The State of the Global Pet Food Industry: Challenges and Opportunities

THE STATE OF THE GLOBAL PET CARE INDUSTRY

CHALLENGES AND OPPORTUNITIES

WIEBKE SCHOON

GLOBAL PETS FORUM JANUARY 2017 – WARSAW

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Euromonitor International – strategic global market intelligenceABOUT EUROMONITOR INTERNATIONAL



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USD104 bn 2.6% 2.4%

Global value sales 2016 2011-2016 CAGR 2016-2021 CAGR

Pet care globallyTHE STATE OF THE PET CARE INDUSTRY – CHALLENGES AND OPPORTUNITIES

Values in USD, constant 2016 prices, fixed 2016 exchange rate. Values for 2016 are estimated


KEY DRIVERS

RETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Pet specialistsGrocery retailingInternet retailing

OUTLOOK AND KEY TAKEAWAYS



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Largest markets continue to perform wellKEY DRIVERS

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

0

1

2

3

4

5

6

2016 Pet Care Value Sales by Region and CAGR 2011-2016

% C

AGR

2011

-201

6

Constant 2016 prices, fixed 2016 exchange rate



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Economy Mid-Priced Premium 0

5000

10000

15000

20000

25000

30000

35000

40000

0

0.5

1

1.5

2

2.5

3

3.5

Dog and Cat Food by Price Platform 2016/2021 and CAGR 2016-2021

2016 value sales 2021 value sales 2016-21 CAGR %

% C

AGR

2016

-202

1

Premium dog and cat food set to see the strongest growthKEY DRIVERS

Constant 2016 prices, fixed 2016 exchange rate



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Humanisation as a key premiumisation strategyKEY DRIVERS

• Pet humanisation leads to a convergence of trends

between human food and pet food

• The “natural” trend is spilling over from health and

wellness human food

• Free-from, Paleo, superfoods and freshness are all human

food trends trends being mirrored in pet food


KEY DRIVERS






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Grocery retailers lead globally, ahead of specialistsRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Grocery retailers40%

Pet superstores17%

Pet shops15%

Internet retailing6%

Veterinary clinics7%

Others16%

Global Pet Care Value Sales by Channel 2016

USD104 bnTotal value sales 2016fixed exchange rate



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Internet retailing and pet superstores experience the strongest growthRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Grocery

retailers

Pet superst

ores

Pet shops

Veterinary

clinics

Internet retailin

g

Others0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Pet Care Sales by Channel 2011/2016

20112016



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Different distribution structures across regions set different challengesRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Middle East and Africa

Australasia

Eastern Europe

Asia Pacific

Latin America

Western Europe

North America

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Importance of Distribution Channels by Region, 2016

Grocery RetailersPet superstoresPet shopsInternet RetailingVeterinary clinicsOthers


KEY DRIVERS






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USA Germany Brazil Russia Poland Mexico Thailand0

2000

4000

6000

8000

10000

12000

14000

16000

Pet Care Value Sales of Pet Shops and Superstores in Selected Countries, 2011/2016

20112016

+16%+67%

+61% +17%+79%

+83%

US registers the strongest actual value growth for pet specialistsRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

+28%

Current values, fixed 2016 exchange rate



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US – pet shops are finding their nichesRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

• First opened in Chicago in 2006

• 42 outlets in 2016

• Focus on natural “Kriser's Approved” products

• Sets out to offer exceptional customer service by very knowledgeable customer service assistants



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Maskota – a Mexican success story… in danger?RETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

2012 2013 2014 2015 20160

100

200

300

400 Number of Outlets

2012 2013 2014 2015 201638404244464850

Value Share within Pet Shops and Superstores in Mexico

% sh

are

• Store concept adapted to include smaller formats

• Focus on exclusive premium pet food brands key to its success

• Services key for differentiation: home delivery, home beauty salon services, veterinary service

• Toka+Kota (Touch Pets) Service: allows children to interact with dogs, rabbits, snakes, parrots, etc

• Animal cruelty scandal caused consumer backlash



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Thailand – a fragmented pet specialists retail environment flying highRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

33% of pet care sales generated by pet shops in 2016: USD250 mn

4.4% CAGR 2016-2021 for pet shops and superstores (constant, fixed exchange rate)

Fragmented market: Manoon Pet Shop leads with 7% of value sales

“Pet Idols” – Social media

Grooming servicesConveniently located for local neighbourhoods

In-store vet services

Availability of (exclusive) brands

Professional advice

Manoon Pet Shop in Ao Tor Kor market



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Focused on large cities

Several types of private label products offered alongside mainstream brands

Around 40 outlets, 11% value share in pet shops and superstores

Offers a price-match with competitors’ prices

Complements its stores with an online shop

Poland: Kakadu competes on choice and priceRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES



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No strong economisation on pet food

40% of pet care value sales through pet shops

Pet shops overtaken by modern grocery retail for the first time in 2016

Bethowen holds a 12% value share in the fragmented pet shops and superstores channel

Russia – pet shops robust despite a difficult economic situationRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES



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Germany – Fressnapf continues to assert its positionRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Fressnapf store in Berlin2011 2012 2013 2014 2015 20160

