Pet food trends The rise of clean labels

Pet food trends: The rise of clean labels Presented by Lynn Dornblaser Mintel International 1

Mintel: Who we are Mintel GNPD: Tracking new products around the world Mintel Oxygen: Providing insight into markets and consumers Mintel Inspire: Understanding consumer behavior Mintel Menu Insights: Following US menu trends and activity Mintel Global Market Navigator: Snapshots of global market size 2 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Today’s presentation First, a look at the numbers The size of the market: pets, market, introductions Key claims that pet food carries What we mean by clean labels, and why we care A few comments regarding humanization of pet food (and pets) Objective: A look at the key types of products Help you understand what we see in the market regarding “clean labels, ” and why it’s important What we know about consumer attitudes Some thoughts for the future 3 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

The pet population continues to grow Fish outnumber cats and dogs, but those continue to grow in number in the US Millions of pets (#) 0. 0 U. S. pet population, 2005 -09 20. 0 40. 0 60. 0 80. 0 100. 0 120. 0 140. 0 160. 0 73. 9 74. 8 77. 5 Dogs 90. 5 88. 3 93. 6 Cats 139. 0 142. 0 Freshwater fish 171. 7 * includes rabbits, hamsters, guinea pigs, ferrets, mice, rats, gerbils, chinchillas, hermit crabs, potbellied pigs and hedgehogs. Data shown are as reported on APPA site Source: American Pet Products Association, 2004/05; 2007/08; 2009/10 National Pet Owners Survey 4 Saltwater fish Birds Small animals* Reptiles 9. 6 11. 2 16. 6 16. 0 15. 0 18. 2 24. 3 15. 9 11. 0 13. 4 13. 6 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. 2005 2007 2009

Global introductions drop in 2010 due to dog food/treats All products for dogs declined in 2010, while products for cats were flat or increased slightly Europe’s lead in introductions due mainly to proliferation across countries Pet food introductions, global, by region and subcategory, 2007 -2010 Middle East & Africa 3% 1400 1200 Latin merica. Asia 8% Pacific 1000 Europe 43% 19% 800 600 400 North America 27% 5 200 0 Dog Snacks & Treats Cat Food Wet Dog Food Dry Dog Food Wet Cat Food Dry 2008 2007 Cat 2009 Snacks & Treats 2010 Source: Mintel GNPD © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

US introductions driven y pet specialty stores Specialty stores (e. g. pet stores) account for a third of all new product introductions Most pet food subcategories are relatively flat, barring a big drop in dog treats Pet food introductions, global, by region and subcategory, 2007 -2010 Mass Merchand ise 11% 600 Club Natural/ Store Health 1% Food Store 1% 500 400 Internet/ Mail Order 11% Specialist Retailer 34% 200 All other 17% 100 Supermar ket 25% 6 300 0 Dog Snacks & Treats Dog Food Wet Dog Food Dry Cat Food Wet Cat Food Dry 2008 2007 Cat Snacks & Treats 2009 2010 Source: Mintel GNPD © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

In supermarkets, pet food driven by Nestle Millions of dollars ($) Manufacturer FDMx sales of pet food in the U. S. , 2009 and 2010 0 500 1, 000 3, 000 899 913 851 Del Monte Foods Private label 2, 500 2, 935 Mars Inc. Procter & Gamble 2, 000 2, 810 Nestlé Purina Pet. Care Company (Nestlé S. A. Switzerland) * 52 weeks ending May 17, 2009 and May 16, 2010 Note: Data may not equal totals due to rounding 1, 500 862 531 521 589 628 Source: Mintel/based on 517 Other Symphony. IRI 552 Group Info. Scan® Reviews Source: Mintel Oxygen 7 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. 2009* 2010*

