PET E-COMMERCE: GROWING GLOBALLY
Spending on pets is increasing globally and, in many regions, e-commerce sales growth in the pet category is outpacing both total category sales growth and total e-commerce growth. In this report, we analyze some of the leading pet e-commerce companies in the US and selected international markets.
The Internet’s share of pet product and food sales is still relatively low in many regions. Although precise definitions of the category vary, in most Western markets, e-commerce accounts for single-digit shares of pet category sales. According to Euromonitor International, e-commerce accounted for only 4.4% of total pet care sales globally in 2014 (latest confirmed); we estimate this rose to around 5.3% in 2015.
However, Chinese pet owners have flocked to the Internet to purchase pet food: GfK estimates that e-commerce represented fully 38% of total pet food sales in the country in 2015, and it predicts that figure will rise to around 43% in 2016.
According the American Pet Products Association (APPA), total US pet care expenditure, including nonfood categories, surpassed $60 billion for the first time in 2015.
IN CONTEXT: THE WORLD’S BIGGEST MARKETS
According to research company GfK, total pet food sales globally grew 4% year over year to $70 billion in 2015. As we show below, the US accounted for more than one-third of this. Petfood Industry notes pet food sales in Japan, the second largest market globally, have shown signs of stagnation, while significant growth is expected through 2020 in other Asian countries, including China, India and Taiwan.
IN FOCUS: AMERICANS’ LOVE FOR PETS BOOSTS PET E-COMMERCE
As noted in our Pet Technology report from December 2015, many Americans treat their pets like family members, and they have shown a willingness to increase their spending on their pets.
According to Pet Product News, baby boomers were the first generation to truly “humanize” pets, which has fueled the growth of the pet product industry. Subsequent generations are following the boomers’ lead, and GfK says millennials have now overtaken boomers as the largest pet-owning population in the US.
This shift is impacting how consumers buy for their pets and is also driving e-commerce growth in pet product sales. As we discussed in our Millennials and Grocery report, millennials are highly adept at using technology to research and buy products, and they look for convenience when shopping. These habits carry over into their spending on their pets.
Several factors drive the impressive e-commerce growth in the pet products category, and they point to continued growth in the future:
Below, we compare the growth of pet care e-commerce to that of total e-commerce, total retail sales and pet care retail sales in the US between 2010 and 2014. According to Forrester Research, pet care e-commerce in the US grew by 76% over that period. APPA recorded 20% growth for the total pet product industry over the same time frame. Pet e-commerce not only substantially outpaced total pet care sales from 2010 to 2014, but also grew faster than total e-commerce.
Pet Food Is the Largest Category by Value
So what pet categories are consumers spending on? It is not just pet food, although food is the largest pet product category by value in the US. According to the APPA, spending on services and supplies is growing, too. The only category where spending is declining is live animals; value sales in that category declined by 1.4% between 2014 and 2015, and they are expected to decline marginally in 2016. The APPA estimates that total spending on pet products will increase by 4.1% in 2016, to a total of $62.8 billion.
Two Companies Dominate Pet Food E-Commerce in the US
Two companies—Chewy.com and Amazon—stand apart in terms of pet food e-commerce in the US, according to analytics firm 1010data. They took a combined market share of over 85% in the category in the first quarter of 2016, 1010data says. Note that this market share is for pet food only, although both online retailers also sell pet supplies.
Regular e-commerce is not the only force driving sales at these two retailers. According to Petfood Industry, the pet food online subscription model is growing rapidly, with Chewy.com’s and Amazon’s subscription sales of pet food having nearly tripled year over year in the first quarter of 2016.
Subscription services appear to be a good fit for pet food, given that it is typically a routine purchase for which shoppers can predict need.
America’s Online Pet Retailers
Below, we provide a rundown of the major players in the US pet e-commerce market.
Leading US-based specialty pet retailers PetSmart and Petco both have a strong network of stores across the country. Online, however, neither has been able to match the success of pure plays Chewy.com and Amazon, according to the market-share data shown above.
Despite having lower online market shares than Chewy.com and Amazon, PetSmart and Petco, thanks to their strong store networks, can compete with pet e-tailers by offering services that range from grooming to pet hotels. Petco and Pet360 offer subscription services online that offer savings to customers who make regular purchases. Petco also sells on Amazon, whereas PetSmart no longer does.
IN FOCUS: PET E-COMMERCE INTERNATIONALLY
Neither the growth in overall spending on pets nor the growth in pet e- commerce has been confined to the US. Below, we look at some of the other leading pet product markets worldwide and how they have adapted to pet e-commerce.
According to Australian business magazine INTHEBLACK, pet supplies is one of the fastest-growing e-commerce sectors in Australia, which has one of the highest pet ownership rates in the world. Analytics company SPS Commerce estimates that the online pet food market in Australia grew at an annualized rate of 16.6% between 2010 and 2015, compared to annualized growth of just 1.7% for the total pet food market during the same period.
Consumer research company Kantar Worldpanel reports that raising pets has become increasingly popular in China, due to urbanization and changing lifestyles. E-commerce’s share of pet product sales is relatively high in China compared to most other regions. GfK estimates that e-commerce will grow its share of total pet product sales in the country from 38% in 2015 to 43% in 2016.
Euromonitor International estimates that the total value of the German pet care market will reach €4.3 billion (US$4.8 billion) in 2016, up 9.4% from 2011. According to pet product e-tailer Zooplus, around one-third of German households own one or more pets, and key trends in the country include the “humanization” of pets, increased spending on them and pet product e-commerce.
According to the UK’s leading pet specialist retailer, Pets at Home, the total value of pet retail and services in the UK grew by 7% between 2012 and 2014, taking the market to £6.1 billion (US$10.0 billion). Online sales of pet products over the same period grew by 24.6%, to represent 8.6% of total category sales in 2014.
Retail research group Conlumino estimates that the total pet care market in the UK will grow by 9.3% from 2014 to 2019 and that the online pet care market will grow by 43.6% during the same period.
IN FOCUS: ONLINE GROCERY HELPS DRIVE PET E-COMMERCE
As an everyday CPG, pet food is, for many consumers, a grocery store purchase. That means the growth in pet food e-commerce is tied to some degree to the growth in grocery e-commerce. Pet food products represent a good fit with online grocery shopping because of their ambient, branded nature and the fact that they are often heavy and hard to get home from the store.
Grocery retailers account for major shares of offline pet-food sales already: as we noted above, supermarket chains Tesco and Asda are in second and third place, respectively, in the UK pet care market. And, in markets such as France and the UK, which have established online grocery sectors, we expect grocery retailers to account for a sizable share of online pet food sales.
In the US, which is a nascent market for e-grocery, online grocery sales are expected to ramp up in coming years, and that growth should drive more of America’s pet food spending online.
So, the battle in e-commerce is not just between brick-and-mortar pet chains and pure-play pet specialists; grocery retailers will likely account for a growing share of pet product e-commerce, too.