Lee Linthicum

1
Focus On Pet Food Retailing
Petfood Forum 2008

• Lee Linthicum
• 15 April 2008

2
Agenda

• Pet Food and Pet Care Products Industry Overview
• Asia Pacific Pet Food Retailing Environment
• Spotlight Japan
• Spotlight China
• Future Prospects
• QA

3
Focus On Pet Food RetailingIndustry Overview
4
Industry Overview Key Trends
The pet takes centre stage Kids get older
younger, adults stay younger longer Looking for
convenience Growing desire for indulgence and
healthier products
Consumers
Retailers
Manufacturers
Chained retailers continue to expand Undeveloped
retail infrastructure a challenge in rural
areasSuperstores on the rise
Mature market requires more niche marketing RD /
Food science Flavour concepts Packaging caters to
lifestyle trends
5
Industry Overview Key Trends
The pet takes centre stage Kids get older
younger, adults stay younger longer Looking for
convenience Growing desire for indulgence and
healthier products
Consumers
Retailers
Manufacturers
Chained retailers continue to expand Undeveloped
retail infrastructure a challenge in rural
areasSuperstores on the rise
Mature market requires more niche marketing RD /
Food science Flavour concepts Packaging caters to
lifestyle trends
6
Industry Overview Key Trends
The pet takes centre stage Kids get older
younger, adults stay younger longer Looking for
convenience Growing desire for indulgence and
healthier products
Consumers
Manufacturers
Retailers
Mature market requires more niche marketing RD /
Food science Flavour concepts Packaging caters to
lifestyle trends
Chained retailers continue to expand Undeveloped
retail infrastructure a challenge in rural
areasSuperstores on the rise
7
Pet Food and Pet Care Products Market Overview

• Global market value 53 billion in 2007
• Growing with historical CAGR of 5 on 1998
• Top 5 companies make up nearly 50 of the market
• 3 CAGR forecasted at constant value to approach
  62 billion in 2012

8
Pet Food and Pet Products Performance by Region
Value Sales millions

• In North America, 2007 value growth slows
  following Menu Foods recall, with economy and
  mid-price wet pet food particularly hard hit.
• Western Europe value sales slump in mature
  marketplace, with mid-price segment worst hit.
• Strong economic growth drives increased value
  sales in Eastern Europe and Latin America.
• In Asia-Pacific, rising income levels and
  deepening distribution boosting consumption
  across region, while improved economy in Japan
  providing a modest boost to demand.

9
2007 Top 10 Largest v Fastest Growing Markets

• Largest Markets - fixed ex rate
• US 19.2 billion
• UK 4.1 billion
• Japan 3.9 billion
• France 3.4 billion
• Germany 3.1 billion
• Brazil 2.8 billion
• Italy 2.3 billion
• Canada 1.4 billion
• Russia 1.1 billion
• Australia 1.1 billion

• Fastest growing constant value
• Russia 14.8
• Romania 11.9
• Thailand 10.8
• Venezuela 10.0
• India 9.7
• China 9.1
• Argentina 8.7
• Bulgaria 8.0
• Saudi Arabia 7.6
• Morocco 7.1

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Top Global Trends Developed Markets
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Top Global Trends Developing Markets
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Global Retail Distribution Profile
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Focus On Pet Food RetailingAsia Pacific
Retailing Environment
14
Asia Pacific Retail Distribution Profile
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Developed Asia Pacific Retail Distribution
Profile
Defined as Hong Kong, Japan, Singapore, South
Korea, Taiwan
16
Developing Asia Pacific Retail Distribution
Profile
Defined as China, India, Indonesia, Malaysia,
Philippines, Thailand, Vietnam
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Asia Pacific Retail Distribution Profile
Comparison
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Asia Pacific Retail Focus Pet Superstores
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Asia Pacific Retail Focus Pet Superstores

• Pet Superstores expanding strongly across Asia
  Pacific region
• In China, pet superstore operator Cool Baby
  successfully expanding to second-tier cities like
  Nanjing, Yantai, Tsing Tao, and Zenzhou to meet
  growing consumer demand and offer greater product
  variety
• In Taiwan, the Doggy House and Catty House
  outlets are performing well with premium
  offerings, as well as grooming and spa/salon
  services
• In Singapore, retail chain Pet Lovers Centre PTE
  Ltd opened its Pet Safari pet superstore in late
  2006. At nearly 800 m2, it is the largest pet
  specialist in the country and features a vets
  office and grooming parlour
• Pet Lovers Centre successfully expanding to Hong
  Kong and Malaysia
• Qian Hu The Pet Family operates 12 successful pet
  superstores in its native Singapore, as well as
  Shanghai, Nanjing, Kuala Lumpar and Bangkok. More
  outlets expected soon, especially in Malaysia
• In Vietnam, late 2005 saw the opening of Phuong
  Anh Pet Mart in Ho Chi Minh City

