Analyst Insight by Emily Woon.
Led by the vibrant Brazilian market, sales of pet food and pet care products are surging in Latin America on the back of the emergence of a much broader middle-class.
Double-digit sales growth
Latin America has undoubtedly been the star performer of the global pet care market in recent years. Over 2005-2010 (the review period), value sales of pet food and pet care products rose from US$4.8 billion to US$8.3 billion, according to Euromonitor International data. This represents a compound annual growth rate (CAGR) of 11.9%. As a result, the proportion of global pet care sales accounted for by the Latin American market rose from 7.6% in 2005 to 10.2% in 2010. Brazil is by far the largest market in the region, with pet care value sales of US$5.2 billion in 2010, followed by Mexico (US$1 billion) and Argentina (US$645 million).
Surge in household incomes
Income growth has been the driver of this increase in value sales. According to Euromonitor International data, the proportion of Brazilian households with an annual disposable income of at least US$25,000 (at purchasing power parity) jumped from 21.7% to 30.1% over the review period, while in Argentina it expanded from 33.5% to 44.8%. Chile, Venezuela and Peru also saw significant increases in this regard. These increases are indicative of the emergence of a vibrant middle-class, something that had previously been conspicuous by its absence in Latin America.
However, income growth in some countries in the region, most notably Mexico and Colombia, was much less impressive. In the former case this was largely due to its high degree of dependence on the struggling US economy, the 2010 outbreak of the H1N1 “swine flu” virus and instability arising from drug-related violence.
Affluent consumers drive demand for pet products
Affluent Latin Americans are increasingly spending large amounts of money on healthcare for their pets. According to Dr Valter Yoshio Hato, the co-owner of a veterinary clinic in São Paulo, "People who have chosen not to have children, often they have a pet to fill the void where there's no child, and because it's just like a child, people don't spare any expense, they spend". He adds that, "Around 80% of the animals we see here are dogs. Another 15% or so are cats. The rest are various animals, like monkeys. We even had an iguana in the other day".
Simple operations start at US$30, rising to US$1,700 for more complex operations, such as procedures on spines or to remove cataracts from eyes. Overall, pet healthcare sales in the region (excluding prescription medications) rose from US$69.4 million to US$119.1 million over the review period, an increase of 71.6%, according to Euromonitor International data.
Meanwhile, São Paulo hosted Latin America's first Pet Fashion week in April 2010, illustrating the region's rising demand for other pet products, such as clothing. Value sales in this category rose by nearly 36% over the review period, to US$334 million.
Inflation and overdependence on commodity exports represent threats
Euromonitor International predicts that Latin American pet care value sales will exhibit a CAGR of 5.5% over the 2010-2015 period, to US$10.9 billion (in 2010 prices). This will represent a significant slowdown from the review period and is indicative of the gradual maturation of the region's market.
This forecast also takes into account a number of downside risks to growth, particularly the regional economy's overdependence on commodity exports (where pricing tends to be extremely cyclical) and the risk posed by inflation. For example, consumer price inflation in Argentina accelerated from 6.3% to 10.4% between 2009 and 2010, but some independent economists maintain that consumer prices increased by up to 30% during the year. While the Latin American pet food market has already demonstrated its ability to cope with inflationary pressures (during 2008), a renewed bout would hurt real income growth and inevitably take the edge off the region's recent stellar growth performance.