Despite increasing innovation throughout pet care, global supply chains continue to grapple with instability. Major disruptors, such as climate change, labor shortages, and political tensions, are forcing constant innovation throughout the supply chain. As a result, industry leaders throughout pet care are expanding their domestic manufacturing capabilities. However, efforts to expand gasoline competition as industry giants cover facilities that were once key to private label production. Although domestic expansion represents strategic efforts to stabilize production lines, it often comes at the expense of private label. Faced with the restriction of resource capabilities. private label manufacturers will face challenges responding to increased demand amid continued economic tension.
Growth against a backdrop of slowing demand
Emerging from the surge of new pets during the pandemic, Euromonitor expects pet food retail volumes to continue towards flat growth.
By 2022, dog and cat food alone is estimated to see 1.7% retail volume growth
Source: Euromonitor International
Thus, future growth depends less on new pets and more on the stability of aging pet populations. This is in part due to the tense economies, but also by the function of normalizing pet ownership after the high number of adoptions in 2020.
Under these circumstances, more mature markets may limit manufacturing expansion efforts. However, growing resource competition between human and pet foods makes it imperative for the pet care industry to strengthen supply chains. Rising global unrest, costs of ingredients and transportation, among others, make industries keen to protect domestic markets against disruptions. For many, this means centralizing 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 market areas, such as wet food and cat food.
Mergers and acquisitions: A strategic theme amid resource competition
Even as volume demand continues to slow, local centralization of production has risen as a tool for long-term market stability. Among the key industry leaders fueling the centralization trends are Nestlé Purina Pet Care, Blue Buffalo, and Hill’s Pet Nutrition. Nestlé’s US expansion 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 dedicated to wet, canned pet food. Continuing the trend, Blue Buffalo remains focused on expansion, allocating funds toward a 2-year project expanding processing and warehouse capacities in Richmond, Indiana. With expansion efforts focused on wet and dry food, as well as treats, the slowdown in pet population volume and growth has not undermined confidence in the profitability of pet care.
Together, Nestlé Purina Pet Care, Blue Buffalo, and Hill’s Pet Nutrition comprise about 41% of the market
Source: Euromonitor International
As a result, expanding their scope into pet food manufacturing has great potential to impact the competitive landscape.
Impact on private label growth
While manufacturing expansion efforts are a strategic bet on long-term market stability, they often pressure smaller players in the industry. Acquisitions in particular often come as direct hits to production capabilities for the private label. While the most recent examples include the acquisition of Red Collar facilities, which produced private label pet food, similar trends are not new to the US market. Early premiumization trends leading up to and during the pandemic appear to threaten private label, prompting some private label manufacturers to scale back. However, rising prices across all industries have created an opportunity area for more affordable options offered by private label.
As seen in Euromonitor International’s Voice of the Consumer: Lifestyle Survey, consumers have shown a continued desire for private label, which has intensified demand recently. By 2022, 16% of survey respondents expressed an intention to increase private label consumption, with this number rising to 25% by 2023. Within the pet food space, demand for consumer demand for high-quality, affordable products has led private labels to restructure, better competing with national brands. Although private label products still comprise a relatively small portion of pet food, they have witnessed double-digit growth in recent years, proving that premiumization has done little to eliminate consumer demand. However, many private label lines rely on co-manufacturing facilities, lacking the size and capacity to develop their own manufacturing pipeline. As a result, the continued acquisition of private label manufacturing sites increases the strain on the remaining producers. With strained economies fueling consumer demand for more affordable, quality foods, private label faces the risk of insufficient resources to meet demand. Simmons Pet Food, for example, recently expanded to increase the capacity and speed of their canning facilities, thus reflecting the increasing demand for private label.
Domestic expansion as a race for stability
Despite the slowdown in pet care growth, premiumization can be expected to continue, leading to demand for quality yet budget-friendly options. This creates strong growth opportunities for private label, where formulations are often made to be on par with major brands. However, mergers and acquisitions have more integrated components and, above all, resources. This has often benefited major brand names, which have stronger purchasing power and more elastic earnings. Even the simple acquisition of brands will add to a buyer’s portfolio because of the manufacturing resources associated with the acquired company. Thus, acquisitions are a means of expanding market penetration as well as resource capabilities. For private label, this often means competing for consumer demand with an increasingly limited set of manufacturing resources. As competition for resources grows, and as consumer budgets tighten, the race to stabilize production costs against disruptions will make efficient centralized production lines a top priority.
Learn more about Pet Grooming in our report, Pet Grooming Competitor Strategies, for a briefing on the industry’s top players and the key trends informing business strategies .
