Petfood industry booms

Petfood has joined infant formula in the emotional marketing of products. By Glenys Christian.

The best performing primary industry product with the least amount of publicity might well be petfood. Sales have grown strongly as more pets have been acquired both here and overseas during Covid-19 lockdowns. And New Zealand has been able to direct more of its production to the higher end of the market where demand is still strongly increasing for “meaty treaty things”.

“The market is absolutely booming at the moment,” New Zealand Petfood Manufacturers’ Association chief executive Richard Brake says.

Some of the high-value, high-margin brands are reaching “extraordinary prices” in the hundreds of dollars per kilogram in countries such as China and the United States.

“New Zealand is very good at capitalising on its clean, green image,” he says.

“And there’s also a lot of skill in emotional branding which has come more into play over recent years.”

The closest product to petfood in this regard is infant formula with some large companies having one marketing person dealing with both categories, such are the similarities.

While the local petfood market is estimated to be worth about $700 million annually, about one third of those products, mainly at the middle and lower end of the market are imported. These tend to be extruded kibble products used as pets’ maintenance diet which are mainly manufactured in Australia and the US by multinationals such as Nestle and Mars.

Supermarkets sell about 75% of all petfood with vets and pet shops making up most of the remainder. Overseas there’s growing online sales, particularly in China and also in the US thanks to the recent rise of auto-ship services sending shoppers the same product on a monthly basis.

The big growth has come in value-add, innovative, retail-ready products such as freeze-dried and air-dried products. They’re made from a variety of different meats and are given as a treat. And increasingly offal which would otherwise go on supermarkets’ shelves or be exported is finding a willing and lucrative market as petfood ingredients.

“It’s no longer an industry involved in buying product people don’t want to eat,” Richard says.

“The distinction between petfood and edible products for human consumption has largely gone.”

This has allowed petfood manufacturers to chase overseas markets with exports now worth $317.3m free on board (FOB) in the year to September 30, 2022.

This compares with just one third of that amount five years ago, meaning a compound annual growth rate (CAGR) of over 20%. If Australia is removed, a market where the value of petfood exports has dropped since late 2020, the five-year CAGR jumps up to 31.5 %.

Strong export growth flattened temporarily in 2020 with the closure of the Mars petfood plant in Wanganui. But since then it has been onwards and upwards again with exports to Asian countries, now worth $175m showing a five-year CAGR of almost 38%, despite shipping disruptions caused by Covid.

China, which takes close to $120m of those exports, has a 63.5% CAGR. They jumped from just over $20m in the quarter to the end of June this year to close to double that amount in the September quarter. And NZ exports have consistently earned more per kg than petfood sent to the market by rival exporters from Canada, the US and Thailand, at about $20/kg.

While the average value of all petfood exports is just under $16/kg FOB, exports to Canada, which totalled $9.3m in the last year have the top average price of $27/kg.

The US which accounts for $80m of exports sits about the $20/kg mark, Korea with $11.6m comes next at $17 then Australia at almost $42m averages close to $15/kg. Smaller market shares are taken by Hong Kong, Singapore, Japan and Taiwan taking between $8 and $11m of exports with the average value between $6 and $12/kg.

Petfood was named besides such stars as cherries and honey as export growth opportunities by the Food and Beverage Taskforce. A Coriolis research report in 2014, looking into investment opportunities in the NZ petfood industry, found it had a strong comparative advantage due to innovation with retail-ready products as well feeding into a large category globally. It gave an example of petfood products in the US markets retailing from US88 cents/kilogram right up to US$45.74/kg.

Producers were able to leverage NZ’s position as a producer of high-quality protein with a choice of a wide range of suppliers and good research and development capabilities. They could introduce ingredients to differentiate their products such as green-lipped mussels, deer velvet, manuka honey and flaxseed oil. They are well-positioned to push the “Prey Diet”, replicating a wild animal’s natural diet and right on trend with products catering to pet owners looking for weight management, natural, organic, gluten-free or raw choices.

The Petfood Manufacturers’ Association, a not-for-profit body funded by subscription from its almost 200 members, of which 120 are manufacturing members, was formed in 1998. Chief executive Richard Brake, who is a microbiologist by training, worked at Watties until he was made redundant with the Heinz take-over. Looking after the association’s affairs takes up almost all his time now and he also sits on the board of the Global Alliance of Petfood Associations (GAPA), based in Brussels. Members take a united approach on issues which affect them all, such as market access.

“Around the world the petfood industry is very collaborative,” he says.

“The technical people are in touch all the time.” With petfood demand strongly growing Richard says there’s a lot of new building going on locally as production facilities have become stretched.

“We would be exporting more petfood if we had the capacity.”

There are large markets in European Union, India and South America which could be exploited in the future.

“But we haven’t spent much time on them because we’ve been too busy satisfying our present customers.”

There have also been the same labour shortages as felt in the meat industry, which a relaxation of immigration restrictions might help.

The prospect of hitting $1 billion of exports at some stage is a real prospect.

“It’s an easy number to roll off the tongue,” he says.

“And the association is doing whatever it can to encourage its members towards that goal.”