My pets eat better than meA look into Pet Specialty trends and key drivers for the future

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Categories | Brick-and-Mortar POS Panel

Pet Food Cat Litter Flea & Tick

30,000+ items

Sales Trends since 2011

$13 Billion annually in Pet Spec

~1,000 items

Sales Trends since 2011

$450 Million through Pet Spec

~600 products

Sales trends since 2013

$413 Million through Pet Spec

Pet Food

Pet Specialty = Pet Superstores and Neighborhood Pet

Brick-and-mortar only, no eCommerce

Scanned Point-of-Sale Data

Pet Food in the 1990s

Push towards Pet Specialty

Human trends shape innovation

Limited options

Low prices

Source: Harvard Business School. (1993). Cat Fight in the Pet Food Industry. Harvard Business Review, 1-2.

Premium found across channels

New type of consumer

Vast range of brands and SKUs

Source: GfK Pet Specialty – RG 5125756-ID 532421512

Fast Forward to 2017

Top 4 responses; Top 2 responses in 1999: Knowing latest music, dressing with personal style; GfK 2017 Generation Now Study Q5a (Base: Students); Roper Youth Report 1999 Q77

Millennials have a strong sense of self AND social sensitivity

79%

Have my own way of doing things

79%

Willing to share with others 77%

Good listener

79%

Feelrespected

Millennials are the largest pet owning population since 2014

8%

10%

10%

11%

13%

37%

50%

Where do they shop for pet food?*

Grocery

PetSmart/Petco

Discount Store

Online

Wholesale

Other Pet Specialty

Vet Clinic

101

103

92

107

104

96

96

Millennials are 7% more likely to shop online than any other generation

index

*Categories are not mutually exclusiveSource: 2017 Fall GfK MRI weighted to Population (000) and other studies - Base: Bases: Total Principal Shoppers and Pet Ownership - Number In Household: Any Pet Any

Growing consumer needs in Pet Specialty

Growing consumer needs drive Pet Specialty evolution

Online/ ecommerce

Channel expansion

Redefining brand image

Customer loyaltyKey events

in 2017

2012 2013 2014 2015 2016 2017

6,852 7,282 7,485 7,833 8,003 8,063 3,533 3,479 3,395 3,349 3,277 3,242

2012 2013 2014 2015 2016 2017

POUNDAGE Sales in Millions DOLLAR Sales in Millions

Growthimproving

Growthsoftening

Pet Specialty experiences slowing growth

+10.4+6.3 +2.8

+4.7 +2.2 +0.8

+2.0 -1.5 -2.4 -1.4 -2.2 -1.1

Dollar sales by species

$6.4Bn +0.7% YOY

$1.6Bn+1.1% YOY

$4.7Bn +0.6%YOY

$0.7Bn -0.2%YOY

$1.0Bn +1.7%YOY

$0.8Bn -0.5%YOY

$0.7Bn +2.1%YOY

$0.1Bn +7.4%YOY

$8B+0.8%YOY

Growth stemming

from treats

$1.71

2.55

Yet, premiumization continues…

+46% since 2011

Jan 2011 Nov 2017

Average Price per Pound (US$) – Food & Treats

*Segments are not mutually exclusive. Includes many rebranded items (Nutro, Instinct, Organix, etc.)

% of New Product Launches in Pet Specialty

Natural 78%

Grain Free 53%

Limited ingredient 7%

Frozen 3%

Meal Enhancers 5%

100% Freeze-Dried (Meal)3%

Kibble+ Freeze-Dried (Meal)5%

100% Dehydrated (Meal) 2%

Small/toy (dog) 12%

Large/XL (dog) 4%

Can/Tray & Pouch(Dog Wet Shelf) 71/22%

Can/Tray & Pouch (Cat Wet Shelf) 83/17%

4,554 new items launched during 2017 – +47% YoY

Established and Emerging Categories in 2017

Grain-Free$3.4Bn+10.0% YOY43% market share$3.07 per pound

Natural$5.7Bn+1.5% YOY

71% market share$2.85 per pound

Segments are not mutually exclusive | *Full meal only | Dehydrated includes Dehydrated+Freeze-Dried Combo | Kibble Plus includes both Part Freeze-dried as well as Part Dehydrated

Kibble Plus$332MM+69.5% YOY4.1% market share$3.33 per pound

Freeze-Dried*$93.0MM+31.8% YOY1.2% market share$32.50 per pound

Meal Enhancer$76.2MM

+24.5% YOY0.9% market share

$8.80 per pound

Dehydrated*$45.2MM

+53.3% YOY0.6% market share

$9.62 per pound

Why feed a Preserved Diet?

