Retail volume growth
According to Euromonitor, pet care witnessed a relatively strong development over the 2012-2017 review period despite the economic downturn, as Russian pet owners refused to cut down on expenses on their pets. However, several years of economic recession took its toll on the development of pet care. Retail volume growth remained low in 2016, and a similar dynamic is expected in 2017. The declining purchasing power of Russian consumers prevents them from increasing their consumption of pet care and adopting new pets, which restrains growth. Further upward pressure on unit prices is likely due to a VAT increase on pet food from 10% to 18%, following the adoption of a new product classification system in Russia.
Mid-priced category
Dog and cat food categories appear to be well developed in Russia, and the breakdown in the pet population and pet food between dogs and cats remained stable throughout the review period. Cat and dog food are expected to witness similar trends with a movement towards mid-priced categories.
Consumers sacrifice purchases of more expensive brands in the premium non-therapeutic category, while economy products often do not satisfy their quality requirements. In addition, the mid-priced categories offer well-known brands of leading manufacturers, with strong distribution through modern retailers. Growth is expected to be observed in the mid-priced wet and dry dog and cat food categories.
The two leading companies
Pet care is strongly led by two international giants, Mars and Nestlé Russia. Both manufacturers are predominantly present in dog and cat food, with their brands distributed across all price segments. Mars and Nestlé Russia operate domestically located production facilities and have achieved unmatched brand recognition through constant advertising campaigns during the long years of their presence in Russia.
Domestic manufacturers could not increase pressure on the two leaders, despite the continuing growth of domestic brands’ quality level and widening assortment. A lack of access to the largest grocery retailing chains and insufficient marketing budgets will not allow domestic manufacturers to pose a threat to Mars and Nestlé Russia shortly.
Modern grocery retailers
The share of modern grocery retailers surpassed the compound share of sales value generated by pet shops and pet superstores during the review period. In 2017, the increasing share of modern grocery retailers is set to continue. The trend is strongly influenced by the volume growth of mid-priced products in pet food, which is largely represented by Mars and Nestlé Russia brands, which have good access to modern retail channels.
Another trend in pet care distribution is the continuing development of internet retailing. The channel is especially popular for purchases of heavy items, such as large packs of dog food, as consumers benefit from delivery options, while prices are often comparable to those found in pet stores and grocery retailers.
A positive development
Over the course of the 2017-2021 forecast period, pet care is set to record positive retail volume growth. The anticipated economic recovery will likely support growth in the dog and cat population and disposable incomes of Russian consumers. Slightly stronger volume growth is expected in dog food, due to its lower volume base compared to the level of cat food.
The weak retail volume sales of other pet products and premium dog and cat food witnessed in the review period, will likely recover together with the expected GDP growth. Overall, pet care is set to move towards greater maturity and stabilization.
Pet food prices: Which U.S. states are seeing the biggest increases and drops
Inflation in the category has surged by 18.1% nationwide over the past 5 years.
The latest data from the August Consumer Price Index (CPI), released by the U.S. Bureau of Labor Statistics, reveals that pet food prices are still increasing, even as grocery prices have largely stabilized. GlobalPETS analyses.
Price changes since 2019
According to American market intelligence firm Datasembly’s Grocery Price Index, companion animal food prices have risen by 18.1% over the past 5 years in the U.S., but some states experienced significantly higher increases.
Vermont saw the steepest hike at 44.3%, followed by other states like Louisiana (42.9%), Wyoming (42.7%), Mississippi (42.5%) and Arkansas (42.4%).
However, in recent months, most of these states, except Vermont, have seen a slowdown in price increases.
Cost fluctuations in a year
While overall pet food costs have decreased by 0.4% since August 2023, according to the CPI, state-wise data shows a wide range of fluctuations.
In this case, South Carolina recorded the highest inflation over the past 12 months at 3.4%, followed by Vermont (2.9%), New Mexico (2.6%), North Carolina (2.5%) and Hawaii (1.6%). Conversely, the states with the largest drop in pet food prices include West Virginia (-1.3%), Pennsylvania (-1.3%), Mississippi (-1%), Colorado (-1%) and Oregon (-0.9%).
Factors at play
The regional price fluctuations can be attributed to multiple factors.
