By Yulia Dolzhenkova Experts consider the market of wet canned pet food in Russia to have a positive potential. According to Zooinform, the share of pet owners feeding their pets with industrial food is about 50%. Content: • History • Key players • Market structure and wet food sales Chart 1. Dry and wet pet food market (value/volume) Chart 2. Dry and wet pet food shares Chart 3. Wet food sales growth Chart 4. Wet food packaging shares (by type)• Demand by category Chart 5. Basic and premium food demand• Domestic production • Import • Looking into the future History Wet pet food was first introduced to Russian pet owners by Mars in the early 90’s. The company, in fact, singlehandedly created the market – it had started with import and then established its own local production. Some of the first domestic brands of wet food were Eksi, Gav Meow, Vas’ka, and Willy Tail. They were launched on market in the late 90’s. Key players The key players of the current Russian wet food market represent several groups. International corporations that have their own production facilities in Russia (Mars, Nestle, and Aller Petfood). Their combined share in the Russian wet food market is 80–85%. Mars and Nestle make products only under their own brand names, while Aller Petfood mainly produces private labels. Human food manufacturers – these are various meat processing and packing factories, which have established their own production lines of canned food for cats and dogs. They take orders for private production, but in some cases, they also establish their own brands. Specialized wet pet food factories. They are, for example, Gatchinskiy Feedmill, Prodkontraktinvest, Forsage, Russian-Holland Manufacturing (RHM), Petkorm. Almost all of them manufacture private labels for their customers, as well as producing their own brands. Normally, the ratio between the factory's own brands to the customers' private labels is about 30 to 70. Owners of private labels. These are wholesalers and distributors that own private labels and subcontract production (Michel & K, Chetveronogy Gourman, Velkorm, VsemMirom, Demetra, Valta Pet Products, Afina, Paul and Pet, and many others), as well as national pet store chains and grocery supermarket chains. Orders for the private label production are placed both at domestic and foreign factories. Russian manufacturers are capable to produce different volumes. For example, the Naro-Fominsk plant takes orders starting with 500 kg per label, while RHM works with orders of 800-1000 kg. The minimum batch at the Gatchinskiy Feedmill is 20 tons, and at Forsage — 150,000 PCs. Until recently, the minimum batch at PetKorm was one pallet, which is 5,800 pouches. Market structure and wet food sales In recent years, the population of pets in Russia has been stable. Currently there are 33.7 million domestic cats and 18.9 million dogs in the country. According to the forecast of Euromonitor International, the value of the Russian pet food market in 2019 was 199.8 billion rubles (Euro 2,92 bln). Nielsen calculated that from July 2018 to June 2019, the market grew by 5.5% in volume and 10.8% in value. The growth was price increase driven. The experts Zooinform interviewed highlight the growth of the market both in value and in volume (Chart 1). The largest segment of the pet food market in Russia is cat food. According to some estimates, its share in value is about 80%, followed by dog food at about 15%. Cat food is dominated by wet with about 60% share. Their share in dog food is a little over 30%. (Chart 2) Chart 1. Dry and wet pet food market* 2017 2018 2019 By value (current retail prices) RRub 176,7 bln 191,6 bln ↑ 8,4% 211,8 bln ↑ 10,5% Euro 2,67 bln 2,59 bln — 2,92 bln — By volume ‘000 tons 614 632 645 * Euromonitor International data Chart 2. Dry and wet pet food shares* Wet food Dry food Cats 60,2% 39,8% Dogs 32,8% 67,2% * Forsage company data for cities of Russia In recent years, sales of wet food have shown small but steady growth. In this segment, the dominating category is products for cats, but recently there has been a noticeable growth of interest in canned dog food. According to Zoomonitor, the service for internet requests monitoring provided by Zooinform, the amount of wet cat food requests more than doubled over the past two years, while wet dog food grew up to 25%. Chart 3. Wet food sales growth* Cat food Dog food 2018/2017 +10% +9,4% 2019/2018 +7,7% +10,2% * Forsage company data The retail has also highlighted the growth of wet food sales. According to Alexey Okhlopkov, chief executive for business development at Mars Petcare Russia, sales of pet food are growing four times faster than retail sales in general. Likewise, representatives of the largest FMCG retailer X5 Retail Group, state that their sales of pet food are growing by over 30% a year. Cat food is the main contributor, representing about 85% of that growth, of which about 75% is wet food. The share of the chain's private labels in this category ranges from 7% to 14%, according to various estimates. Experts are unanimous about the most popular type of wet food packaging — those are pouches. They account for 80% of the market of all wet food, the share of cans is 15%, lamisters – 5%. Chart 4. Wet food packaging (by type) Pouches 80% Cans 15% Lamisters 5% Demand by category In recent years, the preferences of Russians regarding the category of wet food have not changed much. Russians prefer to buy either economy-class or premium foods. And now we observe certain redistribution of brand shares within categories. Experts from Taxcom fiscal data operator reviewed the sales of cat and dog food in Russia during the period from January 2018 to February 2019. According to their analysis, 56% of Russians buy economy class products for their pets, 38% prefer premium products and 6% — super premium food. Chart 5. Basic and premium food demand Economy 56% Premium 38% Super-premium 6% The demand for more expensive classes of food, such as holistic and super-premium, is more common in large cities, where the pet care culture and purchasing power of the population is higher. Domestic production "The share of locally produced raw materials and packaging materials that are used at our factory is about 85%,” commented representatives of Nestle Purina PetCare in Russia. “High-tech components are those that we have to import, for example vitamin and mineral complexes, artificial flavorings and thickeners. We cannot find Russian-made replacements that meet our quality standards." Other Russian producers of wet pet food also mostly use domestically produced raw materials. According to Fyodor Borisov, executive director of the Association of Pet Food Manufacturers, the production of raw materials in Russia is localized by 70–80% (depending on the food type). He sees the absence of domestic production of certain high-quality ingredients, primarily meat and bone meal, as the main threat to Russian pet food producers. Import Domestically produced wet food for dogs and cats completely dominates Russian market. According to some reports its share reaches 90%. However, there are quite a few importers as well. They mostly supply private label wet food orders to Russian clients, as well as and foreign brands. Austria and Germany are the leading suppliers of wet pet food into Russia. Last year they accounted for almost one third of all canned food imported, both in value and in volume (see Figures 1 and 2). Thailand closes the top three, and the share of other imports accounts for less than 10% in both value and tons. Figure 1. Import of wet canned food to the Russian Federation by customs value (2019)* *According to Radius logistics company and the Federal Customs Service of Russia (the numbers exclude data from stand-alone customs offices). Figure 2. Imports of wet canned food to the Russian Federation by volume (2019)* *According to Radius logistics company and the Federal Customs Service of Russia (the numbers exclude data from stand-alone customs offices). Looking into the future Analysts expect the Russian pet food market (including wet food) to continue growing in the upcoming years. They estimate that its potential has been realized by no more than 50% and recognize it as promising. There are more and more long-time Russian pet owners who move to industrial food, while new pet owners are initially inclined for ready-made foods. The new generation of pet owners does not have experience in cooking for their pets and they are not excited about getting it. Another factor that will support market growth is the increasing share of urban population in Russia. There is still the ongoing migration from rural areas to cities. Therefore, there will be more pets whose owners prefer to buy industrial foods. The number of private labels will increase too, both from retailers and pet companies. The new entrants into the market will have to adapt to moderate prices while maintaining high product quality. The process of wet food premiumization will continue, and sales in the economy segment will most likely remain at the same level. The wet food market overall growth forecast for 2020 is 10–15%.
