Fresh pet food is moving fast. With U.S. retail sales of freshly prepared pet food that is sold refrigerated or frozen expected to surge into the billions of dollars during the next two to three years, what was until recently little more than a blip on the $51 billion pet food radar is proving to be transformational on multiple fronts. Here’s how:
Fresh Upends “Traditional” Superpremium Distribution
For decades, top-tier pet food brands incubated in independent pet stores before entering pet specialty chains and then, in some cases, “going mass.” Not so with fresh pet food, a milestone journey that began with the 2006 debut of Freshpet, whose refrigerator cases, which depend on high-traffic locations, took off in and remain mainly the provenance of big-box pet specialty stores, supermarkets and Walmart. More recently, direct-to-consumer (DTC) marketers of fresh pet food sidestepped brick-and-mortar altogether, connecting with pet owners online and winning them over with subscription programs featuring home delivery.
Now, a growing number of DTC marketers of fresh pet food are striking deals with major pet specialty chains. This strategy actually dates back to 2018, when Petco and JustFoodForDogs (JFFD) teamed up to offer JFFD fresh/frozen pet food in Petco stores and online—an exclusive relationship deepening to include a new fresh/frozen pet food under Petco’s WholeHearted private-label line and a pilot custom pet food program. Hinting at the chance of an acquisition, Petco also “will receive a warrant for JustFoodForDogs equity tied to the successful execution of the parties’ 2022 plan, and will have the opportunity to acquire additional equity over time.”
On the heels of that March 2022 announcement came an April press release from PetSmart stating the retailer had “built an exclusive partnership with DTC fresh frozen dog food brand Nom Nom.” Mars acquired Nom Nom in January, so this is in effect a deal between one of the two most powerful pet food makers on the planet and one of the most powerful pet specialty chains, with Nom Nom rolling out into PetSmart stores and on PetSmart.com. Also on board with fresh/frozen pet food is Pet Supplies Plus, which began offering the formerly DTC-only PetPlate fresh-cooked/flash-frozen food line last July. The omni-channelization of fresh pet food goes the other way as well, with formerly brick-and-mortar focused Freshpet now selling through Amazon and Chewy.
Pet specialty independents are largely left out in the cold, a marginalization they can ill afford given the e-commerce challenge already at play and the reality that fresh pet food is fast becoming—if not already—the superpremium pet food gold standard. Indies with the foot traffic to support refrigerator and/or freezer cases and the ability to add them best act fast, simultaneously incorporating subscription and rapid-delivery programs.
Kibble Marketers on the Offense
With fresh pet food makers including The Farmer’s Dog and Freshpet throwing shade on kibble in a steady advertising drumbeat including television, pet food companies based in kibble—which accounts for 60 percent of all pet food sales—are rightfully regrouping. The most dramatic response has been Mars’ surprise acquisition of Nom Nom for a reportedly (though unconfirmed) whopping amount. This “if you can’t beat ’em” admission recalls a path taken by major marketers facing off against the natural kibble and wet pet food onslaught of decades past, with Nestlé Purina and Mars, for example, edging in with line extensions and eventually going all in with acquisitions (Merrick and Nutro, respectively).
What’s different this time around is that time is of the essence since fresh pet food requires refrigerated and/or freezer cases à la those of Freshpet and Mars’ new Cesar Fresh Chef. As with the natural pet food influx of years past, a likely response of established pet food marketers will be to play both sides as Mars is doing with Nom Nom, going so far as to float an ad featuring “premium kibble” as “good nutrition” and premium kibble topped with Nom Nom as “better nutrition.” Hedging its bets from the other direction is sustainability-focused Open Farm, which in January 2021 received a $65 million capital infusion led by General Atlantic. Along with its gently cooked fresh/frozen form, Open Farm offers pet food in traditional forms (kibble and wet) as well as freeze-dried, selling both directly online and through brick-and-mortar pet retailers.
Not to say that every kibble maker will delve into fresh or vice versa. Plenty will stay the course, focusing on such core competencies as science-based, novel ingredient, alternative protein, condition-specific, prescription, sustainable and so on. A lesson in remaining true to one’s roots lies in Hill’s late-to-the-game—and ultimately unsuccessful—foray into natural pet food with Ideal Balance, with the company eventually returning wholeheartedly, and lucratively, to science-based nutrition. Fresh pet food cachet notwithstanding, it would be a mistake to underestimate kibble, which has the hard-to-beat advantages of lower cost and all around convenience, especially now that so many of those big bags are being home delivered.
A Healthy Environment for Freeze- and Air-Dried Pet Foods
Often positioned as a shelf-stable alternative to freshly prepared pet food, freeze-dried and air-dried formulations have been going strong for several years and will gain additional momentum as a highly attractive “in-between kibble and fresh” option. During 2021, the segment saw an enormous amount of private equity investment including:
• China-based FountainVest Partners’ September 2021 acquisition of New Zealand-based Ziwi Ltd., maker of the ZiwiPeak line of New Zealand-sourced air-dried raw pet food, wet pet food, and treats for dogs and cats. Although the terms were not disclosed, the deal was reportedly worth nearly NZD1.5 billion (U.S. $1.04 billion), a massive multiple of Ziwi’s estimated annual sales of approximately NZD50 million (U.S. $35 million).
• Arbor Investments’ December 2021 partnering with Carnivore Meat Co., one of the largest pure-play freeze-dried raw pet food and treats producers in North America, with state-of-the-art manufacturing facilities and proprietary freeze-drying processes “strongly positioned to meet rapidly growing demand.”
• Kainos Capital’s August 2021 acquisition of Texas-based Muenster Milling Co. Focused on dry extruded pet foods since 1989, Muenster added freeze-drying capabilities in 2018, committing to the segment with a new 17,000-square-foot facility.
Freeze-dried pet food is also seeing growing demand for contract manufacturing. One year after launching operations in November 2020, Petsource—a contract manufacturer for the pet food industry providing recipe development, raw meat processing, freeze-drying and packaging solutions—announced a $75 million, 70,000-square-foot expansion (projected for completion in early 2023) that will triple its freeze-dried pet food production capacity.
In these ways and others, fresh pet food is shifting the pet food landscape. And with pure-play e-commerce operators only now beginning to push in with proprietary brands— Chewy with Tylee’s and Amazon almost certainly following suit—the party is just getting started. Looking ahead, the most profound change will be new generations of pet owners coming of age springing for far more expensive fresh pet food online or out of an in-store case, or settling for the next best thing.
David Lummis is the lead pet market analyst for Packaged Facts, a division of MarketResearch.com, whose latest pet report is Pet Market Outlook 2022-2023 (packagedfacts.com).