According to the American Feed Industry Association (AFIA), events like the drought along the Mississippi River – a major U.S. waterway critical for transporting goods – and the collapse of the Francis Scott Key Bridge in Baltimore in 2023 – a key link that transported 52.3 million tons of foreign cargo – have caused significant shipping delays. These disruptions have added further challenges to the U.S. domestic supply chain.
Additionally, the ongoing conflict in Ukraine, a key grain exporter, has disrupted international trade of raw materials and contributed to rising costs by affecting global grain supplies and prices.
Inflation’s impact on US dog and cat food sales
Though US dog and cat food sales continue to increase by double digits, nearly all the growth is due to higher prices, causing some pet owners to trade down.
Let’s start with good news: Sales of dog and cat food in the U.S. are continuing their heady pace of double-digit growth each year — for example, 2023 sales will end up nearly 14%, totaling US$51 billion over the 2022 figure of roughly US$44.8 billion, per data from Packaged Facts. That 2022 total represented 12% growth over 2021.
Yet in its latest report, “Pet Food in the U.S., 17th Edition,” Packaged Facts cautions that for the first time in recent history, the increase in dog and cat food sales growth has been driven almost entirely by higher prices, aka inflation, “rather than by this market’s historical growth driver, premiumization.”
David Sprinkle, Packaged Facts’ director of pet market research, previously mentioned inflation’s role in discussing 2022 sales growth, but it seems to be having an even greater impact now. The new report includes data from a September/October 2023 survey of U.S. pet owners showing one-third had changed pet foods in the previous 12 months; of those, 32% of dog owners and 28% of cat owners said they traded down to lower-priced products.
Pet food inflation declining, but prices are still higher
While U.S. pet food inflation on a year-over-year basis has been declining since late spring 2023 — for October, it stood at 6.5% YOY, down from September’s 7.6% and less than half the 15%+ high it hit in late 2022/early 2023 — prices are still almost 23% higher than in October 2019, pre-pandemic. (The inflation data comes from the U.S. Bureau of Labor Statistics via John Gibbons of pet professor, who helpfully compiles and analyzes the pet industry figures each month.)
Considering that human food prices (namely, groceries) are up 25.77% from October 2019, consumers are feeling the strain. “With prices of basic human food staples such as eggs and butter doubling and tripling, pet shoppers have been cutting back even in the market’s least discretionary category of pet food,” remarked Sprinkle’s colleague David Lummis, lead pet market analyst for Packaged Facts, in a May 2023 article in “Pet Product News.”
The recent survey data about pet owners trading down to lower-priced pet foods mirrors feedback from February 2023, when another Packaged Facts survey showed 42% of U.S. dog owners and 44% of cat owners naming the high cost of pet food as one of the most significant challenges to owning a pet. Of course, that’s on top of other high costs of pet care, including veterinary and medications, as presented by Sprinkle during a Petfood Forum 2023 session. In addition, Packaged Facts data from January to August 2022 indicated pet food spending increased for 28% of U.S. pet owners.
Even the ‘well-off feel the bite,’ yet pet food sales expected to rise
It’s tempting to assume that many, or most, of the pet owners experiencing significant pain from higher pet food prices are in lower-income brackets, but that may not necessarily be the case. In his May article, Lummis quoted a Wall Street Journal article from February 2023 in which an expert commented: “The U.S. could still skirt a recession, but it is already in a ‘rich session.’ That’s when, amid economic uncertainty, the well-off feel more of the bite.”
I can remember in the before times, before the pandemic and this high inflationary period, when I and others in the pet food industry speculated whether there was a ceiling to premiumization, a limit to how much even affluent pet owners would spend on their pets’ food. Recent data indicates we may have reached it.
Fortunately, the market is dealing from a foundation of strength. “Underpinnings like ‘pets as family’ and health and wellness will keep the pet industry on solid ground,” Lummis predicted. To that end, Packaged Facts rather bullishly projects U.S. dog and cat food sales to increase at a compound annual growth rate of nearly 10% through 2027, meaning they would reach US$73 billion that year.
