In Q3 2018, Amazon.com's Pet product group continued its strong upward trajectory, growing by 30% YoY to reach an estimated value of $600M in sales. Pet Products is the second-largest consumer packaged goods market in the US (after health supplements) and the retail and tech giant has made it a priority in recent years, with initiatives such as Alexa Pet Week and private brand expansions. But Amazon's courting of the Pet Products market has not gone unchallenged. Let's break down the biggest trends in American pet ownership and consumer behavior through the lens of Amazon.com's Q3 Pet sales.
The pet population in the US is at an all-time high. While it has not grown dramatically in the last few years, the nature of pet ownership has certainly been changing. The mental health benefits of owning pets are becoming better understood and more widely appreciated, this has encouraged a growth in the pet population among baby boomers. In recent years, millennials took over as the cohort most likely to own pets, with some viewing it as good practice for having a family and a growing number choosing pets as an alternative to having children. Minorities in the US are currently responsible for the most pet population growth, with Hispanics in particular adopting more dogs and cats into their homes. And finally, multi-pet households are becoming more common in all three of these demographics, increasing the amount of food and pet products these consumers require.
Unsurprisingly, the rapid growth of Amazon's Pet market share coincided with the surge in pet ownership among millennials. This being the retailer's core demographic, Amazon was able to capture a major share of these new Pet Products consumers, most of whom were already regular Amazon shoppers in other categories. It hasn't all been smooth sailing for the retail and tech giant, however – there are two key obstacles in Amazon's way.
In 2015, industry analysts estimated online Pet Products sales at approximately 5% of the total market. In 2018, Amazon alone is beating that figure – and it's not even the industry's biggest player. Last year, Chewy.com managed the rare feat of beating Amazon.com in online sales, joining Wayfair as one of the few ecommerce pure-play companies able to outcompete 'The Everything Store' by specializing in a specific category.
In May 2017, just as Chewy was on the cusp of overtaking Amazon, PetSmart acquired the online retailer (in what was the largest ecommerce acquisition at that time) and thereby reversed their sinking fortunes and became Amazon's closest competitor.
So what is Chewy's secret? Like Amazon they offer consumers the convenience of having heavy bags of dog food and cat litter delivered to their doors, and like Amazon they offer a subscription service which allows customer to set up automatic reorders in exchange for a per-unit discount. But their competitive advantage lies in their focus on phone and email support, offering pet owners the peace of mind that comes with being able to talk to a specialized professional about their pet supply needs.
And this brings us to the single most important trend influencing the Pet Products industry:
The Humanization of Pets
Today's pets are spoiled. As animals are elevated to the status of family members, pet owners are sparing no expense in giving them the best food and supplies the market has to offer.
Amazon has fallen to second place behind Chewy.com because the retail giant is a generalist at a time when pet owners are increasingly favoring specialists. The popularity of gourmet-focused, hyper-local stores is growing as they offer shoppers guidance and expertise in a face-to-face interaction. Larger retailers are responding to this demand in a variety of ways: PetSmart has acquired Chewy; Petco announced last week that they would stop carrying any foods containing artificial colours, flavours and preservatives; and Amazon hopes to leverage its high consumer trust into private brand sales.
Though the competition between these major retailers may be making them nervous, it's all good news for brands. The Pet Products market is larger and more diverse than ever and brands have a range of channels through which to reach consumers. The challenge is to understand the unique roles each of these channels play in the wider market and how to best reach new and existing consumers in a variety of ways.
Consumer packaged goods are at the heart of Amazon's sales and Pet Food is one of the largest CPG categories in the US, providing the retailer with a steady stream of sales and repeat customers. On Amazon.com, the Pet Food & Feeding Supplies category accounts for more than half of all Pet sales with an estimated $365M in Q3 2018, nearly 6 times the size of the next largest category.
