Consumers Subscribe to New Pet Food Model
As investors line up, many wonder if the growing craze of customizable, subscription pet food is simply an affluent niche market or a truly transformative moment in the way people feed their pets.
Ollie creates a customized meal plan for every dog and uses freshly sourced ingredients in its recipes.
A growing trend in the pet food market that is attracting millions of dollars from investors might be the next big threat to an independent pet specialty retailer’s bottom line.
As pet owners become more discerning about the food they feed their pets, many are seeking alternative channels to obtain the premium, high-quality foods they want for their pets. And increasingly, pet owners are turning to companies that make customizable, human-grade pet food shipped direct to their door via a subscription model, where they can stock up weekly, monthly or for longer periods.
“As people’s awareness increases around what’s in traditional kibble and canned food and they want a better alternative, we think that that’s a real big market,” said Gabby Slome, co-founder of New York-based Ollie, a direct-to-consumer premium pet food brand that uses a subscription-based model.
Venture capital investors seem to agree that there is a big market for these types of services. Ollie, which launched about a year ago, has raised $17.5 million. The Farmer’s Dog, a New York-based direct-to-consumer pet food company with a similar model to Ollie’s, received $10.1 million in a little more than a year.
“There’s a lot of capital being put into pet food,” said Corby Reese, managing director at Swander Pace Capital, a private equity firm with offices in San Francisco and New Jersey. “A lot of these companies now are backed by private equity or by large companies.”
David Lummis, senior pet analyst with Packaged Facts, a Rockville, Md.-based market research firm, believes the trend in customized, subscription-based pet food is part of a coattail effect created by the popular human meal kit phenomenon à la Blue Apron, Hello Fresh and others.
“Human trends are a big deal in the pet market,” Lummis said. “In my mind, this would be a very good time to hop on that bandwagon.”
Entrepreneurs who have followed the trend report rapid growth.
“We’ve been growing at 40 to 50 percent month-over-month right now,” said Brett Podolsky, co-founder of The Farmer’s Dog.
Consumers are considering subscription boxes in higher numbers, some report. According to Hitwise, a Los Angeles-based provider of consumer data, there are currently 5.7 million subscription box subscribers clamoring for consumer products, meal kits or premium pet food.
Monthly visits to subscription service websites surpassed 40 million in January and February this year—an increase of more than 800 percent since 2014, according to Hitwise.
Of those 40 million visits, the biggest slices of the pie belonged to online subscription beauty and human food delivery companies at 35 and 33 percent, respectively. Apparel websites saw traffic of 16 percent, lifestyle products captured 12 percent, and kids and pets each garnered 2 percent.
Although pet-related subscription services only accounted for 2 percent of overall visits, the increase of traffic to pet subscription service sites far exceeded other segments in the industry, which begs the question: Are pet food subscription services the next wave of competition for independent pet retailers?
“We’re on pace to hit 2 million meals this year,” Slome said. “I have customers in all the 48 continental U.S. states.”
Podolsky reported that The Farmer’s Dog has “thousands” of subscribers and has thus far done “well over a million meals.”
Niche or Something More?
While the direct-to-consumer pet food model is still in its infancy, Podolsky envisions a day when healthful, lightly cooked pet food made from human-grade ingredients and delivered direct to the customer might be a dominant player in the pet food space.
“The reason why it is not a niche product is that people already want to feed their dogs healthy food; they think they’re feeding their dog healthy food, but they’ve been deceived by the big pet food brands,” Podolsky said.
Podolsky founded The Farmer’s Dog after his own dog got ill and a veterinarian recommended home cooking to cure what ailed her—it was the only thing that worked, Podolsky said.
“I eventually came to the realization that the brand that I was looking for—an honest, trustworthy, great-quality brand—didn’t exist,” he said. “So, that’s when I decided to build it.”
Podolsky sees the pet food space eventually shaking out to include healthful options like The Farmer’s Dog, along with frozen, freeze-dried and other nonkibble foods at high-end pet stores, “low-priced kibble” and not much in between.
Podolsky also mentioned that pet food manufacturers can write terms like “organic” or “all-natural” on their labels and “it doesn’t actually mean anything.” Pet owners have come to this realization and are demanding more transparency from pet food manufacturers.
