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Evolving Competitive Landscapes in US Pet Care Amidst Shifting Supply Chains

11/20/2023
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Despite increasing innovation across pet care, global supply chains continue to grapple with instability. Key disruptors, such as climate change, labour shortages, and political tensions, are forcing constant shifts throughout the supply chain. As a result, industry leaders across pet care are expanding their domestic manufacturing capabilities. However, expansion efforts fuel competition as industry giants scoop up facilities previously key to private label production. While domestic expansion represents strategic efforts to stabilise production lines, this often come at the expense of private label. Facing constricting resource capabilities. private label manufacturers will face challenges meeting increasing demand amidst ongoing economic tensions. 

Growth against a backdrop of slowing demand

Emerging from the boom of new pets during the pandemic, Euromonitor expects pet food retail volumes to continue towards flat growth.

In 2022, dog and cat food alone are estimated to have seen 1.7% retail volume growth

Source: Euromonitor International

Thus, future growth will depend less on new pets and more on resilience of ageing pet populations. This will be in part due to tense economies, but also by function of pet ownership normalising after the high number of adoptions in 2020.US Dog and Cat Food Retail Volume Growth

Under these circumstances, more mature markets might limit manufacturing expansion efforts. However, growing resource competition between human and pet foods makes it imperative for the pet care industry to bolster supply chains. Rising global unrest, costs in ingredients and transportation, among others, are making industries keen to protect domestic markets against disruptions. For many, this means centralising production lines at a domestic level, reducing the distance and frequency of movement that pet food encounters between contact points. This is particularly important for growing areas of the market, such as wet food and cat food.

Mergers and acquisitions: A strategic theme amidst resource competition

Even as volume demand continues to slow, the domestic centralisation of production has risen as a tool for long-term market resilience. Key industry leaders fuelling centralisation trends include Nestlé Purina Pet Care, Blue Buffalo, and Hill’s Pet Nutrition. Nestlé’s expansion in the US includes a new wet pet food facility as well as the acquisition of Red Collar’s dog and cat treat facility. Similarly, Hill’s Pet Nutrition acquired three Red Collar kibble manufacturing sites in addition to a new facility focusing on wet, canned pet food. Continuing the trend, Blue Buffalo remains dedicated to expansion, allocating funds towards a 2-year project increasing processing and warehouse capacities in Richmond, Indiana. With expansion efforts focusing on wet and dry food, as well as treats, slowing volume and pet population growth have not dampened faith in the profitability of pet care.

Altogether, Nestlé Purina Pet Care, Blue Buffalo, and Hill’s Pet Nutrition comprise approximately 41% of the market

Source: Euromonitor International

As a result, the expansion of their coverage in pet food manufacturing holds strong potential to impact the competitive landscape.

Impact on private label’s growth

While manufacturing expansion efforts are a strategic bet on long-term market resilience, they often strain smaller industry players. Acquisitions in particular often come as a direct hit to production capabilities for private label. Although most recent examples include the acquisition of Red Collar facilities, which manufactured private label pet food, similar trends are not new to the US market. Early premiumisation trends leading up to and during the pandemic appeared to pose a threat to private label, spurring some private label manufacturers to downsize. However, rising prices across all industries have created an area of opportunity for more affordable options offered by private label.

As evident in Euromonitor International’s Voice of the Consumer: Lifestyles Survey, consumers have historically shown continued fervour for private label, intensifying demand more recently. In 2022, 16% of survey respondents expressed intent to increase private label consumption, with this number jumping to 25% in 2023. Within the pet food space, consumer demand for quality affordable goods has led private label to reformulate, better competing with national brands. While private label goods still comprise a relatively small share of pet food, they have witnessed double-digit growth in recent years, proving premiumisation has done little to divest consumer demand. However, many private label lines depend on co-manufacturing facilities, lacking the size and capacity to build out their own manufacturing pipeline. As a result, continued acquisition of private label manufacturing sites increases strain on remaining producers. With tense economies fuelling consumer demand for more affordable, premium-quality foods, private label faces the risk of insufficient resources to meet demand. Simmons Pet Food, for example, has recently expanded to increase the capacity and speed of their canning facilities, thus demonstrating rising demand for private label.

Domestic expansion as a race for resilience

Despite slowing growth of pet care, premiumisation can be expected to continue, leading demand for quality but budget-friendly options. This creates strong avenues of growth for private label, where formulations are now often created to be on a par with major brands. However, mergers and acquisitions have further consolidated share and, most importantly, resources. This has often benefited major brand names, which have stronger buying power and more resilient profits. Even the simple acquisition of brands will add to a buyer’s portfolio due to the manufacturing resources associated with the acquired company. Thus, acquisitions are a form of expanding market penetration as well as resource capabilities. For private label, this often means competing for consumer demand with an increasingly limited range of manufacturing resources. As competition for resources grows, and as consumer budgets tighten, the race to stabilise production costs against disruptions will make efficient centralised production lines a key priority.

Learn more about Pet Care with our report, Competitor Strategies in Pet Care, for a briefing on leading players in the industry and the key trends informing business strategies.

 

 

 

 

 

 

 

 

 

 

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