Trends and News in the Pet Market:

Transcription

1 Trends and News in the Pet Market: Important Considerations for Business Planning Joel Adamson; Brakke Consulting, Inc.

2 Presentation Outline 1. Brakke Consulting Background 2. Brief Review of Business Planning 3. Pet Industry Data & Distribution Overview 4. Industry Trends, News and Observations 5. Summary; Q and A 2

3 Brakke Consulting, Inc. Business consulting for the animal health, petfood, animal nutrition and pet supplies industries Founded in years old, April 15, 2015 Eight US consultants, with affiliates in China, Japan and EU

4 Brakke Principal Services General consulting Technology valuation Strategic planning Executive recruiting Channel strategies Opportunity analysis Market research Multi-client studies IP and asset transfer Due diligence, M&A, divestitures Weekly newsletter

5 Key Elements of Business Planning 1. Observations and fact gathering (the market, competitors, demographics, internal resources, etc.) 2. Make assumptions about the future; industry trends, etc. 3. Define the desired future (goals, objectives) 4. Conduct a gap analysis and other reviews (SWOT, e.g.) 5. Lay out an action plan to get to the desired goals 6. Assign responsibilities and timelines, allocate resources 7. Check regularly on progress towards goals things go awry

6 Our Focus Today: This Presentation The first two steps of business planning Observations and fact gathering (the market, the distribution channels, competition, demographics) Understanding trends and events; making assumptions about the future

7 Example of Business Planning Strategic Goal: Increase EBITDA by four percentage points in three years Possible tactics: Reduce COGS (formulations, ingredients, packaging, etc.) Shut down or divest a low margin brand (division, etc.) Identify channels with low margins and exit them Raise prices

8 Millions of Pets Pet Populations, USA Pet Populations, AVMA and APPA Cats, APPA Dogs. APPA Cats, AVMA Dogs, AVMA

9 Pets Per Household, APPA and AVMA Cats per Cat-owning Household Pets Per Household Dogs per Dog-owning Household Recent Pet Population and Household Data APPA, 2012 Recent Pet Population and Household Data AVMA, 2011

10 Households With Pets Households with Dogs M Households with Cats M Recent Pet Population and Household Data APPA, 2012 Recent Pet Population and Household Data AVMA, 2011 The primary difference between APPA and AVMA population data is the pet owning household count

11 Companion Animal Product Distribution Services FDA Drugs and Ethical Healthcare Pet Food Pet Supplies and OTC Healthcare Vet Distributor G.M.Dist. Pet Distributor Vet Clinics On-line & Catalog Grocery & Mass Big Box Pet Independent Pet & Other Retail Pet Owner Brakke Consulting, Inc.

12 News and Trends in the Pet Industry. Considerations for Business Planning

13 Consolidation of Distributors Petfood and pet specialty distributors consolidating Animal Supply Company (three acquisitions in Q3, CY 2014 and recently Wilson) Phillips Pet Food & Supplies (Wolverton, PFX, Gardner) Impact on manufacturers, retailers, and product availability not yet clear

14 Leading Vet Channel Distributors Schein Animal Health MWI Webster/Patterson Midwest Vet Animal Health International The top three have a combined market share of 78% and the top four represent 86% of the market Source: Brakke Consulting Study

15 Pet Product Retail Channel Trends Channel changes seen in pet healthcare Online sales in high growth mode Flea and tick moving to OTC channels Human pharmacies beginning to promote pet care Channels with higher growth rates: Online and pet specialty

16 Pet Healthcare Moving to Human Pharmacies? Save Money on Pet Prescriptions Cut costs by buying generic meds for your cat or dog by: Sid Kirchheimer, from: AARP Bulletin, April 17, 2012 For years, you have been able to get generic medications for as little as $4 a month through discount programs at pharmacies, supermarkets and other retailers. Now, similar programs are cropping up for pets. With a veterinarian's script, you can avoid the typical clinic markup by filling generic prescriptions for dogs and cats for prices as low as $4 at Target and Kroger. Walmart sells hundreds of pet medications starting at $10 for a 90-day supply, with free delivery to your home. Source: AARP

17 Where Pet Owners Seek Information Leading Sources for Pet Care Information, Pet Owners' Mentions Dog, % Cat, % Veterinarian Internet/Online Past Experience Friends and Relatives Pet Store Personnel Books, Libraries, Videos % 40% 30% 20% 10% 0% Percent of Owners Using Internet for Pet Care Information Source: APPA National Pet Owners Survey,

18 Growth and Changes in Internet Usage Fastest growing market channel is online Use of mobile devices for information and for shopping growing rapidly US Adults Mobile Technology Statistics: 58 % have a smart phone 79 % in the age range of use a smart phone 63 % of users use their smart phone to go online 34 % go online mostly using their smart phone 42 % of adults own a tablet computer Source: Pew Research Center Question: Is your website mobile-device friendly? Question: Are you using social media effectively?