U.S. Pet Industry Feels the Bite of Inflation, “Weird” Economy
Inflation and the overall erratic economy made 2022 uncharted territory even for the famously resilient U.S. pet industry. As The Wall Street Journal (WSJ) reported on Feb. 16, “With the cost of pet food up 15 percent year-over-year and pets and pet products up 12 percent … owners are making changes … People often treat their pets like children. However, elevated inflation means many are struggling to afford to take care of themselves and their kids. Pet owners are now getting rid of Buddy’s food diet and Bella’s monthly treat and toy subscription box. They are also baking their treats and driving hours for less-expensive vet care.”
A WSJ survey of 1,000 pet owners conducted in February 2023 found that about half had reduced pet care costs in the past year, with a little over a quarter foregoing or putting off a pet’s vet visit or routine medication to economize, 49 percent opting for at-home instead of professional grooming, and one-tenth surrendering a pet for budgetary reasons.
During 2022, the consumer price index (CPI), the measure of inflation most directly related to consumer spending, was up 10.2 percent for pet food versus the full year 2021, 9.2 percent for pets/pet products, 8.8 percent for veterinary services and 6.3 percent for pet services, according to the BLS. Most analysts expect the inflationary conditions to persist through 2023 due to strong demand compounded by product scarcity stemming from issues carrying over from the pandemic, including ship-ping backlogs, reduced production, and labor shortages. Exacerbating the challenges are crises including the war in Ukraine and the COVID-related lockdowns in China as well as outbreaks following the lockdowns. Interest rate hikes by the Federal Reserve, intended to beat back inflation, have put additional pressure on consumers.
Reflecting the price hikes, in Packaged Facts’ November 2022 Survey of Pet Owners, 75 percent of pet owners were concerned about rising prices for pet food, and 67 percent were concerned about rising prices for non-food pet supplies, with human food (88 percent) and beverage (78 percent) prices and the cost of health insurance (79 percent) also top of mind. Comparing results from Packaged Facts’ February 2023 Survey of Pet Owners with those from the January 2022 survey:
33 percent of pet owners reported that their ability to buy non-essentials had been negatively impacted by the economic environment, up from 29 percent.
39 percent of U.S. pet owners strongly feel that many pet products are becoming too expensive, up from 35 percent.
35 percent strongly agree that they look for lower prices, special offers, and sales, up from 30 percent.
The impact of inflation and widespread economic malaise is playing out across all areas of the market. After surging 16 percent and 15 percent in 2020 and 2021, respectively, sales of pet food advanced 12 percent in 2022, with almost all of the dollar advancement stemming from the sector’s 10 percent inflation. With prices of basic human food staples such as eggs and butter doubling and tripling, pet shoppers have been cutting back even in the market’s least discretionary category of pet food. Like pet food, non-food pet supplies thrived during the pandemic era; U.S. retail sales rose 17 percent in 2020 and 16 percent in 2021. But the dollar advancement dropped back to 9 percent in 2022, a year in which the CPI surged 9.2 percent for “pets and pet products.”
“In this column’s nearly 20 years of market observation, there’s never been anything like the market volatility of the COVID-19 pandemic and post-pandemic era; as The WSJ noted in early March 2023: ‘The economy is weird.’”
Sales of non-medical pet services totaled $11.1 billion in 2022, advancing 9 percent over 2021, but the pet services CPI rose 6.3 percent in 2022. As of 2022, most service categories are either still behind or just now climbing back to their pre-pandemic sales levels. Veterinary sector sales rose 9 percent in 2021 to $35 billion. But veterinary services cost 8.8 percent more in 2022 than in 2021. Underscoring that the gains are mostly inflationary, the share of dog or cat owners making veterinary visits in the past 12 months fell from 85 percent in 2020 to 71 percent in 2022.
In this column’s nearly 20 years of market observation, there’s never been anything like the market volatility of the COVID-19 pandemic and post-pandemic era; as The WSJ noted in early March 2023: “The economy is weird.”
With inflation expected to moderate only gradually in 2023 and interest rates expected to remain elevated, Americans can be expected to continue to prioritize their spending around things like keeping food on the table and gas in the tank. Underpinnings like “pets as family” and health and wellness will keep the pet industry on solid ground. But like last year, 2023 will be another bumpy ride.