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1、OC&C PerspectivesOctober 2024Opportunities in US Pet2|OC&C Strategy Consultants 2022Why Investors Like PetPet remains an attractive category for investors,especially in times of economic turbulenceResilience through economic downturnsHigh margins(relative to other consumer goods categories)Continued

2、 premiumisation,driven by humanisationPet ownership surgeExpandability into new products and subcategoriesPrevalence of disruptive models2OCC_Consumer Perspectives_US Pet_July 2024 v23|OC&C Strategy Consultants 2022There are three key attractive areas for investors:food and treats,contract manufactu

3、ring and beyond food e.g.services,techBranded Food&TreatsPet Contract ManufacturingBeyond FoodIn summary:Large,growing and resilient category,with significant headroom in premium and a number of high growth segments In summary:Strong underlying growth with demand from both CPGs and niche disruptors,

4、and a number of clear value creation leversIn summary:Emerging platforms that represent interesting investment opportunities,alongside a number of other fragmented spaces that have scope for professionalizationSource:OC&C analysisKey Opportunities for Investors3OCC_Consumer Perspectives_US Pet_July

5、2024 v24|OC&C Strategy Consultants 2022AgendaPet Contract ManufacturingBeyond FoodOC&C ExperienceBranded Food&Treats45|OC&C Strategy Consultants 2022The US Dog&Cat Food&Treats market is large and the market outlook is strong with premium headroom remaining to go afterTotal US Dog&Cat Food Market(201

6、6-2028F)Source:Nielsen,Euromonitor,OC&C Market Model,OC&C analysisBranded Food&TreatsValue($bn)OCC_Consumer Perspectives_US Pet_July 2024 v22019202320282016$26bn$31bn$50bn$65bn+6%+12%+6%Market Dynamics US Dog&Cat Food&Treats is a c.$50bn market with Dog accounting for around two-thirds of spend,but

7、Cat growing faster in recent years Long-run growth has been primarily driven by premiumisation,while Covid-driven volume growth followed by high inflation have driven accelerated value growth since 2019(although volume growth has slowed in last 2 years)Growth is expected to return to normal,pre-Covi

8、d levels over the next c.3-5 years,driven by premiumisation resuming Whilst the premium segment is now well-developed(c.30%of volume in Dog,c.10-15%in Cat),there is further headroom expected to come from innovation in super-premium6|OC&C Strategy Consultants 2022There are a number of attractive area

9、s and high-growth segments of the market 1 Rapid growth of minimally processed fresh or raw pet food(historically driven by retail-first strategy of market incumbents e.g.Freshpet)typically sold refrigerated or frozen and made with natural or human-grade ingredients Growth expected to continue suppo

10、rted by DTC unlocking a new customer segment2 Prevalence of ambient super-premium formats,e.g.freeze-dried,raw-coated,and slow-cooked,which provide a convenient route into super premium including co-manufacturers focusing in freeze-dried3 Growth of mixers/toppers and explicit mixed feeding cues offe

11、ring accessible trade-up options4 Functional natural food blurring the boundaries between natural and scientific segments,offering natural products with specific health benefit claims without being“vet recommended”and at a lower price point7 Growth of single ingredient treats playing into both prote

12、in(e.g.emphasizing share of protein on packaging)and clean ingredient trends6 Emergence of ESG-led/plant-based propositions,particularly outside core food e.g.in treats,supplements,toys,packaging has spurred a number of successful ESG pioneers(e.g.Jiminys,Natural Balance)5 Significant growth in the

13、premium cat food space,especially soft natural propositions that leverage natural cues with emotive positioning(e.g.Tiki and Weruva)Key Trends in High Growth SegmentsSource:OC&C analysis7OCC_Consumer Perspectives_US Pet_July 2024 v27|OC&C Strategy Consultants 2022 Largest Player in Refrigerated Pet

14、Food with focus on 100%natural ingredients Premium Distribution e.g.Wholefoods Sustainable Brand marketing focus on ESG credentials,e.g.100%wind-powered kitchens Growing Share in Premium grew from 9%to 16%of premium wet dog food from 2016-21 Fresh is 10-15%of the premium segment,with growth driven b

