The premiumisation of private label in pet food

Author: Eric Combelles

Date published: 13 Aug 2004

The market for dog and cat food accounted for US$35 billion in 2003 according to new research by global market analyst, Euromonitor International. Private label contributed to 10% of this revenue, which is a stable market performance in line with previous years.

This lack of growth within private label suggests multiple grocers are experiencing difficulties in increasing their share of the market. So what are the major challenges for private label in pet food? Is communication targeted well enough? And what is the future of private label in the pet food market?

The context

Private label is well-established in developed markets. Its presence is derived from multiple grocers’, who are the owners of private labels. Private label is now also found in developing countries where multiple grocers are investing increasingly, such as Thailand and India.

The idea of private label is to offer consumers a cheaper alternative to branded products, with a comparable level of quality. In this context, Euromonitor found that Austria had the largest penetration rate for pet food private label in 2002, where it made up nearly a third of retail sales. Belgium, Switzerland, Portugal, Denmark, Germany, the UK and many more developed countries, including France, also all enjoyed double digit shares in 2002. In the US, the largest pet food market in the world, private label accounted for just over one tenth of the retail sales.

The dilemma

Multiple grocers aim to generate profits by selling both their own, private label brands and branded products, such as Nestlé’s, Mars’ or Procter & Gamble’s, to name but a few. On one hand, the presence of private label tends to decrease retail value sales, as private label is cheaper than branded products. On the other hand, retail volumes are much larger from private label sales than from branded products. The objective for multiple grocers is therefore to find the right equilibrium between value (ie profits) and volume sales (ie economy of scale).

The market trend

Euromonitor’s research has found that the pet food market has been experiencing a trend towards premium and super-premium products. This stems from the fact that pet owners are increasingly treating their companion as a member of the family (or even sometimes as a partner, in the case of single households) and as such, expenditure on pet food is rising. This trend towards premium products has also been the result of efficient marketing communication by manufacturers about the benefits of prepared pet food and this has contributed to the development of branded premium products first, with private label premium products following suit.

But premium and super premium pet food is largely found in pet specialists and pet superstores where private label is not available. And this is the major reason for the stagnation of private label in developed countries - the lack of private label in specialists.

Multiple grocers’ brands perform well within economy and mid-priced products where value shares are lower in comparison to premium and super-premium products.

The response

In order to benefit from the market trend and also generate higher profits, multiple grocers, in the UK for example, have been focusing on "premium private label" products. While their shelves are still stocked with "standard private label" and branded products, they have also added in recent times premium private label products. This has not yet overcome the preference by many pet owners to purchase premium and/or super-premium (branded) products from pet specialists, but it has caused improvements in terms of revenues for multiple grocers. They have managed to attract a consumer group towards their premium private label and this in itself is an achievement. Having said that, manufacturers of branded products are nevertheless a length ahead of retailers in terms of premium products, thanks to more efficient new product development and innovation (around such areas as better product texture, for example).

Market position

Private label has made significant improvements in terms of communication and quality. It has moved from having an image of low quality to one of being a premium alternative to branded products in countries such as Spain or France. Quality is always a subjective concept, even more so for pet food. But in a growing market, a stable market share is synonymous of higher revenues and as such, the future of pet food private label is bright.