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

© Euromonitor International
2
Euromonitor International – strategic global market intelligence
ABOUT EUROMONITOR INTERNATIONAL

3
USD104 bn 2.6% 2.4%
Global value sales 2016 2011-2016 CAGR 2016-2021 CAGR
Pet care globally
THE 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 specialists
Grocery retailing
Internet retailing
OUTLOOK AND KEY TAKEAWAYS

5
Largest markets continue to perform well
KEY DRIVERS
0
1
2
3
4
5
6
0
5
10
15
20
25
30
35
40
45
50
North
America
Western
Europe
Latin
America
Asia Pacific Eastern
Europe
Australasia Middle
East and
Africa
%CAGR2011-2016
USDbn
2016 Pet Care Value Sales by Region and CAGR 2011-2016
Constant 2016 prices, fixed 2016 exchange rate

6
0
0.5
1
1.5
2
2.5
3
3.5
0
5
10
15
20
25
30
35
40
Economy Mid-Priced Premium
%CAGR2016-2021
USDbnDog and Cat Food by Price Platform 2016/2021 and CAGR 2016-2021
2016 value sales 2021 value sales 2016-21 CAGR %
Premium dog and cat food set to see the strongest growth
KEY DRIVERS
Constant 2016 prices, fixed 2016 exchange rate

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
Humanisation as a key premiumisation strategy
KEY 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

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Grocery retailers lead globally, ahead of specialists
RETAILING LANDSCAPE – OPPORTUNITIES AND CHALLENGES
Grocery retailers
40%
Pet superstores
17%
Pet shops
14%
Internet retailing
6%
Veterinary clinics
7%
Others
16%
Global Pet Care Value Sales by Channel 2016
USD104 bn
Total value sales 2016
fixed exchange rate

10
Internet retailing and pet superstores experience the strongest growth
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Grocery
retailers
Pet
superstores
Pet shops Veterinary
clinics
Internet
retailing
Others
Pet Care Sales by Channel 2011/2016
2011
2016

11
Different distribution structures across regions set different challenges
0% 20% 40% 60% 80% 100%
Middle East and Africa
Australasia
Eastern Europe
Asia Pacific
Latin America
Western Europe
North America
Importance of Distribution Channels by Region, 2016
Grocery Retailers
Pet superstores
Pet shops
Internet Retailing
Veterinary clinics
Others

13
0
2
4
6
8
10
12
14
16
USA Germany Brazil Russia Poland Mexico Thailand
USDbn
Pet Care Value Sales of Pet Shops and Superstores in
Selected Countries, 2011/2016
2011
2016
+16%
+67%
+61% +17%
+79%
+83%
US registers the strongest actual value growth for pet specialists
+28%
Current values, fixed 2016 exchange rate

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US – pet shops are finding their niches
• 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

15
Maskota – a Mexican success story… in danger?
0
100
200
300
400
2012 2013 2014 2015 2016
Number of Outlets
38
40
42
44
46
48
50
2012 2013 2014 2015 2016
%share
Value Share within Pet Shops and
Superstores in Mexico
• 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 high
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 services
Conveniently 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 price

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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 situation

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Germany – Fressnapf continues to assert its position
Fressnapf store in Berlin
0
200
400
600
800
1,000
1,200
1,400
2011 2012 2013 2014 2015 2016
USDmn
Fressnapf Value Sales Germany,
2011-2016
Fressnapf Tiernahrungs GmbH
store-based value sales, rsp incl
sales tax
Fixed exchange rate, current values

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Grocery retailing – hypermarkets and supermarkets very important in pet
care sales
Supermarkets
Hypermarkets
Discounters
Independent
Small Grocers
Other
Grocery
Retailers
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

22
0
10
20
30
40
50
60
70
%share
Share of Pet Care Sales Through
Supermarkets and Hypermarkets
by Region
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” image

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Western Europe is the most successful battleground for discounters
0
2
4
6
8
10
12
14
16
18
20
Austria Spain Germany Switzerland Western
Europe
%share
Discounters' Share of Pet Care Value Sales in
Selected Countries, 2016
Aldi, Germany

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Internet retailing set for strong growth in all regions
0
2
4
6
8
10
12
14
16
0
0.5
1
1.5
2
2.5
North
America
Western
Europe
Asia Pacific Eastern
Europe
Latin
America
Australasia Middle East
and Africa
%CAGR
Valuesales,USDbn
Pet Care Internet Retailing Sales 2016 and CAGR 2016-2021
2016 value sales 2016-2021 CAGR %
Constant 2016 values, fixed exchange rate

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0
5
10
15
0
50
100
150
200
250
Apparel and Footwear Food and Drink Pet Care
%CAGR
USDbillion
Global Internet Retailing Sizes by Category 2011/2016 and
CAGR 2016-2021
2011 value size 2016 value size 2016-2021 CAGR
Pet care internet retailing to see healthy growth, but remains small
Internet sales in pet care are still small compared with other channels
Apparel 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?
Convenience
Shopping 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 consumers
US
• Click-and-collect has potential for growth
• Supermarkets and specialists are expanding their
product ranges
UK
• 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 retailing

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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 China
3 %
30 %
0
10
20
30
40
2011 2012 2013 2014 2015 2016
%share
Share of Internet Retailing in Pet Care Value Sales in China
2011-2016

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Pet care set to register healthy growth over the next five years
0
10
20
30
40
50
60
2016 2017 2018 2019 2020 2021
USDbn
Pet Care Value Sales by Region,
2016-2021
North America
Western Europe
Latin America
Asia Pacific
Eastern Europe
Australasia
Middle 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 bay

THANK YOU FOR LISTENING
Wiebke Schoon
Senior Research Analyst Food & Nutrition – Western Europe
Wiebke.schoon@euromonitor.com
+44 (0) 207 251 8024 EXT 1190

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

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