15、y retail-first strategy of market incumbents(e.g.,FreshPet)The presence of FreshPet products in retail settings was key to driving market awareness and early adoption in the US higher than in European markets,which were DTC-led Experts expect fresh dog food to reach 30-40%penetration at maturity DTC

16、 will accelerate growth as it unlocks new customer segments(online shoppers)and drives customer loyalty via subscription modelThe fresh segment has seen rapid growth with players in this space emphasizing natural or human-grade ingredients1Fresh/Raw Pet FoodFresh has seen rapid growth,with significa

17、nt headroom for growthPlayers emphasize natural or human-grade ingredientsFresh Pet FoodSource:Expert Interviews,FreshPets investor presentation,Euromonitor,Desk research,OC&C analysis201720222027c.0.2-0.5bnc.1-2bnc.3-5bn+50%c.+20%US Fresh Dog Food Market2017-2027($bn)Emphasis on ingredient quality

18、and health-forward focusFreshPet Case Study8OCC_Consumer Perspectives_US Pet_July 2024 v28|OC&C Strategy Consultants 2022Ambient super-premium formats are highly developed in the US,including focus here from contract manufacturersRise of Ambient Super-Premium Pet FoodSource:OC&C analysis1.Topper ref

19、ers to product that is added on top of a pets regular meal,usually to enhance its flavor,nutritional value or appealMerrick Freeze Dried PackagingPetCo Store ChecksRaw-coated products have lower meat content than pure-raw,thus is a more accessible route to super-premium2Ambient Super-PremiumAmbient

20、products have longer shelf-life due to lower moisture content and thus does not require refrigerationSignificant shelf space dedicated to freeze-dried products including private label freeze-dried rangeKey Implications Ambient super-premium provides a convenient and cheaper route into super-premium

21、Some brands offer both frozen-raw and freeze-dried products,providing a convenient option alongside a super-premium option Major specialists(incl.Petco,and PetSmart)commit significant space to freeze-dried brands and offer their own private label range9OCC_Consumer Perspectives_US Pet_July 2024 v29|

22、OC&C Strategy Consultants 2022Mixed feeding and topper products is a fast growth space,presenting opportunities to consumers for accessible trade-upMixed FeedingSource:Nielsen,OC&C analysisClear mixed feeding cues on packagingFunctional benefits of raw clearly highlightedPalatability enhancement-Add

23、 moisture to your cats diet,Flavor boosterMixed feeding and topper products are designed to be added to dry kibble to improve their taste and nutritional profileMany toppers offer an explicit functional benefit(e.g.health or life stage angle)or improve palatabilityBrands are increasingly using toppe

24、rs and explicit mixed feeding cues as an accessible way to bring consumers to premiumMix of meat pieces offers nutrition and taste enhancementMore accessible price-point than pure freeze-dried c.$5/lb vs c.$34/lbInstinct Product PackagingPetcurean and Tiki PackagingMeal topper with functional benefi

25、ts(e.g.joint care)clearly highlighted in product nameTiki topper range has Top their meal with functional benefits tagline e.g.skin&coat,fussy,baby,silver,etc.Petcurean and Tiki Packaging3Mixed Feeding/ToppersFDM sales of General Mills lines of flavor-enhancing products grew by more than 27%pa betwe

26、en 19-23 vs.overall brand growth of 13%paIngredients include active ingredients e.g.glucosamine10OCC_Consumer Perspectives_US Pet_July 2024 v210|OC&C Strategy Consultants 2022Functional natural is growing fast;hybrid brands play here,straddling(and blurring the boundaries of)the natural and scientif

27、ic categoriesFunctional NaturalFunctional natural products address a broader range of pet parent needs in a single product delivering on health benefits whilst maintaining the humanisation of natural foodLeading brands play across both wet and dry formulasSource:OC&C analysisClaimsPriceChannelFormat

28、Leverage functional and health benefit claims(e.g.skin/coat)with added vitamins,minerals and nutrients unlikely to be found in more natural brands,while maintaining natural cuesUnable to claim vet recommendation Limited mainstream brands with functional natural leaning premium outside of a few scale

