Premiumization in Pet Food: Lucrative Market Despite Economic Uncertainties

Pets are increasingly being treated like family members, and this trend is clearly reflected in purchasing habits, especially in the choice of high-quality pet food. Even during times of economic stress, pet owners are willing to spend more on premium, natural, or branded products, as analysts emphasize. Unlike some areas of human nutrition, the pet food market is resilient to income losses caused by inflation. This robustness was already observed before the pandemic, but COVID-19 accelerated growth due to the increased acquisition of pets during the lockdowns. Despite the rising number of animals in shelters as a result of the current cost-of-living crisis, experts predict long-term growth potential for the market. "Premiumization and humanization continue to drive the pet food category," explains Tim Simonds, CEO of Primal Pet Group. This is confirmed by a study from the investment bank Lincoln International, which notes that growth in the natural pet food segment outpaces overall market growth. Particularly raw or gently cooked food, which is minimally processed, is seen as the fastest-growing and highest-quality segment of the market. In Europe, the pet food market is growing at an annual rate of 4-6%, amounting to around 30 billion euros according to Lincoln International. The natural food sector contributes about 5 billion euros with a growth rate of 7-9%. Specifically, raw and gently cooked food is growing at 9-11%, although with a smaller market volume of about one billion euros. Key drivers of this growth are Millennials and Generation Z, who view pets as child substitutes and are willing to spend more on their food. Garyth Stone from Houlihan Lokey explains that the pet food category grew during the financial crisis of 2007-08 in a manner not observed in any other sector. A survey by the American Pet Products Association (APPA) in October showed varied results regarding pet ownership and buying behavior for pet food. While two-thirds of respondents plan no changes in how they feed their pets, 29% indicate they would switch brands due to costs. 14% express that they can no longer afford pets. Despite price trends, pet food in the USA remains resistant to a switch to cheaper private labels. Michael Burgmaier of Whipstitch Capital confirms that premium brands are far less price-sensitive than mass brands. Nestlé and Mars dominate the global market through acquisitions, while demand for high-end and natural products continues to show strength. In addition, experts see significant opportunities for consolidation in pet food retail, as many medium and emerging brands working with partner manufacturers are attractive for acquisitions. In conclusion, industry experts like Gilles Vanhouwe look to the future and expect innovations in alternative proteins and sustainable packaging, which are identified as key themes for the sector in the coming years.