THE RISING POWER OF PETS IN PANDEMIC BRITAIN€¦ · psychological benefits of animal companionship during the height of the Covid-19 pandemic. Throughout this report we explore the

THE RISING POWER OF PETS IN PANDEMIC BRITAIN

ISSUE ONE 2020

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Foreword

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Welcome to the inaugural Mars Petcare ‘State of the Pet Nation’ report, our first in-depth review of the UK petcare market which we hope will become a valuable tool for grocery, convenience and specialist retailers looking to maximise the potential of their petcare offering.

Petcare is a hugely valuable market. With 50% of the population owning at least one pet and petcare category shoppers having a 26% higher basket spend than average, these consumers are a valuable group to attract. What is more, as our pets live longer, retailers have the chance to capitalise on a lifetime of loyalty; think of the space and promotional effort afforded to the baby and toddler market, worth a third of the value of petcare and only bought into for a couple of years of a child’s life, and you can see the opportunity.

Petcare has proven its importance and continued resilience during the last tumultuous year, growing 2.2% in the 12 months to July 2020, with treating occasions growing an even more impressive 12% as lockdown tightened, consistently outperforming many other FMCG categories. As premiumisation continues to drive value growth, pet parents are seemingly more eager than ever to treat their furry friends as extensions of the family – a trend we only see growing as pet owners enjoyed the considerable emotional and psychological benefits of animal companionship during the height of the Covid-19 pandemic.

Throughout this report we explore the last 12 months for the category, delving deeper into the last few extraordinary months and the growing trends that have emerged, and look to what the future holds for petcare. The good news is that, out of the recent adversity, our category is emerging even stronger – supported by our nation of animal lovers, who represent a fantastic opportunity for retailers.

At Mars Petcare, we are dedicated to creating a better world for pets. Throughout all we do this mission rings true. As we look forward to 2021, yet more innovation and investment into our pets’ nutrition lies ahead. The future is bright for our category!

I hope you enjoy the report, and find it a valuable resource.

Nick FosterCategory and Marketing Director, Mars Petcare UK

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Pets hold real power. And in pandemic Britain, that power is rising. People are spending more than ever on feeding and treating their pets. Increasingly, they view their pets as equal members of the family with dietary, physical and emotional needs that are just as important as their own. They want to keep them fit, healthy and happy for as long as possible.

Now, growing numbers are turning to pets for comfort (see Part IV). When Covid-19 turned the world upside down in the in the first few months of 2020, breeders and rescue centres reported a boom in enquiries from people looking for new pets. In the week before Britain went into lockdown, Battersea Dogs and Cats Home rehomed more than double the number of pets it did in the same week in 2019¹. Pets charity Dogs Trust said in May that demand for puppies was outstripping supply².

It’s clear why. Pets’ power lies in their ability to ease the stress and isolation their owners can feel. It’s likely that most of us have felt more stressed and/or isolated in 2020, with the uncertainty caused by the pandemic, lockdown and closure of large parts of the economy. Faced with growing social isolation and economic hardship, many are now looking to make new four-legged friends.

So, as we enter this new, post-pandemic age, pet food (and the wider pet care sector) is poised to become one of FMCG’s winning categories. In this report, we’ll explore the opportunities that lie ahead for a category that tends to outperform others during times of economic hardship, and what retailers need to do to capitalise on them.

¹ The Independent, 26 March 2020² Financial Times, 22 May 2020

PART ONE2020: Brits turn to pets for comfort in lockdown

10.99.9

million dogs million cats

by 2025 one in three pet owners will be millennials

1 in 3

Size of the Prize:

£920m

£1.1bn

PETCARE

BABY & TODDLER

TOILET TISSUE

CHOC CONFECTIONERY

£2.9bn

£2.4bn

Petcare is experiencing 2.5% cumulative growth, outperforming FMCG at 1.9% growth

2.5%

1.9%

Pets are part of the family, with 72% of pet owners referring to themselves as their pet’s mummy or daddy

72%Petcare shoppers spend 26% more than non-pet owners

Biggest growth areas. Wet Single Serve for both cat (8% growth) and dog (6%)

8% 6%

4

6

* The spending power index has been calculated by dividing total FMCG value (in millions) by household penetration for each category. It reflects the spend of each household that buys into a given category. For example, 44% of UK households bought baby and infant products in 2019⁷, spending a total of £920m, while 57% bought pet food and litter, spending a total of £2,900m; this gives baby and infant care a score of 20.9 and pet food and litter a score of 50.9.

The relationship between pets and their owners is reciprocal. We heap love and care on our pets; in return, we develop a deeper bond with them (as we will explore in Part II). Few view things in such transactional terms, of course, but it is the nature of this relationship with our cats, dogs and other four-legged friends that is driving significant value growth in the market.

UK shoppers spent £2.9bn³ on pet food and litter in 2019 as a part of the £6.3bn⁴ industry dedicated to looking after our pets’ needs (this includes healthcare, services and accessories as well as food and litter). That’s

greater than the amount they spent on chocolate, toilet paper or breakfast cereals, and represents growth that significantly outperformed the wider FMCG category between 2011 and 2019; +2.5% versus FMCG’s 1.9%⁵.

This growth is driven by the ongoing humanisation of our pets. Today, few people who keep animals see themselves merely as pet owners: 72% refer to themselves as their pets’ ‘mummy’ or ‘daddy’⁶. And these pet ‘parents’ pack real punch in terms of spending power (see the below graphic).

