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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
• Spending on pets is growing globally as more peopleconsiderpetsapartoftheirfamily.Globalpetfoodsalesgrewby4%in2015,to$70billion.
•
• The American Pet Products Association reports thatAmericans spentover $60billion on their pets in2015,up3.9%fromthepreviousyear.Weestimatearound7%ofUSpetcaresalesweremadeonline in2015,upfrom6.4%in2014.
• Chinese pet owners have flocked to the Internet topurchase pet food: the Internet captured an estimated38%oftotalpetfoodsalesinthecountryin2015.
• In the US, e-tailers Chewy.com and Amazon dominatetheUSpetfoode-commercemarket,andarefaraheadofspecialistpetretailersPetSmartandPetco.
D E B O R A H W E I N S W I G
M a n a g i n g D i r e c t o r F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m
U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9
C H N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6
Global Pet E-Commerce:
A Dynamic Channel In a Growing Market
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
Global Pet E-Commerce: A Dynamic Channel In a Growing Market
PETE-COMMERCE:GROWINGGLOBALLYSpending on pets is increasing globally and, in many regions, e-commercesalesgrowthinthepetcategoryisoutpacingbothtotalcategorysalesgrowthandtotale-commercegrowth.Inthisreport,weanalyzesomeoftheleadingpete-commercecompaniesintheUSandselectedinternationalmarkets.
TheInternet’sshareofpetproductandfoodsalesisstillrelativelylowinmanyregions. Although precise definitions of the category vary, inmostWesternmarkets, e-commerce accounts for single-digit shares of pet category sales.AccordingtoEuromonitorInternational,e-commerceaccountedforonly4.4%of total pet care sales globally in 2014 (latest confirmed); we estimate thisrosetoaround5.3%in2015.
However,ChinesepetownershaveflockedtotheInternettopurchasepetfood: GfK estimates that e-commerce represented fully 38% of total petfood sales in the country in 2015, and it predicts that figure will rise toaround43%in2016.
Figure1. E-Commerce’sEstimatedShareofTotalPet Food,PetCareandPetProductSales*inSelectedRegions,2015
*ShareofpetfoodsalesinChina,petcaresalesintheUSandglobal,andpetproductsalesintheUKandEurope.
Source:EuromonitorInternational/GfK/PetsatHome/Zooplus/FungGlobalRetail&Technology
38.0%
9.4%7.0% 6.5% 5.3%
China UK US Europe Global
I
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
US,34.3%
Japan,8.6%
Brazil,7.1%UK,6.3%
Germany,6.0%
France,5.9%
Canada,4.3%
Italy,3.7%
Australia,2.9%
Spain,2.1%
Russia,2.1%China,1.9%
Others,14.9%
AccordingtheAmericanPetProductsAssociation(APPA),totalUSpetcareexpenditure, including nonfood categories, surpassed $60 billion for thefirsttimein2015.
• In 2014, research company Forrester Research estimated that $3.7billion,oraround6.4%,ofUSpetcaresaleswentonline.
• In 2015, we estimate that the Internet’s share of US pet care salesgrewtoaround7.0%,or$4.2billion.
INCONTEXT:THEWORLD’SBIGGESTMARKETSAccording to researchcompanyGfK, totalpet foodsalesgloballygrew4%yearoveryearto$70billionin2015.Asweshowbelow,theUSaccountedfor more than one-third of this. Petfood Industry notes pet food sales inJapan,thesecond largestmarketglobally,haveshownsignsofstagnation,whilesignificantgrowthisexpectedthrough2020inotherAsiancountries,includingChina,IndiaandTaiwan.
Figure2.ShareofGlobalPetFoodSales,byCountry,2015
Source:GfK/FungGlobalRetail&Technology
INFOCUS:AMERICANS’LOVEFORPETSBOOSTSPETE-COMMERCEAs noted in our Pet Technology report from December 2015, manyAmericans treat their pets like family members, and they have shown awillingnesstoincreasetheirspendingontheirpets.
AccordingtoPetProductNews,babyboomerswerethefirstgenerationtotruly “humanize” pets, which has fueled the growth of the pet productindustry.Subsequentgenerationsarefollowingtheboomers’lead,andGfKsays millennials have now overtaken boomers as the largest pet-owningpopulationintheUS.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
Thisshiftisimpactinghowconsumersbuyfortheirpetsandisalsodrivinge-commercegrowthinpetproductsales.AswediscussedinourMillennialsand Grocery report, millennials are highly adept at using technology toresearchandbuyproducts,andtheylookforconveniencewhenshopping.Thesehabitscarryoverintotheirspendingontheirpets.
