Last May, we reported on a flurry of private equity activity in the pet supply industry, noting dramatic search trends we observed at the time:
“We found that consumer demand for premium pet food has doubled since 2014, with Google search volume increasing by 98%. In the last 12 months, this growth has been particularly pronounced, with 17% more searches in March 2018 than the same month the previous year.”
Revisiting this market a year on, we are seeing continuing growth in the sector, with the number of private equity investments both here and in the US on the rise.
Search Demand and Traffic
onefourzero analysed data regarding online search demand and traffic, as well as sentiment (below).
Amongst the top 10 major pet supplies brands, search demand has risen by 38% since June 2018, and in pet food brands specifically demand is up 24%. When we looked at 30 of the leading brands across both supplies and food, we observed an increase of 22% overall.
Whilst search demand for those major pet supplies brands has risen dramatically, actual traffic to those brands’ websites has tended to decrease at a rate of 18% since June 2018. Pet food, on the other hand, has seen traffic increase by 19%.
Online Sentiment for Pet Food and Supplies
Online sentiment regarding the top 10 pet food brands has continued to be largely positive, though the overall number of mentions has dropped from 427 total in June 2018 to 356 in June this year. A sudden spike in mentions was observed in March 2019, rocketing to 1,128. Our research suggests that this spike was, interestingly, influenced by a competition that was run by one of the major brands, simultaneous to an event being run by another. Real world activity is often responsible for corresponding digital response, and this is a beautiful example of this in action. Even more interesting on this point, though the majority were either positive or neutral in sentiment, March also showed the highest number of negative mentions, at 108.
Pet supplies rarely see any discussion, with zero mentions in June 2019 (down from just two in June 2018). Mentions in supplies did see a peak in May this year, however, with a total of 12 mentions – six of which were positive and the other six detected as ‘neutral’ in sentiment.
Investment Interest and Activity
When we reported on the pet market in 2018, we noted the acquisition of Partner in Pet Food by Cinven and the $2bn sale of Ainsworth Pet Nutrition by L.Catterton in the US. Since then, private equity and venture capital interest and activity has continued unabated.
Both the US and UK markets have seen substantial cash injections across supplies, food and – interestingly – ancillary products and services, including veterinary care and pharmaceuticals, insurance, and pet grooming services.
A 2018 report from Alantra, identified this interesting market for ancillaries:
“Increasing competition for assets and rising valuations mean some investors are starting to look at fast-growing ancillary markets such as pet insurance, practice solutions and analytics IT, grooming, nutrition, health biotech, devices and pet pharmacy businesses. The lifestyle of pets is becoming more sophisticated and so will the investment platforms”
In the US, Red Collar Pet Foods, a portfolio company of Arbor Investments, has acquired Hampshire Pet Products, a provider of baked and cold formed pet products. Hampshire is also a co-manufacturer of several of the US’s leading branded pet treats.
In another interesting piece of news, PetSmart, which owns an unprofitable ecommerce site for pet food and supplies named Chewy, and has announced plans to take the company public soon. “That will be an awkward pitch,” writes Barrons. “Pets.com went public 20 years ago next February, and belly-up the following fall, sock puppet and all. Chewy should have a better run. Revenues rose to $3.5 billion last fiscal year from $2.1 billion.” Another article on the Chewy IPO, on Dealbreaker, openly mocks the move.
Over in the UK, deals are also going swimmingly.
Pure Pet Food, the award-winning manufacturer of dehydrated and freeze-dried pet food has secured a £2m investment from NVM Private Equity (NVM)
Tails.com, which offers premium pet food products, was recently acquired by the pet food arm of Nestlé. Considering they only incorporated in 2013, this is a remarkably quick startup-to-exit arc. In 2017 they had already generated £13m in turnover.
Butternut Box has also raised a large amount of VC (£14m), though sales have yet to exceed that all-important £10m mark.
With or without recent cash injections, businesses providing pet products are thriving.
The most successful is Lily’s Kitchen, which received an undisclosed sum from private equity firm Catterton in 2015. Since then, it has seen turnover grow from £15m to £26m between 2016 and 2018. Whilst Lily’s Kitchen has not yet achieved profitability, they’ve featured on several prominent high-growth lists since incorporating in 2008. These include Virgin’s Fast Track 100, and the FT’s 2018 Future UK 100.
Symply, founded in 2008, offers grain-free luxury food products. It achieved a turnover of £25m with an operating profit of £27m in 2018. Butcher’s has also grown its turnover from £72m in 2010, to £92m in 2015, picking up several high-growth awards along the way.
ECI Partners, which owns MPM, announced in June this year that it has appointed advisers to find a buyer, and is seeking in the region of £100m. This is double the price ECI paid for a majority stake in MPM in March 2016. MPM has proved hugely successful in the US and Asia. Latest accounts show a 19% increase in revenues in 2017 to £53m. Profits were around £4m.
Why Is The Pets Market Booming?
The 2018 Alantra report remarks that, in the UK alone, consumers are spending £11bn a year on their pets. This includes food and pet accessories, along with specialist retailers and veterinary services. “This highly fragmented sector,” the report states, “is demonstrating growth and resilient consumer spending, making it attractive to both private equity and debt lenders.”
What is the reason for this enormous consumer spending?
As us humans are becoming more aware of the links between diet and health, we are beginning to pay the same attention to the health of our beloved non-human companions. Awareness of the typically low quality of standard dog food has skyrocketed in recent years. In Tesco’s cheapest dog food, for example, only 4% of the content is from the animal depicted on its packaging. 40% is from ‘animal derivatives’ – whatever that pertains to – whilst the rest is bulked out with substances like ash.
Matteo Corà, Senior Principal at private equity firm Cinven, says: “The European pet food market is one of the most attractive spaces in the wider consumer sector. Strong demand for pet food products – and premium products in particular – is being driven by the increased ‘humanisation’ of pets; owners want to give their pets healthier foods in a more convenient way.”
The group comprising the highest number of pets per capita is, reportedly, the Millennial generation (those born between 1981 and 1996). Considering repeated research findings that confirm that this group are generally highly focused on healthy eating, it is little surprise that they are applying the same values to the wellbeing of their pets.
The sustainable growth characteristics we are witnessing in the sector is what is really attracting the interest of lenders and investors. People’s pets usually stay with them for the whole of the animal’s lifetime, meaning that food and other ancillaries are pretty much compulsory purchases. Equally, each item is of small value but amounting to a not-insignificant sum over the animal’s lifetime. Areas such as veterinary care and insurance actually become more costly as the animal ages, and all the more mandatory as loving pet parents strive to maintain their animal’s longevity and wellbeing. And when we remember the vast number of pets owned and this growing trend for healthy eating, it’s clear there’s a captive market here that’s ripe for investment.