Changing lifestyles in the form of the rise in nuclear families and double income households have encouraged the growth of pet ownership in urban areas of India. Increasingly, pets are being looked upon as companions and members of the family rather than as guard dogs for example. Pet owners have started to take an interest in their pet’s diet, health and grooming. A gradual shift towards prepared pet food has been observed. Pet owners are more willing to spend on pet food and pet care products than ever before. This trend has spawned an entire industry, with a growing emphasis on pet care.
Most of the branded pet food is imported. The government’s reduction of the import duties on pet food in 2007 provides a boost to both manufacturers and importers. But the ban on imported pet food due to the outbreak of Avian Flu in year 2006, which continued through 2007, resulted in the reduced availability of pet food. A few foreign brands such as Royal Canin and Bento Kronen escaped the ban, but others like US brands Pro Pac and Purina were impacted. On the other hand, locally manufacturing looked up. According to Euromonitor International, veterinary clinics and pet shops remained a leading distribution channels for pet food and pet care products in 2007. But more and more retail outlets and supermarkets started emerging as viable distribution channels. This has reduced the influence of vets on consumer purchasing decisions. In the days to come, with pets increasingly being treated as companions and fashion accessories, pet owners, especially in the urban areas, are expected to spend more on their pets.
Key Trends and Developments
Pet owners in India have traditionally relied on vets to provide them with guidance on taking care of their pets. The influence of vets stretches beyond the realm of vaccines and extends to advice on pet food. Thus, over the years, manufacturers have pitched their products to vets, and focused on getting them to recommend products to pet owners. Most vets in India sell pet food and pet owners traditionally purchased pet food from vets. However, as pet owners become more familiar with different brands of pet food and pet care, they are increasingly becoming the decision makers and making their purchases elsewhere. This trend was shown by veterinary clinics’ decreasing share of retail value sales of pet food and pet care products; its share decreased by slightly over four percentage points between 2002 and 2007. This gradual decline in share indicates that pet owners are slowly, but surely, becoming empowered in making their own decisions about pet food and pet food products and pet welfare in general.
As the central advisory role of the vet in everyday decisions regarding the pet welfare declines, over the forecast period, manufacturers will need to communicate directly with pet owners. Whilst it is difficult to target pet healthcare products and dietary supplements directly to pet owners, manufacturers can start this process by promoting their pet food brands through the media and by increasing their distribution reach to pet shops, upermarkets/hypermarkets, other food stores and other non-food stores. Manufacturers should ensure that retail outlets selling pet food also offer pet accessories and grooming products or services.
The increasing number of pet shops and advertisements for pet food brands, combined with the greater concerns about pet health and welfare, are driving the shift towards prepared pet food. The number of advertising campaigns directly targeting pet owners is rising and most advertisements strive to communicate the benefits of prepared pet food and its nutritional value over homemade alternatives. The support of vets for these campaigns has led pet owners to purchase prepared food for their pets.
Indian consumers traditionally favoured freshly cooked over prepared pet food. Most pet owners continue to give their pets homemade food, while offering prepared food as a snack. Thus, the diet of pets in India is a combination of prepared and non-prepared pet food. However, the perception that freshly prepared, homemade pet food is healthier and more nutritious is changing, as manufacturers and vets advocate the benefits of prepared pet food. Manufacturers have aggressively targeted vets with their products and many are using the professionals to recommend prepared pet food to pet owners. Effem India Pvt Ltd was one of the first manufacturers to target pet owners directly through media advertisements and direct communications. Other manufacturers are increasingly using advertisements in pet magazines and leaving promotional literature in veterinary clinics. These marketing strategies have increased the consumers’ general awareness and acceptance of prepared pet food.
The frequent bans on imports of pet food have affected its availability in India. There are very few domestic manufacturers of pet food in India and their main focus tends to be on dog treats and mixers such as biscuits. Apart from Venky’s India Ltd and Tetragon Chemie Pvt Ltd, there are no other domestic manufacturers with a pan- India distribution. Moreover, Effem India is the only multinational that has domestic production facilities. Thus, economy brands tend to be available during the bans but premium and midpriced pet food tends to suffer as these are largely imported. Since the development of pet food is at an embryonic stage in India, the irregular availability of brands has hampered the creation of brand loyalty among pet owners.
From 2004, imported pet food was negatively affected by legislation in the form of bans on imports from certain countries. In 2006-2007, the import ban due to the rise of Avian Flu affected US-based manufacturers severely. There was a breakdown in the supply chain for major brands such as Eukanuba, Purina, and Pro Pac, as these are imported from the US. On the other hand, brands such as Bento Kronen and Royal Canin, which are imported from Belgium and France, respectively, escaped the ban and their availability was not affected. Thus, the irregular availability of major imported brands has clearly affected the development of pet food in India.
