1

PET CARE MARKET: TRENDS AND OPPORTUNITIES NATIONAL PET INDUSTRY TRADE SHOW TORONTO, SEPTEMBER 19, 2011

© Euromonitor International

2

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA PRODUCT DEVELOPMENT TRENDS AND OPPORTUNITIES LOOKING BEYOND RETAIL

© Euromonitor International

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

© Euromonitor International

3

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

4

GLOBAL PET CARE SALES REBOUND IN 2011

88.0

4.0

86.0

3.5

84.0 3.0 82.0 80.0

2.5

78.0

2.0

76.0

1.5

74.0 1.0 72.0 70.0

0.5

68.0

0.0 2006

2007

2008

Retail value sales (US$ bn) © Euromonitor International

2009

2010

2011

y-on-y annual value growth (%)

% growth

Retail value sales (US$ bn)

Global Pet Care Retail Value Sales: 2006-2011

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

5

KEY GROWTH SEGMENTS – PREMIUM FOOD, TREATS, HEALTHCARE 16.0 14.0 12.0 10.0 8.0

Average market growth – 2.7% CAGR

6.0 4.0 2.0 0.0

Retail value sales (US$ bn) © Euromonitor International

% CAGR 2006-11

9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

% CAGR

Retail value sales (US$ bn)

Global Pet Care Retail Value Sales: 2006-2011

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

6

FASTEST GROWTH IN EASTERN EUROPE AND LATIN AMERICA Overall Sales Growth and Per Household Spending in Pet Care 2011 % CAGR growth in household expenditure (2006-11)

7.0

Eastern Europe

6.0 Latin America 5.0 4.0 3.0 Asia Pacific

2.0

Western Europe

North America Australasia

1.0 0.0

-50

0

50

-1.0 -2.0 -3.0

© Euromonitor International

Middle East and Africa

100

150

200

250

300

350

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

7

BENEFUL: FASTEST GROWING DOG FOOD BRAND

5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Average market growth – 5.3% CAGR

Retail value sales (US$ bn) © Euromonitor International

% CAGR 2006-10

20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

% CAGR 2006-10

Retail value sales (US$ bn)

Top 15 Global Dog and Cat Food Brands by Retail Value (2006-2010)

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

GLOBAL SALES ARE EXPECTED TO REACH US$ 99 BILLION IN 8 2016 3.5 3 95.00 2.5 90.00

2 1.5

85.00

1 80.00

Year-on-year growth %

US$ billion (fixed exchange rate)

100.00

0.5 0

75.00 2011

2012

2013

2014

2015

2016

Overall CAGR 3% in constant value projected for 2011-2016 period Fastest growing markets will be found in Asia Pacific, Eastern Europe, Latin America and MEA © Euromonitor International

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

9

FASTEST GROWING CATEGORIES THROUGH 2016 45.00

3.50 3.00

40.00 35.00 30.00

2.50 2.00

25.00 20.00 15.00

1.50 1.00

10.00 5.00 0.00

Dog food, healthcare, dietary supplements, and Other Pet Products (toys, accessories, apparel, etc) will be the fastest growing Importance of adjusting to local preferences when marketing successfully pet accessories and apparel © Euromonitor International

0.50 0.00

CAGR % value growth

US$ billion (fixed exchange rate

50.00

GLOBAL PET CARE MARKET OVERVIEW: 2011 AND BEYOND

10

PREMIUM DOG AND CAT FOOD IS EXPECTED TO SEE THE FASTEST GROWTH THROUGH 2016 Dog and cat food growth by price platform

4

25.00

3.5

20.00

3 2.5

15.00

2

10.00

1.5 1

5.00

0.5

0.00

0 Economy Dog and Cat Food

Mid-Priced Dog and Cat Food

Premium Dog and Cat Food

Retail sales of premium dog and cat food are expected to surpass US$27 billion Demand for economy food will be supported by emerging economies © Euromonitor International

4.5 CAGR % growth 2011-2016

US$ billion (fixed exchange rate)

