What are the Potential Implications of Brexit for the UK Pet Food Market?
Brexit has dominated the headlines since the UK electorate unexpectedly voted to take the country out of the EU in a referendum held on 23 June. How is the fallout from this momentous decision likely to impact domestic demand for pet food and UK exports of pet food to EU markets?
Recent history implies that demand for pet food is likely to be resilient
A lot will depend on the “animal spirits” of consumers. Early post-Brexit snapshots of consumer confidence suggest it has had a significantly negative impact, but recent history shows that UK pet food sales tend to be relatively robust in the face of economic uncertainty. The US$6.0 billion UK pet food market has enjoyed a remarkable decade of growth in the face of significant macroeconomic headwinds. Even during the dark days of 2008, real value sales declined only marginally, and they have grown steadily ever since.
This has largely been driven by premiumisation, with real value sales of premium dog and cat food rising by 21%, to US$1,075 million, between 2011 and 2016. Real value sales of dog treats surged by 34%, to US$695 million, over the same period. With a growing number of consumers treating their pets like family members or even ersatz children, spending on them is likely to remain a high priority. While the uncertainty generated by Brexit may curb short-term growth or even lead to a modest decline in pet food sales, the premiumisation trend is likely robust enough to counter this in the medium term.
International ambitions of some UK brands could be undermined
Over recent years, some local premium pet food manufacturers have been looking to the continent in search of new sources of growth. Macclesfield-based MPM, which was acquired by private equity firm ECI earlier this year, is one example of this. The maker of the Applaws and Encore pet food brands exports 60% of its output, much of which goes to EU markets. Similarly, London-based Lily’s Kitchen attracted investment worth “several millions of pounds” from another private equity firm, Catterton, last year in order to expand its distribution network across Europe.
exports from the UK, the longer-term picture is much more uncertain. The reimposition of tariffs and other barriers to trade could have a significant impact on the ability of British pet food brands to export their products to mainland Europe. While it is by no means certain that this will actually happen (the UK government may opt to join the European Economic Area in order to maintain the status quo of trade relations), the uncertainty that the very possibility of such an outcome has injected into the decision-making process is likely to discourage investment, or at least delay it. This, in itself, could impede the long-term growth of such brands as Applaws and Lily’s Kitchen. The operations of large international players like Mars and Nestlé are much less vulnerable to such uncertainty, as they have manufacturing facilities in both the UK and mainland Europe.
The price of Brexit uncertainty
Due to the unprecedented nature of Brexit, it is somewhat resistant to conventional analysis. The UK economy has entered the territory of “radical uncertainty”, the kind of uncertainty that cannot be boiled down to probabilities, as it is difficult to either precisely define or measure against historical data.
Nonetheless, two tentative conclusions can be drawn: the impact on domestic sales of pet food is likely to be relatively modest and the international ambitions of some local brands may be reined in. “Keep calm and carry on” is almost always sound advice, but business, like nature, abhors a vacuum, and that is what Brexit most resembles at the moment.