On average, households that have pets spend 26% more on groceries. Even if you take pet food and litter out of the equation, their spend is still 15% higher⁸, a fact that reveals higher levels of affluence among pet owners. Typically, they also shop more categories. Therefore, retailers that attract pet parents through their doors can expect to realise larger shopping baskets. In spite of the challenges of 2020, British supermarkets have seen a 2.2% year on year increase in value sales of pet food and litter in the latest 12-month period⁹. What

is more, the number of units sold has fallen by 2.3%10, indicating that shoppers are now trading up in their pet food and litter purchases. Myriad factors are at play here, which will be explored in depth in this report, but let’s start with one of the most important.

³ Nielsen MAT January 2020 ⁴ Combined Read - Nielsen – Petfood, Mintel – Petcare, Stratista Grooming and Vet Services⁵ Nielsen Household panel data MAT December 2019⁶ Mars Pet ownership study, 2017, UK Market

⁷ Nielsen MAT January 2020⁸ Nielsen MAT January 2020 ⁹ Nielsen MAT 11 July 202010 Nielsen MAT 16 May 2020

The extraordinary spending power of pet ‘parents’

WASHING UP PRODUCTS

TOILETPAPER

CEREAL BABY & INFANT

CHOCOLATE PET CARE50

.9

4.7

20.9

15.8

11.2

24.5SPENDING POWER INDEX

7

9

Smaller pets live longer lives

‘What’s good for me is good for my pet’

BEST IN SHOW: PET FOOD’S FASTEST GROWING SUB CATEGORIES

8.0%

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

-8.0%

-10.0%

-12.0%

Britain’s pets are living longer. The life expectancy of cats and dogs has doubled in the past 40 years, with the average canine lifespan now standing at 12 years and felines living for an average of 15 years11. This, in part, is down to great leaps in understanding of the nutritional needs of animals and the development of products that provide complete and balanced diets. Pet food manufacturers can’t take all the credit for this, however. People, as well as their pets, are living longer. Younger people are getting married later in life, while more people aged 65 or over are divorced or separated than in the past. These factors, combined with growing urbanisation, have driven a 16% rise in the number of people living alone in the past 20 years12. Smaller breeds are more suited to these smaller households, and can live twice as long as larger breeds.

Fifty one per cent of the UK dog population now weighs 10kg or less. Yorkshire Terriers and Chihuahuas, for example, can live for 20 years, while Great Danes have a life expectancy of no more than eight. Smaller breeds also spend longer in the ‘senior’ life stage, a period often defined by greater need for products that address specific health needs13.

As the profile of the British pet population evolves, their owners are becoming more demanding. Smaller animals may need fewer calories, but because well over half of British households now view their pets as part of the family14, pet food has been elevated in shoppers’ minds. Pet parents’ philosophy is simple: ‘What’s good for me is good for my pet.’

That’s why pet food trends are following those in human food and drink, such as growth in indulgent or natural propositions (see Part II). This is reflected by the runaway growth of pet food’s star performing sub-categories: single serve wet dog food and treats for dogs and cats, which have delivered respective value gains of 7.1%, 4.3% and 3.9%15 (see below).

Compare the category leading growth in single serve wet dog food to the performances of dog and cat food in multi serve formats (cans mostly). Multi serve cat food represents a small part of the category (2.9%) and is focused on value. Its 10.3% loss is proof of the ongoing premiumisation of pet food.

Great Dane life expectancy 6-8 years

Yorkshire Terrier life expectancy up to 20 years

11Canine Journal, July 201812ONS 201913Waltham Nutritional Research Group

14Mars Pet ownership study, 2017, UK Market15Nielsen Audit Report MAT 16 May 2020

Single serve wet dog food

Dog treats Cat treats Dry dog food

Cat litter Multi serve wet dog food

Dry cat food

Luxury cat food

Cat milk Everyday single

serve cat food

Multi serve wet cat food

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1110

Pet food’s greatest prize: a lifetime of loyalty

The rise of pet gastronomy

Half of pet owners question what they should be feeding their pets every year16. These moments of reckoning (prompted by new life stages, specific health concerns, the latest research or just our pets’ whims about what they will or won’t eat) present a key opportunity to influence shoppers in store.

The prize for brands and retailers that can appeal with the right products for the right stage of a pet’s life is a lifetime of loyalty. Compare this with the baby and toddler care category (see above); it is worth about a third of pet food and litter’s value at the tills (£920m17) and is shopped for only the first few years of a child’s life. Therefore, pet food and litter offers a far bigger opportunity.

Whoever wins best in show in shoppers’ eyes could be rewarded with 20 years of repeat sales. But that requires fresh thinking. Just as consumers are demanding food and drink offerings that have functional health benefits for themselves, pet parents are increasingly looking for products that can help keep their animals healthy throughout their later years.

The importance of premium offerings is set to rise, as the next generation of pet parents comes of age. By 2025, one in three will be millennials18. And the Instagram generation has a propensity to spend more on its pets19.

By serving this consumer group and responding to growing demand for more premium products, Mars Petcare is looking to tap into the projected £340m category growth in the next five years, which would equate to total category compound annual growth of 2.4%.

Read on to discover how you can unleash that growth too…

For the pet parents who are driving growth in single serve wet dog and cat food, luxurious dishes that resemble the sort of meals they might rustle up at home for themselves are the order of the day. In human food, luxury no longer necessarily means decadent or unhealthy. It’s defined by natural, fresh or functional ingredients and rich variety.

