Pet Food: Steady Growth Sparking Global Interest

What’s stronger than the bond between people and their pets? Arguably, the level of interest in the pet sector among potential investors.

“The pet sector continues to attract more and more attention every day, whether from new market entrants, strategic buyers, private equity, or long-term capital providers,” says Ryan Budlong, a managing director in the Harris Williams Consumer Group. Budlong says that attention is due to strong and steady growth in spending.

Pet ownership accelerated significantly in 2020 as people suddenly found themselves with more time at home.1 All of those new pets will need food, health care, and an ever-increasing range of additional products and services for years to come, capturing the attention of strategic buyers and private equity groups from around the world. Overall, the average dog owner will spend more than $53,000 on their dog over its lifetime.2

Within the pet industry, pet food is a major focus for many buyers seeking growth and stability. One reason is cycle resilience: Annual global spending on pet food increased from around $53 billion in 20083 to $91 billion in 20194, for a CAGR of 5% across economic cycles. Going forward, the pet care segment, including pet food, is forecast to grow strongly at about 3-4% through to 2022.5

In addition, in many parts of the world, the pet food sector is populated by just a handful of major corporate players with well-established strategies. This makes it easier for smaller companies to replicate successful strategies of their own, according to Will Bain, a London-based managing director in the Consumer Group: “If you can win share from these major players in one market, you can generally use a similar approach to win share elsewhere too. It’s different than other categories with more complex regional competitive dynamics and consumer tastes, such as human food and beverage.”

In particular, says Bain, large global pet food manufacturers typically operate on a high-volume basis, generally prioritizing gross margins and market share over product innovation: “The most successful brands are driving high cash margins for retailers. In some pet food segments, a lack of innovation and a focus on incessant promotions and discounting has stifled category growth. If you can show retailers that your product can help grow the category, the opportunity is significant.”

Through its extensive work in the pet food sector, Harris Williams has gained insights into the ways in which different companies have approached this opportunity. Here, we share learnings from three recent clients that have found innovative ways to tap into the vast potential of the pet food subsector.

Inspired Pet Nutrition (IPN)

IPN is one of the U.K.’s leading pet food platforms, with two successful brands and a thriving private label business. Its brands—Harringtons and Wagg—are dry dog food market leaders in the U.K. based on value and volume respectively, while it has a growing presence in wet dog food, cat food, and treats.6

gettyimages-528279044.jpgAmong IPN’s key differentiators are its very efficient, vertically integrated manufacturing capabilities. This, in combination with deep nutritional expertise, allows IPN to challenge larger manufacturers with well-priced yet high-quality, innovative products.

Harringtons, for example, combines regional heritage and a long family-owned history with on-trend product attributes like all-natural, meat-first ingredients; a strong focus on the environment; unique cooking methods that enhance nutrition; and high perceived value among consumers.

Likewise, value-focused Wagg is the U.K.’s top dry dog food brand by volume.7 And while the company’s branded products generally yield higher margins for the company, its private-label capabilities allow it to build broader relationships with retailers while extracting full value from its manufacturing assets.

“Perhaps the most remarkable thing about IPN is the degree to which its Harringtons brand has disrupted the U.K. dry dog food segment,” says Bain. “In just 12 years, it’s achieved a leading position in a sector previously dominated by Nestlé and Mars brands.”

MPM

MPM is headquartered in Manchester, England, and offers premium, natural cat and dog food under the Applaws, Encore, and Reveal brands. MPM differentiates itself through its high-quality, human-grade products; its natural, clean-label ingredients; and its unique “cat-first” proposition. It brings these qualities to the fore by using see-through packaging, a first in the global pet food market and a powerful differentiator on the shelf.

In terms of manufacturing, MPM is the opposite of IPN: The company’s asset-light approach requires outsourced production. By partnering on a long-term basis with a number of key suppliers across wet and dry food, MPM can drive rapid innovation and develop new products faster than the competition. Large global competitors generally have less flexible supply chains, hampering their ability to innovate, while smaller competitors often find it difficult to build an international supply chain that would support competition on a global basis.

This flexible, global, innovation-focused approach has enabled impressive market share gains. Its international sales account for more than 60% of revenues, with the company having an established presence in the U.K., Europe, and the Asia-Pacific region, as well as a fast-growing business in North America.

“MPM’s significant international footprint led to strong buyer interest from Asia, North America, and Europe,” says Daniel Wang, a managing director responsible for Harris Williams’s coverage of the Asia-Pacific region. “Buyers are looking for premium brands that have diverse market exposure and that are relevant to younger, more affluent consumers. Few assets match MPM on both counts.”

Mid America Pet Foods

Mid America Pet Foods, manufacturer of VICTOR® dog food, is among the largest and fastest-growing independent pet food companies in the U.S. The company has managed to carve out a differentiated value proposition in the crowded premium and ultra-premium pet food space by knowing its customers and their preferred channels.

VICTOR occupies a sweet spot in the market, positioned as a top-quality yet high-value brand aimed at “practical adventurers” whose dogs lead active outdoor lives. The company crafted a unique distribution strategy that targeted the outlets favored by its customers, including feed and supply stores as well as major e-commerce channels like Chewy and Amazon. Its brands span multiple tiers of the premium dry dog food market, offering tailored value propositions for distinct customer segments. This combination of positioning and availability is fueling robust double-digit growth in sales.

Like IPN, Mid-America is vertically integrated, with centrally located, scalable manufacturing facilities that deliver strong margins and tight control over input sourcing and product quality.

“Mid-America has done an exceptional job of understanding its customers and delivering tailored value to them,” says Budlong. “They have plenty of runway left for growth, and the right strategies in place to achieve it.”

Conclusion

Whether through vertical integration, clever use of outsourcing, or a distinctive positioning and channel strategy, innovative pet food companies are making good use of a great opportunity. With pet ownership set to steadily grow around the world for years to come, there’s never been a better time to participate in a sector that just keeps purring along.

For more information, please contact our senior bankers.

 

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Sources:
2. The Times (https://www.thetimes.co.uk/article/38k-the-cost-of-todays-pampered-pooch...). Currency converted from British pounds to US dollars.
6. IRI & Amazon Stackline Combined Value Sales, 4 weeks ended 9/12/2020; IRI Total Market, Volume, latest 4 weeks ended 9/12/2020
7. Ibid.
 
Published April 2021
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