29、 mainstream players(e.g.Purina One)However,plays at a lower price point vs scientificFunctional natural presence across both FDM and pet specialty channels premium brands skew towards pet specialty,while more mainstream within FDMDry is the largest format(90%volume,75%value);However,winning brands p

30、lay effectively across wet and dry formatsProduct Examples from Select BrandsPlaybook for Functional Natural BrandsDry FormulationsWet Formulations4Functional NaturalRecent sales of functional natural cat food have outperformed the overall cat food market,growing at c.15%pa 19-23 vs.10%pa overall ma

31、rket growth11OCC_Consumer Perspectives_US Pet_July 2024 v211|OC&C Strategy Consultants 2022US premium cat food is driving growth of the market,with soft natural the winning proposition herePremium Cat Food&Soft NaturalSource:Nielson,Euromonitor,OC&C Market Model,OC&C analysis2016201920232028F$2bn$3b

32、n$5bn$6bn+8%+14%+7%Premium cat propositions are expected to grow at+7%CAGR for the next 5YSoft vs Hard NaturalPremium Cat Food Market,US2016-28($)5Premium Cat/Soft Natural Natural makes 60%of the premium cat segment Within this,soft natural accounts for the majority of consumer spend(70%of natural),

33、as it delivers on cat parent expectations of both quality and palatability/emotionSoft NaturalHard NaturalDefinitionBrand ExamplesDefinitionBrand ExamplesNatural cues but no explicit claims,typically more emotiveIngredient focused,explicitly claims naturalSoft natural is the predominant natural form

34、at and has seen strong growthBright colors and playful illustrations,with emotive“natural”claims(e.g.“Grain-free”)Prominent ingredient transparency and natural claims(e.g.necessary ingredients only)Premium%of Total Cat Food25%25-30%25-30%30%12OCC_Consumer Perspectives_US Pet_July 2024 v212|OC&C Stra

35、tegy Consultants 2022Within soft natural cat food,there are a number of potentially attractive assetsSource:OC&C analysisCase Studies Premium Soft Natural PlayersOverviewWhitebridge owns a portfolio of pet brands incl.Tiki,a fast growing wet-led soft natural brandWeruva is a family-owned cat-first b

36、rand specializing in wet soft natural foodMPM is a rapidly growing PE-backed portfolio of wet-led cat-first natural food brandsGeo FocusScale North American presence through Tiki with European presence under Schesir;50-65%of revenue concentrated in USScale North American presence with some exposure

37、to ANZInternational focus(60-70%non-North America),with Reveal brand US-focused US Cat Food Sales(2023)c.$125-150mc.$110-115m c.$75-100mChannelsKey Brands&CategoriesTiki:Scale US cat-first(95%volume)wet-led premium soft natural brand(c.$125-150m)Schesir:Tiki European equivalent(c.$100-200m)Petite Cu

38、isine:US premium wet cat food brand(c.$2-5m)Other dog treats and pet supplement brands(e.g.Cloud Star and Grizzly)Cat(c.70%of sales):Weruva,Cats in the Kitchen,Best Feline Friend,Truluxe,Pumpkin Patch UpDog(c.30%of sales):Dogs in the Kitchen,Dogs Meals n More Reveal:Wet-led premium soft natural(US&C

39、A only;35-50m)Encore:Wet-led hard natural real meat play(UK/EU focus)Applaws:Wet hard natural with over 95%in cat(40-50m in US;sig.global presence)Natures Calling:Natural,biodegradable cat litter(EU focus)5Premium Cat/Soft Natural+50%19-22 Sales Growth1Pet Speciality:70-75%Online:25-30%FDM:-1.Sales

40、growth for US Cat Food brands only+10%19-22 Sales Growth1+50%19-22 Sales Growth1Pet Speciality:45-50%Online:10-15%FDM:35-40%Pet Speciality:70-75%Online:25-30%FDM:-Illustrative13OCC_Consumer Perspectives_US Pet_July 2024 v213|OC&C Strategy Consultants 2022Plant-based remains a small,but not insignifi

41、cant,segment of the pet food market,with brands developing propositions to play hereThis has spurred a few successful ESG pioneers that are developing sustainable vegan products while also delivering on health and tastePlant-Based Propositions58%45%39%29%46%35%31%21%Purchased products with environme

