PET ACCESSORY Market UK 2004

SUMMARY

In 2003, the UK market for pet products was worth approximately £3.9 billion at retail prices, representing an estimated 5% increase over the previous year.

The market can be divided into 4 main sectors: pet food, pet accessories, vet/insurance fees and kennelling and the chart below illustrates our estimate of the mix of the market between the major product sectors in 2003.

In general, the pet industry has experienced steady underlying growth in recent years, reflecting the maturity of the market. Key factors influencing overall performance of the pet market are consumer confidence, PDI levels, household pet ownership levels, the mix of pets owned, new product developments and changes in retailing.

Within the total UK pet market, pet food holds the dominant share at approximately 45%, worth an estimated £1.76 billion in 2003. This mature market has seen a decline in volume sales of dog food as a result of the decrease in dog ownership. However manufacturers have been attempting to stimulate growth through investment in new product development and premium products. For example, high nutrition foods with added vitamin and mineral supplements, and single-serve products have added value to the market.

Veterinary fees and insurance premiums account for 29% of the market, worth £1.13bn in 2003. This sector has seen an increase in the last 2 years, largely due to a growing concern for pet welfare and growth in the insurance area. Tesco, the grocery multiple, operates in the insurance sector and encourages customers with in-store promotional literature and special offers. The veterinary market has seen some decline, due in part to the growing number of treatments available over-the-counter, for example, worm and flea treatments. The large pet superstore, Pets at Home, even offer veterinary surgeries in some of its stores.

Pet accessories account for 14% of the total UK pet market, with an estimated market value of £547m in 2003, an increase of approximately 3% from the previous year. The market has seen steady underlying growth for a number of years but in 2003-2004 has begun to exhibit lower levels of growth. High levels of competition are a feature of this market together with high levels of imports, especially at the lower end of the market, putting pressure on UK manufacturers. However, growth has been stimulated by consumers trading up to higher quality accessories and premium-priced products, particularly in the bedding and collars/leads markets. Product innovation has been important in several markets, including toy and care product sectors, as companies attempt to differentiate their products and increase sales. The market is has also been affected by the number and type of pets purchased.

Toys hold the largest share of the pet accessory market at 34%, having overtaken care products as the largest product sector. Growth has been particularly high in relation to other product sectors and this is expected to continue. The toys market is valued at £186m RSP in 2003 and the product range is extensive including scratching posts, tunnels/wheels, tank equipment and rubber toys. The market is characterised by an increase in the number of innovative toys, a degree of trading up with high quality toys available, and a relatively low unit cost when compared with some other areas within the pet accessories market. Additionally, toys benefit from 'gift' and 'impulse' purchases and from the modern trend amongst owners of indulging their pets.

The care products sector, at 33% of the pet accessories market, now holds the second largest share, having been overtaken by the toys sector in the last 2 years. It is, however, still a sizeable market and is worth £181m RSP in 2003. Flea treatments/wormers hold a large share of the care products market at 36% and have seen good growth in the last 2 years. Maintenance products are a major sector at 29% and include the large cat litter market, accounting for 85% of this sector. The health and vitamins sector, with a share of 19%, has seen a small decline due to the inclusion of vitamins and minerals in many high-value pet foods, although other supplements such as remedies and tonics have contributed positively to growth. Grooming equipment is a smaller market with a 16% share and is showing signs of slowing rates of growth due to the decrease in the ownership of dogs.

The care products market has benefited from the increasing humanisation of pets, with owners more likely to indulge them. The market has also been stimulated by an increase in over-the-counter treatments, previously only available from veterinary surgeries. There is generally more consumer awareness of preventative treatments, fuelled by information provided by consumer magazines, television programmes, trade associations, manufacturers and retailers.