Single serve formats provide that variety (and help avoid fussy felines getting bored), while giving portion control and greater convenience. See the range of soups, creamy snacks and complete meals promising Prime Cuts and Select Slices under the Sheba brand (page 13), or the luxury meals and snacks with carefully selected vegetables and prime ingredients in the Cesar range.

Just as foodies look for familiar cues in the dishes they select for their pets, health-conscious pet parents are looking for reassurances from nature and science when they’re shopping the pet food aisle. As we will explore in Part II, this is driving growth in products that mirror trends in human food and drink.

Brands marketed on their use of ‘natural’ raw materials or the absence of additives, grains or ingredients perceived as ‘artificial’ are some of the market’s fastest growers (Crave, page 14) as are those that take a science-based approach in formulating their products to meet the individual needs of each cat and dog (Royal Canin, page 14).

BABY & TODDLER

£

£920m

£2.9bnPET CARE

16Pet Ownership Trends 2017/Banfield State of Health Report Statistics 17Nielsen MAT Jan 202018Mars Pet ownership study, 2017, UK Market19Combined Read - Nielsen – Petfood, Mintel – Petcare, Stratista Grooming & Vet Services

1312

Growth sectors

In FMCG, trends can come and go... The trick lies in being able to identify the genuine game changers. To do that, you need to understand how shoppers’ priorities are evolving, how the lines between trends can become blurred and how larger, structural changes are shaping market dynamics.

Supermarket pet food sales have been in volume decline for every full year since 201320 as pet numbers have remained static21 and owners have gravitated towards smaller breeds (see Part I). So adding value

with premium offerings is crucial for the long-term health of the category. And it’s the job of brands to do just that. Mars Petcare has risen to that challenge. Despite falling volumes, the supermarkets have realised a cumulative 7% rise in pet food value sales over the past decade (see below). Mars Petcare has achieved this by developing products that meet the demands of a new generation of pet parents who give as much consideration to their pets’ needs as they do their own.

If you need more proof of how humanised Britain’s pets have become, consider this: 78% of pet parents say the quality of the food they give their animals is as important as the food they eat themselves22. They will pay more for products that are inspired by human culinary trends while striking the right balance between luxury and health.

Take cat food. Overall sales have struggled in the latest 12 months, driven partly by a slight decline in the feline population23. But products that help provide moments of luxury are bucking this trend. Sheba – with its range of soups, meals in gravy and sauce and creamy snacks – has delivered the strongest growth in single serve wet cat food, for example24.

The success of products offering luxury moments is reliant on a number of factors. As we will explore in greater depth in Part III, pet food purchases are highly planned; often shoppers visit the fixture on ‘autopilot’, pick up their usual product and move on. Disrupting that journey is key.

Sparking interest with innovative products is essential. This should be done with a variety of formats, recipes and products that take cues from human food trends. Wholesome ingredients should be visible on pack, demonstrating nutritional balance and health credentials, alongside that touch of luxury shoppers want for their pets.

Effective merchandising is also essential. Everyday products should be at the final part of the fixture shoppers reach on their journey. Premium segments should make a big impact with high visibility, clear blocking and strong ranging in order to maximise the chances of shoppers trading up.

Need 1: Luxury moments

Brand spotlight: ShebaSheba was Britain’s fastest growing mainstream luxury cat food brand in 201925, thanks to its wide range of recipes inspired by human gastronomy.

The range includes sumptuous dishes served in jelly, gravy or sauces, classics inspired by traditional pâté recipes, treats and the UK’s first range of soups for cats.

Whatever the Sheba offering, the purpose is always the same: to strengthen the bond between pets and their parents with dishes that looks good enough to eat yourself.

Pets are viewed as people by this new generation. And they are prepared to pay more for products that help keep their beloved pets healthy and happy, while strengthening the bond they have with them.

But they’ll only do that if those products are based on a strong understanding of shoppers’ needs. Here’s our rundown of the key tends shaping pet food in 2020 and beyond…

20The Grocer’s annual Top Products Survey/Nielsen21PDSA Animal Welfare Paw Report 2019

22Mars Pet ownership study, 2017, UK Market23PDSA Animal Welfare Paw Report 201924Nielsen MAT 16 May 202025The Grocer’s Top Products 2019

Everyday enjoyment

Nature inspired diet

Science led diet

Luxury moments

Treat my pet

2020

2025

39%45%

12%

16%10%

10%

12%

21%

22%

13%

PROJECTED GROWTH SECTORS

PETCARE SPEND

1,800.00

1,780.00

1,760.00

1,740.00

1,720.00

1,700.00

1,680.00

1,660.00

1,640.00

1,620.00

1,600.00

2011 2012 2013 2014 2015 2016 2017 2018 2019

PART TWO What do pet parents need in 2020 and beyond?

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Food and drink is going back to nature. ‘Natural’ claims are the number one motivator for human food choices globally, having achieved compound annual growth of 6% in recent years26. Anything artificial is eyed with suspicion. And when it comes to ingredients, less is more; 52% of consumers agree that a product is healthier if it contains fewer of them27.

This trend is having a huge influence on pet nutrition. Pet food products carrying claims relating to nature-inspired diets currently account for 12% of the market, having achieved 14.8% growth in the latest 12 months. We forecast compound annual growth of 8% between now and 2024, delivering £166m in incremental sales and a 16% slice of the category28.

These forecasts won’t become reality without decisive action from brands and retailers. The world of diets and nutrition is prone to confusion, with movements often making claims that appear contrary to each other. Brands therefore need to bring clarity with messaging on pack and in marketing about the nutritional philosophy that underpins their formulation.

