Hot Segments? Natural, Naturally.

The natural/super premium pet food and treats market posted the strongest growth over the past two years, but both hard goods and the small animal and aquatics sectors are beginning to see life again, according to Scott Bender in his “Sales Trends in the Pet Industry” from the PIDA Management Conference.

This probably doesn’t and shouldn’t surprise anyone. On a broader scale, many Americans (certainly not all) are paying more attention to what they eat and paying more for what they eat. This trend applies to their children and, to a greater extent, their pets (animals don’t seem to resist eating healthful foods like people can). Although pricier, America’s pet owners also see premium nutrition as a hedge against higher veterinary costs.

This, of course, isn’t new information, but the numbers continue to support the validity of this trend. Natural is the fastest growing sector within foods and treats, the largest slice of the pet care pie, accounting for 38 percent of overall pet expenditures, followed by 28 percent for veterinary care and 22 percent for supplies, according to the American Pet Products Association.

The food and treats category has grown between five and seven percent annually for the past three years, worse than its 10 percent pre-recession rate but better than a 2 percent slip in 2009, Bender said, citing APPA statistics.

But natural grew 15 percent in 2012, vs. 5 percent of the overall pet food and treats market. The segment is now approaching 15 percent of the total pet food/treats market, Bender said. Natural’s home is pet specialty, where it accounted for at least 60 percent of the food/treats market in 2011. Natural could grab another 5 points of market share in pet specialty in 2012, Bender estimated.

That growth is likely to slow, possibly as soon as 2013, simply because such a rate of growth is not sustainable, even if the ingredients are. And, of course, other channels are paying attention and trying to gain share back (i.e., Walmart’s Pure Balance launch). But the natural/super premium category should continue to grow, especially as it makes greater inroads within cat foods and treats from dog food.

Far more exciting news for the broader pet industry, however, is the recovery of hard goods and the small animals and aquatics sector.

Hard goods (such as bowls, crates and beds) are now growing more in line with consumables, at least for Petsmart, Bender reported. Growth in both categories fell sharply during the recession, with hard goods sales at Petsmart actually shrinking 2 percent in 2009. Petsmart continued to grow due to continued, but slower, growth in consumables (nearly 9 percent in 2009).

There is still room to grow for hard goods, which are still about 5 percentage points below precision mix levels at Petsmart. In 2012, Cleveland Research estimates hard goods would account for about 33 percent of Petsmart sales, compared to the nearly 40 percent in the years preceding 2008. That suggests there is continued room for growth in hard goods sales, which average twice the margin as consumables at Petsmart, Bender said.

Bender tied the hard goods growth to the housing market and new pet acquisitions. Most hard goods are purchased in the first couple years after a pet acquisition, naturally, and if housing trends continue to improve, so will pet acquisitions, Bender said.

Indeed, Petsmart is seeing live pet purchases (primarily small animals and fish) improve, with growth possibly exceeding 10 percent for 2012, Bender said. These sales had been essentially flat from 2008 to 2010. Petsmart plans a fish category reset later this year, Bender said.

Again, pet specialty is poised to benefit from a continued recovery of small animal and fish keeping as it dominates live animal sales, which spur sales for associated consumables and hard goods.