Putting a premium on pets

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Putting a premium on pets

By Debby Garbato - 04/28/2019
Nearly three decades ago, the pet industry began applying the term “pet parents” to baby boomers, a generation characterized by high disposable income and indulgent spending. Their pets were no exception, with higher-end food, fancy collars and even doggie apparel filling shopping bags.

Now, millennials are making even higher demands, with food and treats expected to follow human nutrition trends. In toys, they want interactivity and engagement.

This has spurred a new movement at mass retail, with natural, organic and meat-rich foods (including free-range) gaining shelf space, along with products containing such “superfoods” as blueberries, cranberries and sweet potatoes. Millennials also want food without GMOs, corn or fillers.

“We’ve seen high-protein foods with little-to-no grain become very popular,” said Maria Brous, director of media and community relations at Lakeland, Fla.-based Publix Super Markets. “We’re seeing premium brands like Rachel Ray and Blue Buffalo grow share, while value and private brands decline. Natural and organic foods have been increasing. Consumers are willing to spend more. As premium brands become available, slower moving items are discontinued more rapidly to make room.”

Products with meat as the primary ingredient accounted for 46% of pet foods, according to Nielsen. About 64% contained multiple proteins, including novel ones like quail and rabbit, representing what pets would hunt in the wild. Fresh foods also have grown, with many food, drug and mass chains’ pet sections now containing cold cases.

Bob Vetere, the recently retired president of the American Pet Products Association, or APPA, said that millennials’ attitudes toward pets are driven largely by economics. Frequently, their incomes do not rival those of boomers at the same age. Hence, many millennials have postponed childbearing, rent their homes and cannot afford cars and other “luxuries.” Pets fill these voids, taking indulgence to another level.

“Millennials’ love of pets is somewhat different than boomers,” Vetere said. “A pet is a substitute child, so many consumers [look] to humanize products. Look what humans are buying — wait two months and you’ll see it with a pet slant. They’re using social media to get up to speed on which products are good or bad. This is causing a new awareness level for anyone selling pet products. It’s a different landscape.” By 2019, the APPA estimates there will be 73 million millennial pet owners in the United States.

The Impact of Acquisitions
Premiumization began in e-commerce and specialty channels. Though several acquisitions by large companies have propelled some upscale, smaller food brands into grocery, drug and mass. This gives retailers and suppliers broader offerings, higher sales per square foot and a sharper competitive edge against increasingly powerful online and specialty players (see Omnichannel Marketing sidebar).

One of the most significant acquisitions in the space was General Mills’ $8 billion purchase of Blue Buffalo in early 2018. All-natural Blue Buffalo contains deboned chicken, chicken meal, brown rice, barley and oatmeal, but no corn or by-products. During General Mills’ fiscal 2019 second quarter earnings call in December, Jeff Siemon, vice president of investor relations, said Blue’s household penetration has reached 26%.

“Blue is the fastest-growing brand in food, drug and mass, and has become the No. 1 dog food in some chains,” he said. “There’s progressive share gains each quarter, with sales increasing by triple digits last year across food, drug and mass.”

During General Mills’ July investor conference, Billy Bishop, group vice president of the company’s pet segment and co-founder of Blue Buffalo, said the brand over-indexes with young consumers. General Mills plans to expand offerings and distribution by introducing treats, increasing wet food options and ramping up two new plants. It also wants to maximize in-store execution with permanent overhead signage and brand messaging.

General Mills has an advantage in that human food trends drive its core business. The same goes for Mars, which acquired Iams, Eukanuba and Natura from Procter & Gamble and Nutro. Another human food giant, J.M. Smucker, purchased Rachael Ray Nutrish in April 2018 and Big Heart Pet Brands in 2015, which includes Natural Balance and other labels.

Following a 40% increase in sales of non-GMO human foods between 2012 and 2016, Mars launched Nutro’s first non-GMO pet food for grocery, drug and mass, Chris Mondzelewski, vice president of customer development at Mars Petcare North America, said.

Smucker’s assorted pet brands and price points meet varying needs. Bobby Modi, vice president of pet growth and strategy, said consumers are buying premium products more frequently. “Before, they may have been reserved for special occasions. [Now], many pet parents view these as an everyday means of pampering furry family members.”

Acquisitions and popularity of premium products in food, drug and mass have prompted some companies to introduce channel-specific offerings. Jones Natural Chews, purchased by a private equity firm in 2016, debuted the Country Butcher and Grass Valley Farm treat brands last year. Recently, it added Country Butcher Pure Premiums, made with alligator and other choice ingredients.

“Humanization, along with 100%-single ingredient products, super mixes and exotic proteins, are driving up the `price per pound,’” CEO Joe Wallington said. “Millennials are more health conscious than boomers.”

Another company, Red Barn, offers Chewy Louie for food, drug and mass. Red Barn emphasizes clean labels, natural, limited ingredients and transparency in food and treats. “There’s been a progression of knowledge around health and wellness,” Rashell Cooper, marketing director, said. “Today’s pet parent is on the go, seeking deals without sacrificing quality. While willing to make a trip to the pet specialty store if necessary, the idealistic scenario is finding a nutritious, safe and affordable treat while running errands in grocery or drug.”

Upgrading Traditional Brands
Premiumization also is impacting traditional non-specialty labels. Purina One, which features meat, poultry or fish as primary ingredients and contains no fillers, claims its cat and dog foods can improve pets’ health within a month, evidenced by brighter eyes, firmer stools and shinier coats. To prove it, it is staging the Purina One Challenge. After registering online, consumers receive a coupon for a free bag of food.

“What’s in the bag is just as important as what’s not — no wheat, soy or corn,” Joe Toscano, Nestle´ Purina North America vice president of trade and industry development, said. “There’s even an online graph indicating which weekly changes you’ll see.” Another new product, Dentalife Active Fresh treats, attacks dogs’ bad breath at its source.”

Pedigree, a grocery, drug and mass brand from Mars, has been infused with higher protein, “meat first” options, Mars’ Mondzelewski said. “Changes in pet trends are driving innovation across the mainstream. While premiumization of pet food is growing, there’s still significant demand for value and mainstream products. We make sure there’s high-quality options at every price.”

In a similar vein, Smuckers is expanding Milk-Bone treats with Gnaw Bones and Wonder Bones, embracing the “engagement” trend of keeping canines busy when owners are away. “[This] is one of the biggest changes we’ve seen in younger generations,” Modi said. “Treats that keep dogs engaged meet physical and emotional needs.”

Gnawbones are an easily digestible rawhide alternative. Wonderbones have a unique shape and offer a satisfying “chew challenge.” Both provide longer