A fragile advance

The pet supplies sector weathered the pandemic brilliantly. It also mastered the myriad challenges of a difficult 2022 comparatively well. One of the reasons for this was that it closed ranks, with many companies adapting satisfactorily to the tough general financial situation. Will pet product retailers and manufacturers emerge from 2023 relatively unscathed also? It is still too early to give a definitive answer.  

The good news is that sales are continuing to grow for many retailers and manufacturing companies. After adjustment for price rises, the hefty increase admittedly turns out in many cases to be a modest decline at second glance. But it could be worse: although the reluctance of consumers to spend is noticeable in the pet sector, it is by no means as pronounced as in many other businesses.

Nevertheless, there is little cause for high spirits at present. In conversations with representatives of the pet sector, the recurring theme is that retail and industry profit margins have contracted sharply in the months since the outbreak of the war in Ukraine. Manufacturers are still contending with high raw material prices, even if these have come down slightly in some areas compared with last year. Logistics costs remain high. To soften the blow somewhat for their retail partners, many manufacturers lowered the prices of a number of their products this summer. It remains to be seen whether this trend will persist. The situation with regard to supply chains and raw materials is still tricky; it can’t be ruled out that the next wave of price increases by the pet supplies industry might impact retailers as soon as this winter, with incalculable consequences.

It is not unreasonable to ask for how much longer consumers will tolerate rising prices for high-quality pet food. Will they switch at some stage to products in the medium-price segment? And how will the retail trade react if prices remain high or even increase further? Some retailers have not fully passed on the price increases of the manufacturers to their customers up to now; are they able to absorb further dents in their profit margin? These are all questions to which answers must found in the coming months.  

Ralf Majer-Abele