Sameingredients asraw or fresh

Not messy to prepare

or feedLonger shelf life

Health benefits

Healthylike raw,

convenientlike kibble

The Premiumization of Dry Food in Pet Specialty

Traditional Dry Part

Freeze-Dried

100%

Freeze-Dried

Part Dehydrated

100% Dehydrated

Dehydrated + Freeze-Dried

Dry Alternatives (Preserved)

$1.93 $3.31 $32.55$4.53 $9.37$9.61

GfK PRJ 114710 - RG 5125756 - RP 33382892 - ID 532771834

Jan 13-Dec 13 Jan 14-Dec 14 Jan 15-Dec 15 Jan 16-Dec 16 Jan 17-Dec 17

YOY $ Growth % (Jan -Dec 17)

While dry food makes up majority of sales, growth is driven by preserved

Annual Dollar Sales (MM)

5,187 5,2555,421 5,496 5,519

Preserved dry (all forms)

Traditional dry

-3

72

-20

48

34

55

Traditional Dry

Part Frz Drd

Part Dehydr

Dehydr + Frz Drd

100% Frz Drd

100% Drhydr

Total Dry+0.4

X-LargeLB> 28

Large15.5<LB<=28

Medium7.5<LB<=15.5

SmallLB<=7.5

Traditional Dry vs. Preserved Dry – Bag Size Share (Based on Unit Sales)

44%

18%

19%

20%

95%

5%

51%

20%

27%

1%

Traditional dry

As dry goes more preserved, bag sizes will be smaller

Kibble+100%

Preserved

$3.26 $4.90 $5.64$10.65 $11.69

$32.58

GfK PRJ 114710 - RG 5125756 - RP 33391860 - ID 532814768

Traditional dry Part freeze-dried Part dehydrated Dehydrated + freeze dried

100% dehydrated

100% freeze dried

$2.42 $3.40 $4.34$8.72 $7.64

$21.52

$1.91 $2.97 $3.35 $2.81

$1.34 $1.51 $1.80X-LargeLB> 28

Large15.5<LB<=28

Medium7.5<LB<=15.5

SmallLB<=7.5

Price per Pound by Bag Size

$3.26 $4.90 $5.64$10.65 $11.69

$32.58

GfK PRJ 114710 - RG 5125756 - RP 33391860 - ID 532814768

Traditional dry Part freeze-dried Part dehydrated Dehydrated + freeze dried

100% dehydrated

100% freeze dried

$2.42 $3.40 $4.34$8.72 $7.64

$21.52

$1.91 $2.97 $3.35 $2.81

$1.34 $1.51 $1.80X-LargeLB> 28

Large15.5<LB<=28

Medium7.5<LB<=15.5

SmallLB<=7.5

How to make the jump?

Meal Enhancers!

