The Great Recession, the COVID-19 pandemic, horse meat and pentobarbital contamination, canine dilated cardiomyopathy, melamine, Salmonella and various other problems: The ghost of Christmas past could show the pet food industry all these previous challenges. While makers of dog, cat and other pet foods overcame those hurdles, prognosticators of pet food trends yet to come sound a bit more Scrooge-like, while not ruling out a merry 2024.
“The pet industry, while remaining optically attractive, is experiencing its gravitational moment,” Bryan Jaffe, COO and managing director, and John Gulvezan, vice president, of Cascadia Capital, wrote in their “Fall 2023 Pet Industry Overview” report. “Data suggests pet population slowing and retrenchment and pressure at the consumer level as evidenced by growth in private label. Further, pet owners bought forward and are now delevering. Persistent input inflation continues to put industry profits under pressure. While we remain optimistic in the medium and long term, 2024 will be choppy and only well-positioned companies will experience the benefits.”
They pointed out three reasons for caution in the coming year.
1. Consumer spending held up well in 2023. However, pet owners’ sentiments seem to be sinking while their purchasing power remains under pressure. Inflation may be slowing, but that still means prices are rising and remain higher than they were a few years ago. As Debbie Phillips-Donaldson pointed out in her blog, pet food companies haven’t reduced prices to consumers, except for a few outliers.
2. Unemployment remained low in 2023, but Cascadia’s analysts forecast a coming spike, along with the persistent specter of an economic downturn.
“Based on a recent USA Today CFO survey, 50% of companies responding anticipated making layoffs in 2024,” they wrote. “Whether a recession materializes in 2024 or not, it is clear that the psychology is taking its toll.”
3. The variance between volume growth and value grown remained an ongoing phenomenon in the pet food industry in 2023. People aren’t buying that much more pet food, but they are paying more for it, due to both premiumization and inflation.
“Industry growth has been supported by price relative to volume by a factor of 3x – 4x depending on category,” Cascadia’s market researchers wrote. “Companies are unlikely to be successful pushing price increases in 2024 and will be pressured to reduce prices by both retailers and consumers. Absent input cost deflation, margin pressure will cut into innovation and discretionary marketing spend, which are key drivers of growth.”
Further evidence of threats to pet food market growth
Reports from Packaged Facts backed up Cascadia’s observations about potential troubles for the pet food industry. While market data supports the conclusion that the pet food market maintained its double-digit growth into 2023, price inflation fueled much of this growth as opposed to the historical driver of value growth, premiumization.
“Pet food’s resilience is being tested as never before, with inflation-weary pet owners and a decline in the dog population among the prime challenges this market is experiencing,” Packaged Facts analysts wrote in the 17th edition of Packaged Facts’ “Pet Food in the US” report.
“Bright spots like fresh pet food and wellness-focused formulations are heartening, but the chinks in pet food’s armor are showing,” they wrote. “Packaged Facts survey results from September/October 2023 show that nearly one-third of pet owners had switched pet foods in the past 12 months, and among these, 32% of dog owners and 28% of cat owners had traded down to lower-priced options. As inflation levels off but higher prices remain, time will tell if pet owners will continue turning to more value-focused options or if a focus on pets as family and pet health and wellness will be enough to bolster sales of premium products. Packaged Facts projects that sales of dog and cat food will grow from US$51 billion in 2023 to nearly US$73 billion in 2027, reflecting a compound annual growth rate of nearly 10% for the period, betting on pet owners’ continued investment in their pets’ health and well-being in the form of high-quality pet foods.”
While neither Cascadia nor Packaged Facts can foretell what Christmas 2024 will be like for the pet food industry, it is unlike that there is more of Gravy Train than of grave in their observations.
