More ingredients, less branding: how the industry should attract the new pet parents

It is estimated that dog and cat ownership in the US has increased by at least 25 million since the start of the pandemic. Some sources highlight that the total number of pets reached 169.5 million in 2022, most of them owned by Millennials and Gen Z.

Stiffel concludes that this new generation of pet parents are more keen on natural ingredients, enhancing a premiumization in food and treats.

“Younger people are more focused on ingredients and less on brand, which should serve as a long-term tailwind for pet food brands that promote fresh, better-for-your-pet, quality ingredients,” the paper claims.

Companies to watch

Stifel forecast that American pet food manufacturer Freshpet is likely to gain a “significantly higher proportion” of new users relative to their overall market share. In the next five years, the market research firm believes that the company could increase its household penetration and buying rate.

The study also mentions Zoetis as “best positioned” in this pet care segment for “continued momentum led by its innovative therapeutics portfolio.”

Led by pet food and treats, the pet care industry has grown by 5% in recent years and the study expected that this level could be sustained.

Premiumization, an opportunity for new M&A?

Stifel’s analysis also highlights that the premiumization trend should support strong sales and profit growth for companies, mainly by achieving mergers and acquisitions to enter the growth areas.

“We see the development of new brands, concepts, and categories as continuing to support growth and premiumization of the category – fresh food, frozen food, supplements, direct to the consumer”, explained Stifel.

The largest pet food brands in the US continue to win the greatest market share. According to the research, General Mills, Nestlé, and Mars generated the majority of the growth over the past several years.

Stifel believes that Purina is the best option for investors, maintaining its buy ratings. “We believe its premium multiple is justified by its superior positioning, management and execution, which should help it to grow ahead of peers and restore margin faster once inflationary pressure eases,” it observes.