42、ntally friendly packagingSwitched to brand with betterenvironmental credentialsSwitched to brand with betterethical/social credentialsPurchased more plant/insect based foodActions taken to Improve Sustainability of Purchases1,2(%of Respondents Who Have Switched)ESG ChampionsTotal SampleSource:Consum

43、er Survey 2022,OC&C analysis1.Which,if any,of the following have you done specifically to try to make your pet purchases more sustainable?2.ESG Champions defined as consumers that answered“Addressing sustainability is very important to me it is a core part of who I am today.”Leads on“Plant powered”,

44、then“Vegetarian”And retailers are stocking a broad range of plant-based SKUs in the treats category reflecting higher propensity for trailingPlant-Based Treats Examples in US Petco and PetSmart6Plant-BasedUses insect-based protein and local sourcing to reduce env.footprintReinforces nutritional bene

45、fits of key ingredientsFocus on nutritional balance and completeness of meal20%of consumers have either partially or completely switched to vegan pet food to improve the sustainability of their purchases14OCC_Consumer Perspectives_US Pet_July 2024 v214|OC&C Strategy Consultants 2022The growth of sin

46、gle-ingredient product formats,notably in treats,plays into broader protein and clean ingredient trendsSingle Ingredient FormatSource:OC&C analysisSingle-ingredient products,particularly in pet treats,are rising in popularity Rising popularity in single-ingredient stem from increased consumer demand

47、 for transparency,simplicity and health-conscious options in pet nutrition,driven by humanization and attitudes towards pets Aligns closely with other trends,e.g.:High-protein diets:single-ingredient meat-based treats act as good sources of protein Clean label:single-ingredient products are typicall

48、y minimally processed and are considered clean Simple-ingredient treats that are devoid of fillers,preservatives or artificial additives(“100%all-natural”)offer a sense of increased quality and purity/safety7Single Ingredient FormatsNacho Eats sales have grown at 60%pa 21-2315OCC_Consumer Perspectiv

49、es_US Pet_July 2024 v215|OC&C Strategy Consultants 2022AgendaPet Contract ManufacturingBeyond FoodOC&C ExperienceBranded Food&Treats1616|OC&C Strategy Consultants 2022Why Investors Like Contract ManufacturingCo-manufacturing is an attractive space for investment,with a number of clear value creation

50、 leversStrong underlying growth,as 1)CPGs increasingly look to optimize their own footprint and focus investment on areas of strength and differentiation and 2)niche disruptors gain presence but do not have the volume or capital to warrant owned manufacturing,resulting in increased demand and appeti

51、te for outsourcing to the best contract manufacturersAttractive way to get into a category with underlying tailwinds,but where brands are valued at very high multiples,while also providing risk mitigation potential as individual brands come and go,but the category trend is more enduringFor Private E

52、quityFor Contract ManufacturersFor Private Label ManufacturersM&A opportunities are plentiful,with a fragmented landscape across many categories and material opportunity to drive synergies and scale benefit across the value chain,with numerous roll-up/platform strategy success stories(typically driv

53、en by PE owners)Opportunity to transition into an attractive adjacent space that enables PL players to leverage their core manufacturing expertise while building exposure to higher growth brand-led spaces and benefit from greater security in demand(e.g.longer-term contracts and no annual re-tenderin

54、g process)Source:OC&C analysis17OCC_Consumer Perspectives_US Pet_July 2024 v217|OC&C Strategy Consultants 2022DescriptionPet Food Rev.($m)#of Faci-litiesOwner-shipFormats ServedBrightPetLeading developer and contract mfg.of premium and super-premium pet food$50m4Alvarez&MarsalDry,wet,raw/frozen/refr

55、igerated and treats across dog and catRaw Advantage ProcessingCo-manufacturer of freeze-dried and frozen raw pet food based in ORn.a.n.a.Alvarez&MarsalRaw/frozen/refrigerated and treats across dog and catShepheard Boy FarmsCo-manufacturer of premium freeze-dried single-ingredient pet foodc.$5mn.a.Pr

56、ivate(Family-owned)Frozen,freeze-dried and treats for dogs and catsVital EssentialsCo-manufacturer of premium freeze-dried and frozen raw pet foodc.$5mn.a.Carnivore Meat CompanyFrozen and freeze-dried pet food across dog and catWithin Pet,there are a number of co-manufacturers with a handful playing

