U.S. Pet Market: 2018’s Game Changing M&A and Investment Activity Hints at Industry’s Future

Press Release
Aug 23, 2018
Packaged Facts expects all areas of the pet industry to continue to experience record-level M&A and investment activity during the remainder of 2018 and 2019

Rockville (MD), August 23, 2018 — The year 2018 started out with a bang M&A-wise due to General Mills’ February acquisition of Blue Buffalo, and as of early August the U.S. pet industry has seen at least two dozen additional acquisitions. But what’s more revealing than the sheer number is the types of M&A activity and impact they are expected to have in coming years, according to market research firm Packaged Facts in the recent updated edition of U.S. Pet Market Outlook, 2018-2019.

“It’s been an intriguing year in the pet market. Unlike in the past, we haven’t seen the usual trend of one pet food company acquiring another, but instead it has been well-known manufacturers and marketers of human food decisively crossing over into the pet industry through purchases of equally large and iconic pet food brands. Not to be left behind, new, small companies and suppliers are also entering the pet market with acquisitions of other small companies, suppliers, and co-manufacturers. Even established pet market players are branching out into new segments of this lucrative industry,” says David Sprinkle, research director for Packaged Facts.

Sprinkle points to deals such as General Mill’s purchase of Blue Buffalo and J.M. Smucker’s purchase of Ainsworth, as well as Nestlé’s reported interest in acquiring Champion Petfoods, spotlight the trend of top marketers of packaged human foods looking to diversify or increase their involvement in pet. Such strategic decisions are understandable considering that U.S. retail sales of pet food rose more than 4% in 2017 compared with 1.2% growth in retail sales of packaged human foods.

Examples of pet food industry leaders branching out beyond their core business into other areas of pet include Mars’ expansion into veterinary and DNA canine testing, and Purina’s expansion into digital pet owner platforms and custom dog food. Demonstrating the trend of smaller marketers purchasing even smaller brands they view as forward-looking and synergistic is Barkstrong, which acquired two natural pet food brands in May 2018 and a third in June.

In addition, decisive movement among pet food industry suppliers began with Archer Daniels Midland’s (ADM) early 2017 purchase of Crosswinds Industries, a manufacturer of contract and private-label pet food and treats, with more recent deals including Cargill’s January 2018 purchase of Pro-Pet, a producer of private label and co-manufactured pet food products; the January acquisition by global ingredients supplier Kemin Industries of Agri-Marketing Corp., its longtime distributor in Canada; and the April 2018 acquisition of Lortscher Animal Nutrition, an ingredients company, by C.J. Foods, a custom manufacturer of premium pet foods. Along similar lines, in May 2018 Tyson Foods agreed to pay $850 million for the poultry rendering and blending assets of American Proteins, which will enable Tyson to recycle more animal products for feed, pet food, and aquaculture. The big picture motivation: Adding a pet food manufacturng arm allows companies such as Tyson to potentially diversify their business portfolio while also owning and controlling sources, supplies, and distribution for the ingredients they use.

Packaged Facts expects all areas of the pet industry to continue to experience record-level M&A and investment activity during the remainder of 2018 and 2019, driven additionally by the realignment of pet retailers, marketers, and service providers facing the reality of a business whose fortunes hinge increasingly on e-commerce. Via acquisition, Packaged Facts expects to see brick-and-mortar-based pet players further advance into the online space, as big-box retailer PetSmart has done with Chewy.com and distributor Phillips Pet Food & Supplies has done with PetFlow, with developers of other, often related pet-tech platforms and products prime targets for acquisition. Pet-tech acquisitions will focus squarely on e-commerce and healthcare, with growing interest in pet health monitoring and testing devices and services; cases in point are Mars Petcare’s December 2017 purchase of Genoscoper Laboratories, a specialist in molecular diagnostics for companion animals, and April 2018 purchase of OptiGen LLC, a DNA diagnostics company specializing in canine inherited eye disorders. Also of high interest will be more traditional providers of pet health services and products, including veterinary and non-medical services and natural and organic foods and supplements.

About the Report

U.S. Pet Market Outlook, 2018-2019 has been freshly updated from its edition earlier this year because a lot can happen in six months. Since the March 2018 edition of U.S. Pet Market Outlook, 2018-2019, as of mid-August 2018:

  • Following up on its 2015 acquisition of Big Heart Pet Brands, J.M. Smucker has purchased Ainsworth, which includes the best-selling Rachael Ray Nutrish, mass-market specialty brand;

  • Amazon has launched Wag private-label dog food;

  • Walmart’s Jet.com has teamed up with Ollie to offer home-delivered, fresh, human-grade pet food, following in the footsteps of the December 2016 launch of Blue Apron-like PetPlate;

  • The FDA has suggested a link between canine dilated cardiomyopathy (CDM) and grain-free pet food;

  • Petco has introduced a new service-focused retail concept under its PetCoach brand, and begun constructing JustFoodForDogs fresh pet food kitchens and pantries in its stores;

  • PetSmart’s Chewy.com has advanced into pet medications;

  • PetIQ has begun opening veterinary clinics in Walmart stores; and

  • Mars has moved further into veterinary services and canine DNA testing.

Each of these developments has potentially enormous ramifications for the U.S. pet industry. Taken together, they reinforce trends and predictions set forth in the previous edition, including the lightning speed advance of e-commerce, the breakdown of the pet specialty/mass divide, the mass premiumization of pet food, the crucial need of pet specialty retailers to differentiate from online and mass retailers by becoming even more service-oriented; and the race among pet food makers and retailers to come up with the next big superpremium pet food shopper draw (as Petco is hoping to do with JustFoodForDogs and Jet.com is hoping to do with Ollie).

Further, the Internet continues to gain ground at such a pace Packaged Facts has upgraded our e-commerce estimates and projections since March, with e-commerce now predicted to represent one-quarter of pet product sales by 2022, surpassing pet specialty chains at 20%, discount store/supercenters at 19%, and food stores at 11%. We’re also more bullish on the expansion of veterinary services in a widening array of retail venues, on petcare services fueled by Uber-like apps (it’s no coincidence that 2018’s Pet Care Innovation Prize went to Barkly Pets for its dog walking app), and on tech-driven “smart products” linking pet products and owners with pet healthcare providers and e-tailers.

As a result, the U.S. pet industry of August 2018 looks quite a bit different than that of March 2018, and the market of February 2019—when the next edition of our U.S. Pet Market Outlook becomes available—will look quite a bit different than that of today. The purpose of this continuously updated “living document” is to not just track the market every step of the way but to stay at least a few steps out in front.

View additional information about U.S. Pet Market Outlook, 2018-2019, including purchase options, the abstract, table of contents, and related reports at Packaged Facts’ website: https://www.packagedfacts.com/pet-products-services-c124/.

About Packaged Facts

Packaged Facts, a division of MarketResearch.com, publishes market intelligence on a wide range of consumer market topics, including consumer demographics and shopper insights, consumer financial products and services, consumer goods and retailing, and pet products and services. Packaged Facts also offers a full range of custom research services. Reports can be purchased at our company website and are also available through MarketResearch.com.

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