As indicated by the typical company data, the demand for pet food’s quantity and quality has been increasing in the past several years as a result of increase in number of pet and awareness of pet’s healthy life.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. The demand for pet food has been growing fast in the past several years.

2. The growth in demand has demonstrated a trend of shifting to premium/higher price products.

3. The demand for pet supplies has also been growing during the same period of time.

4. Pet food speciality retail stores seem to be performing better than general retail channels and thus help improve profitability of manufacturers who possess such distribution channels.

5. Increasing competition put pressure on pet food product’s price when the average price of products sold has been generally rising due to consumers’ preference on higher quality of products.

Causes behind the trend

1. The increase in the number of pets may be the major reason for increasing sales volume of pet food.

2. The increasing pet owners’ awareness of healthy life of their pet makes them inclined to pay more for higher quality pet food and the increasing awareness of owners also make them inclined to choose speciality store where there are more products available.

Industry Future

1. As growth in number of pet and increase in owners’ awareness of healthy life of pet continue, companies may be able to continue to see increase in their revenue benefiting from increased demand for quantity and quality of pet food.

General Financial Performance of Companies In the Sector

It seems that the demand for pet food and supplies has been strong and continuingly growing in the past several years as indicated by increasing sales volume of pet food (5-9% annual growth) and supplies (3-4% annual growth) of typical companies in this sector. Accompanied with increase in pet food sales volume, revenue of companies in this sector has also been driven by sales’ shifting to higher price products.

Most of companies’ margins have been improved as a result of increased revenue, saving of costs, and sales’ shifting to higher margin products. The typical gross margin for pet food company is about 46% (including depreciation and freight), SG&A is about 23%, and operating margin is about 23% in 2018. The typical enterprise cash flow/sales ratio is 15%.

The typical enterprise price/EBI (adjusted with tax shield) ratio is 37 (pet food) and 27 (pet supplies).

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