Visibility in store and online is also vital. More shelf space is needed to accommodate a greater breadth of range, which caters for health-conscious pet parents and animals with specific dietary needs while suiting a wide range of budgets and encouraging shoppers to trade up.

You might be asking why we’ve waited until now to discuss the biggest part of the UK pet food category. After all, mainstream products that satisfy pets’ need for food they enjoy every day (if they don’t enjoy it, they won’t eat it) currently account for 45% of the British pet food category. That’s worth more than £1.3bn a year at the tills30.

The answer is simple: more and more, mainstream pet food is influenced by the trends we’ve already discussed, and products that don’t meet the demands of an increasingly discerning set of consumers are losing share. Indeed, we expect mainstream pet food’s share of the pet food category to have slipped to 39% by 2024. That’s a 0.7% compound annual decline31. Even so, everyday enjoyment will still make up the lion’s share of the category in 2024 and beyond. In many instances, shoppers plan what they buy for their pets more than they do for themselves, and one in five will leave the store if what they’re looking for is not available32. Therefore, maintaining availability of these mainstream lines is crucial.

Of course, mainstream shoppers still want access to the latest trends. They just need to be able to do so within a limited budget. That’s why it’s crucial that brands continue to innovate and renovate their mainstream product offerings. Equally so, retailers need to keep their ranges fluid in order to accommodate new arrivals and offer that all important variety.

Shoppers who identify as pet parents are more likely to take a proactive approach to their pets’ health. With more of us living in cities with limited access to open space, obesity and the ills associated with it are a growing problem – for us, and our pets. What’s more, our pets are living longer, so the need for nutrition that addresses specific health issues is rising.

Enter, a new breed of science-led products, tailored to satisfy health needs that were far less of a problem for cats and dogs a few (human) generations ago. Food formulated for puppies, kittens, adults and older animals, or aimed at helping to reduce problems such as obesity, diabetes or urinary tract problems (conditions more prevalent among Britain’s growing population of house cats) are in growth.

Take Perfect Fit, our range of wet and dry food designed to keep cats feeling their best whatever their age, or Royal Canin’s tailored approach to pet nutrition (see right/left), as examples. Both brands carry significant premiums over market average prices, because they satisfy the health needs of modern pets, while helping their parents sleep more easily. But, as we’ll see in the brand spotlight in our exploration of the Every Day Enjoyment need state (page 15), it’s not just super premium products that are making progress by taking a more scientific approach…

Need 2: Natural nutrition Need 4: Everyday enjoyment

Need 3: Science-led diets

Brand spotlight: CraveCrave first leapt onto supermarket shelves back in 2019. Since then, it’s hit annual sales of £4.3m29 (and counting) and is winning a growing share of space in retailers. The proposition is clear: to satisfy the true nature of dogs and cats with nature-inspired, high protein food and treats that contain a minimum of 60% animal derivatives and zero grains.

The range comprises dry and wet foods for dogs and cats, as well as a line-up of Protein Chews, Chunks and Strips for dogs. While the central role of Crave is to provide a complete, natural diet that helps feed the inner animal in our pets, there’s also an overt nod to growing demand for more luxurious pet food with a range of pâté for dogs and cats.

Brand spotlight: WhiskasHere’s proof of how movements that began at the premium end of pet food are influencing the mainstream: the Whiskas range now comprises meals tailored for kittens, cats aged one to six, seven to 10 and 11 plus, dry food, wet food, treats and milk.

This proliferation is paying off. Whiskas has achieved the greatest growth in cat food in the past six months , and its recently launched, premiumised range, ‘Pure Delight’, was awarded Product of the Year in the cat food category for 202034.

Whiskas’ marketing also reflects the trends of the day. Online (a channel that’s of growing importance in pet food, as we’ll explore in Part III), shoppers can have their questions on feline behaviour and nutrition answered by the bods at K.I.T (Kat Institute of Technology), while Kitten College gives tips to new pet parents on caring for their furry arrivals.

Brand spotlight: Royal CaninEvery pet is unique. That’s the basis of Royal Canin’s approach to helping the world’s dogs and cats live their best lives with its range of tailored nutritional products. The brand boasts lines sold exclusively through veterinary practices as well as a retail range, catering for a wide range of needs including those relating to specific life stages and health conditions.

Skin conditions, food sensitivities, diabetes and oral, kidney, urinary tract and digestive health problems are all covered, as well as the particular needs of dozens of pedigree breeds. It’s not just about making pets feel their best for as long as possible. It’s also about looking good. Royal Canin’s line-up includes the Intense Beauty Care wet cat food range formulated to promote healthy skin and glossy coats.

26Euromonitor 201627Mintel 202028Mars Petcare internal projections29Nielsen MAT 16 May 2020

30Nielsen MAT January 202031Mars Petcare internal projections, Nielsen Avg 3 yr projected 5 yr CAGR, IGD Channel Forecasts32Mars Pet ownership study, 2017, UK Market33Nielsen 26 w/e 16 May 202034Winner Cat Food Category. Survey of 10,601 people by Kantar

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16

So far, we’ve learned that ‘cat people’ and ‘dog people’ aren’t that different after all. Many are motivated by a desire to indulge their pets with food products influenced by human culinary trends, while keeping a close eye on their health. Treats are what really divide the two: sales of treats for dogs outsell those for cats by more than four to one35.