20
Asia Pacific Retail Focus Pet Superstores

• But Pet Superstores failing to take hold in
  large Japanese market
• Pet food and pet product sales remain dominated
  by home centre format
• Global and regional multinationals like PetSmart,
  Pet Lovers Centre, or The Pet Family not present
  in Japanese market
• Only domestic chains like Pet City, Kojima KK,
  and AHB Group
• Some opportunities remain
• Focus on pet care products, including pet
  clothes, beds, luxuries
• AHB Group leveraging convenience of one-stop
  shopping
• 25 Pet superstores
• 19 Veterinary clinics
• 32 Grooming parlours
• One pet hotel at Tokyos Narita International
  Airport
• Even more specialization will be the key to
  future success

21
Asia Pacific Retail Focus Pet Superstores

• Pet Superstores focus on quality and premium
  products
• Hills, Iams, Eukanuba, Nestlé Pro Plan, Nutro,
  Sheba, Fancy Feast, etc

22
Asia Pacific Retail Focus Pet Superstores

• Pet Superstores driving growth for Pet Care
  Products
• Cat litter, healthcare, dietary supplements and
  other products all benefit

23
Asia Pacific Retail Focus Supermarkets/hypermarke
ts
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Asia Pacific Retail Focus Supermarkets/hypermarke
ts
25
Asia Pacific Retail Focus Supermarkets/hypermarke
ts
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Supermarkets/hypermarkets Refocusing

• Financial constraints
• Misjudging local customs and consumers
• Pace of network rollout

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Supermarkets/hypermarkets Consolidating

• Refocusing allows retailers to consolidate in
  other markets
• Battle for supremacy in China heats up
• Expansion beyond first tier Asia Pacific cities
• Diversifying the format
• Taking advantage of an emerging one-stop-shopping
  culture

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Focus On Pet Food RetailingSpotlight Japan
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Spotlight On Japan

• By far largest and most established Pet
• Food and Pet Care market in region
• Retail sales of 3.9 billion in 2007, ranking
• it third globally after US and UK
• Japan accounted for 68 of total Asia Pacific
  industry sales in 2007
• But down from 75 regional retail value share in
  2002 as a result of strong growth from developing
  markets like Thailand, China, and India
• Resurgent industry growth in 2006 and 2007 as a
  result of improving economic performance and
  restored consumer confidence
• Humanisation trend driving industry as a result
  of demographic shifts
• Number of Japanese consumers over 65 grew 22
  from 2001 to 2006
• While consumers aged 64 and below declined more
  than 4
• Average age of Japanese women at first child
  birth stood at 28.9 years in 2006, versus 28.2
  years in 2001

30
Spotlight On Japan

• Fortified/functional pet food driving growth,
• bolstered by humanisation trend
• Japanese consumer acceptance of fortified/
• functional food for humans an added bonus
• Mixed competitive landscape, with both
  multinationals and domestic companies in
  leadership positions
• Domestic players like Uni-Charm continue to
  out-perform multinationals like Nestlé and
  Colgate-Palmolive
• Share growth hinges on strong customer
  communication, retailer support, and product
  development
• Home Centres like Kahma and Homac dominate retail
  distribution of pet food and pet care products
  and continue to grow their value share
• Japanese Pet Superstores increasingly focus on
  specialization as a means of differentiation and
  to create unique shopping experiences

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Spotlight On Japan
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Japan Retail Distribution Profile
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Focus On Pet Food RetailingSpotlight On China
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Spotlight On China

• Changing attitude towards pets
• Humanization trend growing
• Teenagers drive demand for pets
• Teenager population (10-19) 219 million
• Growing trend towards prepared food
• Unpackaged food still dominates other pet food
• Multinationals dominate
• Limited product advertisement
• Pet superstores expanding to second-tier cities
• Pet-related purchases moving beyond essentials
• Growing pet food and pet care market - 567
  million in 2007
• 200 value growth since 1997

35
Spotlight On China

• Very strong economic growth
• Real GDP growth of 34 from 2001-2006
• Per capita disposable income grows 50
• from 2001-2006
• Polarization along coastal cities
• Households 44 urban, 56 rural in 2006
• Up from 38 urban, 62 rural in 2001
• Retail infrastructure improvements
• Restrictions on international retailers have
  eased since 2004
• A consumer boom is expected over the next ten
  years
• Increasingly better educated consumers
• Chinas demographic shift swifter and more
  dramatic than elsewhere
• Less governmental control in breeding of dogs and
  cats

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Spotlight On China
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China Retail Distribution Profile
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Focus On Pet Food RetailingFuture Prospects
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Top global pet industry trends leading to 2012
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Favourable demographics
Half the worlds population urban by 2015
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Global pet industry prospects Top 5 in 2012
Fastest growing products
Fastest growing markets
1. Premium dog food 2. Pet care products 3. Dog
treats 4. Premium cat food 5. Cat treats
1. Vietnam 2. Russia 3. India 4. Thailand 5.
South Korea
Biggest value markets
1. USA 2. UK 3. Japan 4. France 5. Brazil
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Prospects Supermarkets/hypermarkets
43
Prospects Supermarkets/hypermarkets
44
Where next for international retailers?
Key markets for leading international players
India
Turkey
Vietnam
Pakistan
45

• QA
• Thank you!
• lee.linthicum_at_euromonitor.com
• www.euromonitor.com