Pet foods: no growth pause

November 11, 2011

This is one recession-resistant category – though supermarkets ought to protect share better from specialty pet chains.

For as long as the nation’s annual spending on pets has been measured, the tab has risen without interruption. 2011 is forecast as no exception, jumping to $50.84 billion versus 2010 actual spending of $48.35 billion, reports the American Pet Products Association (APPA).

Americans may feel unsettled and unhappy with national affairs and their own financial plights. Yet they consistently treat their pets well, some say to the point of excess. Is it their innocence, their loyalty, their refusal to judge their owners? Let’s just say they provide an emotional haven that makes owners feel good – and they’re rewarded.

How much? The 2011-2012 APPA National Pet Owners Survey charts food as the major component of the 2011 spend, at $19.53 billion, up from $18.76 billion in 2010. Supplies and over-the-counter medicines will grow to $11.40 billion this year, up from $10.94 billion a year ago. Veterinarian care, live animal purchases, grooming and boarding comprise the rest, and they also show gains over 2010.

These expenditures correlate largely to 78.2 million dogs owned by 46.3 million U.S. households, and 86.4 million cats owned by 38.9 million U.S. households.  Dogs and cats comprise the vast majority of pet-owning households, and attract most of the spending and attention because they have the richest relationships with their owners. 

Yet Nielsen figures for pet food sales in U.S. food, drug and mass merchandiser stores (including Walmart) for the 52 weeks ended September 3, 2011 show a 1.7% decline to $11.65 billion. (Data is for prepackaged, UPC-coded products only.) This runs counter to the macro-trend evident in the APPA survey, and it isn’t due to a shift to lower-price private label products.  Indeed, brands increased their category share by 1.2 percentage points to 86.7% in the latest year; this equates to $10.10 billion in the latest period.

Rather, F3 believes specialty operators such as Petco and Petsmart continue to be more in sync with how pet owners want to treat their animals. These chains allow pets in their stores, which many owners appreciate. They also have wider assortments including higher-end products, and they run special events such as holiday costume contests, and training and care classes. They support animal welfare. These pro-pet environments have more category authority and pull in targeted consumers, who can get caught up and wind up spending more. As a result, Petsmart sales exceed $5 billion a year, more than half of it in consumables. Petco is privately owned with sales estimated in the $3 billion range.

Where could the pet foods market go from here? A look at human food trends would be a good place to start, suggests F3. Organic and natural products are already in the pet food mix. So ingredients that enhance health, such as fruits and vegetables with antioxidants, free-range meats, probiotics, omega-3s or grains could be ripe for growth.