Not only are dogs treated more often (more than half of Britain’s dogs are treated at least once a day!) but the motivations for doing so also depend on the species. Most dog owners have a wide range of reasons for treating their pooches. These include rewarding good behaviour, promoting better dental health and building a bond. Cats are most often treated as a way of showing affection36.

Therein lies the opportunity. One in three pet treat shoppers currently only buy functional treats for their pets, such as oral care chews for dogs or hair ball products for cats; by persuading these people to buy a wider repertoire of treats for a greater number of uses (to show love, to train, etc) we can unlock further growth.

Smarter merchandising and more effective education are key. Contrary to the planned nature of most pet food purchases, 44% of pet treat purchases are made on impulse37, so stronger visibility in store and online, clearer segmentation and increased shelf space will help disrupt shopper journey and ultimately drive growth in the segment.

Seasonal events such as Christmas or birthdays also represent an opportunity, with 40% of millennial pet parents saying they spend as much on treating their animals as they do friends on special occasions38. Seasonal events and promotions in store and online will help retailers capitalise on this.

Driving greater understanding of canine oral care will also pay dividends as only 5% of dog owners feed their pets an oral care treat on a daily basis40. Convincing the other 95% of dog owners to do so would unlock a £500m sales opportunity41. Now that would be a treat!

There’s another meaty growth opportunity for retailers who want to realise the full potential of Britain’s pet parents: pet toys, grooming products and accessories. As we’ve seen, these consumers have significant spending power and are looking to form stronger bonds with their pets. Food is not the only way to fulfil the need for closer companionship.

Fifty seven per cent of these shoppers buy accessories for their pets, with toys being the number one product on the shopping list43. And, as we’ll see in Part IV, most

of these people would rather cut back on spending on themselves than their pet, suggesting that products that promote companionship have a degree of insulation from economic influences.

Of course, space is at a premium in store, but there are opportunities for retailers to widen their ranges and become the destination of choice for pet parents. Retailers looking to drive value back into larger, out of town stores could use excess space to this end, for example.

Need 5: Treat my pet

Need 6: Inspiring pet companionship

Brand spotlight: PedigreePedigree is the leader of the pack when it comes to the UK’s canine food category. Sales hit £271.5m in the latest 12-month period, with the brand’s range of treats driving growth of 4.5%, worth a cool £8.4m at the tills42.

Offering a wide range of treats to suit a variety of needs has been crucial to this growth. The range falls into two sub-categories: care and treats. Within each is a veritable buffet of choice, from Dentastix lines for oral care – including the recently launched Chewy Chunx range – to Tasty Minis and Ranchos, which contain 95% meat and animal derivatives to tap the natural nutrition trend.

35Nielsen MAT 16 May 202036Mars Pet ownership study, 2017, UK Market37Nielsen Path to Purchase study 201538Mars Pet ownership study, 2017, UK Market40Globaldata Top trends petfood 2017

41Mars Petcare internal projections42Nielsen MAT 16 May 202043Mars Pet ownership study, 2017, UK Market

They say you can’t teach old dogs new tricks. Maybe so, but their owners are proving that they respond to change quickly when it comes to making sure their pooches get everything they need to keep them fed, healthy and happy. The same applies to cat owners. Since the beginning of 2020, there’s been a dramatic shift to online purchasing of pet food.

Of course, the exodus online mirrors the response of shoppers to Covid-19 more generally (more on that in Part IV), but there’s plenty to suggest that the greater proportion of sales taking place online will become the new normal. Indeed, we expect growing numbers to make the switch online as the demands of Britain’s pet parents continue to grow.

Bricks and mortar can still achieve growth, of course. As we explore below, retailers can do this by changing their approach to the category – it should no longer be viewed as an aisle that simply provides pet food; it should become a pet care destination, answering the needs of Britain’s pet parents.

There are three key approaches: encouraging bigger shopping baskets with bulk deals and a wider range of products, increasing spend with premium products that meet the needs we discussed in Part II; and attracting more shoppers with a wider range of goods and services.

Grocery

Specialists

Discounters

Online50%

29%

11%

9%

PART THREEWhat do pet parents need in 2020 and beyond?

17

1918

Online will be the cat that gets the cream over the course of the next five years. We’re forecasting annual compound growth of 2.4% for the pet food category between now and 2024. That will be worth more than £364m. Online channels (pureplay, grocery and specialists) will take £182m (50%) of that, representing annual compound growth of 7.4%44.

There are several factors that suggest online will take the lion’s share of the growth in coming years. Of course, there’s the onward march of technology, the near ubiquity of high-speed internet connections and mass smart phone use – 79% of UK adults own a smart phone, rising to 100% of 16 to 24 year olds45 – but that’s not all.

Seventy three per cent of pet food shoppers research what’s best for their pet before making a purchase and, of course, the majority of that research is carried out online. It’s also worth noting that almost a third of these shoppers will do their research in one channel (say, online, in a pet specialist store or at the vets) before going elsewhere to buy46.

This stresses the importance of compelling promotions, broad ranges and generally good housekeeping of online stores. Images need to be tagged correctly and shoppers need to be given all the information they need to make a considered purchase for their pet. If they don’t get that, they may well go elsewhere.

Shoppers are increasingly spoilt for choice. The multiple grocers are driving growing sales through their online operations, as are specialists such as Pets at Home and online only operations Zooplus, Ocado’s Fetch and Amazon. Then there are branded direct to consumer operations such as the newly developed James Wellbeloved website (see below).

