Demand in the pet food industry is driven by pet ownership, which has increased significantly since the beginning of the pandemic. During a period of isolation and loneliness, the importance of pets, particularly dogs and cats, has become undeniable. The surge in the number of “pandemic pets” fueled a greater demand for pet food. While other industries face economic challenges, the pet food and supplement industry has been flourishing.

A flourishing industry

Individual companies’ profitability relies on effective marketing. Growth opportunities for new and smaller companies and new entrants lie largely with specialized products or local markets. Conglomerates in the pet food industry benefit from economies of scale in processing, distribution, and marketing. Exclusive research by Cap Expand Partners reveals that pet expenditure increased by approximately 50 percent during the pandemic, when pet food and treats were considered to be an essential industry. This trend is in line with market observations resulting from the financial crisis in 2008, when the pet food industry exhibited similar resilience.

Cap Expand Partners help clients in a broad range of industries to guide them navigate change and uncertainty. During the evolving pandemic economy, we work closely with our clients in their quest for growth. We offer tailored M&A and financing solutions to businesses in niche markets such as pet food.

Pet food industry dynamics

Based on discussions with leading industry players, Cap Expand Partners has identified several important trends and opportunities.

Proliferation of eCommerce

During the pandemic, e-commerce got an unprecedented boost. Online sales surged, even in developing countries. This trend helped the pet food industry thrive during the pandemic. For example, Chewy, already a top-ranking online pet food segment, benefited tremendously from the shift toward digitalization.

Increase in per Unit Spend on Pet Food

Solitude was a key driver of increased pet adoption during the pandemic. This translated into greater demand for pet foods and treats. The unpredictable patterns of impending lockdowns resulted in excessive purchase of pet food supplies.

Pet food industry segmentation

The pet food market can be segmented as follows:

• At specialist retailers, private food labels such as Sainsbury and Saturn Petcare are competitively priced.
• Conventional pet foods such as Whiskas and Pedigree represent a lower price range. These brands focus on higher sales volumes and often reduce production costs by adding relatively large quantities of grains and other filler.
• Some larger consumer goods companies produce higher-end pet foods marketed as being scientifically formulated. Major brands in this category are Pro Plan by Nestlé and Royal Canin by Mars.
• Premium food labels are highly attractive and closely resemble human trends such as super-food and organic pet foods. Major brands in this segment include Cesar and Orijen.

Investment opportunities in the pet food industry

By targeting specific themes and niche markets, we provide our clients with professional corporate finance services. Cap Expand Partners’ pet food industry research focuses on the following four areas and respective investment themes.

Consumables

• Greater creativity in formulation and sourcing of healthy, natural ingredients
• New manufacturing facilities, local sourcing, and supply chain transparency
• Greater use of sustainable and environmentally friendly packaging

Key investment themes

• Targeted investments to capitalize on the above trends
• Roll-up of smaller snack brands

Non-consumables items

• Several pet start-ups using new technologies and business models
• Greater offerings of innovative products to enhance engagement among pet owners
• Pet owners seeking toys and products for activity and wellness-promotion

Key investment theme

• Fragmented accessory space presents roll-up opportunities

Service providers

• A greater degree of services catering to pets and pet owners
• Increase in luxury grooming and boarding services
• Veterinary consolidation as major chains acquire smaller practices

Key investment themes

• Consider roll-up of independent groomers and vets
• Launch franchise model for groomers

Pet retailers

• Premium mass consumables at mass retailers
• E-commerce representing a growing share of total pet care retail sales

 Key investment themes

• Focus on scaling regional chains
• Invest in e-commerce players or support for large retailers’ online operations

Trends are always interesting to follow, but can be difficult to exploit. Cap Expand Partners helps you capitalize on the aforementioned trends and others, helping you become more profitable, now and in the long run. Let’s get in touch and see how we can help your business grow.

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