30.00

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

© Euromonitor International

11

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA\

12

NORTH AMERICA OVERVIEW 2011 35.00

7

30.00

6

25.00

5

20.00

4

15.00

3

10.00

2

5.00

1

0.00

0 2006

© Euromonitor International

2007

2008

2009

2010

2011

Y-on-y growth %

US$ billion (fixed exchange rate

Sales of pet care in North America at US$30 billion in 2011

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

13

NORTH AMERICA OVERVIEW 2011 Canada, US$ 2.7 billion

US, US$ 27.3 billion in 2011 7

30.00

4.5

3.00

4.4

6

25.00

2.50

1.50 4 3.9

1.00

4 15.00 3 10.00 2

3.8 5.00

0.50

1

3.7 3.6

0.00 2006 2007 2008 2009 2010 2011

© Euromonitor International

0.00

0 2006 2007 2008 2009 2010 2011

Yea-on-year growth %

US$ billion

4.1

5 20.00 US$ billion

4.2

2.00

Yea-on-year growth %

4.3

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

14

14,000.00

4

12,000.00

3.5

10,000.00

3 2.5

8,000.00 2 6,000.00 1.5 4,000.00 2,000.00 0.00

© Euromonitor International

1 0.5 0

Growth %

US$ million fixed exchange rate

NORTH AMERICA: CATEGORY ANALYSIS 2011

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

15

NORTH AMERICA: LOOK AHEAD North America, US$ 35 billion in 2016 4

35,000.00 34,000.00 3

33,000.00 32,000.00 31,000.00

2

30,000.00 29,000.00 28,000.00

1 2012

© Euromonitor International

2013

2014

2015

2016

CAGR % growth

US$ million fixed exchange rate

36,000.00

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

16

NORTH AMERICA: LOOK AHEAD US, US$ 32 billion in 2016

3,100.00

3

2,900.00 2,850.00 2,800.00

2

2,750.00 2,700.00 2,650.00

1 2012

2013

© Euromonitor International

2014

2015

2016

US$ million fixed exchange rate

3,000.00 CAGR % growth

US$ million fixed exchange rate

3,050.00

2,950.00

4

33,000.00

4

32,000.00

3.5

31,000.00 3 30,000.00 2.5 29,000.00 2 28,000.00 1.5

27,000.00

1

26,000.00 2012 2013 2014 2015 2016

CAGR % growth

Canada, US$ 3 billion in 2016

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

17

CATEGORY GROWTH THROUGH 2016

16,000.00

4.50 4.00

14,000.00 12,000.00

3.50

10,000.00

3.00

8,000.00

2.50

6,000.00

2.00

4,000.00 2,000.00 0.00

© Euromonitor International

1.50 1.00

CAGR growth %

US$ million (fixed exchange rate)

18,000.00

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

NORTH AMERICA: DOG AND CAT FOOD BY PRICE PLATFORM 18 US$ million fixed exchange rate

14,000.00 12,000.00 10,000.00 8,000.00 6,000.00 4,000.00 2,000.00 0.00 Economy Dog and Cat Food 2011

Mid-Priced Dog and Cat Food 2016

Premium Dog and Cat Food

While in Canada, mid-priced food accounts for the larger portion of sales in actual value and volume, in the US products positioned as premium significantly outsell mid-priced category Strong presence of natural and organic pet food products in the US feeds growth of premium category Economy segment is pose for decline in both Canada and the US, but the rate of decline is slower in the US © Euromonitor International

NORTH AMERICA OVERVIEW: LOOK AT US AND CANADA

RETAIL COMPETITION: CONVENIENCE SHOPPING  Pet specialists (pet superstores, pet shops, veterinarians) and grocery retailers still account for the major share of sales  But retailers that traditionally did not have a strong presence (or presence at all) in pet care retail enter the category; examples in Canada include Canadian Tire and Rona  Strategies include launch of exclusive brands  Dog Whisperer with Cesar Millan at Canadian Tire in early 2011  Watching Target opening in Canada - in the US markets branded products as well as its own exclusive brands like LIFElong superpremium pet food

