South African pet food market growing despite challenges

South Africa’s pet food market has significant challenges, but as it continues to grow it presents some opportunities, as well.

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South African Boerboel dogs (Jacques Jacobsz | Fotolia.com)
South African Boerboel dogs (Jacques Jacobsz | Fotolia.com)

South Africa’s economic climate has certainly presented struggles for the pet industry. The highest unemployment levels since the 2008–09 recession (26.7 percent in the first quarter of 2016), high inflation (nearly 7 percent) due to a weak rand and the worst drought in 23 years, and weaker commodity prices have converged to decrease overall consumer spending, including in the pet food market. The impact has been felt significantly in the premium segment, where higher-end brands such as Hill’s, Eukanuba, Iams and Royal Canin have felt the effects of the weakening exchange rate, according to Euromonitor International. Even mid-priced brands, such as Whiskas and Friskies, have felt the crunch.

But there are opportunities in the market, as well. According to Euromonitor, due to consumer demand for products in a variety of price points as well as product offerings, there is room for both international and local companies to compete. Global player Nestlé sold the South African branch of its pet food business to local manufacturer Martin & Martin in 2016, including its Purina brands and a manufacturing facility in N’dabeni. Mars continues to be a strong market presence with its mid-priced dog and cat food brands in spite of the challenges, and the local Foodcorp brands offer quality as well as affordability.

Opportunities in South Africa’s pet food market

There are 7.4 million dogs and 2 million cats in South Africa, contributing to the country’s roughly US$300 million pet food market. According to GfK data, that money is largely going to dry pet food (89 percent in 2015), while wet pet food and treats take up 5 percent each of the remaining market share. But not only is pet ownership expected to continue increasing alongside growing urbanization, humanization is expected to play a significant role in the shifting market. According to Yolanda Nkangana, client executive, major domestic appliances and pet care for GfK, the role of dogs in South Africa is shifting. During her November 2016 webinar, “South Africa pet food: Why sales value continues to grow in specialist channels,” presented in conjunction with WATT Global Media, Nkangana discussed the change in dogs as security guards to dogs as pets. As with more developed markets, consumers are increasingly looking to their animals as additional members of the family and want to treat them as such.

Supermarkets remain the leading distribution channels for pet care products in South Africa, according to Euromonitor, and dog and cat food are the biggest categories within pet care. Supermarkets stock a wide variety of economy and mid-priced pet foods, along with a smaller selection of other pet food and products. This combination of options and price point allows supermarkets to continue to dominate in terms of distribution. Pet shops are the leaders in other pet food, as they, along with veterinarians, stock premium pet food brands.

But the veterinary channel is growing, and sales value has increased consistently in the last three years (see Figure 1). This is good news for premium brands, since they cater to the vet channel, and the numbers are beginning to reflect small growth of more expensive pet foods (particularly dog food) as a result (see Figure 2). According to Nkangana, millennials in particular are seeing that the cost per month works out to an affordable number when proper feeding guidelines are followed — a tempting prospect for a generation looking to get the best value for their money.

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FIGURE 1: While volume sales have gone down due to challenges such as a decrease in large breed formula purchases, overall sales value has consistently increased since 2014.

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FIGURE 2: More expensive, premium pet foods are experiencing some growth as the veterinary channel expands. Vets and pet shops are the primary sellers of premium pet foods in South Africa.

Dog food definitely dominates when it comes to the premiumization of the market, which is no surprise, as it dominates in general, as well. The split between dog food’s share of South Africa’s pet food market (roughly 81 percent) and cat food’s share (roughly 19 percent) has remained stable since 2014, according to GfK data. And overall, the market is becoming more diverse: while the average number of SKUs per shop increased from 2014 to 2015 and then decreased from 2015 to 2016 (to numbers lower than in 2014, notably), competition overall has increased and the average number of selling SKUs has grown, according to Nkangana.

Other trends: Breeds, natural and grain free, specialty formulas

As in other developing markets experiencing increased urbanization and an uptick in pet ownership, small and medium dog breeds are more popular when compared to larger breeds. This has led to a negative impact on pet food volume sales but a positive impact on sales value, due to an increase in purchases of small and medium breed-specific formulas, according to GfK (see Figure 3). Non-specific breed formulas still hold the majority of the market (52.7 percent in 2016, according to GfK data), with large breed formulas coming in second (21 percent), small breed formulas third (15.8 percent) and medium breed formulas fourth (10.5 percent).

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FIGURE 3: Large breed pet food formulas have seen no growth; however, small- and medium-breed formulas are making up the difference with their own growth as urbanization combines with humanization to expand pet ownership in South Africa.

Natural and grain-free pet food diets are experiencing slow growth overall, though weighted distribution is high in specialty channels, according to GfK. Natural diets made up just 8 percent of sales in the 2016 veterinary channel, but that number represents growth from 4 percent at the beginning of 2014. Grain-free formulas have remained fairly steady since 2014, representing roughly 2 to 3 percent of the veterinary channel.

Finally, therapeutic diets are gaining market share when compared to wellness diets: In 2016, therapeutic formulas held 25 percent of the veterinary channel market share, to wellness’ 75 percent. That 25 percent is up from 20 percent at the beginning of 2014, according to GfK. But multi-care products have not seen the same growth. In South Africa, according to Nkangana, in vet channels, consumers usually purchase pet foods highlighting one specific need. “General health” is the primary purchase, at 63 percent of the market share in 2016, followed by “Other” (25 percent), “weight control” (11 percent) and “multi-care” (just 1 percent).

Overall, the growing pet owner base will seek the best value for their money for the foreseeable future, according to Euromonitor. Consumers with multiple dogs may trade up to larger pack sizes to get the most value for their money; however, households with one pet may continue to choose smaller pack sizes for storage convenience and in-the-moment cost savings. Manufacturers looking to get into the South Africa market should focus on affordability and flexibility when considering what to sell, in order to maximize value for consumers in multiple channels.

 

WEBINAR: South African pet care market

www.petfoodindustry.com/webinars

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