Storage and feeding products account for 22% of the market, with a value of £120m RSP in 2003. Baskets and bedding hold the dominant share of the market at 28% with a market value of £34m. Hutches, tanks and cages have a market share of 17%, 24% and 26% respectively. Poor performance has been seen in the bedding market in the last few years although the market has benefited from sales at the upper end of the market. Sales of cages and tanks have seen good growth in the last 2 years and have benefited positively from increases in small animal and fish ownership.

Collars, leads and harnesses are a much smaller sector within the pet accessories market, accounting for 9% and worth £49m at RSP in 2003. This sector is in slow decline due to its dependence on dog ownership, currently in decline. However, growth has been stimulated by niche products such as cat collars and growth at the higher quality and premium end of the leads and collars market, for example, designer collars.

Competition remains high in the pet accessory market and consequently the market has seen a number of acquisitions, although it still remains highly fragmented. The leading suppliers in the market are Armitage, Interpet (Mikki, Petlove), Masterfoods (Pedigree), RC Hagen and Bob Martin, who account for around 20% of the market.

Imports account for a significant proportion of the market and these are most commonly from the Far East, especially in the cat and dog toys and collars and leads markets. Mostly these imported products are aimed at the lower end of the market, although there is some evidence that an element of trading up is taking place in the toy market with higher quality imports entering the market.

Kennelling is estimated to account for 8% of the total market, valued at £313m in 2003. This market has been fairly stable, in terms of market share, for the last 5 years.

In terms of distribution channels, the key change has been the rapid growth of pet superstores, such as Pets at Home. While independent stores have seen a gradual erosion of market share to 30%, pet superstores have enjoyed good growth and now account for the largest channel at 31%. Grocery multiples hold a smaller share at 12% and supply a more limited range of pet accessories. DIY multiples are a much smaller distribution channel at 4%, with a low priority in pet products except Focus DIY through their PetWorld stores. Acquisitions have also played a role in recent years in the distribution channels, with Pet at Home acquisition of Pet Mart in 1999 the most notable.

TABLE OF CONTENTS

• 1. INTRODUCTION 6
• 2. SUMMARY 7
• 3. KEY MARKET INFLUENCES 11
  • 3.1 GDP 11
  • 3.2 INTEREST RATES AND INFLATION 12
  • 3.3 UNEMPLOYMENT 13
  • 3.4 STERLING 14
  • 3.5 EXCHANGE RATE FLUCTUATIONS 14
  • 3.6 HOUSING AND CONSTRUCTION 15
    • 3.6.1 The Housing Market 16
    • 3.6.2 Households 17
  • 3.7 CONSUMER DISPOSABLE INCOME LEVELS AND SAVINGS 20
• 4. PET MARKET 22
  • 4.1 INTRODUCTION 22
  • 4.2 GENERAL TRENDS 25
    • 4.2.1 Retail Trends 25
    • 4.2.2 Industry Trends 26
    • 4.2.3 Social Trends 26
  • 4.3 PRODUCT MIX 29
• 5. PET ACCESSORY MARKET 33
  • 5.1 DEFINITION 33
  • 5.2 PET ACCESSORIES MARKET SIZE 33
  • 5.3 MARKET SHARE OF PET ACCESSORY PRODUCTS 38
  • 5.4 TOYS 42
  • 5.5 CARE PRODUCTS 49
  • 5.6 STORAGE AND FEEDING PRODUCTS 64
  • 5.7 COLLARS, LEEDS AND UTILITY PRODUCTS 72
  • 5.8 MISCELLANEOUS 76
• 6. SUPPLIERS 78
  • 6.1 SUPPLIER OVERVIEW 78
  • 6.2 MAJOR SUPPLIERS 80
  • 6.3 SUPPLIERS WITHIN SPECIFIC MARKET SECTORS 87
    • 6.3.1 Basket/Bedding Suppliers 87
    • 6.3.2 Cat Litter Suppliers 88
• 7. DISTRIBUTION 90
  • 7.1 MARKET SHARE OF DISTRIBUTION CHANNELS 90
  • 7.2 PET SUPERSTORES 92
  • 7.3 INDEPENDENT PET SHOPS 94
  • 7.4 GROCERY MULTIPLES 95
  • 7.5 GARDEN/AQUATIC CENTRES 96
  • 7.6 DIY MULTIPLES 97
  • 7.7 MAIL ORDER/CATALOGUE/INTERNET 98
  • 7.8 OTHERS 99
  • 7.9 WHOLESALERS 99
• 8. FUTURE PROSPECTS 101