In pet owners' households, Pet Food is a necessity and therefore sales by volume remain fairly steady, increasingly only with the growth in the pet population. The humanization of pets, however, has driven a strong increase in the sales of treats, a luxury item. During Q3 2018, pet owners gravitated toward longer lasting treats, driving a growth of 47%. They also tended toward healthier alternatives such as rawhide free treats, which grew by over 60% in light of the information that rawhide may contain toxic chemicals harmful to pets as well as their owners.
The two largest dog food brands, Blue Buffalo and Taste of the Wild, both illustrate the trend toward healthier pet foods. Blue Buffalo's top seller contains the keywords 'Protection Formula' and 'Natural' in the title while Taste of the Wild includes 'Grain Free' and 'High Protein'. Both of these brands include long and thorough A+ content on their product detail pages along with complete ingredient lists and nutrition information.
Arguably even more important, both brands contain a large number of customer reviews and answered questions. By encouraging consumer interaction on Amazon, brands can recreate some of the interactivity that pet owners value from brick-and-mortar stores.
Small Animals and Private Brands
It's time to think beyond cats and dogs. In 2018, other pet categories have begun to increase in prominence. Three products marketed toward ferret owners entered Amazon's top 100 Pet Products in Q3 2018. Small Animal Food and Bird Food grew by over 50%, as did Bird Cage Accessories. In the second-largest category, Habitats & Supplies, beds and crates for cats and dogs remained stable, while the biggest driver of growth was Small Animal Habits. K&H and Midwest were the leading brands in this category with 18% and 12% in market share respectively, though AmazonBasics is a rising brand now controlling 6% of category sales.
Amazon's private label expansion into the Pet Products market is ongoing. Just over 6 months ago, the retailer introduced Wag, a line of dry dog foods that has experienced some notable success (though it continues to rank low compared to established brands). Despite the recency of this release, Amazon now also offers dry dog food under the Solimo private brand as well. Much of the on-page content is nearly identical, but Solimo actually offers more A+ content including a suggested 10-day food transition plan and a product comparison chart. Additionally, Solimo is cheaper than the equivalent Wag product, offers a deeper subscribe-and-save discount, and also offers a 5 lb 'trial size' in order to draw in more new customers, not offered by Wag.
Whether this is an A/B test on Amazon's part to identify the effects of small product differences on sales or Amazon has decided to transition away from Wag after only 6 months on the market is yet to be determined – but it does suggest that Amazon is not yet ready to challenge major pet food brands head-on while they still gather experimental data.
The humanization of pets has driven Health Care to be the fastest growing Pet Products category by far with 70% growth YoY. Bayer and Frontline control the largest share of sales in the category, though the latter brand has found a new competitor in PetArmor. The emerging spot-on flea treatment brand is bold enough to boast right on its packaging: 'Compare to Frontline... Contains the same active ingredient.'
Consumer trust is a crucial ingredient for success in Pet Products. Though PetArmor is having success by undercutting its biggest competitor (its sales tripled in Q3 2018), Frontline's overall sales remain much higher and even doubled in size last quarter, so the trusted brand is clearly not losing its existing customers. Like shoppers in any other category, pet owners like to shop around, but once they find something that works for both them and for their pets, they tend to stick to that brand, not willing to risk the health or happiness of their pets by introducing something new.
Roughly 85 million US households contain pets and counting. American pet owners are more numerous and more diverse than ever – and also more discerning. That means that there are innumerable opportunities for brands to reach consumers, to solve problems and to find their niche. The humanization of pets is driving up the amount of money shoppers are willing to spend, but also driving them to specialized local pet stores, so brands need to take a multi-pronged approach that utilized the strengths of numerous consumer touchpoints.
The biggest value Amazon offers to brands is in of repeat customers. Amazon may not be the best platform for gourmet brands to reach a new audience, but if they can cement customer loyalty via social media, in-house customer service and brick-and-mortar presence, they can then use Amazon to offer those same customers lower prices and more convenience, keeping them coming back for more. Amazon may not be the only player in town but it is the largest online retailer in America – Pet brands can't afford to underestimate it.