The import ban on pet food continued in 2007 and shows no sign of letting up. The availability of major brands such as Purina, Pro Pac, Sportmix, and Iams remained in doubt throughout the first half of 2007, with imports stuck at Indian ports due to the blanket ban on stocks from countries affected by Avian Flu. The cost pressures are expected to mount on importers over the forecast period, as they suffer from the loss of sales and by having to pay for the stock that is held at the ports. Whilst the major manufacturers and importers formed an association in order to lobby the government on the import ban, the industry is hopeful that a positive outcome will be achieved in the short term.
Import restrictions leading to the irregular availability of pet food will hamper the development of pet food in India. The irregular availability of pet food is also expected to prevent the major manufacturers from creating brand loyalty for their brands. In order to generate brand loyalty and drive expansion, the regular availability of pet food and good distribution networks are key issues for manufacturers. In order to overcome the import restrictions, manufacturers such as Purina Pet Care India Pvt Ltd would do well to shift the production of their brands to India, as Mars Inc has done in the past by establishing Effem India in the country. In addition, manufacturers should continue to lobby the government, but given the latter’s position this strategy is unlikely to create a long-term solution to the import restrictions.
Indian Market: Waiting to be Tapped
The Indian pet foods market is a young, growing market and there are a few major players that are active in it. Imports currently constitute 40 percent of the total pet foods market in India, with the US being one of the dominant suppliers. The pet foods market has been growing at an average annual rate of 10-15 percent for the last few years. Consumption of branded pet foods is currently concentrated in urban towns and major cities and much of the demand for branded dog food is generated almost wholly from the urban population, which is the key target segment for marketing and promotional initiatives.
India has a large number of pet dogs and cats. In fact, a recent survey concluded that there are 3.6 million pet dogs in the six major cities alone.
The affluent section of the urban population – the 350 million strong middleclass that we hear of so much – is the major target segment for pet food products in India. Indian pet owners have traditionally fed their pets with homecooked food, and the slowly increasing practice of feeding branded pet foods is a relatively new trend. The size of the Indian pet foods market estimated by industry sources at approximately 6,000 tones and growing annually at 10-15 percent – very small compared to the vast international pet foods market.
The vast majority of pet owners in India are highincome households, with dogs being the most popular pet choice at over 55 percent of the pet population, followed by cats. The Indian pet foods market therefore predominantly caters to dog food products. Dog food, therefore, accounts for almost 80 percent and cat food for approximately 15 percent of the total market. Other segments such as aquarium fish food, bird food and food for other animals like rabbits and guinea pigs account for the rest. The pet foods market in India is largely concentrated on dried foods segment and moist. Semi-moist pet food is not manufactured in India.
Indians traditionally have fed their pets prepared home food scraps, thinking that this is more nutritious, but this trend is slowly changing in major Indian cities and urban areas. In recent years, here has been a growing trend of young pet owners switching to branded pet foods because of increasing consideration of factors such as convenience of feeding pets with prepared branded foods and also because of the increasing awareness resulting from marketing efforts of manufacturers and vets about the balanced nutritional benefits of feeding pets with packaged prepared foods. The Indian perception of pets has also changed as owners have come to treat them more like members of the family. As a result, pet owners are more interested in ensuring their pet’s health with pets foods designed for specific health conditions leading to increased demand for branded specialized pet food products.
China vis-a-vis India: Economy Segment set to Grow
The pet food and pet care products market in China remains relatively underdeveloped.
According to Euromonitor International data, the Chinese market accounted for just 1 percent of global value sales in 2007. Although this figure has doubled over the past decade, it compares unfavourably with China’s share of global packaged food sales, which expanded by nearly two percentage points, to 5.2 percent over the same period. In order to bring their performances more in line with those of their packaged food peers, pet food companies need to broaden their consumer base at the lower end of the market.
Overall, the Chinese pet food and pet care market was worth US$676 million in 2007 (having posted a CAGR of 13% over 1998-2007), compared to a figure of US$4.7 billion in neighbouring Japan.
In terms of segmentation, premium dog and cat food in China grew its value share of total sales from 21 to 35.5 percent between 1998 and 2007, while the share of mid-priced brands declined from 70 to 59 percent over the same period. The share of economy dog and cat food declined from 8.7 to 5.9 percent. Moreover, by 2012, it is estimated that economy products will account for just 5 percent of the Chinese dog and cat food market.
The growth of pet food and pet care products in China is being held back by a low propensity to purchase among the country’s less affluent consumers. This is underlined by the fact that annual expenditure per pet in China stood at just US$2.50 in 2007 (compared with US$70.10 in Japan). Although this figure can be increased by selling ever more expensive premium and super-premium products to existing consumers, there is far greater potential for sales growth (in both volume and value terms) in luring pet owners who continue to feed their pets household scraps into the economy segment.
