The Mega Trend that Wags the Dog

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Earlier this month, Amazon announced its entrance into the pet food space with a private label brand suitably called Wag.  Its initial offering is a line of dry dog food that centers on proteins like chicken, beef and salmon and excludes filler grains.  If there is one industry in which money can be made it is pet foods.  Americans will spend more than $72 billion on their pets in 2018 and nearly half that will go toward pet foods, according to the American Pet Products Association (1).

Ecommerce is a significant driving force behind the growth in the pet products and food categories.  The growth in this segment outpaces general online retail by 380% (2).  With that kind of runway, it is not surprising that Amazon is entering the space with its own pet brand.   Amazon’s sales in the pet categories were $2 billion in 2017 according to industry reports, up 40% over 2016. Competitors should be afraid.    

Behind the flurry of activity in the pet food space is a growing concern over the quality of packaged pet food.  Many owners view their pets as family members who often eat alongside their human families.  As long as pet parents are making healthy choices for themselves, they want the same for their pets.  Nutrition, natural ingredients and safety have become key demands.

This humanization of pets is now driving significant investment in a new category of wet pet food that stands in stark contrast to the kibble class, which usually contains loads of fillers and low quality proteins.  The new category of wet pet foods has higher nutritional content, quality proteins, natural ingredients and no filler grains.   Almost as important, it looks and smells like human food, so that human companions don’t gag when opening the packages .      

Freshpets, NomNomNow and The Farmers’s Dog are among the new companies occupying the premium pet food space, offering fresh or frozen pet foods that are stored in the family fridge and sometimes even delivered via subscriptions, just like meal kits for humans.  Large players have their sight on the segment too.  In late April, General Mills acquired Blue Buffalo Pet Products, a leader in the natural pet food segment, paying 6 times net sales for a whopping $8 billion in cash.  As new entrants work to scale their fresh and frozen pet food operations, established players can’t afford to sit back and watch.   The time is now for acquiring a bigger stake in this growing segment.

Transporting, storing and retailing premium fresh and frozen pet foods come with a higher price tag because these products rely on the same costly cold chain consumer foods rely on.  Despite its distribution advantage, dry kibble can never aspire to a better-for-your-pet food, even with improved ingredients.  Existing wet foods packed in cans and pouches offer higher palatability and some times higher quality ingredients than kibble, but by virtue of current processing methods, they still fall short of the human-like food goal.

The winner-takes-all product in the new pet food space will combine the fresh prepared quality and appeal of human food with the distribution and retailing advantages of the shelf-stable format for a variety of retail, including most vitally, ecommerce.