US pet food across all segments shows a bit of growth Total U. S. retail sales of pet food, by segment, 2008 -10, in millions of dollars 20, 000 18, 000 16, 000 14, 000 12, 000 Other pet food 10, 000 Cat food 8, 000 Dog food 6, 000 4, 000 2, 000 0 2008 2009 2010 (est. ) Source: Mintel/based on Bureau of Labor Statistics, Consumer Expenditure Surveys; Symphony IRI Info. Scan® Reviews 8 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Most prevalent claims focus on inherent goodness Clearly, the topic of “clean labels” is an important one, as the three most prevalent claims on pet food focus on those formulations Note that this pattern is similar to what we see in food/drink for ourselves Vitamin/Mineral Fortified 2010 2009 All Natural Product 2008 2007 No Additives/Preservatives 0% 9 5% 10% 15% Source: Mintel GNPD © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. 20% 25% 30% 35%

What we mean by “clean labels, ” and why we care What we mean by clean labels Clean, simple packaging that conveys clearly the benefits of a product Easy to understand ingredients Ones that consumers eat themselves Ingredients that provide clear, easy to understand benefits Why we care Ties in with CPG trend of “simplicity” “Inherent goodness” of ingredients a major trend in all CPG; consumers translate that to pet food as well In the wake of recent pet food contamination issues, consumers are more focused than ever on what’s in the products they buy 10 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Insight: Clean labels are becoming as important to pet food as they are for human food

And we care because they are our pets 72% Of US consumers say they consider their pets part of the family 11 52% Of US consumers say they allow their pets to sleep on the bed with them Source: Mintel Oxygen © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. 50% Say that they like to spoil their pets

First, a few thoughts about “humanization” of pet food Humanization is part of what we mean when we talk about clean labels Ingredients consumers already know Functionality that is familiar But can humanization go to far? Vegetarian pet foods (really? ) Foods that require so many steps for preparation (mixing, topping, baking. . . ) Is it time for the industry to provide what pets need, but educate the consumer as to what “humanization” should be all about with pet food? They are animals, after all. . . 12 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Comment: Yes, of course, we love our pets, but they are PETS—they are animals with needs that differ from ours

And some brands recognize that Natura Pet Products Evo Wild Cravings, turkey and chicken formula grain-free treats for cats, said to be protein rich, USA 13 Taste of the Wild High Prairie Canine Formula and Rocky Mountain Feline Formula, grainfree pet foods with unique animal protein sources, Finland © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

“Feed your dog’s inner wolf” K 9 Natural’s Freeze Dried Raw Dog Food, USA, positioned as having 100% natural, balanced nutrition The company says “the product is made from fresh New Zealand produce, and based on the actual diet of the Grey Wolf, which shares 99. 8% of its DNA with domestic dogs, hence their dietary needs are the same 14 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

This is perhaps taking “humanization” a bit far Candie’s Crunch, snacks for pets and their people, made with human food grade ingredients, said to be suitable for the whole family, Czech Republic 15 TDB Peanut Butter Mini Donut Dog Treats, USA © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Ice Cream Factory Ice Pet, ice cream for dogs, in strawberry, vanilla, cream or bacon flavors, Brazil

One way to “humanize” pet food: Customization Mars’ Sheba Sole & Tasty Mars’ Pedigree Xis. Dog Molho Bonito, Japan, premium cat Meaty Mixers Lamb Chicken Flavored Dog food kibbles in small & Poultry in Jelly Sauce, Brazil, to be individual packs, to be a Dog Food, UK, for used on dog food main meal, an addition to mixing with dry dog other meals or a snack food 16 Source: Mintel GNPD © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Clean labels: Literally, this often means simple packaging Simplicity usually appears in terms of clean, simple packaging in pet food in general Private label pet food in simple packaging can easily overbalance and appear “cheap” Simple formulations are more likely to appear in some of the most expensive brands, and rarely appear in private label Carrefour’s Discount Meat Croquettes, Spain 17 Tesco’s Just Nature wet cat food, UK © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Sometimes, pet food packaging looks like human food Pack graphics make these canned meals look much more upscale, and provide a sense of familiarity Nature’s Variety’s Homestyle Beef & Bison Stew, USA 18 Blue Buffalo’s Chicken Pot Pie cat food, USA © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Simple ingredients: As few as possible, easy to understand Rachael Ray Nutrish Just 6 Crunchies With Lamb are tasty dog treats made with six simple ingredients. This product is intended for intermittent or supplemental feeding. (US) 19 Taxi's Dog Bakery Peanut Butter On The Go Dog Treat is handmade and 100% all natural. (US) Source: Mintel GNPD © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Thrive 100% Real Chicken Treats for Cats contains 100% natural ingredients. (US)