Makes traditional dry food more palatable

Gives boost of protein and nutrients

Adds variety to feeding time

More affordable entry point

© GfK 2018 - All rights reserved | 4/2018

PRJ 114710 - RG 5125756 - RP 33392105 - ID 532815473

Jan 13-Dec 13 Jan 14-Dec 14 Jan 15-Dec 15 Jan 16-Dec 16 Jan 17-Dec 17

100% FRZDRIED 100% DEHYDR. DEHYDR+FRZDRIED WET + LIQ SNACKS/TOPPERS

23.3

2.7

24.2

4.7

27.7

15.8

32.8

25.8

35.8

36.0

$27.4$29.7

$44.0

$61.2

$76.2M

Meal Enhancers 2017: $76.2M, +24.5% YOY

51%

3%44%

1%

2%

100% frzdrd Snacks/toppers Wet + Liquid Dehydr + FrzDrd 100% Dehydr

© GfK 2018 - All rights reserved | 4/2018

PRJ 114710 - RG 5125756 - RP 33392294 - ID 532815798

22%

1%

69%

9%Dog makes up 88%of Meal Enhancer $ Sales

Meal Enhancers by Species 2017: $76.2M, +24.5% YOY

Jan 15-Mar 15 Apr 15-Jun 15 Jul 15-Sep 15 Oct 15-Dec 15 Jan 16-Mar 16 Apr 16-Jun 16 Jul 16-Sep 16 Oct 16-Dec 16 Jan 17-Mar 17 Apr 17-Jun 17 Jul 17-Sep 17 Oct 17-Dec 17

YOY $ Growth %

251.7

297.7

169.0

106.8 87.3

61.1

29.044.1

33.3 35.4

45.8

10.15.7

17.713.7 20.6

29.7

20.1 20.5

24.7

13.5 6.6-1.0

100% Freeze-Dried Meal Enhancers are growing faster than Wet

100% Freeze Dried

Wet + Liquid

33 141

$4,981 $4,240

11 22Avg # items

Unit velocity

Dollar velocity$ $

70%of dollar sales in bags 1lb or less

$34.47 vs $5.06 wet/liquidaverage price per pound

$9.90 vs $2.50 wet/liquidaverage selling price

100% Freeze-Dried Meal Enhancers

What’s next for meal enhancers(and Pet Food)?

#5 Biohackingcreates a science for more individualized nutrition and products

Human Food Trends

Functional Meal Enhancers

New Innovation at Global Pet Conference

97%General Health

# Different selling items 2013 2017

GENERAL HEALTH 165 497

ALLERGY 3 5

DERM/SKIN 5 6

GASTRO-INTESTINE 7

HAIRBALL 1 4

JOINT/MOBILITY 2 2

ORAL/DENTAL 4

WEIGHT CONTROL 10

TOTAL MEAL ENHANCERS 176 535

3 New Functions have been added since 2013… Stay tuned for 2018!

Of Functional Meal Enhancers,

Weight Control has the most SKUs

followed by Gastro

Human ingredients and preferences being reflected in pet food

Emerging Trends

Turmeric Coconut Honey

Energy Bars Sustainably &Ethically Source

TurmericHolistic, Healthy and Hot for Humans and Pets

http://www.dogsnaturallymagazine.com/turmeric-dogs/

We like it in a Latte… …and its not just a pet supplement anymore!

Health Benefits

• Anti-Inflammatory

• Relieve Arthritis Pain

• Gastrointestinal Disorders

• Can Replace Steroids

• Allergy Relief

CoconutBeing and Looking Healthy

For us beauty, weight loss and healthy hydration…

Similar benefits for pet food and treats!

Health Benefits

• Healthy Skin and Coat

• Improves Digestion

• Superfood Benefits

• Thyroid Health

• Increases Energy

https://www.sitstay.com/blogs/good-dog-blog/coconut-oil-for-dogs

Honey

Naturally Healthy, Naturally Soothing, Naturally Sweet

http://www.akc.org/content/health/articles/can-dogs-eat-honey/

Sweet relief for humans… Taste boosting treats for pets. Health Benefits

• Reduce Allergies

• Anti-Microbial/Fungal

• Anti-Inflammatory

• Soothing to Sore Throats

• Appetite Stimulant

• Natural Sweetener

Protein BarsConvenient Nutrition for Humans and Pets

Plenty of premium options Smaller pet brands on board. Why?

• More and more pets are on the go – at the office, on vacation, around town

• Easier than packing bags of food

• Simplifies feeding while away from home

• CONVENIENCE!

Sustainably and Ethically Sourced

Food that’s both good for you, your pet, and the environment

Opportunity for Pet?

• Certified “Natural”

• Feel good what your feeding and where it comes from

• Environmental and ethical appeal

• Build consumer loyalty

“When your pet is part of the family, make sure their food is held to the same

standards as yours.”Tender & True

So what does all of this mean for Pet

Specialty?

Questions?

THANK YOU!

Natasha DavisClient Service Manager

GfK Point-of-Sale Tracking

natasha.davis@gfk.com

@NattyDee711

#GfKPets