Retailers weigh up lowering prices in uncertain inflationary environment

Some retailers in the US and Europe have cut pet food prices at their stores after months of deflation in the sector.

They hope this will help to bring back consumers now that the wave of continued price rises across the world has calmed down.

Expanding while cutting prices

In the UK, Poundstretcher cut the prices of more than 100 pet products, while introducing new items under its Pet Hut brand in February.

Jollyes, another UK pet superstore, had already announced price cuts on thousands of items across its stores the previous month, as it prepares to open more locations.

Making premium less expensive

At the start of the year, online pet retailer Zooplus announced a price cut for its own branded items.

“With global supply chain challenges stabilizing, we saw an opportunity to pass on these savings to our customers, especially during a time when consumer prices in other areas of life are on the rise,” says the German company.

According to Zooplus, this “allows more pet parents to access premium-quality products, which makes caring for their pets a little easier”.

The company began its price reduction strategy with cuts on premium food in late 2024, starting with about 400 items from the brands Concept for Life, Smilla, Briantos and Rocco.

This year, it has expanded its cuts to about 1,000 products, which now include the brands Cosma, Purizon and Wolf of Wilderness too.

Cutting costs on premium goods may be more doable than in other categories, as margins are often the largest on the most premium goods.

Transparent pricing to win loyalty

Founder and owner of Fressnapf Torsten Toeller stated at a conference in Brussels last October that the German pet retailer would implement aggressive pricing strategies to strengthen its market position across Europe, in response to a “slight downturn” in the industry.

The retailer said at the time that the inflationary environment was leading to “more price-sensitive decisions” among its customers.

Fressnapf and Maxi Zoo have enhanced their Friends customer loyalty program by introducing more “appealing” offerings and services to effectively address the situation.

“We expect that an even more transparent price structure can further contribute to customer trust and loyalty, supporting the long-term value and stability of our customer relationships,” a company spokesperson says.

Deflation in the US

There is some evidence that the decline in pet food prices is a macroeconomic trend.

In the US, for example, inflation on pet product sales dropped by 0.9% from December 2023 to December 2024, according to the Bureau of Labor Statistics. That’s significantly lower than the peak of 12% year-on-year (YoY) inflation in November 2022.

It was pet food driving that decline, with inflation in this part of the US pet sector dropping by 1.7% last year. That was low enough to result in deflation of consumer prices for much of the year.

Will price cuts persist?

Whether or not price cuts will continue depends on a variety of factors. Data on input prices is not encouraging – showing rising production costs. Producer prices, which measure the sale price received by manufacturers, are ticking up.

Financial statistics bureaus worldwide calculate the producer price index (PPI) to measure the prices that producers receive for their products. Indirectly, it can be used as a window into the rising costs of production.

In the US, the producer prices for dog and cat food increased by 0.8% in the year ending January 2025. This is a significantly cooler increase than the year before, when that number was 5.1%. However, it’s still an increase, counteracting the recent trend of pet food deflation in the country.

Effects of global PPIs

While there is quite limited data available on the input prices for pet food specifically outside the US, PPIs around the world showed food price upticks in January. And that could mean higher input costs for pet food manufacturers.

In the UK, overall producer price increases were 1.7% this January. In Germany, these prices are rising faster, hitting a 3.5% YoY increase that same month.

In Canada, producer prices in the category of fruit, vegetables, pet food and other food products increased by 2.1% in the year through January 2025.

Passing costs on to consumers

While an imperfect predictor of consumer prices, rising costs could impact pet food producers, retailers and – eventually – consumers. Generally, producer price increases pass on to consumers over time.

However, companies may have some room to negotiate if prices increase further.

Last November, the industry research company IBISWorld said in a report that companies across the pet industry tended to pass costs along to consumers during the most recent inflation wave, “generating steady profit gains at the detriment of overall revenue”.

With many prices remaining high, even after months of pet food consumer price leveling or deflation, companies may have expanded the margins that enable them to ‘eat’ new producer price increases without passing them on to consumers.

Should producer price increases continue, declining margins are possible, especially for those committed to lowering their product prices.

United Petfood, for example, has seen rising margins because of inflation.

According to an S&P analysis in January, the Belgian private label manufacturer has increased its margins by keeping its prices stable as commodity values have decreased.

Companies following this trend may be able to cover future inflationary costs if prices continue to rise. If inflation declines, they can pass those savings on to consumers or keep prices steady to increase margins even further.

Where to go from here?

Commitment to lowering prices could improve customer loyalty and may be a wise move for companies looking to increase sales volume at the expense of profit margins.

However, some of the recent deflation in pet food prices may well come from increased efficiencies in production, plus other factors influencing prices beyond raw material costs. Those efficiency gains are likely to stay, reducing the impact of price cuts on margins.

Much will depend on the possible inflationary impacts of new trade barriers coming from the US and political instability around the world.

For traditional pet retailers, growing competition from companies like Amazon and the Chinese e-commerce titans Shein and Temu may further incentivize cutting prices to remain competitive in an increasingly saturated pet market.