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THE BACKGROUND

While pet ownership in the UK is on the decline due to an ageing population and a rise in consumers' work commitments, those households that do have an animal are spending a greater amount of money on them. This, coupled with the introduction of more convenient packaging, as well as products with added health benefits, has fuelled a rise in the annual value of the market to almost £4bn. The future for the sector also appears positive, with growth predicted to continue over the next five years.

The UK is traditionally seen as a nation of animal lovers, and though pet ownership is on the decline, the value of the pet-food market is rising, suggesting consumers are treating their pets better by trading up to premium products.

Between 1998 and 2004 the pet-food and petcare market grew by 30% to reach an estimated £3.8bn, according to Mintel, which predicts it will be worth almost £4bn this year.

Pet-food sales alone rose 2.9% year on year in 2005 to a value of just over £1.2bn, according to TNS Superpanel figures in Marketing's Biggest Brands survey (24 August).

In the past couple of years, value sales of dog and cat food have outpaced volume sales, according to Euromonitor. This has resulted from the formation of not just a premium category, but also a super-premium. In many cases products in the latter category are growing fastest.

'Pets are now treated as members of the family and the trend toward premium products reflects a desire among owners to provide their pets with the highest-quality food,' says a Masterfoods spokeswoman.

A key factor in the decline in pet ownership is that as dual-income households become the norm, people are less willing to take on the responsibility if no one is at home during the day to look after the animal. In addition, the demographics of the country are skewed toward older people, a group traditionally less likely to own a pet.

Deciding factors

Forty-eight per cent of all consumers own a pet, according to Mintel, compared with 54% in 1999. Children tend to be the key instigator in the decision-making process, with almost 70% of families that have 10- to 14-year-olds also owning a pet.

While the cost of keeping a pet is not seen as a factor, it is not cheap.

A survey conducted by Sainsbury's Bank last year found that cat owners spend an average of £475.70 a year on their pet, while dog owners spend £981.31. The lion's share of this is accounted for by food, followed by treats and grooming.

The rise of premium pet foods has been boosted by the introduction of serving formats such as pouches and single-portion packs. As with other food areas, consumers are seeking convenient, time-saving products.

In wet dog and cat food, pouch products have posted some of the highest growth. Interest has been maintained with the introduction of multi-packs and bigger sizes as well as private labels.

Owners are also spending more on products traditionally associated with human markets, such as natural foods and those with health benefits, both of which are now available for animals.

The market has changed in recent years; traditional wet food is in decline, meaning many of the best-known canned brands have suffered sales declines. As well as pouches posting stronger performances, dry food is also growing in popularity. Among its advantages are that it is easier and lighter to store, can be bought in bulk and is odourless, unlike wet food.

Complete offerings

Another development has been the introduction of 'complete' products, which have the variety and texture of wet food, but are more akin in convenience terms to dry formats.

The fiercely competitive pet-food market is dominated by Masterfoods UK and Nestle Purina. Masterfoods brands include Whiskas, Sheba and Pedigree, while the latter's include Felix and Winalot.

Whiskas has moved away from a premium positioning and has had to adapt to the arrival on the market of a host of similar rivals by adding a pouch format, which now outsells its tinned variant. Sheba, meanwhile, is positioned as a single-serve premium product.

Nestle Purina was formed in 2001 when Nestle bought Ralston Purina, a US pet-food company. In 2003 it relaunched the Winalot dog-food range with a £10m campaign in an attempt to stem a decline in sales. In 2004 it launched Purina One, a premium, dry dog- and cat-food range, which replaced its Vital Balance brand.

Procter & Gamble bought Iams in 1999 for £1.4bn. Previously only available through specialist retailers, the line was rolled out to UK supermarkets in 2001. This effectively created the sector's super-premium category. Iams' positioning is strongly focused on its nutritional content and the brand broke the mould when it added dental-care benefits to its range.

Niche markets

Looking forward, the grocery multiples are expected to continue to dominate the retail market as the number of products and variety of store formats meet most pet owners' needs.

Mintel predicts that niche products will continue to mimic developments in the human-food market by offering specific diets or health benefits, as brands seek to stimulate the market in the face of falling pet numbers.

Those with pets will become more indulgent and will, therefore, be more likely to buy treats for their animals.

The pet-food and petcare market is forecast to grow 8% in real terms between 2005 and 2010, to reach £4.3bn. While continuing to dominate the market, pet food is likely to show the lowest level of growth.

PET FOOD BRANDS' UK RETAIL VALUE MARKET SHARE (%) Cat food brand Manufacturer 2004 2003 1 Whiskas Masterfoods 23.8 25.0 2 Felix Nestle Purina 19.3 18.4 3 Friskies Go-Cat Nestle Purina 7.8 8.0 4 Kitekat Masterfoods 7.3 7.9 5 Iams Procter & Gamble 6.2 5.8 6 Friskies Gourmet Nestle Purina 3.1 2.5 7 Sheba Masterfoods 2.2 2.0 8 Arthur's Nestle Purina 1.6 2.0 9 Hill's Colgate-Palmolive 1.5 1.5 10 Royal Canin Masterfoods 1.4 1.3 Dog food brand Manufacturer 2004 2003 1 Pedigree Masterfoods 20.2 20.1 2 Winalot Nestle Purina 15.0 14.3 3 Butcher's Butcher's Pet Care 5.7 6.6 4 Baker's Nestle Purina 4.6 4.1 5 Schmackos Masterfoods 3.2 3.0 6 Cesar Masterfoods 3.1 2.9 7 Chappie Masterfoods 2.7 2.8 8 Pal Masterfoods 2.6 2.7 9 Iams Procter & Gamble 2.3 2.3 10 Royal Canin Masterfoods 2.0 1.9 Source: Euromonitor PET FOOD UK RETAIL SALES AND VALUE SHARE BY OUTLET TYPE CAT FOOD DOG FOOD 2004 1999 2004 1999 pounds m % pounds m % pounds m % pounds m % Grocery 575 80 558 79 510 59 498 60 multiples Pet superstores 43 6 21 3 69 8 42 5 Co-ops 29 4 42 6 52 6 66 8 Independent 29 4 28 4 43 5 42 5 pet shops Independent 22 3 49 7 121 14 133 16 grocers Other 22 3 7 1 69 8 50 6 Source: Mintel

ANALYST COMMENT - SANDY LIVINGSTONE DIRECTOR, BMRB

With many parts of the grocery business looking sluggish, the pet-food sector stands out as dynamic.

This is due in no small part to its demographics,with the population of some of the most common pets on the up. The proportion of cat-owning households, in particular, has increased significantly in recent years.

Ownership of cold-water and tropical fish has also grown.

By contrast, dog ownership has remained static and that of caged birds has fallen steadily.

Many animals are considered one of the family and often afforded the same indulgences. Consequently, sales of pet insurance have risen. In 2003, 1.9m households had cover; this has now grown to 2.3m.

As with their children, pet owners try to ease their guilt at leaving their animal alone all day by pampering them. Many owners do not leave their pets alone for long, however; cat owners are 25% more likely than the average adult to work part-time.

We know that dog and cat owners differ attitudinally. Those with cats are more likely than average to hold progressive and ethical attitudes, such as being vegetarian and refusing to buy cosmetics that have been tested on animals.

Dog owners are more likely to be a pushover when it comes to their children, finding it difficult to say no, which may explain how they ended up with a pet in the first place.

In terms of pet food, tinned-product use is declining in dog- and cat-owning households, as consumers opt instead for the convenience of premium or super-premium formats such as foil packs, pouches and cartons.

The sector is competitive, but conditions are set fair for strong brands with added-value appeal.