Bad Economy? Don't Tell That To Fido

Pet category sales hang tough as natural products claw their way forward.

While the difficult economy has caused some of the nation's 71 million pet-owning households to moderate their purchases for Fido or Mitsy, petrelated spending remains strong, and supermarket category managers who stay abreast of the trends can capitalize.

There are challenges for supermarkets to increase their share of pet product spending, says David Lummis, senior pet market analyst at New York-based Packaged Facts, who has authored two studies this year that analyze pet market trends nationwide. But, he adds, there are significant opportunities — if the right decisions are made.

"Supermarkets are caught in between two trends — a move toward value-priced products on the one hand, and a focus on premium-priced products on the other," he explains. "Supermarkets have their work cut out for them in keeping the all-important 'pet parent' shopper buying in their stores. They have to figure out what mix is best for their individual marketplace."

According to the Greenwich, Conn.- based American Pet Products Association (APPA), 62 percent of U.S. households own a pet, and spending on pet-related products and services has steadily increased from $36.3 billion in 2005 to $45.5 billion last year and an estimated $47.7 billion in 2010. In 2010, APPA predicts food will account for $18.28 billion, with supplies and over-the-counter medicine bringing in another $11.01 billion. The rest will go to veterinarian care, live-animal purchases, and pet services such as grooming and boarding.

In its March 2010 report authored by Lummis, "U.S. Pet Market Outlook 2010-2011, Tapping into Post-Recession Pet Parent Spending," Packaged Facts cited SymphonyIRI Group InfoScan Review data showing that sales of pet products rose 5.3 percent to reach $8.2 billion during 2009 in supermarkets, drug stores and mass merchandisers except Walmart. Dog food sales were up 8.1 percent and cat food sales rose almost 5 percent. Sales of nonfood pet supplies rose less than 2 percent in 2009, with cat litter and non-dog/cat supplies stalling completely.

The upward trend appears to be continuing, according to The Nielsen Company, which reported that sales in those outlets, but including Walmart, increased from $11.67 billion in the year ending July 11, 2009, to $11.84 billion for the same period this year.

"The ace in the hole for supermarkets," says Lummis, "is that it they are the most frequently shopped channel. It is where most household shoppers go once a week, so there is a serious convenience advantage. They should really play up that convenience angle."

The addition of private label brands, he notes, is also a good way to capture and retain pet parent customers, whether the house brand is focused on value or premium — or perhaps both.

"A lot of chains like Wegmans, for example, have started private label programs with pet food that have been very successful," he says, adding that the trend toward premium private label is gaining traction and that there's room for growth.

A February Packaged Facts survey of pet owners showed that 55 percent said they were not spending less on pet products because of the economy, while only 27 percent said they were. The remaining 18.7 percent had no opinion.

"Therefore, even though a significant portion of pet owners are spending more conservatively on their pets, most pet owners aren't throwing out the puppy with the bath water," the report finds.

What's more, pet owners continue to seek out small indulgences for their pets, according to the study, which notes that during 2009, sales of dog biscuits/treats and cat snacks rose 8 percent and 15 percent, respectively, according to SymphonyIRI.

"People become more attached to their pets in times of uncertainty and stress," explains AAPA president Robert Vetere, "so we continue to reward them for their unconditional love and companionship. Couple this with the trend of humanizing products and services for our pets, and the result is an overall increase in spending so we can strengthen that human-animal bond."

Natural Advances

But there's another trend that may seem remarkable, considering an economic climate in which the nation's unemployment rate remains at just under 10 percent nationwide: the increase in U.S. retail sales of natural pet products, which seems to parallel interest in sustainability.

The second Market Facts study authored by Lummis and published in July indicates that every year since 2005, natural pet product sales have increased, rising from $894 million to $1.89 billion in 2009, set to grow a projected $2 billion this year and primed to hit an estimated $3.16 billion by 2014.

"That is a trend that is catching on across everything," says Lummis, "and it is increasingly being associated with value. So companies that are retrofitting their plants and buildings with eco-friendly systems are capitalizing on the favorable publicity and the ability to reduce costs at the same time."

Accompanying that movement is a trend in natural product growth. According to Chicago-based SymphonyIRI, 2009 overall sales of natural pet products of $1.9 billion in 2009 were 6 percent higher than in 2008, and had increased nearly 20 percent over 2007.

"We're predicting a 10 percent increase this year, compared to 4 percent to 5 percent in the overall retail market for all pet products," Lummis says. However, in mass-market channels, including supermarkets, sales of $296 million increased just 1 percent over the previous year.

"Of the three product classifications included in these estimates — dog/cat food, litter and dog/cat needs — only litter made a healthy advance, growing 18 percent (compared with 0.7 percent growth for litter overall), while natural dog/cat needs grew 2.8 percent (vs. -1.3 percent overall) and dog/cat food declined 2.4 percent," Lummis writes in the second report. "The down economy appears to have taken a heavy toll on these generally higher-priced products."

"This is an area in which supermarkets can capitalize," Lummis suggests. "There is a wide array of products available, and plenty of opportunities out there."

While the pet specialty channel remains the stronghold for natural pet products, Lummis notes in the second report that inroads made by mass marketers in recent years indicate that channel shares are shifting, and that supermarkets and other mass merchandisers are gaining ground.

The key for supermarket operators to capitalize on these trends, Lummis contends, is determining the right product mix for individual markets.

"Supermarkets have a value appeal," he says. "For most people, supermarkets are viewed as the place where values can be found. So hitting hard on the one-stop, great-prices equation can be a compelling sell for supermarkets."

But at the same time, the trend toward premium brands and natural products continues and shows no sign of abating. "So finding the right mix of value and premium is essential to have a recipe for success," says Lummis.

"Supermarkets have their work cut out for them in keeping the all-important 'pet parent' shopper buying in their stores."

—David Lummis, Packaged Facts