Article - January 16, 2024
Supported by long-term demand drivers, the pet food sector continues to grow and attract investors. This resilient space offers a range of opportunities, from companies serving premium pet health and nutrition products to businesses bringing innovative specialty ingredients to pets’ bowls.
Two recent Harris Williams clients exemplify the M&A potential within pet food:
Butternut Box is Europe’s leading fresh pet food brand dedicated to delivering high-quality and freshly prepared meals for dogs directly to customers.
IQI Trusted Petfood Ingredients is a global provider of innovative and premium animal protein and vegetable ingredients for pet food.
By capitalizing on key tailwinds propelling the sector, both companies have found differentiated paths for creating value. Below, senior professionals from our Consumer Group share important pet food trends driving investor interest and how Butternut Box and IQI became sought-after sector leaders.
Key Takeaways
Strong tailwinds—including rising pet ownership, higher consumer demand for healthier and more sustainable pet food, and greater innovation across the sector—are generating significant value-creation opportunities in the pet food sector.
Two recent Harris Williams clients, Butternut Box and IQI Trusted Petfood, showcase the growth potential within premium pet food and specialty ingredients.
The pet food companies that differentiate themselves by playing into the sector’s long-term tailwinds will be best positioned for growth going forward.
Greater Focus on Pet Health and Sustainability
The pet food market is growing across the globe thanks to multiple strong and steady trends.
For starters, pet ownership is on the rise. “COVID-19 drove an uptick in pet adoption, resulting in record pet population levels and higher demand for pet food and products,” says Ryan Budlong, a Consumer Group managing director. In fact, over 23 million households in the U.S.—almost 1 in 5 homes across the country—adopted a pet during the pandemic.1 In the U.K., the dog population jumped by approximately 10% over the same period.
Meanwhile, pet owners are increasingly aware of pet health and nutrition, leading them to seek products that enhance their pet’s quality of life. For example, nearly 80% of U.S. pet owners are willing to pay a higher price for healthier products, while around 60% of pet food shoppers in the U.K. are influenced by a brand’s health attributes.2 “More consumers want pet food that’s higher quality and viewed by the pet parent as healthier for their animals,” notes Will Bain, a Consumer Group managing director.
Because of this, natural and other specialty ingredients are becoming increasingly important to pet food manufacturers and brands. “In a competitive market, these ingredients can differentiate pet food products by helping them offer unique health benefits and support novel health claims,” he explains.
Beyond their pet’s well-being, more consumers are also considering the environmental and social impacts of their pet food choices. On the environmental side, pet food companies are preparing for increased consumer pressure to adopt sustainable food sources and manufacturing practices. For instance, plant-based, low-carbon footprint pet food is expected to become more prominent as consumers prioritize eco-friendly companies at the point of purchase.
From a social point of view, company culture, employee well-being, and corporate social responsibility are becoming more meaningful to customers. “As such factors become more vital purchasing criteria, there will be significant growth and differentiation opportunities for the brands best able to stay ahead of environmental and social trends,” says Bain.
Finally, innovation and tech-adoption are driving greater growth across pet food categories. “This shift to the digital channel is continuing to accelerate. Companies that play into these long-term sector tailwinds can separate themselves from competitor brands and will be well positioned to take share,” highlights Budlong.
Key Investor Considerations
For investors looking to take advantage of pet food’s M&A opportunities, several company traits should be prioritized.
One powerful differentiator is a company’s brand and dedication to environmental and social advocacy. These topics will become more important to pet parents and hold a greater influence on their buying behavior, and leading pet food companies are taking notice. “There’s aggregate differentiating potential in bundling important attributes, such as sustainability, clean ingredients, and authenticity, into a meaningful brand mission that customers will pay a premium for,” explains Bain.
Being at the forefront of innovation is another key trait of best-in-class pet food companies. “From unique ingredient functionality and appealing pet food formats to tech-enabled customer service and intuitive user experiences, there’s a wide host of ways for pet food companies to differentiate within their niche,” notes Budlong.
Lastly, having an international presence can be a strong characteristic of winning companies. “The best pet food businesses have large white space for growth because of access to large markets like the U.S. or multiple European and Asian markets,” says Daniel Wang, a managing director and head of Asia-Pacific Coverage.
Fetching the Opportunity
Pet food is a highly resilient and attractive sector with expanding M&A activity. Fueled by a rising desire for premium, healthy, and sustainable pet food options, there are multiple appealing opportunities for investors to create long-term growth, value, and differentiation.
To discuss M&A across pet food in greater detail, please contact our senior professionals.
