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An overview of some of the trends that might make headlines during the coming year: The challenge posed to pet superstores by internet retailing, internet retailing in India, the prioritisation of the needs of pets at home, and the possible impact of politics on international trade.
In their results for the third quarter of 2016, a number of North American pet food manufacturers highlighted the fact that while sales of their products via pet superstores had been weak during Q3, this had been more than compensated for rising online sales. For example, Blue Buffalo saw sales via this channel decline by “low single digits” in annualised terms during the quarter, while its online sales exhibited strong growth. Meanwhile, pet superstore chain Pets at Home reported relatively weak half-year sales in the UK, amid a decline in footfall – like-for-like sales rose by a meagre 2.5% year-on-year, with margins down slightly.
Pet superstores may be feeling the heat as Amazon.com steps up their efforts in pet food distribution, offering one-hour delivery in a growing number of metro areas in the US via its Amazon Prime Now service, for example. Such services are likely to be particularly popular with millennials, an increasingly important group of pet food consumers. More generally, a growing number of consumers are becoming comfortable purchasing all types of FMCG online.
However, pet superstores are not taking this lying down – in November 2016, PetSmart unveiled a partnership with delivery service Deliv to offer same-day deliveries that can be tracked in real time in 25 metro areas. Moreover, they are revamping their stores to offer more services (such as pet grooming) in an effort to attract more footfall.
Internet retailing has seen spectacular and unprecedented growth in China over recent years. In 2011, internet retailing accounted for 3.2% of value sales of dog and cat food, but by 2016, this figure had soared to 31.7%. Most of this growth came at the expense of hypermarkets and petshops.
E-commerce giant Alibaba Group claims “Online retail remains the easiest channel for all types of consumers to obtain products that are otherwise difficult or expensive to access within China. China’s consumers tend to prefer foreign goods in specific categories, such as milk powder, diapers and petfood, perceiving them to be of higher quality and more trustworthy.”
One market that could replicate the Chinese pattern of growth is India. Internet retailing accounted for a mere 0.7% of dog and cat food value sales in India during 2016, with pet shops and veterinary clinics dominating sales. With levels of dog ownership rising rapidly among middle class consumers in India (5.1% of all households had a dog during 2016, up from 3.3% in 2011), millions of potential consumers are up for grabs.
Meanwhile, internet retailing is growing rapidly, a trend that is likely to be supercharged by the Indian government’s unexpected move, announced on November 8th, to “demonitise” the local economy by withdrawing large-denomination notes from circulation as part of a crackdown on the black economy. In early December 2016, the Indian Express newspaper claimed that just 28% of the currency whose legal tender status had been voided had been replaced by new notes.
While the economic disruption arising from demonitisation could hurt short-term growth in pet food sales, it is likely to boost growth in online sales of pet food in the longer term as consumers become more comfortable using cashless payment methods to make online purchases – something that the government is actively encouraging by offering discounts on online payments for such services as insurance policies, rail tickets and highway toll charges.
2016 will be remembered by most for two political shocks – the UK referendum vote to leave the EU and the election of Donald Trump as US president. But the ramifications of these events will only begin to play out this year. The timing and nature of Brexit should become clearer over the course of 2017, with a “hard” Brexit spelling trouble for export-oriented pet food manufacturers in the UK, which would find themselves outside of the EU single market.
The likes of Macclesfield-based MPM, maker of the Applaws and Encore pet food brands, which exports 60% of its output, would be particularly vulnerable. UK brands with international ambitions, such as Lily’s Kitchen, may also have to re-evaluate their strategy. Meanwhile, a Trump presidency will increase the risk of a trade war between the US and China. This could result in the interruption of supply chains, raising raw material costs and perhaps even forcing some brands to reformulate their products.
The humanisation of pets is hardly a new trend, but one new way in which it is beginning to manifest itself is in an increased desire among some owners to adapt their living space to the needs of their pet. This is particularly the case in such East Asian markets as Japan, South Korea and Taiwan, where feline-friendly architectural features, such as elevated walkways, stepping-stone shelving and hidden doorways, are beginning to be seen in affluent cat-owning homes.
Meanwhile, in an August 2016 piece headlined “When the dog decides where you live,” the New York Times noted that “for a certain breed of pet owners, Fido’s needs take precedence.” “I wouldn’t say I’m ruled by my dog, but I have to give up a certain number of things because of him,” 39-year-old Bert Saville said. “Many people who don’t have children view their pets as their children, and they consider their pets’ needs in the same way others would consider how the schools or playgrounds are in a particular neighbourhood,” commented psychologist Arlene Kagle. With the number of one- and two-person households growing rapidly in many countries, this type of pet-centric lifestyle is set to become more commonplace. Some brands are taking note – mattress manufacturer Casper launched a dog bed last year, for example.