Russia’s economic woes undermine growth in Eastern European pet care

Rise of pet care sales

Eastern Europe is very much a region of pet lovers, with some of the highest levels of dog and cat ownership in the world. For example, 47% of Romanian households had a dog in 2015, while 33% of Russian households had a cat during the same year. Strong economic growth in much of the region and a trend towards Westernisation has driven strong growth in pet care real value sales, which rose by more than a quarter (27%), to $5 billion (€4.6 billion) between 2010 and 2015. Seven markets in this region enjoyed value sales in excess of $100 million (€91 million) in 2015.

This Westernisation trend, which is driving pet indulgence, is particularly strong among young urbanities in EU member states like Poland. Many of these consumers enjoy relatively high levels of discretionary income, and have spent a period living and working in Western Europe and have returned home with a more cosmopolitan outlook on life.

Russia goes from star pupil to laggard

The past 12 months (or so) have seen a significant downturn in the growth rate of pet care value sales in Eastern Europe. The annual growth rate has been slowing down from 6% in 2014 to just 1% during 2015. There has been a sharp divergence in performance between Russia and Ukraine on the one hand, and EU markets like Poland, Hungary and the Czech Republic on the other.

The falling price of key commodity exports and the weakness of the rouble have hit the Russian economy hard, with double-digit inflation crunching real incomes. With many local consumers now forced to cut back on discretionary spending, sales of cat litter and mid-priced dog and cat food are being particularly hard hit, as owners trade down to economy products or even revert to feeding their pets table scraps/leftovers. Real value pet care sales in Russia are on course to contract by 2% in 2015, to $2 billion (€1.8 billion).

If the economic situation in Russia is grim, then it is truly dire in neighbouring Ukraine, where political instability has undermined the currency (the hryvnia) and sent inflation soaring. The annual inflation rate stood at a whopping 58% in June 2015. As a result, many Ukrainian consumers are now in survival mode and purchasing little more than the bare essentials. Real value sales are set to decline by 5% in 2015, to $299 million (€272 million). 

Growth in premium products in Poland

Within the EU, the economic situation is very different, with real GDP expanding by 2% in the Czech Republic, 3% in Poland and Romania and 4% in Hungary during 2014, for example. There is often a stark division regarding how pets are perceived between urban and rural consumers in these countries – rural consumers tend to take a more functional attitude (eg. dogs are mainly for security), while urbanites tend to be much more indulgent.

As a result, sales of premium products tend to be concentrated in urban markets, while dog bakeries can now be found in such cities as Budapest and Prague. In Poland, real value sales of premium dog and cat food exhibited a compound annual growth rate (CAGR) of 7% between 2010 and 2015, compared with figures of 6% and 5% for mid-priced and economy products, respectively.

CAGR prediction

Despite Russia’s ongoing economic weakness, there is still plenty of room for growth in the region, as living standards in such economies as Poland continue to converge with those of Western Europe and the pet indulgence trend deepens. As a result, Euromonitor International predicts that pet care real value sales in Eastern Europe will exhibit a compound annual growth rate of 3% between 2015 and 2020.