In early December 2023, Vobra Special Petfoods, a Netherlands-based maker of premium and other dog and cat foods, made what seemed like a bold announcement: Effective at the beginning of the month, it is reducing the prices of its products. Acknowledging past price increases driven by higher raw material and energy costs it incurred, the company said it is now following through on a promise to review and lower prices as its costs come down.
Perhaps other pet food companies are also reducing the prices of their products and simply not promoting those actions, but as far as I know, Vobra stands out as an outlier. Pet food price cuts seem to be very rare in the US market today. “We’ve seen no force from brands to roll back price increases that would provide some relief to the category,” said Bryan Jaffe, COO and managing director, and John Gulvezan, vice president, of Cascadia Capital, in their recent release that “Fall 2023 Pet Industry Overview” report.
The latest US pet food inflation data, for November 2023, shows a lower year-over-year (YOY) increase for pet food prices; it stood at 5.6%, down from 6.5% YOY in October and significantly down from previous highs of 15% or more. But compared to November 2019, before the pandemic and in this inflationary period, US pet owners are paying 22.93% more. (This data is courtesy of John Gibbons of PetBusinessProfessor.com.) Will they get any relief in 2024?
Leading indicator: Pet food producer costs
The answer to that question depends on whether pet food producer prices also continue to decline. I have not yet seen US pet food producer price index (PPI) data for November 2023; in October, it was stuck at about 8%. And, like retail prices, producer costs are still higher than pre-pandemic, rising nearly 29% in October 2019. (In their report, Jaffe and Gulvezan compared the prices of pet food input from December 2017 to date, showing huge increases such as 34.5% for meat processed from carcasses, a whopping 75.9% for rendered and meat by-products and 30.4% for in transportation and warehousing.)
As analysts say, producer prices are leading indicators of retail prices, so in most pet food companies are still trying to manage the higher (and often volatile) costs, it’s hard to say that more should follow Vobra’s lead in lowering prices on their products.
However, this pricing situation likely has short- and long-term implications for the continued growth of the pet food market. Over the past few years, growth has come mostly from higher retail prices, rather than increased volume sold, and most pet owners are likely at their limit — or beyond — for on how much more they can or are willing to pay for a pet. food “Companies are unlikely to successfully push through price increases in 2024 and will be forced to cut prices by both retailers and consumers,” warn Jaffe and Gulvezan. “Without input cost deflation, margin pressure will reduce innovation and discretionary marketing spend, which are key drivers of growth.”
It feels good to spend on pet food
At least the prices are not constantly increasing and, in fact, are slowly decreasing. Apart from the lower YOY increase for pet food inflation in November 2023, the YOY figure for US household food (essentially groceries) fell to 1.7%, and the overall US consumer price index (CPI) YOY fell to 3.1%. The comparison with November 2019 prices is still not good — 25.4% for food and 19.4% for CPI — but continued declines are certainly better than increases.
Perhaps if the PPI is also beginning to decline, more pet food companies will see a benefit in adopting Vobra’s approach. Profit margins are certainly important, but so are pet owners who can afford to feed their pets and feel good about what they’re spending.