It should also be noted that our projections were made before the full impact of the pandemic was known. Covid-19 drove many, particularly the elderly and vulnerable, to shop online for the first time. It’s unlikely they will return to stores for the bulk of their shopping now that restrictions are easing.

Aldi and Lidl have been the key disruptive forces of the grocery market over the past decade. In 2019, the German discounters drove their share of the category up to more than 6%, with Aldi growing by 11% and Lidl up 5%47. We expect them to achieve growth worth £107.3m in the next five years. That’s 29.5% of the total48.

As Aldi and Lidl’s growth continues, their model is evolving. With greater market share comes the consumer expectation of greater product choice and more premium and specialist offerings. For the most part, the discounters are obliging in their own tried and tested way.

They have driven much of the growth in own label over the past year by developing more premium lines aimed at satisfying demand for luxury and products that cater for specific health needs. Lidl is also increasing its branded offerings.

Some may well argue that the discounters’ lack of online presence presents a considerable barrier to future growth. After all, e-commerce is a costly business. The capex needed to develop the infrastructure a viable online business requires is huge. But the discounters are forever the innovators; if the rumoured partnerships with players such as Deliveroo are realised, Aldi and Lidl could take a hefty slice of online growth too.

Pet specialists do exactly what you’d expect: they offer a wide range of specialist nutrition lines, health products and pet accessories. Increasingly, they are evolving into one stop shops for our four-legged friends, providing a growing array pet services, from veterinary clinics to grooming salons.

The provision of pet services certainly represents a tasty treat for retailers. Seventeen per cent of pet parents currently pay for health check-ups for their animals, 16% use grooming salons, 10% of dog owners have paid for dog walking services and 7% have paid for a pet sitter to look after their four-legged friends49.

This helps explain Pets at Home’s ongoing expansion into pet services, such as dog grooming and in-store veterinary clinics, while tailoring ranging at its more than 450 stores to reflect local demographics (cities, for example, have larger

feline and aquatic pet populations). The retailer has also bought a 12% stake in online dog walking service Tailster, enabling it to offer the service to its 4.4 million loyalty card members.

It’s also worth remembering that one in three pet care shoppers will be millennial by 202550. This generation shows a greater propensity to spend on pet services and accessories with 30% saying they like to keep up with the latest trends in pet grooming, clothes, etc, versus a category average of 19%.

This age group also tends to spend more on their pets at Christmas and other seasonal gifting occasions (see Part II). By offering a wider range of goods and services that will appeal to the new generation of pet parents, specialist pet retailers can future proof their businesses.

Pet care presents the multiple grocers with an opportunity to raise profits per square inch of shelf space in larger stores by attracting more affluent pet parents, growing average basket size and raising the average price paid per unit. The multiples’ estimated share of growth may look small when presented as a percentage, but that still represents an extra £32.9m.

Of course, that doesn’t include the huge prize on offer online (see above). Given the strength of Tesco and its peers in e-commerce, in reality the supermarkets’ spoils will be much greater than our estimate for physical stores. What’s more, this growth can be achieved through relatively small steps relating to ranging and merchandising.

As we’ve discussed, 91% of pet food shoppers plan their purchases before entering a store or going online to buy. It’s therefore crucial that retailers ensure core mainstream offerings are

available, while maintaining enough flexibility to allow for new products and a broad enough range to create excitement around the fixture. Clear segmentation and blocking are vital, as is sign posting to disrupt the shopper journey and encourage them trading up. Driving sales of treats will help elevate average spend, but clarity is crucial here; 19% of shoppers say they’re confused by the treats fixture51. Treats are highly impulsive, so secondary and featured space can pay off.

It’s worth noting that pet food purchases in c-stores are usually made because an owner has run out. This helps explain why, prior to the pandemic, the convenience channel (including outlets operated by the mults) accounted for a small part of the market. But, as we explore in Part III, Covid-19 has presented the channel with opportunity to increase share.

Brand spotlight: James WellbelovedWhat happens when your shoppers can’t get to you? You go to them, of course. That was the thinking behind specialist pet nutrition brand James Wellbeloved’s launch of an ecommerce platform in just four weeks in response to Covid-19.

The brand was facing significant challenges: the supply chain was being squeezed as growing numbers were struck down with the virus, while retailers were cutting opening hours in response to staff shortages. These factors, combined with the effect of shoppers stocking up in anticipation of lockdown, led to decisive action for

James Wellbeloved. The brand’s website, wellbeloved.com, was adapted from one that purely showcased the brand as an expert in natural pet nutrition, to one that streamlined visitors towards buying products direct from the brand.

The website is now fully functioning as a direct to consumer sales platform whilst continuing to serve retail customers. The platform is a direct answer to consumer needs to have continuous access to the full range of JWB products and while it is not aiming to replace traditional routes to market, it is evidence of Mars Petcare’s ability to quickly respond to emerging consumer trends.

Online shines bright in pet food

Discounters diversify their offering to maintain growth

Specialists evolve into ‘one stop shops’

Trade ups and treats; opportunity knocks for multiple grocers

44Mars Petcare internal projections, Nielsen Avg 3 yr projected 5 yr CAGR, IGD Channel Forecasts45ONS 201946Ominchannel P2P Study December 201847Kantar MAT 14 July 201948Mars Petcare internal projections, Nielsen Avg 3 yr projected 5 yr CAGR, IGD Channel Forecasts

49Stratista Grooming and Vet Services50Mars Pet ownership study, 2017, UK Market51Mars Pet ownership study, 2017, UK Market

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In the weeks after lockdown was announced in late March, we witnessed a 12% rise in pet treating occasions53. This is also reflected in the sales figures: combined sales of cat and dog treats grew by 6.5% in the 12 weeks between 22 February and 16 May 2020, bringing sales to £98.6m54. Total pet food and litter sales grew by 3.4% over this period.

