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Adventures in Pet Food

Debbie Phillips-Donaldson, editor-in-chief of Petfood Industry, shares her insights and opinions on all things pet food, addressing market trends as well as news and developments in pet nutrition, food safety and other hot topics for the industry.
Pet Food Market Trends
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Top 3 pet food stories in 2017, what they mean for 2018

December 21, 2017

In a dynamic industry like pet food, interesting news, announcements and events never seem to stop. Looking at everything that happened in pet food in 2017, several developments stand out and likely will continue to influence the market in 2018 and possibly beyond. In order of potential impact or lasting effects:

1. E-commerce’s ongoing rise and other channel disruptions

The internet is the fastest growing retail channel for many product and service categories, and that definitely includes pet food. As the most prominent example, pet food sales on Amazon increased 47 percent from October 2016 to 2017, according to One Click Retail, accounting for nearly US$1 billion (US$970 million). For nearly all sectors of the retail economy, Amazon dominated sales, market share, news reports and conversations, aided and abetted by its acquisition of natural retailer Whole Foods. Unless a true competitor emerges to challenge that dominance, Amazon will likely continue to heavily influence the pet food market.

Big box pet store chain PetSmart, apparently not satisfied with its own efforts in e-commerce, sought to carve out its own piece of the online pet products sales pie (and perhaps challenge Amazon in that category) by purchasing Chewy.com earlier in 2017. That prompted at least three mid-size pet food companies – Tuffy’s Pet Foods, Fromm Family Foods and Champion Petfoods – to withdraw all their products from Chewy.com, citing their support for independent pet retailers.

Interestingly, all three companies did business with Chewy before the acquisition despite its pricing practices, which independent pet retailers often considered predatory; and at least one of the companies promptly launched its own e-commerce business soon after, which obviously competes with the independents, just as Amazon and all other e-commerce sites do. Of course, no company, in pet food or any other sector, can afford to ignore e-commerce, but reasons and strategies for pursuing that channel seem to be changing as fast as the channel itself is – with likely more change still to come.

For example, to help independent pet retailers compete online, Phillips Pet Food & Supplies, a distributor of pet food and supplies to the independent channel, acquired PetFlow, another significant pet product e-commerce player. At the same time, customized pet food services, complete with home delivery, are becoming more popular, possibly signifying the next wave of change.

Adding yet another wrinkle to channel changes, Blue Buffalo, the fifth-largest pet food company in the world, announced in August 2017 that it would take one of its product lines, Blue Life Protection Formula, into mass market. CEO Billy Bishop cited slower growth in the pet specialty channel as one reason for the move, because faster growth online didn’t help make up for that. As of early November 2017, Bishop claimed the product line had already reached 5 percent market share in the four mass retailers it had entered (Target, Kroger, Publix and Meijer), surpassing other well-known and natural brands with longer tenure in that channel.

Given that type of success in such a short time, speculation is rampant that other pet food brands and companies that previously positioned themselves as premium or natural will follow Blue Buffalo into the mass channel. As a publicly traded company, Blue Buffalo no doubt faces continuing pressure from shareholders for ever higher revenue growth – yet even for privately held companies, the lure of another potential growth opportunity may prove too strong to ignore.

2. Consumers confirm the clean label movement is here to stay

The clean label trend has been a force in both human food and pet food for at least a few years now, and judging by recent surveys, it may have surpassed trend status into a consumer expectation that also now encompasses trust, transparency, sustainability and ethics. A study of 1,360 US cat and dog owners conducted by Open Farm pet food earlier this year showed that 84 percent agreed they pay as much attention to the ingredients in their pets’ food as they do to the ingredients in the food their human family eats. In addition, 89 percent agreed it’s important that the ingredients in their pets’ food are ethically sourced, while nearly the same amount (90 percent) said it’s important that the pet food they purchase provides transparency of ingredients.

Shortly after that survey came out, Nutro pet food released its own survey of 1,500 US dog owners, in which 90 percent said they try to ensure their own meals meet the criteria of the clean food trend for humans at least some of the time – and perhaps those rather vague criteria include ingredients that are whole, simple and not artificial, as 92 percent of respondents said that’s important for their family’s food. Given the option, 65 percent would choose non-GMO ingredients for their dogs’ food, while 75 percent said their clean eating efforts influence what they feed their dogs.

Granted, the surveys served to help promote the respective pet food brand’s features and marketing campaigns; but the results are fully in line with other consumer surveys and sentiments about pet food and human food. Kerry Health and Nutrition Institute conducted a study of 2,000 consumers in the US, UK, Germany and France, finding that 73 percent read the ingredients list and 66 percent read the nutrition panel on human food products. Also, 94 percent said they would be loyal to product manufacturers that adopt “complete transparency,” while 99 percent said they would pay more for transparent products.

In keeping, the number of new human food and beverage product launches with ethical claims – related to animal welfare, humane raising, environmentally responsible and sustainable packaging – rose 44 percent annually from 2010 to 2016, according to Innova Market Insights. On the pet food side, we saw announcements by organizations like Greenpeace that Mars and Nestlé had committed to take steps to ensure their pet food supply chains are free of human rights abuses and illegally caught seafood. Plus, an academic study into whether pet food labels with animal welfare-related claims, such as “free range chickens,” actually spur pet owners to purchase those products.

As long as consumers say this is what they want and are willing to put their money where their mouths are, we will continue to see more of such label claims and efforts by companies, pet food and human food, to meet this demand.

3. New evidence of ongoing pet food market growth

While the US and global pet food markets have continued to grow, indicators of that growth are changing. Some of that is based on the market; developing ones like Mexico and China are enjoying outright sales growth, in both retail value and volume, while modest retail sales growth in developed markets like the US and Western Europe is due mainly to price increases, as volume remains flat or is even declining.

Yet this year brought plenty of other signs that the pet food market continues to expand and evolve. For example, my quick and decidedly unscientific count of news stories to date in 2017 about pet food manufacturers or suppliers opening new facilities, investing in existing ones or in other initiatives (such as increasing their sustainability efforts or launching subsidiaries in new markets) added up to more than 20.

Similarly, the pet food market didn’t experience any big blockbuster mergers or acquisitions as in years past (think Mars Petcare buying most of the Iams pet food business from Procter & Gamble, or J.M. Smucker buying Big Heart), but there was still plenty of M&A activity among mid-size and smaller companies. Not to mention companies investing in ones in other countries (China was an especially active market) and increased activity among pet food suppliers. Again, I counted close to 20 announcements.

As for 2018, I expect similar activity, announcements and events to keep the pet food industry on its toes and moving forward.

Honorable mention: what else might influence pet food in 2018?

  • Ingredient trends: Will ancient grains be the next big thing after grain-free pet food? Will insects and invasive species become viable new protein sources for pet food?
  • Lawsuits: The year 2017 saw some of the same crazy class-action lawsuits the industry has faced in recent years, yet also courts ruling against plaintiffs or dismissing some of the lawsuits. Have these legal actions run their course?
  • Recalls: 2017 marked the 10th anniversary of the melamine-related pet food recalls. While new safety protocols and regulations have been adopted since then, the industry experienced quite a few recalls this year, unfortunately, including some from less familiar causes like metal contamination and traces of cattle thyroid hormones or pentobarbital – proving that vigilance, safety and testing measures must constantly be a step ahead.

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dphillips@wattglobal.com

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