Pet Industry 2013 Strategic Outlook

See U.S. market sizes of pet food, veterinary services, supplies and pet services, sliced by demographic group. Includes pet owner spending demographics, core trends and analysis on fragmentation, the retail landscape, changes in the food and vet industries, and opportunities moving forward.

This report provides key spending trends by age, income and household composition that are driving the pet industry. It contains actionable intelligence to help your business, marketing or product development initiatives. Learn more or buy securely here



For instance, the above table shows both overall ($2.4 billion) and segment market sizes for pet owners who have a child younger than six years old. These new families used to be part of a core demographic group with children in the 'pet acquisition years' that can engender loyalty to a brand. These customers continue to increase spending, particularly on food and at the vet.

 

PetSmart Q3 2012

PetSmart, Inc. (NASDAQ:PETM) last week reported strong 3rd quarter results for 2012, booking $82 million in net income on $1.6 billion in sales, up 9%. Comparable store sales grew 6.5%. Services sales grew 8% to $175 million.

The company credits its hard goods resets over the past two years for continued differentiation in a competitive industry, supplying a mix of exclusive brands - including GNC, KONG and Martha Stewart - and private labels like Top Paw that align with consumer demand. Hard goods made up for 33.1% of sales.

In consumables, which accounted for 53.9% of sales, super-premium continues to be the largest and fastest growing category.

Services accounted for 10.7% of sales. Pet services like grooming, boarding and veterinary care are an "integral part" of PetSmart's strategy to further differentiate it from the competition, drive traffic and repeat visits to the stores, and provide cross-selling opportunities.

PetSmart adapts well to fast-changing consumer trends and loyalties, which can't be easy with 1,269 stores. Illustrating the humanization trend, the company has increased television advertising spending for the holiday season, jumping on the Black Friday shopping spree with specific ads, and soon to launch a 12 Days of Christmas ad campaign.

Feeling good in the U.S., the company is "dipping a toe in the water" in Asia with a "low-risk learning exercise" in South Korea with Emart.

Source: PetSmart Investor Relations

Pet Food Trends Learn to Stay

On a recent visit to my local pet food store, I noticed a sign alerting customers that they will no longer be selling Iams, Hills Science Diet, Eukanuba, or any other dog and cat food that does not meet their pet food ingredient standards.

This would not be surprising from a small mom 'n pop store, but from Pet Food Express - the 5th largest pet specialty retailer in the U.S. - it is an eye opener.

A few years ago, it would have been impossible to run a successful pet food retail chain while ignoring top-selling brands from Proctor & Gamble (NYSE:PG), Colgate-Palmolive (NYSE:CL), Nestle (ETR:NESR), and Mars (a privately owned company).

These days, however, consumer demand for higher quality pet food mirrors human food trends. Driven by recall after recall of imported and US-based foods, consumers are demanding less diluted and more pure ingredients. Especially for dogs, whose natural diet does not require large amounts of carbohydrates, these owners can easily perceive glutens, sugars and fillers to be bad.

Similarly, the human trends toward the ancestral diet, or what we're genetically inclined to eat, has its corollary in dog food, for example with breed-specific lines by Royal Canin. Also, many new and smaller brands offer a range of top-quality protein types for those selective pet parents. If a breeder recommends a salmon protein for a Lhasa Apso, for example, the owner is motivated by the wide selection to choose a good one.

Just a few of the popular dog foods sold at Pet Food Express hitting the mark for the California crowd include D.N.A., Taste of the Wild, Grandma Lucy's, Wellness, and Stella and Chewys. Together these smaller brands certainly fill up the shelves.

Pet Food Express notes that national manufacturers also offer top-of-the-line products, which are sold at their stores. However, Colgate-Palmolive's only brand is the Hill's line, so they seem out. That would also include most, if not all, Nestle brands.

But Proctor & Gamble's Natura Pet line and Mars' Royal Canin and Nutro brands make the cut, signifying how these companies have adapted to new - and apparently permanent - consumer spending habits, that emerged after the 2007 pet food recall and continue to strengthen with each news story about sickness from the food supply.

Indeed, Colgate missed the "drive toward natural" in the US, according to the Financial Times, and will reformulate and relaunch Science Diet this year ("Investors seek bigger bite of pet food," by Louise Lucas and Barney Jopson, The Financial Times, Sep 30, 2012).

Another trend, yes, but this one seems to align with innate health requirements for companion animals. Pet Food Express' decision to implement its Pet Food Ingredient Standards is emblematic of a new landscape in the highly competitive pet food industry. In other words, these trends have legs.

NB: this post covers the premium pet food market, but it should be noted that many billions of dollars are spent annually on value brands sold by Nestle, Mars, and Wal-Mart. Learn about both ends in our 2012 Pet Industry Research.
 

FDA guidelines on functional pet foods

Dog and cat food with specified health uses - or functional food - has been a booming trend in the pet industry. Although they've been around since the 1980s, there's been a recent explosion in product selection and availability outside of the veterinarian's office.

According to the FDA, "This shift in marketing directly to pet owners without veterinary direction, concerns FDA because these products are formulated for specific needs and may not be tolerated by all animals."

Read them here: FDA Animal & Veterinary
 

Walmart launches wheat-free ultra-premium dog food

Walmart (NYSE:WMT) just announced its new ultra-premium dog food called Pure Balance.

Citing the faster growth rate of ultra-premium dry dog food than the value category, the company believes this product will complement the Ol' Roy brand nicely. Reuters reports that this move puts Walmart "into more direct competition" with specialty chains PetSmart (NASDAQ:PETM) and Petco (a private company).

By launching a trendy, wheat-free brand, we think this does indeed align with spending patterns exhibited by dog owners in the U.S., as outlined in our pet industry research published earlier this year.

Source: "Walmart U.S. launches its own high-end dog food," by Jessica Wohl, Reuters, Aug 14, 2012
 

Eye-catching dog food marketing

The digital video camera used to film this dog food commercial shoots full HD at 1500 fps. What does that mean? It means we see detail and movement imperceptible to the human eye in realtime.

The same camera was used to shoot slow motion Super Bowl footage, and used by NASA to study parachute deployments. Here, its used by Pedigree to sell dog food, marketing a new perspective to pet owners.

For more slow motion videos, check out visionresearch.com