Severalfactorsdrivetheimpressivee-commercegrowthinthepetproductscategory,andtheypointtocontinuedgrowthinthefuture:
• TotalInternetsalesofconsumerpackagedgoods(CPGs)arebooming.OnlinesalesofCPGs,whichincludepetproducts,grewby42%in2015yearoveryear,outpacingthe30%growthseenfortotale-commercesalesoverthesameperiod,accordingtoresearchfirm1010data.Thecompanynotes,however,thate-commercegrowthforCPGsisfromarelativelylowbasecomparedtothatofotherproductcategories.
• ConsultingcompanyThistle Insightnotesthatdirectdeliverybenefitspetownerswhohavetobuyahighvolumeofproducts.
• A relatively low proportion of all pet food sold is fresh, allowingowners tobuy largerquantities that last fora longerperiodof time.Online shopping is ideally suited to branded, packaged, ambientproducts—anditisespeciallyusefulforconsumerswhentheyneedtobuyheaviercupboardbasicssuchascansorlargebagsofpetfood.
Below, we compare the growth of pet care e-commerce to that of totale-commerce, total retail sales andpet care retail sales in theUSbetween2010 and 2014. According to Forrester Research, pet care e-commerce intheUSgrewby76%over thatperiod.APPA recorded20%growth for thetotalpetproduct industryoverthesametimeframe.Pete-commercenotonlysubstantiallyoutpacedtotalpetcaresalesfrom2010to2014,butalsogrewfasterthantotale-commerce.
Millennialshavenowovertakenboomersasthelargestpet-owningpopulationintheUS.
OnlinesalesofCPGs,whichincludepetproducts,grewby42%in2015yearoveryear.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
Figure 3. US: Pet Care E-Commerce Sales vs. Total E-Commerce, TotalRetailandTotalPetCare(CAGRs),2010–2014
Source:APPA/ForresterResearch/USCensusBureau/FungGlobalRetail&Technology
PetFoodIstheLargestCategorybyValueSowhat pet categories are consumers spending on? It is not just pet food,although food is the largest pet product category by value in the US.AccordingtotheAPPA,spendingonservicesandsuppliesisgrowing,too.Theonlycategorywherespending isdeclining is liveanimals;valuesales in thatcategorydeclinedby1.4%between2014and2015,andtheyareexpectedtodeclinemarginally in 2016. The APPA estimates that total spending on petproductswillincreaseby4.1%in2016,toatotalof$62.8billion.
Figure4.US:PetIndustrySpendingBreakdown(USDBil.),2014–2016E
Source:APPA
TwoCompaniesDominatePetFoodE-CommerceintheUSTwo companies—Chewy.com and Amazon—stand apart in terms of petfoode-commerceintheUS,accordingtoanalyticsfirm1010data.Theytookacombinedmarketshareofover85%inthecategoryinthefirstquarterof2016, 1010data says. Note that this market share is for pet food only,althoughbothonlineretailersalsosellpetsupplies.
15.2% 15.0%
5.0% 4.7%
PetCareE-Commerce E-Commerce Retail PetCare
$24.0
$15.9 $15.0
$2.1
$5.7
0
5
10
15
20
25
Food VeterinaryCare Supplies/OTCMed
LiveAnimalPurchases
OtherServices
2014
2015
2016E
Pete-commercenotonlysubstantiallyoutpacedtotalpetcaresalesfrom2010to2014,butalsogrewfasterthantotale-commerce.
TotalUSspendingonpetproductswillincreaseby4.1%in2016,toatotalof$62.8billion.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
Figure5.US:TopPetFoodWebsites’MarketShares,byOnlineSalesDollars,1Q16
*Chewy.com’sshare includes40.5%share forChewy.comand10.2%share for thecompany’ssubscriptionservice.
**Amazon.com’sshareincludes23.5%forthedirectchannel,7.6%forthesubscriptionchanneland3.6%forthemarketchannel.Source:1010data
Regular e-commerce is not the only force driving sales at these tworetailers.AccordingtoPetfoodIndustry,thepetfoodonlinesubscriptionmodel is growing rapidly,withChewy.com’sandAmazon’s subscriptionsalesofpetfoodhavingnearlytripledyearoveryearinthefirstquarterof2016.
Subscription services appear to be a good fit for pet food, given that it istypicallyaroutinepurchaseforwhichshopperscanpredictneed.
America’sOnlinePetRetailersBelow, we provide a rundown of the major players in the US pete-commercemarket.
Chewy.com*,50.7%
Amazon.com**,34.7%
Peoooddirect.com,5.7%
Petco.com,3.1%
Petsmart.com,2.2%
Peolow.com,1.7%
Walmart.com,0.7%
Other,1.2%
Chewy.com’sandAmazon’ssubscriptionsalesofpetfoodnearlytripledyearoveryearinthefirstquarterof2016.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
• PrivatelyownedonlinepetretailerChewy.comlaunchedin2011.
• Customers can saveup to20%onproductswhen they subscribe tothe company’s Autoship service, through which they can set up ascheduleforproductstobehomedeliveredregularly.
