The Pet Food Market
William A. Knudson
1-1203
December 2003
The Strategic Marketing Institute
Working Paper
The Pet Food Market
William A. Knudson
1-1203
December 2003
The Strategic Marketing Institute
Working Paper
2
INTRODUCTION
The pet food industry is a major industry in the U.S. and it is one of the few food
industries that is undergoing sustained growth. According to the American Pet Product
Manufacturers Association (APPMA) 13 billion dollars will be spent on pet food in 2003
(APPMA b, p. 1). In 2002, dog food sales were 8.02 billion dollars and cat food sales
were 4.20 billion dollars. These figures represent an increase of 9.7 percent for dog food
and 8.2 percent for cat food from 1999 (Mint
e
l, p. 17).
There are several reasons for this fact. Most households still have children in
them. Households with children are more likely to have pets than those who do not.
Furthermore, more and more people are living by themselves. While people living by
themselves are less likely to own a pet, they are more likely to spend more on their pet if
they do own one. Another factor affecting the pet food industry is the fact that
increasingly pets are no longer considered animals but are considered by of the family.
These trends will likely continue into the near future
This paper will analyze the pet food industry in some detail. The paper will
analyze demand drivers, the structure of the industry and outlets for pet food.
Implications for potential entrants into the industry will also be considered. The focus
will be on dog and cat food. While horses are often considered pets, their food
consumption patterns more closely approximate that of livestock.
DEMAND FOR PET FOOD
Demographics
There are more than 350 million pets in the U.S. Furthermore, 64.2 million
households or 62 percent own at least one pet. In 1988, 56 percent of U.S. households
3
owned pets (APPMA b, p. 1). Table 1 shows the breakdown in the number of pets in the
U.S.
Table 1: Number of Pets in the U.S.
Type of Animal Number (in millions)
Cats
77.7
Dogs
65.0
Birds
17.3
Reptiles
8.8
Small Animals*
16.8
Saltwater Fish
7.0
Freshwater Fish
185.0
Total
377.6
* Small animals include rabbits, hamsters, etc.
Source: APPMA
While cats and dogs are not the most popular pets in terms of numbers they do represent
the largest component of pet food purchases. In 2000, 39 percent of households owned
dogs and 34 percent owned cats (Mint
e
l, p. 6). There are several reasons why cats are
becoming more popular as pets: the level of maintenance is lower, and cats are more
suited to living in an apartment than dogs (Mint
e
l, p. 8).
U.S. demographics are contributing to the growth in the number of pets and the
resulting increase in the amount of pet food purchased. In the U.S., 78.45 million people
are aged 19 or under (Mint
e
l, p. 13). Pet ownership is higher in households with children
than in those without children. In a survey conducted by Mint
e
l, 64 percent of
households with children present owned pets whereas 52 percent of those without
children owned pets (Mint
e
l, p. 67).
While households with children are more likely to own pets than households
without children, more than half of households without children own pets. Furthermore,
4
these households often have more discretionary income than those with children. As a
result, households without children spend more on their pets than those with children
(Mint
e
l, p. 12). The implication of this is that even if the number of childless households
increases the amount spent pet food may not be affected.
The Humanization of Pets
This leads to another factor affecting the demand for pet food, the humanization
of pets. Pets are increasingly seen as family members, not animals. A list of some
recently introduced pet food related items that point out this trend is listed in table 2.
Table 2: New Pet Food Product Launches
Product Name
Product Attribute
Crunchkin' Crunch Cards
Edible dog greeting cards
Christmas Countdown Calendar
Advent Caledar with dog or cat treats
Hanukkah Doggie Treats
Kosher dog treats
Old West All Natural Shrimp Cat Treat
All natural shirmp cat treat
Howlin' Gourmet Dog Treats
Ogranic, kosher dog treat
Sources: APPMA b, Mint
e
l
This list is not to be considered complete by any means but it does show that pet food
manufacturers do see a market for pet food that is purchased by owners who see their pets
as more than animals.
Furthermore, according to one survey, 83 percent of pet owners call themselves
âmommyâ or âdaddyâ and 59 percent celebrate their petâs birthday (Mint
e
l, p. 9).
According to the APPMA, more than one million people have purchased health insurance
for their pets (APPMA b, p.2). Most importantly for the pet food industry, 66 percent of
pet owners specially prepare their petâs food (Mint
e
l, p. 9). The figures indicate that the
5
trend for specialty foods for pets including low calorie, organic, and health food will
continue.
One impact of the increasing interest in heath is the movement away from moist
pet food to high quality dry pet food. From 1999 to 2001, sales of dry dog food
increased by 8.4 percent, while sales of canned dog food increased by 4.5 percent during
the same time period (Mint
e
l, pp. 33,34). Particularly striking is the case of Procter and
Gamble, manufacturers of Iams a premium dry food; their sales have increased by 25
percent from 1999 to 2001. Sales of dry cat food increased by 10.8 percent from 1999 to
2001, while sales of canned cat food declined by 8.8 percent during the same time period
(Mint
e
l, pp. 37,38). However, canned cat food has a much larger role in the industry than
canned dog food.