Both cats and dogs have been used as a form of therapy in establishments such as hospitals, care homes and schools for more than 40 years. Interacting with them can help raise levels of the ‘feel good’ hormone oxytocin and lower levels of the stress hormone cortisol, promoting feelings of wellbeing and relaxation52.

Therefore, it stands to reason that pet owners have been treating their pets more since the Covid-19 pandemic turned life upside down. After all, treating one’s pets is a way of strengthening the bond with them, rewarding good behaviour and looking after pets’ needs.

But total sales of pet food and litter then fell into decline, with value sales down 5% year on year in the four weeks to 16 May. Unit sales fell 12.1% in those final four weeks, suggesting that shoppers had stockpiled pet food as they had other grocery items in order to minimise the need to visit stores. Treats buck this trend. In fact, sales of cat treats continued to grow throughout lockdown, with sales up 7.2% for the full 12 weeks and 7.7% in the final four. Positive dog treats grew by 9% for the full 12 weeks and 8.8% in the final four. Both categories saw growth in unit sales too.

This proves how expandable the pet treats category is. Treating is discretionary. The more people are around their pets, the more they do it. As we’ve explored, more people are living on their own in 21st century Britain. With experts warning of a second, ‘mental health pandemic’, it seems many sought to ease the loneliness and worry caused by Covid-19 by indulging their pets.

There’s historical evidence to support the argument that treats will continue to benefit. After the financial crash of 2008, sales of many categories experienced what has been termed the ‘lipstick effect’ – growing demand for affordable luxuries that help raise the spirits during times of hardship. Malt whisky saw a spike of 4%, nail polish grew 5.9% and pet care sales rose by 3.9%55.

As the world emerges from the pandemic with the worst economic hangover it’s had in at least a century, it’s worth pointing out that 51% of UK shoppers who own pets say they would sooner reduce the amount of money they spend on themselves than on their pets56. Pet food and the wider category is recession proof. Now that’s power.

52Frontiers in Psychology, October 2017: Oxytocin and Cortisol Levels in Dog Owners and Their Dogs Are Associated with Behavioral Patterns: An Exploratory Study53Mars Pet Engine for Growth panel (PEGGY)54Nielsen 12 w/e 16 May55Euromonitor, 201656Mars Pet ownership study, 2017, UK Market

TREATS GROWTH ACCELERATES INTO LOCKDOWN

14121086420-2-4

TOTAL PET FOOD & LITTER

TOTAL DOG FOOD

TOTAL CAT FOOD

TOTAL DOG TREATS

TOTAL CAT TREATS

26 w/e 11 July

12 w/e 11 July

4 w/e 11 July

PART FOURThe impact of Covid-19 on pet food

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Convenience retail: Lockdown’s top dogConvenience retail conventionally plays a small but crucial role in pet food, providing a limited range, mostly for top-up shoppers who find themselves unexpectedly short on supplies for their four-legged friends. Covid-19 has turned convention on its head. Convenience has emerged from lockdown as one of the category’s surprise top dogs.

Impulse retailers such as Spar, Budgens, Premier, Costcutter, One Stop and McColl’s saw pet food sales grow at nearly twice the rate of the total UK grocery market over the most recent 12-month period. Sales grew by 3.1%, versus total category growth of 2.2%. This, largely, was the result of a sharp sales spike following the imposition of lockdown (see below).

Between 29 February and 16 May 2020, these retailers experienced a 16.2% sales increase. Co-operative Group and regional Co-op outlets – largely smaller neighbourhood c-stores – saw a similar increase, growing by 14.3% during lockdown and by 3.6% over the full year ending 16 May 2020.

The 12 weeks in question begin five days before the tragic news of the first UK death from Covid-19 was announced and covers the Prime Minister’s 16 March announcement that the public should avoid all ‘non-essential’ social contact and travel and, on 23 March, the closure of schools, pubs and all non-essential retailers.

Lockdown, of course, had a profound effect on the nation’s shopping habits. The ‘little and often’ pattern that had been driving growth in convenience retail for a number of years was replaced by less frequent store visits with far larger basket sizes as shoppers sought to minimise social contact. The big weekly shop was back with a bang.

But with one key difference: many shoppers were actively avoiding larger stores and seeking to get what they (and their pets) needed from local convenience stores, presumably as a way of minimising travel and the number of people they came into contact with while stocking up on essential groceries.

The 5% decline in the total market during the final four weeks to 16 May is telling, also. This is evidence of pet owners stockpiling provisions in order to reduce the number of shopping trips they had to make during the height of the pandemic. Whether shoppers will continue to frequent c-stores instead of larger outlets remains to be seen, and largely depends on Britain’s progress in tackling Covid-19.

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GROWTH BY CHANNEL

GROWTH OF CONVENIENCE AND ONLINE

20

15

10

5

0

-5

-10

35

30

25

20

15

10

5

0

TOTAL PET FOOD & LITTER

TOTAL DOG FOOD

TOTAL CAT FOOD

TOTAL DOG TREATS

GROCERYMULTIPLES

TOTAL IMPULSE

TESCOEXPRESS

SAINSBURY’SLOCAL

CO-OP OCADO

TotalImpulseTotal Co-ops

26 weeks12 weeks4 weeks

Sales grew by 3.1%, versus total category growth of 2.2%

As the above graph shows, pet food sales through smaller impulse stores, Co-ops and online remained elevated in the final four weeks to 11 July, outstripping the performance of the multiple grocers.