Provenance in pet food Provenance is less about where ingredients are from, and more about what the ingredients are in the products This has turned into a focus on vegetables Carrefour’s dry dog food, Spain, made with vegetables 20 Costco’s Kirkland Signature Healthy Weight Dog Food, USA © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Provenance also can mean a name consumers know Tyson’s 100% Natural True Chews dog treats, USA Note language on pack: “Proudly made in Independence, Iowa” 21 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Or variety names that seem familiar Nestlé Purina Pet. Care Alpo Chop House, a range of dog food including flavors such as Rotisserie Chicken and T-Bone Steak, USA 22 Mars Petcare Whiskas range including Filet Mignon; Rotisserie Chicken; and Seared Ahi Tuna, USA © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

“Fresh, ” meaning chilled or frozen Although not a big trend (and mostly in the US market), chilled or frozen pet food and treats is growing a bit Ties in clearly to the trend of giving oneself small treats Paws Fresh Pet Food’s All Natural Bites, Australia, dog treats made with fresh chicken, rice, and vegetables 23 Freshpet’s Select Chicken, Vegetable, and Rice dog food, USA, sold chilled © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Organic and all natural grow, across all markets In human food, we have seen organic and natural grow fairly consistently over time Although there are significant differences between “organic” and “all natural, ” many consumers, especially in the US market, do not entirely understand those differences We are, however, beginning to see a bit of a shift regarding these claims in food and drink, as skepticism arises regarding benefits However, this does not entirely extend to two categories: baby food and pet food Organic and natural continue to grow, and continue to be a significant pair of claims 24 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Comment: We expect organic and all natural to continue to grow in pet food and treats

Natural claims in pet food appear prominently on pack Frolick Chicken Snackers, treats for dogs with real chicken, said to be all natural, USA 25 Mars Whiskas All Natural Temptations treats for cats in a free range chicken flavor, Canada © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Organic and natural appear at all price points Price Chopper’s Best Friends Natural cat food, USA 26 Castor & Pollux’s Organix Canine Formula dry food, USA, made with organic chicken, brown rice, and flax © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

Use of specific ingredients: Vegetables, grains, protein This is likely the area in which we see the most activity that ties in with the concept of clean labels The focus is on ingredients that can be easily understood by consumers, and that provide significant nutrition as well Although the concept of few ingredients or only ingredients that consumers understand may not be practical for pet food, communicating contents in this way is It is reassuring to consumers, as they understand at least some of the ingredients It helps consumers feel they are giving their pets the very best possible 27 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Insight: Be sure to tie the inclusion of these ingredients to the benefits they provide the pets

This is where we see activity from the largest companies Nestle Purina Pet. Care’s One Beyond dog food, USA, with white meat chicken as the first ingredient, plus wholegrains from oats and barley 28 Nestle Purina Pet. Care’s Beneful Incredi. Bites dog treats, USA, with a focus on wholegrains and vegetables © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel.

And unique positioning from others Breeder’s Choice Avo. Derm dog food, USA, made with avocado, lamb, and brown rice 29 BG Before Grain dog food, USA, made with 96% chicken and no byproducts or grains © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Blue Buffalo’s Wilderness Natural Evolutionary Diet cat food, USA, made with duck

Some final thoughts The issue of clean labels in pet food is an important one Consumers want to know what is in the foods they feed their pets Products need these key descriptors to differentiate themselves Across all CPG, this focus on clear messages and language consumers clearly understand is growing, and is not going away 30 © 2011 Mintel International Group Limited. All rights reserved. Confidential to Mintel. Insight: Help consumers understand what is in your products with the clearest communication possible

For more information Lynn Dornblaser Director, CPG Trend Insight tel: 312 450 6117 email: lynnd@mintel. com 31