Foreign Trade
The U.S. is a major exporter of pet food. In 2001, the U.S. exported 908.52
million dollars in cat and dog food. Major export markets include Japan, Canada,
Mexico and the European Union (EU) (Mint
e
l, p. 26). The U.S. imported 132.37 million
dollars in dog and cat food, mostly from Canada (Mint
e
l, p. 27).
The outlook for foreign trade is good. Pet ownership is increasing throughout the
world, especially in countries where pet ownership is not the custom (Mint
e
l, p.27). The
U.S. with its established industry and access to raw materials is well positioned to meet
the increased demand for pet food.
6
STRUCUTURE OF THE INDUSTRY
Major Firms
Some of the largest firms in the food industry are major players in the pet food
industry. Table 3 shows the market share for the major pet food firms in the industry.
Table 3: Market Share of Pet Food Manufacturers 1999 and 2001
Firm
Market Share, 1999
Market Share, 2001
Purina
14.7
14.2
Friskies Pet Care
11.8
10.7
Procter and Gamble
(Iams)
7.4
8.5
Heinz
11.1
8.3
Doane (Ol' Roy)
7.0
7.6
Colgate-Palmolive
(Hill's Pet Nutrition)
6.6
6.7
Mars (Kal Kan)
4.6
3.9
Nutro
2.5
3.5
Others
34.4
36.7
Total
100.0
100.0
Source: Mint
e
l
This table has several interesting aspects. The largest pet food manufacturer is Purina,
subsidiary of Nestle foods, the worldâs largest food manufacturer. In order to acquire
Purina, Nestle was required to spin off Friskies. However, Purina only accounts for
slightly more than 14 percent of all sales. Doane sells primarily private label food for
retail firms. Hillâs Pet Nutrition is produces prescription food and other specialty foods
that are only available from veterinarians, breeders and pet supply stores (Mint
e
l, p. 41).
Firms that are dependent on moist pet food, Mars and Heinz, have seen their market share
decline.
7
Another interesting aspect of the industry is the fact that firms not listed account
for almost 37 percent of sales. Apparently there is opportunity for small firms to enter
the pet food market.
Distribution of Pet Food
Where pet food is purchased also provides opportunities for small firms
attempting to enter the market. Table 4 outlines where pet food buyers purchase pet
food. The table shows the wide array of choices consumers have when purchasing pet
food.
Table 4: Retail Sales of Pet Food and Supplies 2000 and 2002
Outlet
Percent of Sales 2000 Percent of Sales 2002
Supermarkets
38.8
37.4
Pet Superstores
16.7
17.2
Mass Merchandisers
15.8
16.4
Farm and Feed Stores
5.4
5.4
Vet/Kennel
5.0
5.0
Other*
18.2
18.6
Total
100.0
100.0
*Other includes drugstores, convenience stores, natural food stores, and Internet sales
Source: Mint
e
l
Most people buy their pet food at supermarkets. However, the market share of
supermarket sales is declining. The market share of pet store chains and mass
merchandisers such as Wal-Mart and Target are increasing. Outlets such as farm and
feed stores and veterinarian offices are staying constant in terms of market share.
Pet superstores have an advantage in that they sell premium dog and cat food
(Mint
e
l, p. 56). This has allowed them to grow at the expense of supermarkets.
Furthermore, a new entrant into the pet food industry may face difficulty obtaining shelf
8
space in a supermarket or mass merchandiser. It may be easier to obtain market access
through pet stores, farm and feed stores, kennels and other small outlets.
IMPLICATIONS
The pet food industry is growing. Mint
e
l forecasts an annual increase in sales
(not adjusted for inflation) of approximately 3.0 percent a year for both dog and cat food
between 2003 and 2007 (Mint
e
l, pp. 82-83) in the U.S. Foreign demand is also
increasing. Another positive aspect of the pet food industry is the increasing interest on
health food and foods that are able to obtain a premium price.
While some of the worldâs largest food manufacturing firms are involved in the
pet food industry, no firm dominates. Furthermore, there are many potential outlets for
pet food. Barriers to entry do not appear to be insurmountable for a firm attempting to
enter the pet food industry particularly if the firm is attempting to meet a market niche
whose needs are not currently being met.
CONCLUSION
The pet food industry is growing and will likely continue to do so. Demographic
trends indicate that the number of pets will continue to increase as will the amount spent
on pets. Foreign demand is increasing and the U.S. is a major exporter of pet food.
These are all positive trends for the industry.
The structure of the pet food industry is also positive for firms considering
entering the industry. No single firm dominates the manufacture of pet food and there are
several outlets for firms considering launching a new pet food product.
9
SOURCES
American Pet Products Manufacturers Association (APPMA a).
Edible
Christmas Cards Top List of Hot Pet Holiday Gifts
. September, 2003.
American Pet Products Manufacturers Association (APPMA b).
Industry
Statistics & Trends
. 2003.
Mint
e
l. The U.S. Pet Food & Supplies Market. Chicago: Mint
e
l. November,
2002.