TABLES AND CHARTS

• CHART 1 UK PET MARKET - PRODUCT MIX BY VALUE 2003 7
• CHART 2 INTEREST RATES AND INFLATION (RPI) FROM 1990-2005 12
• CHART 3 NUMBER OF EMPLOYEES IN EMPLOYMENT GB - JUNE 1982-02 (MILLIONS) 13
• TABLE 4 EXCHANGE RATE FLUCTUATIONS 1997-2003 - DOLLARS, ECU TO POUND STERLING, SPOT RATES 15
• TABLE 5 HOUSEBUILDING COMPLETIONS 1995-2004 GREAT BRITAIN ('000) 16
• TABLE 6 STOCK OF DWELLINGS GREAT BRITAIN - 1985-2002 18
• TABLE 7 AVERAGE HOUSEHOLD SIZE FOR GREAT BRITAIN 1971 - 2001 19
• CHART 8 PDI & SAVINGS RATIO 1980-2005 20
• TABLE 9 TOTAL UK PET MARKET BY VALUE (£BN RSP) 1997 - 2007 23
• TABLE 10 PET OWNERSHIP LEVELS BY HOUSEHOLDS (MILLIONS 1993 - 2002) 27
• CHART 11 PET MARKET SHARE BY PRODUCT - % BY VALUE 2003 30
• TABLE 12 UK PET ACCESSORY MARKET 1997 - 2007 (£M RSP) 34
• TABLE 13 PET ACCESSORIES. - MARKET SHARE BY PRODUCT MIX 2003 (£M RSP) 39
• CHART 14 PET ACCESSORY MARKET - PRODUCT MIX BY VALUE IN 2003 40
• TABLE 15 UK TOYS MARKET 1997-2007 (£M RSP) 42
• TABLE 16 MARKET SHARE OF TOYS BY TYPE OF PET BY VALUE - 2003 43
• CHART 17 MARKET SHARE OF TOYS BY TYPE OF PET - % MIX BY VALUE 2003 44
• TABLE 18 MARKET SIZE OF UK CARE PRODUCTS MARKET 1996-2007 (£M RSP) 49
• TABLE 19 MARKET SHARE OF CARE PRODUCTS BY VALUE 2003 50
• CHART 20 MARKET SHARE OF CARE PRODUCTS - % MIX BY PRODUCT 51
• TABLE 21 TYPES OF FLEA TREATMENT BY VALUE 2003 52
• CHART 22 TYPE OF WORM TREATMENTS BY VALUE 2003 56
• TABLE 23 TYPES OF CAT LITTER BY VALUE 2003 58
• TABLE 24 UK STORAGE & FEEDING PRODUCTS MARKET 1997-2007 (£M RSP) 65
• CHART 25 MARKET SHARE OF STORAGE AND FEEDING PRODUCTS - % MIX BY VALUE 2003 66
• TABLE 26 MARKET SIZE OF UK COLLARS, LEADS & UTILITY PRODUCTS MARKET 1997-2007 (£M RSP) 73
• TABLE 27 MARKET SHARE OF MAJOR SUPPLIERS - 2003 BY VALUE 79
• TABLE 28 MARKET SHARE OF BASKETS & BEDDING SUPPLIERS - 2003 BY VALUE 88
• TABLE 29 MARKET SHARE OF CAT LITTER SUPPLIERS - 2003 BY VALUE 89
• CHART 30 DISTRIBUTION CHANNELS FOR PET ACCESSORY PRODUCTS IN 2003 9