Inflation's impact on US dog and cat food sales

Let&#;s start with good news: Sales of dog and cat food in the U.S. are continuing their heady pace of double-digit growth each year &#; for example, sales will end up nearly 14%, totaling US$51 billion over the figure of roughly US$44.8 billion, per data from Packaged Facts. That total represented 12% growth over .

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Yet in its latest report, &#;Pet Food in the U.S., 17th Edition,&#; Packaged Facts cautions that for the first time in recent history, the increase in dog and cat food sales growth has been driven almost entirely by higher prices, aka inflation, &#;rather than by this market&#;s historical growth driver, premiumization.&#;

David Sprinkle, Packaged Facts&#; director of pet market research, previously mentioned inflation&#;s role in discussing sales growth, but it seems to be having an even greater impact now. The new report includes data from a September/October survey of U.S. pet owners showing one-third had changed pet foods in the previous 12 months; of those, 32% of dog owners and 28% of cat owners said they traded down to lower-priced products.

Pet food inflation declining, but prices still higher

While U.S. pet food inflation on a year-over-year basis has been declining since late spring &#; for October, it stood at 6.5% YOY, down from September&#;s 7.6% and less than half the 15%+ high it hit in late /early &#; prices are still almost 23% higher than in October , pre-pandemic. (The inflation data comes from the U.S. Bureau of Labor Statistics via John Gibbons of PetBusinessProfessor.com, who helpfully compiles and analyzes the pet industry figures each month.)

Considering that human food prices (namely, groceries) are up 25.77% from October , consumers are definitely feeling the strain. &#;With prices of basic human food staples such as eggs and butter doubling and tripling, pet shoppers have been cutting back even in the market&#;s least discretionary category of pet food,&#; remarked Sprinkle&#;s colleague David Lummis, lead pet market analyst for Packaged Facts, in a May article in &#;Pet Product News.&#;

The recent survey data about pet owners trading down to lower-priced pet foods mirrors feedback from February , when another Packaged Facts survey showed 42% of U.S. dog owners and 44% of cat owners naming the high cost of pet food as one of the most significant challenges to owning a pet. Of course, that&#;s on top of other high costs of pet care, including veterinary and medications, as presented by Sprinkle during a Petfood Forum session. In addition, Packaged Facts data from January to August indicated pet food spending increased for 28% of U.S. pet owners.

Even the &#;well-off feel the bite,&#; yet pet food sales expected to rise

It's tempting to assume that many, or most, of the pet owners experiencing significant pain from higher pet food prices are in lower-income brackets, but that may not necessarily be the case. In his May article, Lummis quoted a Wall Street Journal article from February in which an expert commented: &#;The U.S. could still skirt a recession, but it is already in a &#;richcession.&#; That&#;s when, amid economic uncertainty, the well-off feel more of the bite.&#;

I can remember in the before times, before the pandemic and this high inflationary period, when I and others in the pet food industry speculated whether there was a ceiling to premiumization, a limit to how much even affluent pet owners would spend on their pets&#; food. Recent data indicates we may have reached it.

Fortunately, the market is dealing from a foundation of strength. &#;Underpinnings like &#;pets as family&#; and health and wellness will keep the pet industry on solid ground,&#; Lummis predicted. To that end, Packaged Facts rather bullishly projects U.S. dog and cat food sales to increase at a compound annual growth rate of nearly 10% through , meaning they would reach US$73 billion that year.

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NEW YORK &#; Bloomberg Intelligence (BI) released its latest pet industry report at the end of March, detailing the expansive growth of the industry driven by skyrocketing global pet ownership, as well as the premiumization and humanization of pet nutrition, supplies and services.

Market size

As humanization of pets continues, the global pet industry is expected to continue to swell. According to BI, the global pet industry is currently worth $320 billion and is expected to reach $493 billion by , a drastic 54% increase.

&#;Consumers are willing to pay more for items for their pets, with the pet food market having the potential to grow more than 50% from current levels by the end of the decade,&#; said Diana Rosero-Pena, consumer staples analyst at BI and co-author of the report.

The United States is poised to remain top dog as the largest pet market with sales anticipated to increase from $128.6 billion to $195.6 billion by . This growth will be led by pet nutrition, as owners continue to purchase more premium pet foods, and supported by veterinary care, diagnostics and pet pharmaceuticals, all of which have helped US pets live longer, requiring more elderly focused products and services. In the United States, BI estimates that the annual cost of owning a dog is $1,520 and the annual cost of owning a cat is $950.

According to BI, the advancement of elderly pet care may lead to a 13% increase in the country&#;s dog and cat population.

&#;Increased pet nutrition is leading to longer pet lives around the world,&#; said Ann-Hunter Van Kirk, senior biopharmaceutical analyst at BI and co-author of the report. &#;With this comes an increased need for spending relating to expensive healthcare for aging pets, and we project that this spending on lasting health for pets will continue to swell over the next decade.&#;

Pet ownership in the United States will be fueled by younger generations acquiring pets and forming their families. Though pet ownership trends remain strong in the United States, BI expects the US dog and cat population to remain behind Europe&#;s, which is estimated to reach 209 million in .

