Consolidation trends in the food and pet food sector
Europe remains the second largest consumer continent, accounting for just over 30% of the global market for pet supplies (including pet food). Within Europe, the market is driven by the UK and Germany, each with a share of around 20%, closely followed by France. Due to the rather weak development in Germany, in contrast to parts of Europe and the USA — which also turned negative once in the first half of 2016 by more than 1% — further differentiation of the product ranges was also essential. The business, which has already been dominated by food retailing for the past 10 years with a constant share of around 54% of total volume, was also influenced by the growth of private labels. Manufacturers increasingly countered this trend by introducing premium products, which were also increasingly well received due to the growing ‘humanization’ of pets. In the meantime, the premium retail brand with vitamins and other additives is a common sight on the shelves.
Consolidation in the specialist retail sector by market leaders such as the pet specialty chains Fressnapf and Das Futterhaus, both of which continue to show growth rates in excess of 5% p.a., appears to be developing to the further detriment of drugstores and traditional pet (zoo) specialty stores. Further consolidation will take place as a result of the shift to online business, which, for example. will in the medium term counter the current shipping models of large packaging units with subscription models of smaller units. MyMously individually for the cat seems not too far away. As an online pure player,Zooplus achieved sales growth of 24% to EUR 257 million in the first quarter of 2017 alone, which means that the sales billion mark in Europe is likely to be within reach. Nevertheless, the online giants, which in Europe include Pets-at-Home in the UK, currently account for far less than 10% of the total market in Germany, with more than EUR 450 million. There will still be some changes here.
Internationally, the megatrends of ‘humanization’ of the pet, convenience — also in packaging -, and health continue to persist. Together with the above-mentioned development of online sales as well as population growth and the simultaneous reduction of dog tax in China, the market is estimated to exceed EUR 130 billion in 2020 at a CAGR of 4.7%. KKR’s investment in China’s Gambol Group, which is Walmart ’s private label supplier in addition to its own market, announced in February, points the way. Internationally, the same developments are evident ‘for the animal’ in the better-off economies as for the respective owners. This is demonstrated not only by the purchase of shares in the Brazilian Mogiana Alimentos and the organic-focused pet food producer Nature’s Variety by the Spanish Agrolimen Group but also by the above-mentioned sale of Yarrah Petfood from the investment company Vendis to AAC Capital. The company offers organic and vegan food “without chemical antioxidants, artificial fragrances, colors, flavors, refined sugars or genetically modified ingredients.” Simply put, the pet’s bowl becomes the owner’s refrigerator. Even the much-discussed Paleo diet approach, “eating as in the Stone Age” is mirrored accordingly for the dogs and now also cats.
A mild form of this, is the B.A.R.F. (Biologically Appropiate Raw Food) trend to raw food feeding, which was initially particularly pronounced among American dog owners, this has also prevailed in Germany and found its followers. The sustainability of these developments is underlined by transactions from strategic investors such as Nestlé Purina, which already in 2015 acquired the first certified producer of organic dog food, Merrick. The growth theme of “snacks and treats” remains unaffected by this. Here, the content changes, but the buyer may not want to do without the convenience-friendly small packaging. The producer, who values sustainability, will probably change the packaging materials so that the customer can just about tell the difference between an organic pet snack and the vegan chips for the mistress or master by the shelf heading.
As in the human medical world, opinions differ as to whether and how “important nutrients” need to be supplied via dietary supplements or feed. What is certain is that in addition to osteoarthritis medications, which are now already reaching a wider circle of owners of large dogs through the veterinarian, specialty retailers or online portals, a variety of products will supplement the normal mixed feed. The omega‑3 and omega‑6 fatty acid enriched products we consume will benefit our pets as well. There are still only a few products in the ‘Superfoods’ category, which is already extensive in the human sector, on relevant websites, but we believe this will change. Terra Canis, which you mentioned above, already offers a Superfoods powder blend, which is consistent from the point of view of Nestlé’s new partner, which wants to further expand Healthy Nutrition.
From our point of view, due to the still strongly oligopolistic, regional and medium-sized provider structure, many transactions will tend to be in the lower three-digit and especially in the two-digit million euro range. The very large transactions in animal health, such as the acquisition of Novartis Animal Care by Eli Lilly in 2015, primarily focused on farm animal health in addition to the smaller Pet Care share. Similarly, the acquisition of the U.S. company announced in January 2017 played a role in the veterinary clinic operator VCA by the number 1 in the Pet food Mars for $9.1 billion in addition to securing a strategic position in the value chain, certainly profitability and the division already owned by Mars Banfield Pet Hospital, with 900 veterinary clinics, plays a role.
About Stefan Constantin
Stefan Constantin is a founding partner of C§H§Reynolds§Corporate Finance AG with a focus on the consumer goods & retail, e‑commerce, industrial products as well as healthcare/pharmaceuticals and chemicals sectors.
The business graduate, who graduated in Frankfurt in 1992, initially worked for the corporate finance firm Doertenbach & Co. where he handled cross-border mid-market transactions, acquisition mandates of foreign companies and auctions with the participation of financial investors. In 1998, he founded C§H§Reynolds§Corporate Finance AG together with Felix Hoch. Over the past 20 years, he has assisted a large number of mid-sized companies and renowned financial investors in divestitures and has supported numerous international acquisition projects of listed companies.
Stefan Constantin is a member of the Association for Chemistry and Economics VCW e. V. and the German Chemical Society GDCh. He is also a member of the Business Advisory Board of FIZ — Frankfurt Biotechnology Innovation Center and the Frankfurt Society for Trade, Industry and Science.
He was Chairman of the Association of German M&A Advisors until March 2014.