictions now eased, Chinese supermarkets/hypermarkets should see their share of the petfood and pet care market increase in the years ahead.

The expansion of supermarkets and hypermarkets throughout developing Asian countries is helping drive volumes for economy petfoods. As supermarkets expand, they are making packaged petfood available to a whole new group of consumers, many of whom have never purchased packaged petfood before. These consumers are usually quite price sensitive, so economy products are the most popular. By entering the market for the first time they'll contribute strongly to overall regional growth.

Rising value

Several key emerging markets are on the cusp of an explosion in the number of young people. This is particularly pertinent to the Indian retail environment, because demographic patterns are similar to those in the United States post-World War II which precipitated a surge in organized retailing.

Another key demographic change is that the world's population continues to urbanize. People are drawn by the ever increasing concentration of global economic activity in cities, such as Beijing and Shanghai. By 2015, over half of the world's population will live in towns and cities.

These socio-demographic factors point to a rise in the value of emerging retail petfood markets.

Focus on emerging markets

See Lee Linthicum's Petfood Forum 2008 presentation at www.petfoodindustry.com/0808PETretail.aspx .

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Accelerating urbanization is bringing suppliers, retailers and consumers closer together.
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