200400600800

1,0001,2001,400

Fressnapf Value Sales Germany, 2011-2016

Fressnapf Tiernahrungs GmbH store-based value sales, rsp incl sales tax

USD

mn

Fixed exchange rate, current values


KEY DRIVERS






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Grocery retailing – hypermarkets and supermarkets very important in pet care sales


Super-markets

Hyper-markets

Discounters

Inde-pendent

Small Gro-cers

Other Grocery Re-tailers

Convenience Stores Forecourt Retailers

Breakdown of Pet Care Sales Through Grocery Retailing in 2016

USD41 bn in 2016

Grocery retailing generated 40% of all pet care value sales globally

Sainsbury’s, Leicester, UK



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Australasia

Middle East and Afric

a

Western

Europe

Eastern Euro

peWorld

North Americ

a

Latin America

Asia Pacifi

c0

10203040506070

Share of Pet Care Sales Through Supermarkets and Hypermarkets

by Region

% s

hare

Woolworths (supermarket in Australia) is positioned as a one-stop-shop and specialist for pet care products: food for puppies, kittens, adult and senior cats and dogs is available

Product portfolio ranging from economy private label to premium, branded products, including chilled pet food

Phantom brands make private label difficult to spot: Smitten and Apollo

Supermarkets trying to shed their “too generalist” imageRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES



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Western Europe is the most successful battleground for discountersRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Austria Spain Germany Switzerland Western Europe

0

2

4

6

8

10

12

14

16

18

20

Discounters' Share of Pet Care Value Sales in Selected Countries, 2016

% sh

are

Aldi, Germany


KEY DRIVERS






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Internet retailing set for strong growth in all regionsRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

0

500

1000

1500

2000

2500

0

2

4

6

8

10

12

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16Pet Care Internet Retailing Sales 2016 and CAGR 2016-2021

2016 value sales 2016-2021 CAGR %

% C

AGR

Constant 2016 values, fixed exchange rate



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Apparel and Footwear Food and Drink Pet Care0

50000100000150000200000250000

024681012

Global Internet Retailing Sizes by Category 2011/2016 and CAGR 2016-2021

2011 value size 2016 value size 2016-2021 CAGR

% C

AGR

Pet care internet retailing to see healthy growth, but remains small RETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

Internet sales in pet care are still small compared with other channelsApparel and footwear is successful thanks to free returns policies in many countries, and often low delivery charges

Food and drink faced bigger challenges, but has seen strong growth in a few markets Pet retailing has good arguments on its side for internet retailing – the challenge is to provide a service tailored to consumers’ needs

Constant values, fixed 2016 exchange rate



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Amazon Dash Button – contradicting pet parents’ sentiments?RETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

ConvenienceShopping for

pets as a chore



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• Strongly developed internet environment meets highly pet-centric society

South Korea

• Largest pet care market relatively underdeveloped in internet retailing

• Recurring orders interesting for US consumersUS

• Click-and-collect has potential for growth• Supermarkets and specialists are expanding their

product rangesUK

• Zooplus key in driving pet care internet retailing• Fressnapf has shifted its focus to multi-channel Germany

South Korea the ideal environment for pet care internet retailingRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES



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Distribution can be one of the main challenges in emerging markets

Bricks-and-mortar retail infrastructure still lacking in smaller places Chained grocery retail presence often limited Internet retailing can provide a means of leapfrogging this hurdle in

order to reach the “long tail” of consumers in these small but numerous markets Local online retailer Alibaba is expanding aggressively in rural China, building service centres

where villagers can both make and pick-up orders

Alibaba chases the “long tail” in ChinaRETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES

2011 2012 2013 2014 2015 201605

101520253035

3 %

30 %

Share of Internet Retailing in Pet Care Value Sales in China 2011-2016

% sh

are


KEY DRIVERS






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Pet care set to register healthy growth over the next five yearsOUTLOOK AND KEY TAKEAWAYS

2016 2017 2018 2019 2020 20210

10000

20000

30000

40000

50000

60000

Pet Care Value Sales by Region, 2016-2021

North AmericaWestern EuropeLatin AmericaAsia PacificEastern EuropeAustralasiaMiddle East and Africa

+11%

+7%

+26%

+22%+18%-1%+37%

Constant values, fixed exchange rate



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Leverage the fact (and marketing message) that smaller players can cater to consumers in

certain niches more appropriately than big competitors

Creative approaches to products or distribution

Manufacturers and pet shops can benefit from a virtuous circle if they support each other

How can small players tackle the challenge of competing with big competitors?




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Strengths• Strong global standing of pet

specialists•Capitalising on human food

concerns• Innovative retail strategies

Weaknesses• Ethical or animal welfare • Limited distribution network

in emerging countries

Opportunities•Pet parents willing to spend

money•Mirroring human food concerns• Internet retailing – reaching

consumers

Threats•Private label competition and

downwards influence on pricing• Internet retailing – being left

behind

Pet care sees good opportunities if threats are kept at bayOUTLOOK AND KEY TAKEAWAYS


THANK YOU FOR LISTENINGWiebke SchoonSenior Research Analyst Food & Nutrition – Western [email protected]+44 (0) 207 251 8024 EXT 1190

mailto:[email protected]


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The State of the Global Pet Food Industry: Challenges and Opportunities