© Euromonitor International

Euromonitor photo: Canadian Tire, Montreal

19

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

© Euromonitor International

20

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

21

INNOVATION TRENDS

Fortified and Functional Convenience, functionality, 2-in-1

Weight Management

All natural/ organic/raw food © Euromonitor International

Humanisation and premiumisation

Sustainability

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

22

LAUNCH OF BENEFUL 2 IN 1 HITS WET DOG FOOD IN AUSTRIA Performance of Beneful in Dry Dog Food in Austria (2006-2010) 4.0

5.0

3.5

4.5 4.0 3.5

2.5

3.0

2.0

2.5

1.5

2.0 1.5

1.0  Dry dog food, but can be turned into wet dog food; launched in 2009  Price: EUR5.49/1.5kg (US$5.10/kg)  Broad distribution through grocery and pet specialist channels

1.0

0.5

0.5

0.0

0.0 2006 2007 2008 2009 2010 Value Sales in US$ mn % Value Share

© Euromonitor International

% Share

US$ mn

3.0

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

OTHER SIMILAR 2-IN-1 PRODUCTS Finland: Friskies 2 in 1 by Nestlé Purina

Brazil: Max 2 in 1 by Total Alimentos

 Product: Dry mid-priced dog food

 Product: Dry mid-priced cat food

 Launch date: In mid-2010

 Launch date: Feb 2011

 Price: EUR 7.90/3 kg (US$3.68/kg)

 Price: R10.30/1kg (US$6.52/kg)

 Distribution: Broad distribution through grocery and pet specialist channels

 Distribution: Broad distribution through grocery and pet specialist channels

© Euromonitor International

23

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

CONVENIENCE AND FUNCTIONALITY IN PET CARE IN DEVELOPED MARKETS Japan: Yubi Haburashi (Finger Toothbrush) by Mindcare Corp

 First finger toothbrush on the market for pet oral care. Glove-like product that allows pet owners to clean their pets’ teeth with fingers  Launched in early 2011  Retails at average of ¥525 (about US$6.8)  Broad retail distribution, including the Internet

© Euromonitor International

24

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

NATURAL AND ORGANIC PRODUCTS MOVE TO MAINSTREAM 25

Whiskas Organic by Mars Inc (Sweden, 2010) - Wet cat food made with meat and vegetables sourced from controlled organic farming; marketed as suitable for the fussiest cats; packed in sealed foil pouches © Euromonitor International

Original Pet Food Co Organic Beef (US, 2011) - Line of wet dog food made from organic grass-fed beef, high in omega-3 fatty acids and conjugated linoleic acid

Bioplan by Fressnapf (Germany, 2009/2010) - an extensive range of dog and cat nutrition, made with 100% organic ingredients. Bioplan is marketed as a balanced, agreeable, light, and easy to digest organic animal food

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

ORGANIC AND NATURAL TREND EXTENDS TO PET CARE PRODUCTS

Yarrah Organic Cat Litter by Yarrah Bio Petfood (Netherlands, 2010) - Yarrah Bio has expanded into organic/bio cat litter in response to growing consumer demand for natural and organic products for pets © Euromonitor International

Imperial Care by Geohellas S.A (Greece, 2011) - Natural, ultra compact clumping cat litter made of white clay. It is enriched with fresh baby powder scent which is released every time the cat uses the tray

Biogance by Laboratoire Biogance SA (Spain, 2010) - Waterless shampoo for cats made of natural and organic ingredients. Free from paraben, colourant, and detergent. Dry shampoo for convenience

26

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

RAW AND HUMAN GRADE FOOD  Pet owners are interested in BARF – biologically appropriate raw food  Example - Orijen Regional Red by Champion Petfoods marketed as offering biologically appropriate ingredient ratio (70% meat/30% fruit and vegetables/0% grain) and high quality natural, human-grade fresh ingredients  In 2011, Champion launches Acana Ranchlands, which is similar in credentials to Orijen and focuses on locally sourced ingredients.

