Massive Investment in U.S. Pet Industry Signals New Growth Stage
In a deal valued at $1.9 billion, J.M. Smucker acquired Ainsworth Pet Nutrition, maker of dog food brands including Rachael Ray Nutrish and Walmart’s Pure Balance private label. General Mills snapped up Blue Buffalo for approximately $8 billion. PetSmart doled out $3.35 billion for Chewy.com. Mars bought leading U.S. veterinary hospital operator VCA for approximately $9.1 billion. Elanco, a subsidiary of Eli Lilly and Co., subsumed the U.S. feline, canine and rabies vaccines portfolio of Boehringer Ingelheim Vetmedica (BIVI) for $885 million. Olympus Partners purchased Petmate Holdings Co. from private equity firm Wind Point Partners for an undisclosed, yet no doubt tidy, sum. Tractor Supply Co. acquired pet specialty retail chain Petsense for $116 million.
That’s upward of $23 billion in pet industry investment in the past two years, and of the dozens of deals occurring during that period, these are but a handful of the most impressive. As of mid-2018, moreover, more big deals are likely on the horizon. In July, for example, The Wall Street Journal reported that Nestlé Purina is interested in acquiring Champion Petfoods, maker of the superpremium Acana and Orijen pet food brands.
For many years, the pet industry has been rife with mergers, acquisitions and venture capitalist investment. But activity at the current fiduciary level is unprecedented, as well as a sign that the pet industry has entered a new growth stage. A familiar component, to be sure, is simply the big getting bigger. But the activity also underscores a number of other trends that will reshape the business for years to come:
- General Mills’ acquisition of Blue Buffalo and J.M. Smucker’s purchase of Ainsworth/Rachael Ray underscore the strategy of massive marketers of packaged foods for people seeking to shore up their overall performance by expanding into the faster-growth business of superpremium pet food.
- Both deals also signal that the long-standing trend of pet food premiumization is now shifting into mass channels and online, where much of the future activity will occur as additional pet specialty brands cross over and new superpremium-style mass brands are introduced.
- Beyond its highly successful Rachael Ray Nutrish, Ainsworth has substantial capacity for private-label production—a major growth area, this analyst predicts, as retailers battle it out for customer loyalty.
- General Mills’ interest in Blue Buffalo stemmed, in part, from the brand’s strong showing online, and with its purchase of Chewy.com, PetSmart could not have sent a stronger message about the pet market prospects of e-commerce.
- At the same time, Tractor Supply Co.’s acquisition of Petsense signals loudly and clearly that traditional pet specialty still has plenty long legs, including among the gen Yers who are simultaneously online and brick-and-mortar fans.
- Mars’ purchase of VCA and Elanco’s purchase of Vetmedica underscore the ongoing strong focus on pet health, as well as the strategy of companies already in the pet market expanding their reach both vertically and horizontally.
Twenty years ago, the U.S. pet market appeared to be verging on maturity, leading some industry watchers to speculate the business might be on the verge of decline. Instead, the market entered into a dynamic growth stage driven by product premiumization and humanization. Now, while still ongoing, both of those trends are par for the course, with many products facing downward pricing pressure due to the advance of e-commerce and mass premiumization. These trends are legitimate cause for concern. But with major companies from both inside and outside the U.S. pet industry pumping in billions of dollars, any rumors suggesting the market has peaked are, like before, greatly exaggerated.
David Lummis is the lead pet-market analyst for Packaged Facts, a division of MarketResearch.com, and author of Packaged Facts’ U.S. Pet Market Outlook, 2018-2019.