M&A Signals a Maturing Pet Care Market

Traditional recession-proof sectors have typically delved into ‘sin stock’ territory, alongside healthcare, energy and consumer staples. With heightened inflation and a moribund economy, one wholesome consumer theme is proving not just recession resilient but a longer-term boon: Pet Care.

Multinational M&A Investment

Multinationals Colgate-Palmolive, Mars and Nestlé have joined this burgeoning investment theme, which last year saw 41 significant mergers and acquisitions in the pet food sector alone (which excludes pet grooming services and pet accessories).[1]

Nestlé Purina made sweeping investments across its operations. It invested $USD 90 million in order to double its cat food production in Australia, along with injecting $USD 200 million into expanding US and Mexico production plants.[2] In India, the local branch of Nestlé acquired the Purina business for $USD 15.7 million, which was launched in India in 2017.[3]

Colgate-Palmolive purchased three ex-Mars manufacturer Red Collar Pet Foods factories for $USD 700 million to expand its Hill’s Pet Nutrition business.[4] Meanwhile, Mars injected $USD 82 million and announced plans to raise production in its Kansas plant by 75%.[5] The company also acquired Canada’s Champion Petfoods in November, considering it a “strong strategic fit.”[6]

Multinational involvement signifies the long-term growth prospects of pet care companies. Other notable activity came from Zoetis and Chewy, both stocks held in the Rize Pet Care UCITS ETF.

Zoetis, a Fortune 500 company, is a global leader in animal healthcare and last year acquired Basepaws, a pet DNA and at-home health testing company for an undisclosed amount.[7] Online pet care and pet food retailer Chewy (which was itself the biggest ecommerce acquisition of 2017 when it was acquired by PetSmart for $USD 3.35 billion[8]) acquired Petabyte Technology for $USD 43.4 million.[9] The latter is a cloud-based technology provider to veterinarian practices, which Chewy sees growth potential in scaling across its pet health ranges, despite considering this to be a “relatively small acquisition” for the group.[10]

Long Term Growth

What this activity indicates is just how dynamic the pet care sector is. And just how buoyant investor sentiment is in a theme that’s proving to be much more than a pandemic play. Morgan Stanley is predicting pet care to offer one of the largest rates of return in any retail segment over the next seven years.[11] It forecasts an 8% compound annual growth rate for the industry by 2030.[12] The global pet care market was valued is projected to reach a total size of $USD 184.43 billion by 2030. In the UK, pet care and related products [sales] has climbed steadily over the past 20 years, with a steeper rise since 2019, according to the Office for National Statistics.[13]

The pandemic period did not just increase the pet population, but ushered in other trends too. Humanisation, premiumisation, health and wellness, sustainability and digitalisation are now the five key trends shaping the global pet care industry and these are set to drive demand in the future.

Humanisation In the Pet Products Market

Seven in ten owners consider their pets to be family members and this has driven ongoing higher demand for preventative health products and services, mirroring their own preference for foods with preventative properties.[14] Pet product claims such as “natural”, “organic”, “immune system support” and “good omega source” expanded between 2020 and 2021 in Western Europe, according to Euromonitor, as well as growth in pet care supplements.[15]

Humanisation is a trend that non-pure pet brands like Ikea are also responding to. Ikea has offered a pet range since 2017, including a cat house that fits into a shelving unit and scratching mats that help protect surfaces.[16] Meanwhile pet clothing, especially novelty items linked to special calendar occasions like Halloween, is booming and brands such as Moncler, Adidas, Heron Preston, Ralph Lauren, Barbour, Temellini, Urban Outfitters, H&M, Moschino, Versace, Zara and Barbour have launched pet-specific ranges.[17]

Related ETF

PETZ: Rize Pet Care UCITS ETF

References

[1] Pet Food Industry, “41 pet food industry mergers and acquisitions 2022”, January 2023. Available at: https://www.petfoodindustry.com/articles/11528-41-pet-food-industry-mergers-and-acquisitions-2022

[2] Pro Food World, “Nestlé Purina Unveils $90 Million Australian Plant Expansion”, April 2022. Available at: https://www.profoodworld.com/industry-news/news/22172194/nestl-purina-unveils-90-million-australian-plant-expansion

[3] Pet Food Industry, “Nestle India buys Purina Petcare dog, cat food business”, August 2022. Available at: https://www.petfoodindustry.com/articles/11461-nestle-india-buys-purina-petcare-dog-cat-food-business

[4] European Supermarket Magazine, “Colgate Acquires Three Pet Food Plants From Red Collar Pet Foods”, August 2022. Available at: https://www.esmmagazine.com/a-brands/colgate-acquires-three-pet-food-plants-from-red-collar-pet-foods-204818

[5] Global Pet Food Industry, “Mars to raise production in its Kansas plant by 75%”, August 2022. Available at: https://globalpetindustry.com/article/mars-raise-production-its-kansas-plant-75#:~:text=The%20global%20pet%20food%20manufacturer,to%20940%20million%20treats%20annually.

[6] Mars, “Mars Petcare to Acquire Champion Petfoods, Maker of ORIJEN and ACANA”, November 2022. Available at: https://www.mars.com/news-and-stories/press-releases-statements/mars-petcare-acquire-champion-petfoods

[7] Zoetis, “Zoetis Completes Acquisition of Basepaws, an Innovative Leader in Petcare Genetics, to Strengthen its Portfolio of Precision Animal Health Solutions”, June 2022. Available at: https://investor.zoetis.com/news/news-details/2022/Zoetis-Completes-Acquisition-of-Basepaws-an-Innovative-Leader-in-Petcare-Genetics-to-Strengthen-its-Portfolio-of-Precision-Animal-Health-Solutions/default.aspx 

[8] Vox, “PetSmart is acquiring Chewy.com for $3.35 billion in the largest e-commerce acquisition ever”, April 2017. Available at: https://www.vox.com/2017/4/18/15339208/petsmart-chewy-acquisition-price-3-35-billion

[9] Markets Screener, “Chewy, Inc. acquired Petabyte Technology Inc. for $43.4 million”, August 2022. Available at: https://www.marketscreener.com/quote/stock/CHEWY-INC-59660076/news/Chewy-Inc-acquired-Petabyte-Technology-Inc-for-43-4-million-42535848/

[10] Ibid

[11] Morgan Stanley, “Pet Care Industry Outlook 2030”, November 2022. Available at: https://www.morganstanley.com/ideas/pet-care-industry-outlook-2030

[12] Ibid

[13] Office for National Statistics, “09.3.4 Other recreational goods Pets and related products CP SA £m”, December 2022. Available at: https://www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/timeseries/uvjk/ct

[14] PR Newswire, “Pets Really Are Members of the Family”, June 2011. Available at; https://www.prnewswire.com/news-releases/pets-really-are-members-of-the-family-123604964.html

[15] Euromonitor, “Humanisation a Key Driver of Pet Product Sales”, November 2022. Available at: https://www.euromonitor.com/article/humanisation-a-key-driver-of-pet-product-sales

[16] Ikea, “Pet products”, 2023. Available at: https://www.ikea.com/gb/en/cat/pet-products-pt001/

[17] Marc Petite, “DOG FASHION & DESIGNER DOG CLOTHES” – TOP 20+ BRANDS [2022 UPDATED]”, March 2022. Available at: https://www.marcpetite.com/blogs/luxury-dog-accessories/dog-fashion-designer-dog-clothes