As historic inflation slams the U.S., consumers are flocking to bad beer and Walmart-brand cream cheese. But retailers have noted one shockingly recession-proof category: pricey pet food.
“People are more willing to down trade for themselves than they are to down trade for their children,” Hunter Williams, partner at consulting firm Oliver Wyman, told FreightWaves. “Part of the recession resilience of [the pet industry] is that people don’t like to sacrifice the quality that they’re providing to their children — furry or not.”
It’s indeed superb for the packaged-food giants that sell top-notch pet food, which has become a cash cow following the pandemic’s spree of pet adoptions. In 2021, the American Pet Products Association estimated that the U.S. pet industry expenditure reached $123.6 billion, around 40% of which was food and treats.
Nestlé, the world’s largest consumer packaged goods company, is experiencing its most rapid growth in its pet food (Purina PetCare) business, as are Colgate-Palmolive and General Mills. And for all three companies, their pet food businesses typically earn profit margins above the company average. And even Silgan Holdings, the largest manufacturer of metal food cans in the U.S., counts pet food customers as half of its volume.
Nestlé counts pet food its No. 2 category, with $19.2 billion in sales in 2022. General Mills reported that pet food reached $593 million in sales last year.
Here’s why premium pet food has become a rainmaker for CPG giants.
Um, wait. What the heck is premium pet food?
Premium pet food isn’t a legal term. But, generally it means higher content of protein and fiber. Compare the nutrition labels of two very different types of dry dog food: Gravy Train Beefy Classic and Ketonatural Chicken. The latter costs 10 times more per pound than the former.
Gravy Train’s first three ingredients are corn, soybean meal and a scrumptious concoction called meat and bone meal. Ketonatural’s first three ingredients are chicken, pea protein and ground green peas.
“Consumers really want to see clean ingredients,” Euromonitor research associate Melanie Torres Cabrera told FreightWaves. “They want to be able to feed their pets something knowing that it’s not chicken-flavored mystery meat.”
Premium pet food is more likely to be refrigerated or frozen. That can be a win for trucking companies as temperature-controlled loads tend to be higher margin for carriers.
Minor deviations in temperature can put shipments at risk. The vast majority of temperature-controlled trucking carriers, though, say they lose 5% or fewer of their shipments per year as a result of “temperature excursions,” according to a 2022 FreightWaves survey. That’s still a lot of lost cash — especially if it’s fancy dog food.
1. There are more pets than ever — and their ‘parents’ are increasingly rich
The U.S. pet population has soared in recent years. Around 69 million households own a dog, according to the American Pet Products Association’s 2021-2022 national survey. That’s a 27% uptick for dogs from the 2015-2016 survey. (Meanwhile, cats have only seen a 6% bump over the same time period.)
The pet population is expected to grow at a 2.4% compound annual growth rate from 2022 to 2025, per Euromonitor.
It’s not just that more Americans have a pet. Those pet owners are richer, too. Data from Euromonitor suggests that pet ownership grew in households with incomes of $101,000 or more and fell in households with incomes below that. Per Packaged Facts, pet ownership increased in six-figure households with no children from 2019 to 2021.
2. The best way to make more money in pet food is by making it expensive, rather than growing volumes
Health-conscious Americans are designing their pets’ meals in the same way they’ve optimized their own diets. Fido can take probiotics, eat keto-friendly dog food and take gummy vitamins.
According to Williams, you can wait around for the pet population to grow if you want to make money off those critters. Or, better yet, you can make pet products more expensive. Morgan Stanley recently projected that annual spending per pet will grow to nearly $1,300 in 2025 from $980 in 2020.
The pet food industry hasn’t just created more high-end options, it has also expanded the channels where you can buy them. Debbie Phillips-Donaldson, editor in chief of Petfood Industry, said even a decade ago, specialty pet food stores were the only locales to find high-end pet noshes. The grocery store tended to have more “economy” options. Today, big-box retailers stock the fancy stuff.
Blue Buffalo is one notable example. The premium pet food brand was founded in 2002 and mostly was confined to specialty retailers. In Jan. 2019, General Mills acquired Blue Buffalo and catapulted the brand into more mega-retailers.
It’s all part of a trend that pet industry honchos call “humanization.” Fido isn’t a gnarly mutt anymore, but a crucial part of the family.
3. Childless adults are more likely to treat their pets as ‘fur babies’
Some really want to blame millennials, as is often the case. These theorists are very keen on the idea that millennials are ditching parenthood of human babies for that of “fur babies.”
Demographic data, it must be said, proves some of this out. The birth rate in the U.S. has declined to a level where experts are expressing concern. While the U.S. (human) population grew by just under 2% from 2016 to 2020, the dog population grew by nearly 9%, according to the American Veterinary Medical Association (AVMA). That’s a lot of dog food!
Childless pet owners are a bit of a gold mine for the pet industry. The AVMA has even defined a group of pet owners called “pampered pets.” They’re under 35 or between 45 and 54, have no kids or spouse, and make more than $200,000 (or, on the other end of the spectrum, under $25,000).
In that segment, 96% consider their pets as a family member. A whopping 86% celebrate their pets’ birthday. Nearly 20% of them have their pets in their will.
Yet another category that will see ever-higher margins
This is a gold rush for CPG firms. They’ve already explored the extent to which they can sell adults and children delicious, expensive food. Dogs and cats are a new, quickly growing population to make pricey stuff for. What’s more, CPGs can sell those goods in bigger retailers and keep pet parents locked in to those fancy brands.
The pet industry, Williams said, is “a safe place to put your money to work in an uncertain time.”
As Bloomberg’s Odd Lots recently explored, companies that jacked up the cost of everything in response to the supply chain crisis aren’t exactly going to slash prices now that there’s less freight drama.
Pet food is one example of how the pandemic economy will play out today. Indeed, Nestlé, the maker of Purina, said it bumped up the pricing for pet food by 10.2% in 2022. None of its other categories saw as big a jump.
“Most pet owners now consider their pets part of their family,” Phillips-Donaldson told FreightWaves. “So they treat them accordingly and they feed them accordingly. Once that’s started gaining traction, then of course all the companies and brands are like, ‘Hey, we can make more expensive food and charge more for it.’”
Adam Josephson contributed to this article.
What do you think of premium pet food? How much do you spend on fancy dog food? Do you have your cat in your will? Email rpremack@freightwaves.com with your thoughts. And be sure to subscribe to MODES for more.