Gone are the days when pet owners fed their animals whatever was cheapest in the supermarket or leftover in their fridge. These days, consumers want their pets to access food with a quality level to what they eat themselves — whether that means a vegan or organic diet or a tailor-made diet through a subscription plan.
U.S. pet food spending is set to reach $54 billion in 2022 alone — more than double the $25 billion it spent in 2017 — and the demand seems unlikely to slow any time soon. To see where the opportunity lies, let’s examine the biggest market trends and the companies dominating the space.
Trends in the market
Part of the rising demand for pet food comes from increasing pet adoption. Many people adopted pets during or following the pandemic due to a desire to improve their mental health and spending more time at home due to lockdowns and remote working.
Yet there has also been a shift in the type of pet food consumers want to buy. Although 80% of pet owners feed their pets standard dry or wet food, 16% now opt for a gourmet or subscription box — a more luxury and health-conscious choice. Plus, a Chewy survey found that 73% of pet owners consider their animal’s health to be just as important as the needs of their family members, which explains why they’re exploring more nutritious options for their animals.
Another major trend is that a lot of pet food shopping has now moved online (along with other aspects of retail). In 2020, around 20% of household and pet care sales happened through the internet, and the percentage is predicted to reach a third by 2023.
While North America is leading the world in pet food spending, demand is rising elsewhere in the globe. For instance, pet food production increased by 3% in Asia Pacific, and the pet food market in Europe is forecast to grow by around 4.5% per year.
Companies to watch
You don’t need to look far to find evidence that pet food e-commerce (especially of the gourmet variety) is on the rise. But which pet sites should you be looking out for for the best investment opportunities?
Bark (BARK) offers a range of gourmet dog gift boxes, which it sends out monthly to customers. Its main option is a food box collated by nutritionists, but there are boxes for dental needs, chewing toys, and one containing a range of treats and toys. Bark has been around since 2011 and is now one of the biggest sites in the space, with various retail partners to boost its sales and an annual revenue reaching $378 million in 2021.
Similarly, Nom Nom sells gourmet dog food, and compiles its range alongside Board Certified Veterinary nutritionists. They consider the diet and needs of individual dogs when creating their boxes — many pet owners prefer this personalized approach over generic food options.
The Farmer’s Dog sells human-grade dog food aimed at owners who believe that nutritionally complete and fresh food is just as important for their animals as it is for them.
Hill’s Pet Nutrition — a subsidiary of Colgate-Palmolive (CL)— focuses on selling specialty nutrition products, including a Prescription Diet range for managing diseases through nutrition and products to aid the general nutritional needs of pets. It achieved an impressive $2.2 billion in annual revenue in 2021, making it one of the bigger names in the space.
Most of the attention in the market is focused on dogs, with the companies above either solely or primarily targeting them — meaning there’s a gap in the market. For instance, London company KatKin recently raised $22 million to offer nutritional, specially formulated subscription boxes for cats. Although it only operates in the UK so far, it’s worth looking out for a U.S. expansion or a U.S. company with a similar approach.
As well as the newer companies that have popped up in the pet food space over the last decade or so, there are also a few more established brands that are adapting their approach.
PetSmart is currently the leader in the space, with a market share of around 36.5%. Meanwhile, Petco (WOOF) accounts for another 12%. Both retailers offer online purchases. Petco also has an AutoShip option for customers who want repeat deliveries, which may suggest it’s positioning itself as an alternative to subscriptions from the newer companies mentioned above.
Another major name in the space is Chewy (CHWY). The brand also has an AutoShip option, as well as 24/7 customer service available online.
Finally, Nestle Purina was launched in November 2020 to offer alternative proteins to pets (such as fava beans). This may appeal to owners interested in exploring a vegetarian or vegan diet for their pets.
However, none of these options offer quite the same level of personalized services as the newer industry pioneers. Are we about to see a significant shift in the market? Pet spending is expected to continue to rise, reaching $80 billion by 2027, meaning there will be lots of opportunities for investors in this space.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.