• Amazon sells pet products through its own website as well asthrough e-commerce site Wag.com, which is owned by Quidsi, acompanyAmazonacquiredin2011.
• Wag.comoffersautomaticproductshipmentsthroughaservicethatissimilartoAmazon’sSubscribeandSave;customerscansaveupto15%onpetproductswhentheypurchasethemregularly.Accordingto1010data,Amazon’ssalesfromSubscribeandSavegrewby200%yearoveryearin2015.
• AccordingtoeMarketer,21%ofAmazon’sPrimeNowUSsubscriberspurchasedpetproductsinJanuary2016.
Leading US-based specialty pet retailers PetSmart and Petco both have astrongnetworkof storesacross thecountry.Online,however,neitherhasbeen able to match the success of pure plays Chewy.com and Amazon,accordingtothemarket-sharedatashownabove.
• PetSmartwentprivatein2015,afterBCPartnersacquiredit.
• Net sales in 2014 were $6.9 billion (up 2.3% year over year),accordingtothecompany’s10-Kfiling.
• Thecompanyoperatesmorethan1,430storesintheUS,CanadaandPuertoRico.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
• In order to gain market share online, in 2014, PetSmart acquiredonline pet products retailer Pet360, which runs more than 30 petwebsites,includingPetfooddirect.com.
• Pet360’s online stores offer an Auto Ship service, through whichcustomerscansetupascheduleforproductstobehomedelivered.Customers can save up to 10% when they buy Auto Ship BonusBrandsthroughthesites.
• Customers can also choose to collect orders made online fromselectedPetSmartstores.
• PetcowasacquiredbyCVCCapitalPartnersandCanadaPensionPlanInvestmentBoard in January2016 fromTPG (formerly TexasPacificGroup)andLeonardGreen&Partners.
• AccordingtoCVC,Petco’sannualturnoveris$4.4billion.
• Thecompanyoperatesmorethan1,430storesintheUS,MexicoandPuertoRico.
• According to Internet Retailer, Petco’s online sales grew by 38.3%from2010to2014,reaching$83.1million.
• PetcooffersaRepeatDeliveryservice,throughwhichcustomerscansaveup to20%when they subscribe forhomedeliveryofproductsshippedonascheduletheycancreateonline.
Despite having lower onlinemarket shares than Chewy.com andAmazon,PetSmart and Petco, thanks to their strong store networks, can competewith pet e-tailers by offering services that range from grooming to pethotels.PetcoandPet360offersubscriptionservicesonlinethatoffersavingsto customers who make regular purchases. Petco also sells on Amazon,whereasPetSmartnolongerdoes.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
INFOCUS:PETE-COMMERCEINTERNATIONALLYNeither the growth in overall spending on pets nor the growth in pet e-commerce has been confined to the US. Below, we look at some of theother leadingpetproductmarketsworldwideandhowtheyhaveadaptedtopete-commerce.
AustraliaAccordingtoAustralianbusinessmagazineINTHEBLACK,petsuppliesisoneof the fastest-growing e-commerce sectors in Australia, which has one ofthe highest pet ownership rates in the world. Analytics company SPSCommerceestimatesthattheonlinepetfoodmarketinAustraliagrewatanannualizedrateof16.6%between2010and2015,comparedtoannualizedgrowthofjust1.7%forthetotalpetfoodmarketduringthesameperiod.
• Establishedin2011,PetCircle isthelargestonlinepetsupplyretailerinAustralia,accordingtothecompany.
• INTHEBLACK says Pet Circle’s revenues in the year ended June 2015were A$145million (US$123million) and that the company expectsannualgrowthof15%overthenextthreeyears.
• PetCircleoffersanAutoDeliveryserviceat lowercost forcustomerswhoorderregularproductdeliveries.
ChinaConsumer research company KantarWorldpanel reports that raising petshasbecomeincreasinglypopularinChina,duetourbanizationandchanginglifestyles.E-commerce’sshareofpetproductsalesisrelativelyhighinChinacomparedtomostotherregions.GfKestimatesthate-commercewillgrowitsshareoftotalpetproductsalesinthecountryfrom38%in2015to43%in2016.
• Tmall isabusiness-to-consumerplatformforcompaniessellingdirectly toconsumers. Also owned by Alibaba Group, Taobao is a consumer-to-consumerandbusiness-to-consumeronlinemarketplace.
• According to China Daily, Nestlé, which sells on Tmall and Taobao,reports that pet food is one of its fastest-growing e-commercecategoriesinChina.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
GermanyEuromonitorInternationalestimatesthatthetotalvalueoftheGermanpetcaremarketwill reach €4.3 billion (US$4.8 billion) in 2016, up 9.4% from2011. According to pet product e-tailer Zooplus, around one-third ofGermanhouseholdsownoneormorepets,andkey trends in thecountryinclude the “humanization” of pets, increased spending on them and petproducte-commerce.