With social distancing guidelines still in place and shoppers now required by law to wear masks when they enter stores, it’s likely that a significant proportion of shoppers will continue to avoid larger outlets

either by shopping online more often or visiting local neighbourhood stores.

Fears over a second wave are rising too. All this presents convenience retailers with an opportunity to attract greater numbers of affluent pet parents by stocking a wider range of pet food and treats and establishing themselves as a destination for Petcare within their communities.

16.2%Sales increase

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Deep dive: Covid-19 inspires a spike in puppy sales Eighty two per cent of people who have pets say they suffer less with problems such as loneliness and depression thanks to the companionship pet ownership brings. This helps explain why the UK was reported to be facing a ‘puppy shortage’ as the country entered its third month of lockdown in May, 202057.

With millions working from home or on furlough, many households used the extra time at home as an opportunity to get the family pet they’d always dreamed of. Breeders reported ‘unprecedented demand’ for puppies, with some claiming the length of waiting lists quadrupled following the imposition of lockdown. The Kennel Club said that its online puppy portal saw a 140% year on year increase in traffic in April. The RSPCA noted a 600% rise in visits to its dog fostering pages. The news inspired Mars Petcare’s Global Scientific Advocacy Relations Senior Manager Angela Hughes to put together a four-point guide58 for those looking for a new pet…

Age mattersNew puppies and kittens can have boundless energy and a hearty appetite for mischief. Would-be owners should first ask themselves if they are ready to take on the responsibility and expense of a young animal that requires vaccinations and training.

If the answer is no, adopting a pet from an animal shelter is a good option. They are a great place to find vaccinated, housetrained animals of all ages. More senior pets are often more placid, used to being around humans and, crucially, in need of companionship.

Breed can be just as important as ageData gathered by the Pet Insight Project (more on that in Part V) reveals that the breed of dog new owners choose can have just as much of an impact on how much a handful they are as what age they are when they join a new family.

For example, German Shepherds can be three times as energetic when they are puppies, compared to when they reach their later years. Conversely, Jack Russell Terriers tend to expend the same amount of energy throughout their lives59.

Activity is essential (for pets and owners)Daily routines were changed beyond all recognition during lockdown, with most of us restricted to one outing outside the home a day to exercise from the end of March to the beginning of May. Of course, that exercise is essential for our canine friends. It is also crucial for the physical and emotional wellbeing of their owners. For less active pooches or cats, Hughes suggests setting using balls, mazes and other activities at home to keep pets engaged.

Stay safeThis, of course, should go without saying. Pet owners should keep up with preventative care regimes, cleaning routines and trips to vet. And, with lockdown easing and many returning to work, it is important new pets are eased into new routines slowly.

As the Dogs Trust put it in its advertising campaign during the pandemic: ‘A dog is for life, not just for lockdown.’

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57The Financial Times, 22 May 202058Mars Petcare59Pet Insight Project

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Our pets’ future is bright. By harnessing the trends and approaches we’ve outlined in this report, the value of the category for pet food and litter in the UK is on course to have passed £3.2 billion by 2025. That will be a staggering 13% increase in just five years60. But there are still challenges to be overcome.

Sustainability, rightly, is of growing concern to consumers and businesses alike. At Mars Petcare we are pioneering new approaches to ensure we give back more to the planet more than we take. Many plastic pet food pouches are currently not recycled by local authorities in Britain because of the way the materials they are made of are manufactured.

That’s not stopped us from sending more than 2.6 million kg of wet pet food pouches and flexible pet treat and dry food plastic packaging to be recycled since setting up our nationwide recycling scheme.

There are currently 143 collection points across the UK and more than £32k has been awarded to good causes through the TerraCycle Rewards Scheme61.

Things are also looking up for our pets. In the US, we have launched cutting edge technological solutions to ensure the world’s pets live the best lives possible. Take Whistle, a wearable collar-mounted device that allow parents to track the location and monitor the health of their pets via their smart phones.

The device takes up to 50 readings a second of an animal’s movements and helps give families peace of mind by effectively working as an early warning system. If an animal’s behaviour changes (say, how often it is drinking, eating or urinating or how much it is sleeping), it can allow pet parents to address this at an early stage.

The benefits will eventually go far beyond individual animals. By signing up to the Pet Insight Project, users of Whistle can share data with researchers and increase global knowledge about man’s best friend62. These insights can then be used in the development of the next generation of pet food products.

There’s lower hanging fruit that retailers can pick here before such high-tech solutions land on these shores, however. Our research suggests simple steps like increasing space dedicated to luxury products and treats and ensuring brands are at eye level to aid navigation can deliver growth of 11.3% in dog food and 1.6% for cats.

The rise in pet ownership driven by the higher number of people who were working from home during lockdown (see Part IV) and the fact that 45% of respondents to a recent survey say they expect their

employers to adopt a more flexible approach to home working suggest retailers may be needing to dedicate more space to pets in the future.

Perhaps our pets will end up being the biggest beneficiaries of lockdown?

60Combined Read - Nielsen – Petfood, Mintel – Petcare, Stratista Grooming and Vet Services61Terracycle/Mars Petcare 62Pet Insight Project

PART FIVEThe future of pet care

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