57、 in niche and innovative parts of the marketMainstream Contract Manufacturers Serving Traditional Food Types&FormatsInnovative Contract Manufacturers Serving Niche and Disruptive PlayersSupplier Landscape Co-ManufacturersSource:Desk research,Company websites,OC&C analysisNon-ExhaustiveRaw Advantage

58、Processing11.Acquired by Bright Pet in June 2023Examples of Co-Manufacturers by Format TypeList of Innovative Co-Manufacturers18OCC_Consumer Perspectives_US Pet_July 2024 v218|OC&C Strategy Consultants 2022AgendaPet Contract ManufacturingBeyond FoodOC&C ExperienceBranded Food&Treats1919|OC&C Strateg

59、y Consultants 2022Dry CatPet ToysProductsLitterVetTreats&MixersTrainers/BehavioristsWet DogGroomingSuper Premium2InsuranceOther3Food&Treats1DaycareSupplementsHealthPet Hygeine4Services6Other PetProductsWet CatDry DogTech/WearablesThere are large,growing segments in Pet beyond food-while many are fra

60、gmented,platforms are emerging that offer investment opportunities10%p.a.7-10%p.a.5-7%p.a.20%p.a,2019-23)Significant headroom for further customer penetration vs other developed markets(0.5%vs 1.1-1.3%,respectively)21OCC_Consumer Perspectives_US Pet_July 2024 v221|OC&C Strategy Consultants 2022The v

61、et market is large and growing with a steadily growing number of vet practices(+1-2%p.a)and growth in spend on vets(+9%p.a)$389$439$491$522$5562019202020212022F 2023F+9%Avg.Annual US Veterinary Expenditure,Per Pet-Owning Household2($)201920202021F2022F2023F31.7k32.0k32.3k32.5k32.8k+1%Est.US Vet Prac

62、tices1Vet Market Drivers,2019-23(F)Source:US Bureau of Labor Statistics,APPA National Pet Owners Survey,American Veterinary Medical Association,OC&C analysisUS Veterinarians20192020202120222023116k119k121k124k127k+2%Vet Tech11.2021 to 2023 values were forecasted from 2020 using historical(2017-21)CA

63、GR2.Based on US Bureau of Labor Statistics.2022 and 2023 values were forecasted from 2021 using historical(2017-21)CAGRIn addition,the number of pet-owning households have increased over the last decade,from 62%in 2011 to 66%in 2023Supply GrowthDemand Growth22OCC_Consumer Perspectives_US Pet_July 20

64、24 v222|OC&C Strategy Consultants 2022 Vets can utilize various software tools to help improve revenue streams,eg:Using a direct scheduling system can increase convenience for pet owners while reducing admin burden on staff Using data from CRM tools to create targeted marketing campaign for specific

65、 services based on pets health history or previous visits Manage other revenue streams(eg prescription drug sales via online pharmacies)Current IT spend within the vet industry is much lower than in adjacent industries IT spend typically amounts to 15%for optometry practices IT spend for doctors hav

66、e gone up 40%since 2009 Tech spend is typically 1-2%of practice rev.,which is minimal compared to other costs,incl.the c.40%spent on admin/wages which the use of tech platforms aims to reduce Veterinary tech represents an attractive investment area,given its key role in operations and significant he

67、adroom opportunitySource:Interviews,Desk research,OC&C analysisRole of Tech in Vet EcosystemCost Breakdown of Average Practice110-15%1-2%1-2%10-15%10-15%20-25%35-40%ProfitIT andTelecomSpend2MarketingPurchases3Back-OfficeWages4Vet Wages4Other Costs$1m1.Assumes an average practice size with 2.5 vets;2

68、.Includes medications(some of which are re-sold through internal pharmacies);3.Includes Utilities,Depreciation,Rent,Taxes,Maintenance,etc.;4.Assumes$95k avg.DVM annual salary;given$27k avg.vet receptionist salary,we assume 5.4 back-office staff per practice.25-30%20-25%15-20%15-20%10-15%1-2%3-5%Nons