• Establishedin1999inGermany,ZooplussaysitistheleadingonlinepetsupplyretailerinEuropeintermsofsales,shippingto28countries.Thecompany also says it is the third-largest pet supply retailer in Europeoverall,includingbrick-and-mortarchains.
• The company’s net sales increased by 30% year over year in 2015,reaching€742.7million(US$824million).
UKAccordingtotheUK’sleadingpetspecialistretailer,PetsatHome,thetotalvalue of pet retail and services in theUK grew by 7% between 2012 and2014,takingthemarketto£6.1billion(US$10.0billion).Onlinesalesofpetproductsover the sameperiod grewby24.6%, to represent 8.6%of totalcategorysalesin2014.
RetailresearchgroupConluminoestimatesthatthetotalpetcaremarketintheUKwill growby9.3% from2014 to2019and that theonlinepet caremarketwillgrowby43.6%duringthesameperiod.
• PetsatHome,whichhasover400storesintheUKplusanonlineshop,isthecountry’smarket-leadingpetspecialistretailer.Thecompanyhada19.6%marketshareoftotalpetcaresalesintheUKin2014,aheadofTesco(16%)andAsda(9.5%),accordingtoConlumino.
• In 2015, Pets at Home accounted for 45% of UK pet retail onlinetraffic,accordingtowebsite-monitoringcompanyHitwise.
• PetsatHome reports that itshomedelivery servicehasbeenmorepopular than its click-and-collect service (which is available at over400 of the company’s stores), but that the latter is growingsignificantlyfaster.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
INFOCUS:ONLINEGROCERYHELPSDRIVEPETE-COMMERCE
As an everyday CPG, pet food is, for many consumers, a grocery storepurchase.Thatmeansthegrowthinpetfoode-commerceistiedtosomedegreetothegrowthingrocerye-commerce.Petfoodproductsrepresentagoodfitwithonlinegroceryshoppingbecauseoftheirambient,brandednatureandthefactthattheyareoftenheavyandhardtogethomefromthestore.
Grocery retailers account for major shares of offline pet-food salesalready: as we noted above, supermarket chains Tesco and Asda are insecond and third place, respectively, in theUK pet caremarket. And, inmarketssuchasFranceandtheUK,whichhaveestablishedonlinegrocerysectors,weexpectgroceryretailerstoaccountforasizableshareofonlinepetfoodsales.
IntheUS,whichisanascentmarketfore-grocery,onlinegrocerysalesareexpectedtorampupincomingyears,andthatgrowthshoulddrivemoreofAmerica’spetfoodspendingonline.
Figure 6. E-Commerce’s Share of Fast-Moving Consumer Goods Sales,SelectedCountries,2014
Source:KantarWorldpanel
So, the battle in e-commerce is not just between brick-and-mortar petchainsandpure-playpetspecialists;groceryretailerswilllikelyaccountforagrowingshareofpetproducte-commerce,too.
KEYTAKEAWAYS
• Millennials alreadyownmorepets thananyotheragegroup in theUS,andthedemographicisknownforvaluingconvenienceandbeingwillingto lookforgooddeals—bothofwhichare likelytoboostpetproducte-commercesales.
• Globally, pet product e-commerce growth rates have beenimpressive, albeit from low base figures: in 2014, e-commerce’sshareoftheglobalpetfoodmarketwasonly4.4%,andeveninmanyleadingeconomies,itisstilllessthan10%.
0.8%
1.2%
1.4%
4.3%
6%
US
Spain
Germany
France
UK
Growthinpetfoode-commerceistiedtosomedegreetothegrowthingrocerye-commerce.
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MAY25,2016
DEBORAHWEINSWIG,MANAGINGDIRECTOR,FUNGGLOBALRETAIL&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2016TheFungGroup.Allrightsreserved.
• Chinahasamajorleadinpetproducte-commerce:43%ofpetproductsalesinthecountryareexpectedtobemadeonlinethisyear.
• Chewy.com and Amazon have both increased sales throughsubscription services that allow customers to buy pet productsregularlyinordertosavemoneyinthelongrun.Otherpetspecialistretailerswithphysicalstores,suchasPetco,haveaddedsuchservicestotheirofferings.
• Subscription services appear to be a good fit for the pet foodcategory,giventhatpetfoodistypicallyaroutinepurchaseforwhichshopperscanpredicttheirneed.
• Sincepetfoodisagrocerypurchaseformanyshoppers,thegrowthin online grocery sales is contributing to the migration of petspending online. In the US particularly, grocery e-commerce isgrowing rapidly, from a small base,whichwillmean thatmore petproductspendingwillshifttotheInternet.
DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comJohnMercerSeniorAnalyst
JanneEhoResearchAssistant
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