BUSINESS - Global Pet Accessories Market Expected to Exceed $19 Billion by 2020

A recent article in Pet Age Magazine predicts a compound annual growth rate (CAGR) of over five percent in the global pet accessories market from 2015 though 2019.

This growth translates into an expectation that the market will exceed $19 billion by 2020.  

This data was gleaned from a market research study by Technavio called “Global Pet Accessories Market 2015-2019.” The study provides an analysis of the market in terms of emerging trends and revenue, along with forecasts for various market segments and all geographical regions.

According to the study, the global pet toys market is expected to reach $10 billion by 2019.  “There is a rising popularity of natural and organic pet toys as they are considered to be a safer option for pets,” Brijesh Kumar Choubey, a lead research analyst at Technavio for pet supplies, told Pet Age.

The global pet housing, bedding, and food market is expected to reach $5 billion by 2019, making it the second most prominent segment in the global pet accessories market. The global pet collars, leashes, and utility market is expected to exceed $3 billion by 2019.

Animals: Powerful Tools in Advertising

With Super Bowl just around the corner many thoughts turn, not to the game, but to the advertisements. This is the time for creative advertising minds to shine and it’s no coincidence that the most memorable ads often include animals.

A 2007 study by N. Spears and R. Germain examined animals in print advertisements from 1900-2000 in the United States. Their results indicate that animals were used to dictate the spirit of the time of each decade. For instance, 1940-1950 advertisers used animal themes reflecting strong family relationships, prosperity and consumer spending. The authors argued these themes were due to the recovery of the county after the Second World War.

However, as the century came to a close, the majority of studies examining the use of animals in advertising focused on anthropomorphism (endearing them with human characteristics) and its effectiveness on human behaviour, rather than the animals themselves.

People are naturally attracted to animals and find them fascinating. Today, advertisers aiming to provoke an emotional response often use this affinity with animals with great success. For example: the recent Budweiser Super Bowl commercials that feature puppies and Clydesdales (Puppy Love, Lost Dog and Brotherhood). They actually make people cry, and everyone remembers them - that is advertising success.

In 2016, Budweiser is using their Clydesdales in a different way - by using their characteristics. This year they have a much harder-hitting ad featuring the horses’ strength, stamina and brawn. But don’t worry! If you’re interested in warm-fuzzy animal commercials this Sunday, Heinz provides a wiener dog stampede and Honda showcases singing sheep. The biggest question is how everyone is going to feel about Mountain Dew’s very odd PuppyMonkeyBaby. Even if you don’t like it, with over 3 million views, it’s already a success for the company.

PetSmart's Acquisition of Petco Encounters Roadblocks

PetSmart and Petco were in discussion to merge the two companies with PetSmart acquiring Petco. Financial analysts had mixed opinions over what this acquisition would mean for the North American pet supply market. The two companies are still interested in joining however the deal has met some roadblocks; according to Reuters the companies are reportedly having disagreements over sharing the risk of having the deal approved by American antitrust authorities. All parties involved have asked for confidentiality, declined to comment, or did not respond to comment requests from Reuters.

Petco has declined a proposal that requires compensation to PetSmart should the Federal Trade Commission require many store closures. Petco has asked several private equity firms to submit their acquisition offers within several weeks. The owners hope to sell Petco for at least $5 billion USD, including debt.

   

Petco filed for an initial public offering in September 2015 and this avenue will be opened if the company is not sold.

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Insight Into the Potential PetSmart-Petco Merger

Petco Holdings Inc will potentially be acquired by PetSmart Inc. The two companies have had informal discussion regarding PetSmart’s potential acquisition of Petco. However, neither company is publicly disclosing any information regarding a potential acquisition.

While Petco operates more stores in the United States their revenue does not compare to PetSmart. Petco has 1,400 stores in the US and had a revenue of $3.99 billion USD last year while PetSmart has 1,300 stores in the US and had a revenue of $6.9 billion USD.

If PetSmart acquires Petco then the resulting company would control approximately 30% of the American specialty pet retail market. Such dominance would probably result in store closure according Howard Davidowitz, CEO of Davidowitz & Co., a retail investment bank and consulting firm. Davidowitz said, "They would never even get to this point without having met with every smart merger lawyer and looked at this 1,000 different ways. When you go forward with this, you are spending tens of millions of dollars just to explore it."

Wedbush Securities Analyst, Seth Basham believes that a merger would increase market concentration which would be a warning sign for regulators. Regulators may require store closures. Even if they do not, PetSmart may close Petco locations. Basham said that approximately 72% of Petco locations are within five miles of a PetSmart.

Regarding a merger, Davidowitz said, "If you are asking me if things are going to be better after the merger, (the answer is) absolutely not. What they should be doing is perfecting their businesses, coming up with specialty niches within pets. I can think of a hundred things they ought to be doing."

Basham believes a merger is “feasible and very attract financially”. He said, "We believe a combination with Petco would buy PetSmart synergies, but would not solve its competitive dilemma, underscored by rapidly shifting shopping behavior and increasing online competition. In fact, an acquisition of Petco could distract PetSmart from addressing this issue and add increasing pressure. After all, Petco is a smaller and somewhat weaker competitor with generally higher in-store pricing."

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Pet Sales - What Do Americans Prefer?

In a survey conducted by Harris Poll Online, Americans wanted to see higher dog breeding standards with enforcement (67%) versus banning the sale of animals in pet stores (33%). 2,025 adult Americans participated in the poll. 89% of participants believe that tougher breeder standards will decrease puppy mill operations. 81% believe that banning dog sales at pet stores will not end puppy mills.