© Euromonitor International

 Orijen and Acana launched in 2010 in Indonesia as “a food to nourish your pet as nature intended”; only available in pet specialist retailers  Indonesia's premium dog food segment is very small (US$16 million in 2011) but expanding rapidly, at CAGR 22% over the 2006-2011  Premium dog food like Acana and Orijen meet the expectations of pet owners who exhibit their dogs in the increasingly popular pure-breed dog shows.

27

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

RISING PET OBESITY DRIVES DEMAND FOR WEIGHT MANAGEMENT FOOD  Pet resemble their owners - as humans get fatter, their pets also get fatter!  USA: In 2010, 58% of cats and 45% of dogs in the US are overweight. This represented year-on-year increases of 5% and 2%, respectively (Source: American Society for the Prevention of Cruelty to Animals)  UK: Pet obesity soared by 9% in 2008 alone, meaning that an estimated 7 million pets in the UK are overweight – that equates to 1 in 3 household pets (Source: People’s Dispensary for Sick Animals)

© Euromonitor International

Health and Financial Implications of Rising Pet Obesity

Arthritis Diabetes

Heart Disease

Annual vets’ bill of £1.5bn in the UK (Source: Direct Line Pet Insurance Research, 2008)

28

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

WEIGHT MANAGEMENT: PORTION CONTROL PRODUCTS Hill’s Science Diet Weight Loss System by Colgate Palmolive (USA) - Launched in Jan 2011 - This line consists of individually wrapped pre-measured portions of food and treat. - Available in two sizes: small and medium to large breed - By taking the guesswork out of portion control, the Weight Loss System makes it easy for owners to help their pets lose weight

Price: Retail at US$63.99 for a starter kit for medium dogs containing 66 food packs and 60 treat packs Distribution: Available through pet specialists and veterinary clinics

© Euromonitor International

29

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

30

PRODUCTS WITH FUNCTIONAL INGREDIENTS

Purina One Actilea by Nestlé SA (Italy, 2010) - Actilea is based on three active ingredients (prebiotics, antioxidants and yeast) and it claims to support the cat's immune response and digestive system

© Euromonitor International

Royal Canin Veterinary Diet – Mobility by Mars Inc (Sweden, 2010) - Dry formula for adult cats with or at risk of developing osteoarthritis; fortified with Joint Complex Plus from New Zealand green mussel and omega-3

ProBiotic Live by Bacterfield International (Luxembourg, 2011) - Dry dog food fortified with 109 live and highly concentrated probiotic bacteria for a healthy gut and strong immune system

Whiskas Salmon Pockets by Thien An JSC (Mars Inc), (Vietnam, 2010) -Premium dry cat food with taurine, Vitamin A, calcium, phosphorus, Omega 3 & 6

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

OPPORTUNITIES BEYOND RETAIL  Opportunities beyond retail and traditional services as the number of pet-friendly establishments and service is on the rise  Travel advisory increasingly pay attention to pet friendly hotels and services (TripAdvisor and USA Today Top 10 Most Pet Friendly Hotels in 2011 in the US)  Pet stations in pet-friendly shopping malls, hotels and spa

© Euromonitor International

Pet Comfort Station, Nordstrom Shopping Center, Chicago

31

PRODUCT DEVELOPMENT: TRENDS AND OPPORTUNITIES

32

SUMMARY Products  Focus on premium in food, but there is room for value products  Natural and sustainable (in all their variations and product categories)  Convenience and functionality in pet care

© Euromonitor International

Looking beyond retail

Retail Distribution

 Expanding array of pet friendly locations creates possibilities for suppliers of pet food and pet care

 Convenience shopping adds to competition as new retailers seek share of dollar spending in pet retail

 Use of online sources and social network sites to identify underserved and growing niches

 Opportunities exist in the development of exclusive brands and retail brands

THANK YOU FOR LISTENING Svetlana Uduslivaia Senior Research Analyst Euromonitor International Chicago 1-312-922-1115 ext 8302 E-mail: [email protected]