2023 at a glance: what to expect?

After a challenging 2022, this year could be a turning point for the pet industry as we know it now. Besides general market volatility and challenges along the supply chain, it will need to deal with some pet parents having less purchasing power, while trying to retain as many customers as possible.

Prices will increase, but by how much?

This is one of the questions that businesses across the industry are asking themselves. “Cost increases will be passed on to consumers, so they will be faced with more price hikes in 2023,” admits industry insider Richie Pistori.

Mike Bober, President and CEO of the Pet Advocacy Network, adds that pet products in the US will continue to see some small rises, especially in the first half of the year. According to the US Bureau of Labor Statistics, prices of pet products registered an accumulated increase of 12% in 2022.

Dog and cat food prices in France reached the highest increase (31%) in Europe last year. Euromonitor research revealed that supermarket chain Carrefour saw an average 43% rise in the category. And far from stopping there, the country’s largest supermarket chain Leclerc warned that consumers could face a further 41% price rise in some pet brands in 2023.

The UK’s Office for National Statistics reported that the inflation rate has been sharply increasing since the spring of 2021. In September 2022, it reached the highest figure on record for the category – 14.7%.

Consumer behavior

Inflationary pressure has started to change the purchasing habits of pet parents, who are increasingly looking for more affordable products. This trend is expected to continue in 2023, according to analysts, but how much it will impact the premium and luxury categories is yet to be seen.

A recent survey by online marketplace LendingTree found that nearly 9 out of 10 American pet owners, especially millennials, experienced increased prices among their key expenses last year.

Nielsen IQ reported that while 6 out of 10 US pet parents do not plan to trade down to lower their costs in 2023, there is a consistent trend of looking for products offering the best value for money.

Average expenditure on pet supplies in the US reached $1,163 in 2021, followed by a decline to $984 in 2022. A majority (75%) of pet parents agree that inflation is making pet ownership more expensive, while 26% are struggling to afford the rising costs.

Some other estimations are more optimistic and forecast a budget recovery in the coming years. Investment company Morgan Stanley predicts that spending will increase to $1,320 per pet by 2025 and reach $1,897 by 2030. The firm believes that pet spending is becoming more ‘inelastic’ and despite pet parents cutting some parts of their personal budget, the pet care routine often remains the same.

Non-essential supplies

Experts consulted by PETS International agree that the non-food pet category is expected to suffer the most from headwinds in the next few months.

US online pet retailer Chewy recently said to investors: “Pet category consumers responded to growing economic uncertainty by curtailing some of their purchase activity, leading to industry-wide declines in unit volume.” Chewy CEO Sumit Singh showed optimism, and said that once the situation recovers, they believe that “customer acquisition headwinds related to discretionary demand levels will abate”.

In the 6 months to October 2022, sales of accessories at British pet retailer Pets at Home hit £248.8 million (€288.9M/$306.9M). This is 3.5% less than in the same period in 2021, driven by the decrease in sales of dog toys and fashion apparel.

Recent data from US food and treats manufacturer Freshpet concludes that the number of super heavy or heavy buyers – those who spent at least $40 in the most recent 10 weeks – continues to increase, but at a lower rate. In 2020, this type of customer accounted for 49% more, due to the pandemic. In 2021, the increase softened to 24% and in 2021 it slightly recovered to 31%.

Mike Bober says that spacing out services will be more frequent among certain customers. “We’ve definitely seen evidence that people are moving to a less frequent grooming schedule in some cases.”

Growth stabilization

Paul van der Raad, who has been active in the pet industry since 1997, says that, despite some segments being likely to stagnate, the industry as a whole will still grow this year, with a recent Morgan Stanley report predicting 8% annual growth until 2030. “It is already doing well in comparison with other industries like food, beverage or automotive,” he admits.

“2023 will be a crucial year. We should be happy if the increase in growth does remain stable. That would be a compliment for the industry,” adds Richie Pistori.

Market research firms forecast that pet food will still be the main grower in 2023. Nielsen IQ predicts growth of between 6 and 8% in this category. Non- food supplies are expected to grow by 3-5%, mainly due to fewer sales being impacted by inflation.

Sourcing raw materials elsewhere

One of the key factors that will determine whether the pet industry will see positive outcomes in 2023 is the supply chain. It is likely that supplies will continue to be compromised by the war in Ukraine.

The first extension of the Black Sea grain deal, created to establish safe grain exports from Ukraine, expires at the end of March. So possible intensification of the armed conflict after the winter, with instability on the ground, could once again affect the export of grain and other materials.

The European Pet Food Industry Federation (FEDIAF) says that the industry is looking for alternatives. But a product’s ingredients often cannot simply be replaced, as pet food formulations need to follow legal requirements. “To ensure continued food supply, pet food manufacturers have been taking appropriate measures to adjust their sourcing practices, occasionally embracing increased prices of raw materials in a low supply environment,” a spokesperson from the Brussels-based association told PETS International.

As many producers cannot modify their formulas, some are searching for primary products in alternative markets. An example of this is Argentina, the Americas’ third-largest wheat exporter after the US and Canada, which is supplying Western markets with grain. “New companies are coming to South America looking for grains that are less available in the European market, but they have to adapt to the reality of higher prices,” explains Market Analyst Carlos Cogo from the Brazilian city of Porto Alegre.

Battle for the market

If all the above wasn’t enough, pet companies can expect more aggressive tactics from competitors trying to keep their market shares or even increase them.

Retailers will play a central role here, making more efforts to offer a point of differentiation for pet parents. According to Richie Pistori, major store chains will have the biggest chances, since they are the only ones who can afford to have a purchasing department. “We will also see some of the bigger manufacturers do what they can to try to hold the line and to demonstrate that they continue to be a reliable pet partner,” says Mike Bober.

Private label is expected to play an important role as well, with more retailers looking into this option as a good investment to keep their customers and maintain market share.

“They will make a great effort because they want to secure value,” admits Paul van der Raad.

The power of data

At a time when consumer behavior is rapidly changing, and there’s more and more competition, pet industry players will be actively looking for ways to get to know consumers better in 2023.

Retailers currently have much more focused consumer-related data than manufacturers, allowing them to personalize their products and services. “With omnichannel, the retailer is getting more data and can be closer to the consumer than manufacturers and brand owners,” says Richie Pistori.

But pet food manufacturers are aware of this and are also trying to get closer to pet parents. Social media has become a useful tool – not only to connect with the end consumer but also to increase sales. Paul van der Raad, who is also the Business Development Director at insect supplier Protix, has created a new term: social- commerce. This is the combined promotion of a brand through social media and e-commerce platforms in order to gain more visibility.

Along the same lines, Mike Bober believes that pet brands will put more emphasis on marketing and communication campaigns, reminding customers that they can trust their products. “I think we will see a lot of them basing their appeal on tradition and the value of the human-pet bond,” he concludes.