Managing Director Ryan Budlong recently attended Global Pet Expo, the pet industry’s largest annual trade show. Budlong reports larger crowds and more activity on the show floor than in previous years, which he says is indicative of growing buyer and investor interest in the space.
The numbers support this observation: According to the American Pet Products Association, pet product buyer attendance was up 8% versus last year, and 61% compared to the inaugural 2005 show. Nearly half these buyers were at the show for the first time, as were nearly 300 of the approximately 1,200 exhibitors.1
That lines up with Budlong’s perception of the industry: “It’s attracting more and more attention every day, whether from new market entrants, from strategic buyers or financial investors.” As Budlong notes, that attention is drawn to strong and steady growth in spending. In fact, annual U.S. spending on pet products climbed from $29 billion in 2001 to an expected $75 billion in 2019, for a CAGR of 5.9% across economic cycles.
Source: American Pet Products Association, March 2019
Which specific pet product trends generated the most buzz at this year’s event? For one thing, says Budlong, while dog products have been the focus of buyers and investors for a long time, interest is starting to climb in cat products. There is generally less competition for shelf space in cat products, and there’s a real opportunity for new, innovative, authentic “just for cats” brands, as many existing cat products are made by companies that focus on dogs.
Other trends shaping the space mirror those seen in products intended for human consumption, says Budlong. For example, pet owners are more concerned than ever about the safety of the supply chain, and are demanding the highest quality ingredients in pet foods. Consumers also want more visibility into knowing what those ingredients are and where they came from, just as with the food they themselves eat, he adds.
Cannabidiol (CBD) is another example. “As we’re seeing in nutraceuticals and other human products, CBD is showing up in supplements and topical treatments for pets,” says Budlong. “And, like their human-specific counterparts, they’re being touted as effective for a range of ailments, including anxiety, seizures and chronic pain.”
Budlong notes that the jury is still out on the safety and effectiveness of CBD in pet products—in fact, the American Kennel Club (AKC) recently launched a study to answer that very question.2
The crossover extends to the increasing number of human food companies entering the pet food space in search of superior growth and margins. They often are already serving the same retailers and consumers, which makes that move easier. “For example, when General Mills bought Blue Buffalo it leveraged its relationships with major retailers to get that brand on their shelves,” says Budlong.
Indeed, Budlong notes that an increasing number of brands that developed in the independent pet specialty channel are starting to move into mass retailers like Target, Walmart and major grocery chains. “That has created opportunities for other up-and-coming brands to fill in some of that shelf space at independent specialty retailers, which tend to want to provide brands that consumers can’t buy at mass retailers,” he says.
For their part, strategic buyers and private equity groups continue to look for pet product companies with product portfolios that can play across channels. “The independent channel is only so big,” observes Budlong. “So strategic buyers in particular want to know that they’ll be able to push a brand’s products through their own distribution channels into food, drug and mass retail.”
Given the strong growth and margins of the segment, companies that can develop such winning product concepts should be on the radar of both strategic buyers and financial investors.
Published April 2019