India, a market not wholly dissimilar to China in terms of its scale and development, illustrates how the potential of economy brands is not yet being realised in China. The economy products accounted for 61 percent of total cat and dog food value sales in the country in 2007, up from 32 percent in 1998.
While the overall growth of Indian pet food and pet care products was less than that of China in the 10 years to 2007, it is estimated that India will achieve a CAGR of 11 percent between 2007 and 2012, compared with a figure of 8.6 percent in China. The divergence in performance between these two markets will be at least partly the result of the relative narrowness of China’s pet food consumer base compared to that of India.
Savvy pet food manufacturers can utilise these trends to grow their overall share of the Chinese market. This stratum of consumers is extremely price-sensitive and high-volume, low-margin sales will be vital to profitability. As a result, manufacturers that invest in local production facilities will gain an important additional cost advantage.
A huge improvement in both the quantity and quality of China’s transportation infrastructure is helping to transform the country’s logistics industry, reducing distribution costs and opening up new swathes of potential consumers to pet food manufacturers. This has gone hand-in-hand with the spread of chain retailers, that are moving beyond the metropolitan areas of Beijing and Shanghai to second- and third-tier cities. Pet superstore Cool Baby’s expansion into such markets as Nanjing and Yantai has been particularly notable in this regard. In the medium term, the spread of chain retailers into the less developed provinces of mid- and west China will provide an additional boost to sales.
A sustained marketing effort will also be required to drive demand for economy products. Although China’s urban population is expanding rapidly and should eclipse its rural counterpart sometime during the next decade, the country retains many of the cultural characteristics of a peasant society. This is of particular relevance for the pet food market, as it is the continuance of rural attitudes towards animals that is in many respects responsible for hampering the growth of economy pet food. By stressing the benefits of packaged pet food over household scraps, marketing can play an important role in breaking down these established attitudes in order to promote anthropomorphism and develop the market.
Unlike the premium and mid-priced pet food segments, in which foreign firms are dominant, indigenous firms are best placed to benefit from any growth in economy pet food sales. Although this segment has been extremely fragmented, it would appear to be consolidating rapidly. For example, Euromonitor International data shows that the combined market share of the three largest players (Chengdu Care Pet Food, Nory Pet and Zhangjiagang Lianfeng Pet Food) increased from 20 to 38 percent between 2000 and 2006. With growth in this segment likely to take off in the medium term, some of the global market’s larger players may be tempted to make an acquisition in order to boost their growth, gain control of local production facilities and improve their overall position in the potentially lucrative Chinese pet food market.
Top Global Trends till 2012
Until now, pet food private label products have been largely confined to the economy segment, with the exception of Germany and, to a lesser extent, the US, but they are beginning to develop a presence in the premium and mid-priced segments.
Pet food superstores are particularly well placed to exploit this trend. In the developed world, this may be facilitated by the shadow cast over branded products by the Menu Foods recall, as well as growing economic insecurity, particularly in the US.
Euromonitor’s report also proposed that in addition to the growing threat of private label encroachment, issues such as the quality and tractability of ingredients will be brought to the fore by the US Menu Foods recall. Consumers’ faith in branded pet food products, as markedly superior to their private label counterparts, will be weakened. As a result, products that contain human-grade ingredients will gain a significant advantage.
In developing economies, the economy products will be the main driver and much of the growth is expected in this segment. As the economy segment in developing markets is price sensitive, it will be very difficult for producers to add value. The very nature of this segment precludes significant innovation. The private label products are likely to gain in such markets which will put additional downward pressure on margins.
Most of the growth in retailers’ private label sales is likely to come from the economy segment, as rising employment boosts disposable income and reduces poverty, adding millions of new consumers to the bottom of the market.
Branded pet food products can address these issues by aggressively pushing into developing markets in terms of both distribution and marketing. It could be argued that such an investment would be uneconomic. But the potential for growth in these markets over the medium and long term is huge.
As a result of the limited affordability of premium products in developing markets and the ability of pet food producers to increase sales volumes will be limited. While there will be some potential for remium products in locations with concentrations of affluent consumers, including Moscow, Beijing, Shanghai, Mexico City and Rio de Janeiro, these will be niche, rather than mass, markets.
However, foreign pet food manufacturers could use their niche markets to facilitate the distribution of their products in developing markets, making it more difficult for indigenous manufacturers to develop their own premium offerings.
But one strategy that indigenous firms in developing markets can use to gain an advantage over foreign rivals at the very top end of the premium segment is to market their products in terms of their freshness.
Read PDF file