National Alliance for Dog Breeding Reform founder and Senior Vice President, Ron Sturgeon said, "We would all like to see a world where dogs bred for profit are treated humanely, shown kindness and bred using medically sound principles. The American Pet Council's survey shows that the American pet owners understand the limitations of pet store sales bans. Working toward higher standards for dog breeding is the best long-term approach to improving the lives of dogs being bred for profit. Banning puppy sales at pet stores does not solve the problem of bad breeding practices.” Sturgeon continues, "I would like to see pet stores selling more puppies and even adding dogs from local shelters into the mix. When they do sell dogs from a breeder, they should chose local reputable breeders and display full information so that consumers can meet the breeder and visit the kennel.”

At the 2015 Summit for Urban Animal Strategies specialists from across North America will be participating in a discussion and brainstorming event regarding rescue dogs (Forum 2015.C). As dog overpopulation decreases in North America and negative pressure is increased on dog breeders potential dog owners are finding it more difficult to find a good dog. Shelters have fewer dogs to adopt out and many are participating in humane relocation. Humane relocation, or the importation of dogs, poses risks to dog owners and the public.

What is the solution to safe and positive pet acquisition in Canada and the United States?

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J.M. Smucker Co. Sees Sales Increase After Acquisition of Big Heart Pet Brands

The J.M. Smucker Company experienced a 47% increase in sales after their acquisition of Big Heart Pet Brands. Sales increased by $628.2 million USD for a total of $1.95 billion USD in sales. Diluted net income per common share remained at $1.14 USD and stock increased by $8 USD per share.

The purchase enabled Smuckers to enter the pet-food market. Brands included in the acquisition were Meow Mix, Milk-Bone, Kibbles 'n Bits, 9Lives, Natural Balance, Pup-Peroni, Gravy Train, Nature's Recipe, Canine Carry Outs and Milo's Kitchen.

Smucker’s Chief Executive, Richard Smucker said, “We are off to a solid start this fiscal year. Contributions from the Big Heart acquisition and new products were key drivers of this performance. Overall, we are on track to achieve our full year expectations for net sales and earnings, and are confident about the initiatives we have in place to support future growth.”

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Nestlé Petcare Half Year Results

Compared to last year Nestlé has had lower revenue growth in the first half of 2015. According to Nestlé, “The results of the first half allow us to reconfirm our outlook for the full year: we aim to achieve organic growth of around 5% with improvements in margins and underlying earnings per share in constant currencies, and capital efficiency.”

• Sales of CHF 42.8 billion (Convert to USD), 4.5% organic growth, 1.7% real internal growth
• Trading operating profit margin 15.0%, up 20 basis points in constant currencies
• Underlying earnings per share up 7.3% in constant currencies

Petcare in North America showed good growth, in spite of the negative impact from the Beneful case. Among the drivers were Fancy Feast cat food, the Pro Plan platform for dog food, and cat litter. Petcare continued to be a growth driver for Latin America and will benefit from new production capacity in Argentina and Mexico.

For Petcare, the half year sales were $5.465 billion CHF with an organic growth of 4.9%. Trading operating profit margins were 21.0% with an increase of 110bps from the first half of 2014.

READ THE 2015 HALF YEAR PRESS RELEASE

Pet Food: What Are People Buying?

According to Pet Food Industry's recent article there are approximately 78 million dogs and 86 million cats living in American homes. This large pet population ensures that pet food sales are on the rise. Packaged Facts estimates that pet food sales will increase to $33 billion USD by 2018.

According to Packaged Facts, in 2014, 95% of dog owners bought dry food, 37% bought wet food, and 34% bought both dry and wet foods. 95% of cat owners bought dry food, 51% bought wet food, and 47% bought both dry and wet foods. 78% of dog owners bought dog treats while 44% of cat owners bought cat treats. Premium foods accounted for 42% of pet food sales.  

52% of pet owners do not want to feed their pet 'animal byproducts', 47% want red meat as the main ingredient, and 50% want natural ingredients in their pet food. Pet owners are also looking for new flavours and textures for their pets to enjoy.

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PetSmart 3rd Quarter keeps company in black

PetSmart, Inc. announced its financial results for the third quarter of 2013 with earnings of $0.88 per share and net income of $92 million. 

Total sales for the quarter increased 4.0% to $1.7 billion. Comparable store sales, or sales in stores open at least a year, grew 2.7%, including comparable transactions growth of 0.2%. Service sales, which are included in total sales, grew 5.2% to $184 billion. 

The company generated $107 million in cash flows from operating activities, spent $51 million in capitals expenditures, distributed $17 million in dividends and repurchased $30 million of PetSmart stock. The company ended the quarter with $367 million in cash, cash equiviants and restricted cash and zero borrowings on its credit facility. 

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PetSmart announces Second Quarter 2013 Results

PetSmart, Inc. released its second quarter 2013 results last week, reporting earnings of $0.89 per share, up 25% compared to $0.71 per share in the second quarter of 2012. Net income totalled $93 million in the second quarter of 2013, compared to $79 million in the same quarter of 2012. 

Total sales for the second quarter of 2013 increased 5.3% to $1.7 billion. Comparable store sales, or sales in stores open at least a year, grew 3.4%, benefitting from comparable transactions growth of 1.0%. Services sales, which are included in total sales, grew 7.3% to $205 million. 

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