Current challenges for the dry pet food market

Inflation has squeezed both manufacturers and consumers over the past year, but dry pet food sales continue to grow – in value at least. “Dry pet food remains a popular choice for consumers in many countries, thanks to the convenience factor,” says Sneha Varghese, an Analyst for Future Market Insights (FMI). And while consumers are increasingly interested in fresh, natural alternatives for their pets, dry pet food may still have some advantages in other growing categories, including customized pet foods, and for purchasing online.

How inflation is affecting sales

The sales value of dry pet food in the US grew by nearly 20% in 2022, according to NielsenIQ, but the majority of that growth was a result of price inflation. Actual unit sales began to decline in the latter months of the year. Although inflation has had an effect on nearly all consumer products, dry pet food has experienced some of the greatest impacts.

Inflation rates are expected to be the ultimate driver for dry pet food’s performance in 2023 too. NielsenIQ: “If we see inflation slow down compared to last year, we expect sales value growth in the US to slow as well, and the impact to units to lessen.”

Different company approaches

The degree to which inflation affects specific manufacturers has varied from one company to the next.

According to the American Feed Industry Association (AFIA), some companies have been able to adapt to the fluctuating availability and cost of ingredients. But others have either adjusted their pricing or modified their product offering or packaging in response to rising ingredient costs.

AFIA’s Director of Regulatory Affairs Louise Calderwood points out how this is working in practice. “We expect that our pet food manufacturers will continue to experience intermittent challenges in fulfilling orders as they navigate the changes. But many are taking proactive steps to head off these issues by carefully managing their inventory of ingredients and packaging,” she says.

Regional variation in trends

Pet ownership rates worldwide continue to grow, and global sales of dry pet food are expected to continue to rise by 5.1% per year up to 2027, according to Mordor Intelligence. Growth at that rate would put the industry on track for the best-case COVID-19 recovery scenario envisioned by the Institute for Feed Education and Research (IFEEDER).

Global trends do vary from one region to the next. Some Asian countries still maintain a preference for raw pet food, while consumers in the US are increasingly looking for grain-free and natural products. Europeans, on the other hand, are more focused on sustainability and locally sourced ingredients.

“In some countries, consumers may be more price-sensitive and opt for lower-priced dry pet food options,” Sneha Varghese says. “While in other countries, there may be a greater demand for premium and high-quality products.”

Natural and grain-free… or grain-in?

In higher-income countries, and especially in the US, demand for more ‘natural’ pet food products has had a significant impact on the dry pet food industry. Varghese: “Pet owners are increasingly concerned about the ingredients in their pet’s food, and want to feed them products that are free from artificial preservatives, colors and flavors.”

Consumer demand for more natural and high-quality ingredients has led to a shift in the types of ingredients used in dry pet food products. FMI noted an increase in fruits and vegetables, and a decrease in the use of fillers, by-products and artificial additives.

NielsenIQ research conducted in the US, concludes that grain-free diets have become popular, and brands have also experimented with more diverse protein options, such as fish and game. In 2022, sales of grain- free dry dog food reached $1.4 billion (€1.3B), which is up 4.5% on the previous year. “This number is still down from what we saw in 2019 and the growth rate appears to be slowing. Meanwhile, what is known as grain-in dry dog food grew by more than 20% in both retail and online channels during the same period. This seems to show that more consumers are returning to grain-in pet food,” says NielsenIQ.

New kinds of ingredients

Pet food manufacturers have expressed an interest in bringing even more ingredients onto the market, so that they can offer increasing numbers of products with wellness claims. AFIA is currently lobbying for the US Food and Drug Administration (FDA) to update its animal food regulations, in order to allow the industry to expand both the ingredients it uses and the claims it can market.

Dry pet food manufacturers have also turned to innovation as a means to draw in customers who might be looking for more ‘natural’ pet food alternatives. NielsenIQ reports that new preparation methods such as freeze-drying and dehydration have seen strong growth.

Some insiders note that this trend toward more natural ingredients has the potential to further raise pet food prices, which could in turn reduce purchases by price-sensitive consumers.

Dry food growth online too

The pandemic spurred an increase in online pet food sales in the US, and today close to 4 out of 10 products are purchased through e-commerce players. Online sales are expected to continue to grow by 2.7% annually – a pace that exceeds the projected growth for in-store sales, according to NielsenIQ. “While in-store sales are still where most of the revenue is in the US, online sales are growing at a faster pace across wet and dry food plus treats,” says the market research company.

Retail stores such as supermarkets, pet stores and big-box retailers remain the primary place where US consumers buy dry pet food. But online platforms such as Amazon and Chewy are gaining ground, and many manufacturers have begun to sell their products online to reach consumers directly.