Latin America sales of pet food and pet care products is on the rise and international giants like Nestle and Mars are seeing increased competition from local producers.
BY MARY TABION
(Euromonitor International) - Stronger economic performance across Latin American has set the stage for expansion of the pet products industry. Higher incomes and improving awareness of the benefits of nutritionally complete, balanced diets and healthcare products have encouraged pet owners of all socioeconomic levels to step up their expenditures for man’s best friends. Although Latin America’s demographics reveal extreme polarization in terms of purchasing power, the pet products industry has made strides in offering a broader range of products in order to serve households of all income levels.
The perception of pets in Latin America has evolved since the 1990s, especially among upper-income households. Dogs and cats, once considered to be guardians or peripheral to the household, are now considered as full-fledged members of the family. Pet owners are better educated about veterinary care and packaged food options, and are willing to invest in prolonging their animals’ health and well-being. Packaged foods and treats are increasingly replacing table or butcher shop scraps as the main components of pets’ diets.
Premium pet products have proven to be a very attractive segment for the industry, despite its relatively small retail value compared to mid-price and economy products. Manufacturers have not only boosted nutritional value of pet foods, but are also creating indulgent treats and snacks similar to human food. Significantly higher margins have convinced both multinational manufacturers like Mars Inc and Nestlé SA to develop premium pet food lines. International brands like Eukanuba, Hill’s Science Diet and Royal Canin also compete within the premium segment.
Domestic firms are vying for part of the premium segment by offering niche products. Gourmet foods are available for pampered pets - Mundo Deli in Brazil offers Eurico Come Doces, low-calorie, sugar-free chocolate-coated dog biscuits, replacing the cocoa with dog-friendly ingredients. Another niche product is Total Alimentos’ Big Bone treats and snack bars enriched with dietary supplements.
The higher margins in the premium segment of the pet products industry should continue to captivate manufacturers and retailers in the short to medium term. For the most affluent households, a beloved pet’s health and comfort eclipses the cost. Both global and Latin American manufacturers are likely to push the envelope in creating more “humanized” products for pets.
Mid-priced and economy pet foods, however, serve as the manufacturers’ primary gateway into the pet industry — mid-priced and economy dog and cat food accounted for 75 percent value sales in 2005. Price continues to be a primary concern for the majority of Latin American consumers; pet expenditures are not a large part of the household budget when basic needs like food and clothing are more pressing. Mid-priced and economy brands are entry-level products for most pet owners seeking packaged foods for their pets. While many dogs and cats consume some packaged food, the pet industry’s challenge is to convert pet owners at lower income levels completely to commercially-produced food products.
Manufacturers, retailers and veterinary clinics are reaching out to middle- and lower-income pet owners, educating them about animal health through in-store promotions and advertising. Price discounts and coupons are often a primary feature of marketing and advertising campaigns. Event sponsorship for animal aficionados is another new venue for pet industry promotion. Nestlé sponsored a cat expo in Colombia in April 2005, which included a cat show and information about cat breeds, care, and feeding.
Pet food producers working in the mid- and economy priced segments increasingly look to premium lines for the next steps in innovation. Value-added products are making their way into lower price points. Fortified, life-stage (puppy, adult, and senior) and life-style (active pet, small-breed, and sedentary pet) food products are replacing standard dog and cat food offerings in both mid-priced and economy price ranges. Grand Food and Agroceres Pet in Brazil are two examples of innovators in the lower-price segments. Grand Food’s Premier Pet line was developed for smaller breeds and puppies, while Agroceres launched Zeus, a low-price vitamin and mineral fortified dog food. Both products were introduced into the Brazilian market in 2005. More convenient packaging, including stand-up and re-sealable pouches, are another area of product development.
SEEKING OUT NICHES
Latin American players have traditionally been overshadowed by multinationals like Mars and Nestlé, which have a combined share for 47 percent of retail value sales of the pet food and pet care market. Both companies have a long-standing presence in the region and maintain strong distribution networks, gaining synergies from their packaged foods businesses.
In order to compete against the market leaders, local pet products manufacturers tend to focus on specific product types or price segments. Brazilian firm Nutriara Alimentos Ltda, ranked third in Latin America with a 4 percent value sales share, produces mid-priced and economy dry dog and cat food. Mogiana Alimentos SA and Total Alimentos, also Brazilian pet food producers, follow a similar strategy.
Smaller firms produce “boutique” food lines in order to stake a claim in the premium price segment. Bioser Ltda in Chile produces the Cumple dog food line, which contains no artificial colors or flavors, soy protein, or fish meal. In order to underscore the premium positioning of the Cumple brand, Bioser distributes its dog food exclusively through breeders, kennels, and associations for purebred dogs.
The expansion of local competitors has not gone unnoticed by Mars and Nestlé. Both companies have stepped up their promotional efforts to defend their market share. In Chile, the Mars brands Pedigree and Whiskas sponsor “La Ley de la Selva,” an animal-themed television program. In order to cement the Pro Plan brand as a premium product in Brazil, Nestlé has formed exclusive distribution partnerships with pet shops, with a target of 80 shops by the end of 2006.
The pet industry staged a strong recovery after Latin America’s sharp economic downturn in 2003-2003. Retail sales of pet food and pet care products rose 15 percent in 2005 and are forecast to increase total of 40 percent by 2010.
Manufacturers, trade associations, and retailers all share optimism for the pet industry in Latin America. While the strong annual value sales growth achieved in 2005 is not likely to be sustained through 2010, new product development is expected to bring more sophisticated products to the region across the entire price spectrum, thus improving margins for both manufacturers and retailers. Pet food manufacturers are also betting that households across all income groups will come to rely on commercially prepared pet food for some, if not all of their pets’ nutrition needs. As pets owners become more closely allied with their pets, expenditure on pet products is likely to be included as a household staple, rather than a luxury.
Mary Tabion is the Latin America Research Manager for Euromonitor International