Sept. 12, 2023 5:00 am ET
Pet food—typically one of the last places animal owners look for savings—may no longer be sacrosanct.
When dog and cat owners cut back on spending for themselves, pet items, especially food, are among the last areas where changes are made. But with inflation straining wallets, pet parents have already been cutting their spending, particularly when it comes to discretionary products such as toys.
Now things are getting more serious.
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With the cost of pet food up nearly 11% from a year ago, according to the July consumer-price index, animal owners are trading down from more expensive gourmet brands or shifting to smaller pack sizes, finance chiefs and analysts said.
Premium dry dog food, for instance, is losing share at an accelerating rate—down 2.9 percentage points in the three-month period ended in July compared with a year earlier—and across all income groups, suggesting that the desire for savings is broadly felt, said Max Gumport, a U.S. packaged foods analyst at BNP Paribas.
“In times of recession or economic stress, first you trade down on your own food, then your kid’s food and then your dog’s food. That’s what history would suggest,” he said. “This time is appearing to be different.”
Growth in non-premium pet food sales at U.S. public and private companies slowed to 14.8% for the second quarter of the year, compared with 20.8% growth in the first three months of 2023 and 18.3% a year earlier, according to an analysis of data from Circana by research firm Consumer Edge. Premium pet food sales growth, meanwhile, decelerated to 8.5% in the second quarter, compared with 10.7% growth in the first quarter and 21.3% growth in the prior-year period, the data show.
Non-premium pet food
Premium pet food
General Mills, which owns the Blue Buffalo line of premium pet foods, is seeing the effects of pet owners trading down or looking for smaller-size food options.
The Minneapolis-based company this month said that as a result of these challenges, it expects organic net sales in its pet segment to be roughly flat in its first quarter compared with the prior-year period and the segment’s operating profit margin to be around 19%. The average analyst expectation is for 4.8% growth and a 19.2% profit margin. The company, which on Sept. 20 is set to report its fiscal first-quarter results, shared the figures and reaffirmed its full-year outlook for the current fiscal year at a conference this month.
The maker of Cinnamon Toast Crunch cereal and Pillsbury dough isn’t anticipating the pressure on its pet-food business to let up in the near-term, Chief Financial Officer Kofi Bruce said at the conference. “As best as we can read the present environment…our guidance isn’t built on a huge hockey stick change in the pet operating environment,” he said.
Part of the shift has to do with supply-chain challenges that disrupted the pet-food industry during the pandemic, which forced consumers to consider alternative pet-food options, Bruce said. Moreover, he added, pet owners are dealing with rising costs for pet items due to inflation. “It’s very clear we’re going through an environment where pet households and pet parents are seeking value, in everything from pack sizes to where they shop for pet food.”
But people often treat their pets like children, the CFO said, which drives them toward premium offerings for their animals. “That is still likely, and we believe the dominant driver of growth in the pet segment, even if right now there is a shift in the short term toward value and maybe a readjustment as the consumer settles into maybe a more cautious state.”
For J.M. Smucker, which owns Milk-Bone and other pet brands, the trade-down effect has been muted. PHOTO: ANDREW KELLY/REUTERS
Pet food and product retailers Petco Health & Wellness and Chewy are similarly seeing a shift among some consumers toward value-driven spending. Consumers are more discerning, Chewy Chief Executive Sumit Singh told analysts last month, noting a shift to dry food over wet food in July, along with cuts to pet treats.
For food-and-beverage giant J.M. Smucker, which owns cat food brand Meow Mix as well as pet treat options including Milk-Bone and Pup-Peroni, the trade-down effect has been muted. This is in part because of the varying price points for offered products, said finance chief Tucker Marshall.
Smucker, which in April sold several pet-food brands to Post Holdings including Rachael Ray Nutrish, 9Lives and Kibbles ‘n Bits, said last month that net sales in the U.S. pet foods segment dropped 40% or $288 million, compared with the prior-year period. Excluding the divested brands, net sales increased 22%.
“The commitment that a parent has to the animal is pretty meaningful and so they will continue to feed and treat their animal even in times of maybe less discretionary income,” Marshall said. This might mean trading down from premium products, he added, “but they’re still supporting their pet through any perceived troubled times.”