19 Canine Life Spans - Increasing Average canine life span is now 12.8 years Significant increase over the past 100 years Average age of pets is increasing, along with associated health care issues Trend offers opportunity for senior care products Source: Pets.ca Source: Pet Age, Sept. 2014

20 Important Healthcare Issues Dental care A concern the past decade, but now Vets and pet owners see this as critically important Dental disease is the most common disease in dogs and cats (Banfield Report, 2014) Obesity 53% of dogs, 55% of cats are obese or overweight Properly formulated food and diet can help with obesity Sources: Brakke Dental Study and Association for Pet Obesity Prevention

21 Top Breeds and Significant Breed Changes 1. Labrador Retriever 2. Chihuahua 3. Yorkshire Terrier 4. Shih Tzu 5. Pit Bull 6. German Shepherd 7. Maltese Source: 2014 Banfield State of Pet Health Report Changes from 2003 to 2013: 141% Increase in Yorkshire Terrier 125% Increase in Maltese 22% Decrease in Labrador Retriever 27% Decrease in German Shepherd Over 50% of dogs seen at Banfield in 2013 were toy/small breeds

22 Vet Care and Vet Visit Trends Visits to the Veterinarian Mean, per dog Total Visits (millions of visits) Mean per cat Total Visits (millions of visits) Source: AVMA U.S. Pet Ownership & Demographics Sourcebook, 2012 The percent of petowning Households making no trip at all to the veterinarian in 2011 increased 8% for dogs and a staggering 24% for cats. [Compared to 2006] AVMA Sourcebook Vet visits for dogs are flat and down for cats.

23 Vet Care Trends What does this vet visit trend mean? Implies reduced concern for preventive pet healthcare US economy limited funds for pet care ( ) Vets not good at communications and marketing Indicates pet owners are moving to OTC channels Reduced vet visits has planning implications for petfood

24 Vitamins and Supplement Usage, % 12% 10% 8% 6% 4% 2% 0% Vitamins Only Supplements Only Vitamins and Supplements Source: APPA Pet Owners Survey Dogs Cats Ranking of Types of Dog Supplements and Vitamins: 1. Joint Health 2. Skin and Coat 3. Multi-vitamins 4. Immune boosters 5. Digestive aids 6. Pro- and Pre-biotics 7. Anti-anxiety

25 Pet Insurance, Slow to Grow, Not Many Covered Only about 5% of pets are covered by companion animal health insurance policies. Source: The AP-Petside.com Poll GfK Custom Research, NA Overall, we found that the pet policies we analyzed were not worth the cost for a generally healthy animal. Source: Consumer Reports, September 2010 But a majority of owners draw the line after spending $500 for veterinary care, according to a recent survey by the Associated Press. As costs move closer to $1,000, fewer pet owners are likely to pay for care." Source: Consumer Reports, September 2010

26 Pet Care Services Pet Service Spending CY Year (E) Expenditures (billions of $) Growth (%) 17.2% 9.0% 8.3% Source: APPA Website Pet Care Services include day care, grooming, waste pick-up, boarding, training and other related services.

27 Technology in the Pet Industry In-house and on-pet cameras Technology-based feeders and waterers GPS and other location devices Increased social media and blog coverage How can petfood marketers exploit this technology trend?

28 The Pet Market is a Global Market Global dog and cat food sales, 2013, over $69 billion at retail Fastest growing markets: Brazil, Russia, Mexico Petfood sales in Brazil now exceed those of UK and Japan Nearly 200 foreign exhibitors at 2015 Global Pet Expo Source: Petfood Industry Magazine and Pet Product News

29 Organic, Natural, Super-Premium Petfood Natural pet product sales near $7 billion, $6.6 billion is food (1) Natural pet products have a CAGR of 17% last four years (1) Grain-free pet food has grown 28% in the past year (2) Sources: 1. Packaged Facts; 2. Petfood Industry Magazine

30 Organic, Natural, Super-Premium Petfood Two super-premium or natural US petfood companies among the top 15 worldwide Nestlé Purina repositioning and promoting Purina Beyond Nutura and Natural Balance acquired by others Whole Foods has launched Whole Paws petfood

31 Petfood Today, But Tomorrow? Purina Beyond Promotional Features: #1 ingredient (meat, fish or poultry) No corn, wheat or soy No poultry by-product meal No added artificial colors, flavors or preservatives

32 Petfood Today, But Tomorrow? Ainsworth Nutrish Brand Zero Grain Real Recipes Limited Number of Ingredients, Just 6

33 Financial, Legal and Legislative Issues Financial industry has a keen interest in animal health, pet care, and petfood M&A activity will continue (J.M. Smucker buying Big Heart Pet Brands, Petco buying Foster & Smith, e.g.) Growing likelihood of non-economic damages in petrelated liability cases Bans on pet sales at pet shops likely to spread

34 More Legal, Legislative and Attitude Issues Possible increase in NAD/BBB complaints and industry lawsuits Consumer distrust of Chinese-sourced products How will frequent product recalls affect consumer attitudes and regulations? Internet offers immediate and sometimes misleading adverse reaction reporting for pet owners

35 Summary; News and Trends in the Industry Distributor consolidation Retail channel changes Pet healthcare at human pharmacies Information sources Changing dog breeds Aging pet population Technology changes Global changes in pet care Pet care services growth Non-economic damages Changes in consumer and public attitudes M&A activity Changing petfood choices by consumers

36 News and Trends in the Pet Industry Have you considered these and other industry topics in your business planning? Q&A