Latin American potential for pet food players
In recent years, Latin America has become a major market for pet food and pet care products, and significantly Brazil and Mexico now feature among the top ten markets in terms of global value sales. While regional value growth of just over 5% in US dollar terms between 1998 and 2002 seems modest, this is primarily due to the negative impact of currency exchange rates.
In local currency, value growth was more impressive, particularly in Brazil and Mexico. Between 1998 and 2002, total market value in constant terms rose by nearly 60% in Brazil, and growth achieved in Mexico over the same period was even higher at 70%.
A region of pet lovers
Pets are popular across most Latin American markets, and dogs in particular enjoy high status, most notably in Brazilian households. Brazil has the third largest dog and cat population in the world, superseded only by the US and China, and numbers are rising rapidly.
Between 1998 and 2002, the total number of dogs and cats in the country rose by 30%. In contrast Colombia has a smaller dog and cat population than Brazil, but also recorded strong growth of nearly 80% over the same period.
Combined with growth in pet populations, rising disposable incomes in many markets resulted in rapidly increasing demand for prepared dog and cat food. In Mexico, for instance, prepared dog food penetration rose from 19% in 1998 to 30% in 2002, whilst prepared cat food penetration reached 54%.
Chile records one of the highest penetration levels of prepared cat food in the region at just over 70%, a level which is even higher than in many developed markets such as Japan. Keeping cats as pets in Chile is predominantly an urban feature, thus resulting in higher levels of prepared food penetration, whereasin rural areas cats tend to fend for themselves or are fed scraps.
Penetration is comparatively low in Brazil, however: only 3% of cats’ diets is served by prepared food, compared to 34% for dog food, indicating that the status of dogs is significantly higher in the country. Nevertheless, Brazil ranks ninth worldwide in terms of cat food value sales – just behind Mexico – as the country’s huge cat population ensures that value sales are high despite low prepared food penetration levels.
Although the percentage of pets being fed industrially prepared food is rising, the gap continues to be wide in most Latin American markets in comparison to mature markets such as North America or Western Europe. One reason for this is that dogs and cats are still largely being fed scraps and leftovers from meals or meat and bones sold by butchers for this purpose at relatively low prices.
Furthermore middle-income households often prefer to feed their pets with home-made food. Manufacturers, realising the huge potential the Latin American market offers, are focusing strongly on educating consumers on pet nutrition and on the health benefits of industrially prepared food, as a result of which the prepared/non-prepared gap is gradually narrowing.
Food is primary market driver
Demand in Latin America is grounded in the essentials at present. Pet care products remain of relatively marginal importance, as consumers do not yet feel a need for more sophisticated products such as dietary supplements, grooming products or even cat litter. As a result, dog and cat food accounts for 91% of market value in the region, compared to 7% for other pet food and 2% for pet care products.
Dry food dominates
Dry food dominates the region, both for dogs as well as cats. As unit prices for wet food are very high in most Latin American markets, only the most affluent are able to purchase them. As a result, dry food accounts for 93% of total dog food and 78% of total cat food value sales.
However the premium status of wet food also ensured strong growth – wet dog food value sales recorded US$ growth of over 27% between 1998 and 2002, while wet cat food value sales rose by an even more impressive 82%, albeit from a low base. This growth demonstrates that there is potential in Latin America for manufacturers of wet food – although wet foods will remain a niche product. Dry food will continue to dominate, both due to price as well as cultural reasons, as the concept of purchasing canned food is generally less established in the region.
In major developed markets, for example, dry food is increasing in importance, although for different reasons. While price plays a less crucial role in these markets, manufacturers, vets and specialist retailers have focused on educating consumers as to the health benefits of dry food compared to wet food. Issues of convenience also contributed to the gradual decline in the popularity of wet food for both dogs and cats, and therefore Latin America offers an opportunity to offset falling wet food sales elsewhere, albeit to a limited degree.
Strong growth across price platforms
As disposable incomes rise in many Latin American countries, the concept of purchasing food for dogs and cats – rather than feeding them scraps or home-made food – is gradually trickling down from the more affluent parts of the population to middle-income households.
As a result, whereas previously premium products enjoyed strong growth, mid-priced and economy products are now also faring well. Between 1998 and 2002, premium dog food sales in Mexico, for instance, grew by 178%, compared to 165% for mid-priced and 198% for economy dog food. A similar trend is apparent within cat food.
Again, the fact that all price platforms enjoyed strong growth in Latin America is a major point attracting manufacturers’ interest in the region. In many of the mature, developed pet food markets of Western Europe or North America, demand is shifting gradually towards premium varieties, with economy and particularly mid-priced products lagging behind. The Latin American market thus offers considerable potential for economy or mid-priced brands whose shares are declining in mature markets.
For example, 9 Lives cat food, a brand once owned by Heinz and now part of Del Monte’s portfolio, lost significant share in its domestic US market, but its cat food share increased from 1.7% in 2000 to 4.3% the following year in Latin America.
Positive outlook – dependent on strong macro environment
The outlook for further market growth is indeed very positive for Latin America. Pet food and pet care products sales are forecast to rise by nearly 13% between 2002 and 2007, at constant 2002 prices. However, growth can be hampered dramatically should macroeconomic conditions deteriorate in the region, and in particular the major markets of Brazil and Mexico.
While pet food and pet care products proved to be fairly recession-proof in mature markets – the events of 9/11 had virtually no impact on expenditure on pet products in the US, for instance – a weakening of the economic environment is likely to have a major impact on value sales in Latin America.
In Argentina, for instance, the market declined by over 14% in constant terms during 2002, as a result of a fall in disposable incomes. This made the purchase of imported products in particular unaffordable, and many pet owners traded down to cheaper brands or even reverted back to home-made pet food. The Argentinean market is forecast to continue to decline in the foreseeable future as a result of the economic crisis.
As forecasts remain positive for the key markets of Brazil and Mexico, however, the outlook remains good overall for the region.