69、urgicaltreatmentsRoutineexaminationsLab ServicesSurgicaltreatmentsMerchandisesalesPet groomingservicesOther100%Revenue Breakdown of aTypical Veterinary PracticeThe majority of vet revenue streams can be augmented by tech offeringsMost practices spend 1-2%of revenue on tech today there is significant

70、 headroom compared to adjacent industriesOther AreasAreas touched by tech todayThe vet tech market has grown c.2-5%pa from 2017-2021,with leading players achieving growth of c.25-30%pa during the same time period23OCC_Consumer Perspectives_US Pet_July 2024 v2Vet Tech123|OC&C Strategy Consultants 202

71、2Many pet owners are using pet sitter services today online platforms are a large and fast-growing portion of the marketPet Sitting Provider Used(Millions of Pet Owners That Use Pet Sitting Services,%)US Pet Owners by Use of Pet Sitting Services(Millions of Pet Owners,%)10-20%80-90%2023OnlineLocal/I

72、n-Person Providers100%12mPet Sitting&Daycare2Source:Expert Interviews,Desk research,APPA National Pet Owners Survey,OC&C analysisUS Pet Sitting Service Usage,202315%85%2023Use Pet Sitting ServicesDo Not Use Pet Sitting Services87mTrustedHousesittersAvg.of Leading PlayersWag!RoverExpert Est.50-60%30-

73、40%20-30%20-30%10-20%Online Pet Sitter Platform Growth Rate(2019-22,%)24OCC_Consumer Perspectives_US Pet_July 2024 v224|OC&C Strategy Consultants 2022The space is highly fragmented,with an opportunity to professionalize some players are seeing high growthOverview of Key PlayersKey Competitor Archety

74、pes&Example PlayersCompetitor OverviewOnline SpecialistsOnline GeneralistsLocal ProvidersRange of small,local providers2023 Revenue#GeosCAGR(19-22)Total Revenue($m)US Revenue($m)%in Pet SittingTrusted Housesitters$30m$12m4100%130+41%Rover$218m1$168m15%10+22%Wag!$79m1$79m20%1+25%C$329m2$280m50%of our

75、 business)Strategy and M&A-45%of our business is transaction support 30+years heritage1.Affiliate offices in India,The B Corp certification does not extend to our alliance with Advisia OC&C Strategy Consultants in Brazil or Redseer in IndiaShanghaiHong KongLondonParisMunichWarsawBelo HorizonteSo Pau

76、loMilanBengaluruSydneyBostonNew YorkDelhi MumbaiMelbourneRotterdam31F31|OC&C Strategy Consultants 2022Leading multinationalsChallengers and disruptorsNational championsOur ClientsOC&Cs Industry CoverageFood&BeverageBeauty&WellnessIngredients&ManufacturingBeer,Wine&SpiritsConsumer GoodsGroceryApparel

77、Multi-categorySpecialty&LuxuryDisruptive Digital ModelsRetailAccommodation,Parks&ResortsFood&BeverageEntertainmentGambling&GamingTravelHospitality&LeisureCommunications&TechnologyBusiness InformationMedia Entertainment&Consumer MediaTMTConstruction&Infrastructure ServicesIndustrial ProductsAutomotiv

78、e&MobilityInsuranceOutsourcingTesting,Inspection&CertificationB2B Products&ServicesWe work with a wide-range of players across industries consumer/retail strategy is 50%of our workPrivate equity and investors31OCC_Consumer Perspectives_US Pet_July 2024 v232|OC&C Strategy Consultants 2022OC&Cs propos

79、ition is anchored around our firm-wide sector depth,domain expertise in specific verticals,and unique working approachThe OC&C Way How We Are Different from CompetitionSubstantial partner time at least 2 partners on each project,with a higher Partner:Consultant ratio than the Big 3Deep domain expert

80、ise in our selected sweetspot sectors where we offer unrivalled experienceBest team in the room project teams are fully tailored to client specific needs(sectors,functional expertise and language skills)regardless of home country and therefore hit the ground running on day 1 Same teams for Strategy vs Transaction Support work which means better quality work for both our corporate and PE clients32OCC_Consumer Perspectives_US Pet_July 2024 v2