Recent weeks have seen a flurry of activity from Private Equity firms in the pet supply industry. London-based firm Cinven last week bought the Hungarian manufacturer Partner in Pet Food for an undisclosed sum, while earlier this month US firm L. Catterton sold premium pet food manufacturer Ainsworth Pet Nutrition for $2 billion, making an 8 times return after just four years.
So far this year, $8.3 billion worth of transactions in the pet supply industry have taken place. At a notoriously difficult time for the retail and dining sector, why are pets so appealing?
Globally, the pet food market was valued at over $90 billion in 2017, which is expected to rise to $113 billion by 2023, according to Research and Markets. This growth has been attributed to the “humanisation” of pets in regions such as the US, China and Japan, a trend for owners to see pets as a family member rather than an animal, and increasing spending accordingly. Demographic trends such as the growth of the middle class, a greater proportion of the population living in cities, and having children later have led to the emergence of millennial “pet parents”.
Pet owners typically switch food brands for their pets less frequently then they do for themselves, and are willing to pay more for premium products. Market research firm Euromonitor estimates that US spending on premium pet food is expected to rise by 16% over the next five years, ahead of pet food more generally at 12.2%.
onefourzero’s own data on the UK pet food market tells a similar story. 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. While consumers seem to be spending less and less on dining out themselves, they remain happy to spend on their pets.
The premium pet supply industry illustrates the return that can be made when investors spot a retail trend ahead of the curve. But with the luxury pet food trend reaching maturity, where should Private Equity firms look next?
In the UK, innovative businesses are capitalising on the “humanisation” of pets trend by supplying a wide range of high-end specialist products.
For example, Lintbells, based in Hertfordshire, makes nutritional supplements to maintain pets’ good health. The firm has won funding from Inflexion to help finance its international expansion. Likewise, Wigan-based Simpsons Premium has recently developed pet food aimed at dogs experiencing allergy, skin or stomach problems. Euromonitor estimates that the market for toys, carriers and bedding is also set to grow at around 12%.
With the so-called “snowflake” generation evidently willing to treat their pets the same way, investors who successfully tap into this market early are likely to see high returns.