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Internet Retailing Goes Mainstream in Pet Food

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With smartphones increasingly ubiquitous, consumers growing more comfortable shopping online and sales of premium brands soaring, internet retailing is steadily growing in importance in the global pet food market, particularly in the Asia Pacific region.

South Korea leads the way

Internet retailing continues to grow in importance in the US$75 billion global pet food market, accounting for 4% of value sales in 2016, up from 3% during 2011, according to Euromonitor International data. South Korea is the world’s leading market in this regard, with internet retailing accounting for a whopping 30% of value sales of pet food in 2016.

However, South Korea is very much an outlier – in no other pet food market does internet retailing account for more than 10% of value sales. East Asia is very much the epicentre of pet food internet retailing, with this channel accounting for 10% of value sales in Japan and 9% in China during 2016.

Online commerce becomes everyday commerce

Consumers are becoming more comfortable with making purchases online. A Eurostat survey conducted during 2015 found that 65% of consumers in the EU aged between 16- and 74-years-old had purchased goods or services online during the 12 months prior to survey.

Smartphones are increasingly ubiquitous in both developed economies and emerging markets, with more than one billion of these devices sold globally during both 2014 and 2015. A survey conducted during 2015 by Washington, DC-based think tank The Pew Research Institute found that 68% of adults in the US had a smartphone in 2015, up from 35% during 2011. Among those aged between 18- and 29-years-old, this figure rose to 86%.

Other factors facilitating the growth of internet retailing include premiumisation – premium pet food has a high price-weight ratio and is thus more economical to deliver than mid-priced and economy offerings – and the increasing use of such packaging formats as stand-up pouches, which are both relatively lightweight and robust (resistant to tearing and breakage). Meanwhile, difficult economic conditions in many markets have made consumers more price sensitive and thus more amenable to shopping online in search of a bargain.

Both big and small players go online in China

The expansion of pet food internet retailing in China has been particularly notable. The proportion of Chinese households with internet access more than doubled between 2010 and 2015, to 50% (largely driven by sales of smartphones), and in March 2016, Nancy He, a spokesperson for Nestlé, told newspaper China Daily that “Pet food has become one of the fastest-growing categories online, next to infant and baby nutrition.”

As in many emerging markets, the growth of pet food internet retailing in China has been facilitated by the underdeveloped state of bricks-and-mortar retail infrastructure in some parts of the country. Meanwhile, local e-commerce giant Alibaba Group Holding Ltd's Taobao.com provides virtual storefronts for a host of manufacturers and retailers, as well as a nationwide logistics network.

North America – the billion dollar market

Pet food internet retailing may be less prominent in North America due to its more mature bricks-and-mortar infrastructure, but the share of pet food sales accounted for by this channel still doubled between 2011 and 2016, to 3%. With value sales of pet food in this region worth US$31 billion in 2016, this makes online pet food in North America something close to a US$1 billion market.

Enjoying significant economies of scale, Amazon.com is a key player. It offers same-day delivery for a fixed annual fee via its Prime service and has a website dedicated to pet food called Wag.com (in addition to selling such products on its main website). The Amazon.com app is already on the smartphones of many pet owners, giving it a significant head start over its rivals. Pet superstore chain Petco has responded by partnering with delivery service Instacart to offer same-day delivery in 14 metro areas, promising to deliver certain products in just one hour.

Strong growth prospects

Internet retailing will continue to grow in importance in the pet food market, as younger consumers tend to be more comfortable shopping online. Online subscription services (where consumers sign up for regular deliveries of pet food) are likely to grow in popularity among busy consumers who value convenience, while bricks-and-mortar pet superstores in developed economies, such as Petco in the US and Pets at Home in the UK, will move towards an omnichannel bricks-and-clicks model in order to remain competitive. In the longer term, deliveries of pet food by drone are a possibility.

The potential for growth in pet food internet retailing is particularly significant in such emerging markets as India, where pet ownership is growing in popularity among affluent consumers, but the bricks-and-mortar retail infrastructure remains relatively underdeveloped.

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