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on May 16, 2007

The US petfood report

The primary market driver in the US continues to be conversion to higher-priced petfoods

Almost half of all dogs and cats are 6 or more years old.

Higher prices rather than volume increases continue to drive retail dollar sales gains in the US petfood market. There is strong consumer demand for premium products across all categories. Upscale petfoods cover all bases: natural/organic, fortified/functional, weight control, lifestage, breed-/size-specific, gourmet, and are increasingly showing up not just as human style but as "human grade." In fact, the number one package claim during the first half of 2006, according to Datamonitor's Productscan Online, was "upscale" (appearing on 94 new products).

Other top claims included "high vitamins" and/or "high minerals" (96) and, of course, "natural" (90). Trumpeting the progress of premium petfoods, US households earning more than US$70,000 annually now account for almost half of all consumer spending on petfood in the US, up dramatically from just 15% in 1994.

The big picture

US retail sales of petfood totaled US$14.5 billion in 2005, growing 4.4% that year and reflecting a 2001-2005 compound annual growth rate (CAGR) of 5.4%. Following are percentages of total US petfood sales by species:

Dog food 60%;

Cat food 34%;

Other petfood 6%.

By form, US petfood sales percentages through IRI-tracked outlets are:

Dry food 56%;

Wet food 30%;

Biscuits/treats 14%.

Mass merchandisers have assumed the lead among petfood retailers, claiming 34% of sales in 2005, whereas supermarkets have continued to decline, to just 26%. Expansion by PetSmart and Petco, with combined 2005 sales of US$5.4 billion, has resulted in a slight share gain for the pet specialty sector, albeit mostly offset by declining sales among independents. On the mass-market side, Wal-Mart and Target have identified pet supplies as a key growth category, revamping departments and introducing upscale natural and private label products.

Although hundreds of companies market petfood and treats in the United States, 75% of the business goes to a few huge marketers focusing on dogs and cats. Nestlé Purina continues to dominate the US market with an estimated 32% share of sales as of July 2006.

Four other companies claim shares in the 10% range: Mars, Iams (Procter & Gamble), Hill's Pet Nutrition (Colgate-Palmolive) and Del Montewith the latter joining the group via its 2006 acquisitions of the Milk-Bone line from Kraft and of Meow Mix from Cyprus Group. During 2005, leading petfood marketers spent nearly US$300 million on consumer advertising, with PetSmart and Petco kicking in another US$57 million.

Pet population trends

In its 2005-2006 National Pet Owners Survey, the American Pet Products Manufacturers Association reports that the percentage of US households owning pets is at its highest level ever, with 63% of US households, numbering 69.1 million, having a pet in 2004, up 7.6% from 64.2 million in 2002. Much of this growth is coming from a rise in the number of pets per household, with the percentage of households keeping two dogs increasing from 7.9% in 2003 to 9.3% in 2005 and the percentage keeping two cats going from 6.4% to 7.9%, according to Simmons Market Research Bureau consumer survey data.

Perhaps even more important than this overall growth is the rising number of senior pets, due to better veterinary care and pet owners' desire to keep their pets healthy. Moreover, longer lives for pets mean deeper emotional bonds between pets and their keepers, and thus an even greater willingness among pet owners to invest in higher-quality foods. Almost half of all dogs and cats are 6 or more years old, and this is very good news for premium-priced foods, nutraceuticals and supplements designed to increase longevity.

Among the most important premium petfood demographics are couples without children, including DINK (dual-income, no kids) couples and older "empty nest" couples, which are growing in number. The percentage of two-adult households without kids who own dogs or cats rose from 48.8% in 2003 to 55.5% in 2005, while all households without kids increased their share from 58.0% to 63.2%. People without children are understandably more likely to purchase more expensive pet products and services, since not having children frees up discretionary time and income.

Dog food trends

US retail sales of dog food totaled US$8.7 billion in 2005, up from US$6.8 billion in 2001 and reflecting a CAGR of 6.3%. Viewing ongoing product upscaling as the primary market driver, we forecast annual gains averaging 6.1% through 2010.

More dog food SKUs (including various flavors, sizes and packaging) appeared during the first six months of 2006 than in all of 2005, at 743 and 696, respectively, and almost as many new products (148 vs. 158). Health-related products continue to spearhead the premium product thrust, including natural/organic, functional/nutrient enhanced and special diet (lifestage, weight, health condition and breed). While the big push a year or two ago was toward human-style novelty-type foods for dogs (pizzas, candy, etc.), the emphasis has since shifted toward human-grade fare, often overlapping with natural/organic.

Cat food trends

US retail sales of cat food totaled US$4.9 billion in 2005, up from US$4.1 billion in 2001, and with annual sales gains averaging 5.1% forecast through 2010. Variety and gourmet flavors continue to proliferate, with the products increasingly trending toward more human-style fare. Also, as in dog food, while natural and organic products continue to be mainly the domain of pet specialty marketers, mass marketers are now beginning to tap into this trend.

Other petfood trends

US retail sales of other (non-dog/cat) petfood reached US$869 million in 2005, up from US$821 million in 2001. Bird food (including wild bird food) accounted for 43% of 2005 sales, followed by fish food at 33%, small animal food at 17% and reptile food at 7%.

Looking ahead

The conversion of US consumers to higher-priced petfoods will continue as the primary market driver for the foreseeable future. Echoing human trends, this will mean ever healthier fare with increasingly targeted benefits, more convenient products (especially preportioned and resealable) and gourmet/luxury foods and treats keying in to pet owners' desire to pamper their pets. At the forefront of the premium product thrust will be natural and organic products, whose sales are expected to top the US$1 billion mark by 2010.

We also predict a shift back toward wet foods in new and more upscale package formats, as can be seen in recent entries from Purina (Beneful Prepared Meals dog food) and Meow Mix (Market Select cat food), as well as the emergence of a new fresh petfoods niche designed to mirror, both in packaging and in formulation, fresh foods for people.

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Top five US marketers of petfood as of July 2006.
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