Pet food industry starting to feel price pinch

If you’ve been to the grocery store lately, these Department of Labor statistics will come as no surprise. Over the past year, milk prices have increased 26 percent. Eggs are up 40 percent. Flour has jumped 23 percent.

But what about pet food?

“I keep polling my 1,000 members about this and everyone says, ‘I’m not going to tell you, but let me know what everyone else says,’” says Bob Vetere, president of the American Pet Products Manufacturers Association (APPMA).

“I think they are all struggling with rising food prices. They’re trying to figure out where this is going to level off. Will rice prices continue to increase? Is wheat going to move in a different direction? What’s going to happen next? I don’t think anyone knows.”

Kurt Gallagher, Director of Communications and Export Development for the Pet Food Institute, which represents the manufacturers of 98 percent of all the dog and cat food produced in the United States, says many grain commodity prices have increased 50 percent or more over the past year. Meat and meat-based products, which are the top ingredients in most pet foods, haven’t increased as much.

Vetere agrees, noting that rising prices for resources may mean rising prices for the finished product.

Manufacturers are hesitant to become involved in the conversation. All of the manufacturers contacted for this article declined interviews or refused to provide any pricing information.

“The pet food industry is extremely competitive,” explains Kurt  “Industry-wide data doesn’t exist and the company-specific data is sensitive.”

Even among professional pet product associations, industry leaders are tight-lipped.

“Any time prices go up like this, the producers are either going to look for different components, try to find ways to cut costs elsewhere or they’re going to gently hit people upside the head with price increases,” says Vetere.

“But I don’t think they’re passing on a great deal of the price increases yet,” he adds. “At least not in the mainstream of food type products.”

Vetere suggests pricing pressure would accelerate a consumer buying trend the industry has witnessed over the past two to three years.

“The middle ground of pet food products has been losing market share,” says Vetere. “People are either moving toward the lower-priced, value end or up to the higher priced, boutique products.

“The movement to the high end is still strong enough that it offsets the loss of revenue of people buying less expensive products. So the pet food market has continued to grow.

Looking forward, will it be the "Boomers" who are the catalyst for the high-end sales spike? 

“Can that continue forever?” Vetere asks. “Well, as long as they don’t have mortgage-sized college loans to pay off, the baby boomers are turning to Fluffy and Spike to fill the void when their kids leave home. That group still has three to six years of growth before it will start to level off. So the high end will still drive the marketplace.”

Gallagher says the average pet owner spends about $128 each year to feed a dog and $57 to feed a cat.

“We’re lucky there’s such a resiliency within the pet segment,” adds Vetere. “People may stop going to restaurants to save on food costs. But if it costs a little extra to keep Fido and Fluffy happy and well fed, they’re more than willing to pay the price.”

According to research from the APPMA, consumers are more than willing to pay premium prices for specialty pet products. Their 2007-2008 study on pet product trends lists products and services such as pet-friendly hotels (pet pillows, plush robes and gift packages), deluxe pet attire (faux mink coats), and large companies such as "Mitchell, Omaha Steaks, Origins, Harley Davidson and Old Navy"that are now offering their own lines of pet products.

For more on the pet food industry, read "Potential Health Concerns Trigger FDA Action Against Evanger’s Pet Food Company" - only on Trends Online.