Representing a third of the global pet market, Europe is anticipated to increase 43% to $159.7 billion in sales by . Consumables and discretionary pet supplies and services are each expected to increase at least 30%, but pet healthcare will outpace this with expected gains of more than 50%. In Europe, BI estimates the annual cost of owning a dog is $695 and owning a cat is $472.50.

According to BI, though the United States and Europe remain the largest global players, other regions will serve as the global pet market&#;s growth engine. Pet ownership has continued to increase in regions outside the United States and Europe with the creation of new families in more urban areas, an increase in single adults living alone, and higher disposable income. The market, excluding the United States and Europe, may grow 72% to $137.8 billion by fueled by double-digit growth throughout pet food, healthcare, supplies and services.

Pet food stickiness

The report also details elevated levels of &#;stickiness&#; in the pet food market. According to BI, the global pet food segment may top $137.4 billion in revenue by the end of the decade, a whopping 52% increase from today&#;s levels. This increase will likely be driven by pet owners&#; reluctance to switch their pets&#; diets, no matter rising product costs.

&#;We&#;re seeing a profound increase in consumer spending on pets and expect to see this continue through ,&#; said Diana Rosero-Pena, consumer staples analyst at BI and co-author of the report. &#;Consumers are willing to pay more for items for their pets, with the pet food market having the potential to grow more than 50% from current levels by the end of the decade.&#;

The United States currently holds 47% of the global pet food market and its share is anticipated to reach 55% of the market by the end of . Outside of the United States and Europe, the rest of the world&#;s share of pet food is estimated to increase 65% from $19.9 billion in .

Pet food is anticipated to remain the largest expense for all pet parents, as they remain true to their pet&#;s dietary needs despite inflation and other economic pressures.

Within pet food, BI predicts that the premium fresh/frozen category, which currently only accounts for 1% of the whole market, will outpace many other food categories as consumer awareness of pet health and wellness continues. The fresh/frozen segment is expected to expand in the coming years, amassing $6 billion in sales in the United States and accounting for 11% of the market.

Unsurprisingly, Freshpet continues to be the top player in the fresh/frozen pet nutrition category, accounting for more than 90% of sales within this space. However, BI claims that capacity constraints will provide opportunities for other players to mark their stake in fresh/frozen.

Alongside growing demand in fresh/frozen pet food, pet nutrition mergers and acquisitions will continue to drive the global market, with BI expecting more small deals and some large transactions.

The e-commerce behemoth 

In the United States, e-commerce will continue to expand in the pet industry. According to BI, this growth is led by more investments by digital-native pet retailers, like Chewy, that are seeking to provide a &#;frictionless&#; experience and capture more share. US e-commerce pet sales are estimated to reach $57.7 billion by , holding nearly a third (29.5%) of the market compared to $27.9 billion in .

Though e-commerce has promising potential, BI anticipates that annual growth will slow from 25% in the past few years to 10% as the pandemic comes to an end. Despite this, pet e-commerce will continue to outpace the overall pet market as online purchasing rises.

Chewy and Amazon are perfectly set to capitalize on the e-commerce boom. Combined, the retail giants currently account for 70% of the pet e-commerce space, with Chewy in the lead at 36%. Though Amazon and Chewy are highly competitive in pricing, Chewy is seeking to differentiate itself from Amazon, chasing a more omni market approach by offering pet services like insurance, pharmacy and veterinary telehealth. This strategy, according to BI, will increase consumer &#;stickiness&#; and allow the retail giant to expand its addressable market by 48%.

According to BI, competitive pricing and free shipping are two of the biggest motivators for consumers to switch to online purchasing. Among those that had already switched to online shopping, convenience was cited as a big motivator to continue to purchase products online. Within the need for convenience, BI shared that more than 70% of Chewy&#;s revenue comes from its auto ship and repeat delivery service, which also offers consumers product discounts, free shipping and special services. As consumers continue to jump into e-commerce, they will expect even more convenient offerings.

Chewy and Amazon are not the only ones with a foothold in pet e-commerce. Brick-and-mortar specialty retailers Petco and PetSmart are expanding their offerings in the space, though their shares remain just a fraction in comparison and do not represent significant drivers, according to BI. Petco, PetSmart, Walmart and other retailers hold less than a 10% stake in the pet e-commerce space.

Though e-commerce is quickly gaining an edge, brick-and-mortar remains king in the United States. The most significant draw brick-and-mortar offers is one-stop shopping. Retail giants like Target and Walmart offer an endless variety of products, from human and pet food to home goods, personal care items and more. According to a BI survey administered by Attest in January , 27.5% of respondents claimed that Target or Walmart was their preferred retailer to shop for pet products.

Specialty pet retailers like Petco and PetSmart were favored by 23.3% of respondents, as these retailers provide a wider array of pet food products, supplies and services all under one roof. Overall, more than three-quarters of respondents claimed they purchased their pet products from brick-and-mortar stores.

As the global market continues on its growth path, e-commerce and brick-and-mortar will continue to battle it out, grasping for the largest industry share.

Keep up with the latest pet food trends on our Trends page.

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