Ollie has “full traceability” of its “entire supply chain,” knowing where each ingredient coming in originates from and to which dog each finished meal is headed, according to Slome; in addition, she said that “we test every product before it goes out to the dog.”
“We do that because this is an industry that is full of recalls and, honestly, not great ingredients,” she said. “So, we set this up to ensure pet parents can feel completely safe and secure with what they are feeding their dogs through Ollie.”
As capital investments in subscription pet food companies and the number of subscribers continues to increase, pet specialty retailers worried about the threat of online competitors cannot ignore the trend. However, some retailers, like Andrew Kim, co-founder of Healthy Spot, which has stores in Southern California, are not worried.
Kim sees online and subscription pet food purveyors as competition but welcomes the “education and awareness” they bring. Still, he feels his stores are “insulated” in that he carries “the same or better foods within his walls.”
“Ollie may not think that their food is a niche market, but the cost of that food at that price point versus finding comparable alternatives you could pick up at a store I think does define a niche,” he said.
Services, such as The Farmer’s Dog, for which, according to its website, “smaller dogs start at less than $3 a day,” might not appeal to many price-conscious pet owners.
Kim also points to the subscription treat box craze of a few years ago as a cautionary tale for those dipping their toes into the pet food subscription pool.
“In a short period, there seemed to be 20 different variations of the subscription box where they would ship treats or toys, and how many are there now?”
Kim admits he is on the “outside looking in” when it comes to the subscription pet food business, but said, “The market is probably much smaller on a national basis than what I think they may be predicting.”
While Kim might not be worried about a subscription pet food model, a similar concept with brick-and-mortar locations could be cause for concern. Down the street from Healthy Spot is JustFoodForDogs (JFFD), which bills itself as “the world’s first dog kitchen.”
JustFoodForDogs has five kitchens in California where fresh food is made using seven daily standard diets and another five or six prescription diets.
The food is cooked, supplements and omega oils are added, everything is cooled to make sure it stays below a certain temperature, and then it gets packaged, vacuum-sealed and frozen.
Dog owners are welcome to walk into any of the kitchens and purchase any of the daily diets, while they need a note from a veterinarian for prescription diets.
Perhaps the biggest difference between JFFD and pet food subscription businesses is that JFFD offers an interactive experience and interconnectedness between store personnel, owners and pets that a subscription business just can’t match through customer service offered online and over the phone.
“If we’re cooking something that day, [dogs] can sample the food. It is like the dog’s little special place to come,” said Don Inman, manager of JFFD’s location in Manhattan Beach. “A lot of the neighborhoods we’re in … you have people out walking their dogs; it is kind of just the normal routine.
“We have customers who have been Ollie clients and decided they would switch to us because of the sheer fact that they can walk in and pick up food,” Inman said.
Limitations to Customization
Still, subscription pet food companies say that their ability to customize clients’ pet diets is driving consumer demand.
“If your dog has specific dietary restrictions that do not fit into either our prescribed diets or daily diets, we’ll customize diets for your dog,” Inman said.
By comparison, Ollie and The Farmer’s Dog are offering customized meal plans for dogs based on data entered online by the pet owner, such as gender, neutered, spayed or intact, activity level, allergies, age, weight, etc., rather than customized food for every dog.
Foods can be customized to incorporate unusual proteins (venison, duck, goat), or by offering low-fat or nonallergy recipes or through portion sizes based on a dog’s weight, activity level and age.
However, the appeal of the customization aspect of these offerings might be overstated. Industry participants suspect it’s the convenience and peace of mind of having fresh, nutritious, safe pet food show up like clockwork on a pet owner’s doorstep that is the true differentiator between pet food subscription and other pet food models.
If companies like Ollie and The Farmer’s Dog continue to grow in leaps and bounds, Reese sees a risk that larger players in the pet food industry “can just make it part of their service offering and create a competitive service.”
“They’re better capitalized, and they have a larger consumer base,” he said.
“I don’t think [pet food subscription companies] are going to take over 50 percent of the pet food market,” Reese said. “There is absolutely a market for this out there. But can one of these companies become a meaningful player? Sure, I think so.”