• by Karlene Lukovitz  @KLmarketdaily, January 30, 2009

The recalls of contaminated pet food in Spring 2007 encouraged owners to convert to higher-priced foods that were perceived to be safer. This trend to premium helped boost dollar sales for the category not only in 2007, but to a smaller extent last year--despite the dramatic downturn in the economy, according to a new report from Packaged Facts.

U.S. pet food sales grew 5.5% to an estimated $17 billion in 2008 and grew by a cumulative 20.9% (CAGR of 4.9%) between 2004 and 2008, PF estimates in the latest edition of "Pet Food in the U.S."

IRI InfoScan data showed category sales in tracked retail outlets up 6.4% to $5.9 billion for the 52 weeks ending Nov. 2, 2008, including a 7% gain in dog food sales (to $227 million), a 6% gain for cat food (to $125 million) and a 3% gain for other pet food (to $6 million).

Dollar sales reflected consumer trading up and higher ingredient costs, not volume gains. Overall pound sales were down 2% and unit sales were down 6% last year, continuing the pattern seen in previous years, PF reports.

The analysts project that the economy will slow the category's sales to 4.5% in 2009 and 2010, followed by more tapering off through 2013. CAGR for 2008 through 2013 is projected at 4.1%, with premium demographics and products accounting for an even larger part of the overall market going forward.

As owners extend their concern with healthy eating to their pets and manufacturers push premiumization, the products that continue to drive growth are those that include claims such as organic, locally grown, human-grade, made in the U.S.A., whole and "real" ingredients (meat, fruit, vegetables, grains), high-protein and grain-free/non-allergenic).

As with human foods, functionals and nutraceuticals are hot for the pet set--especially those targeting age- and weight-related conditions with ingredients like glucosamine, omega fatty acids, antioxidants (including "dark fruits" like blueberries and cherries) and probiotics, PF points out.

The number of new pet food products shot up last year. During the first 11 months of 2008, 270 new pet food products were launched-- 51% more than in all of 2007, with the number of SKUs rising 119% to nearly 1,500, according to Datamonitor's Productscan Online.

PF also sees potential in the frozen/raw and refrigerated pet food segments. "Each will likely see the entry of a large marketer such as Del Monte (a natural for refrigerated especially) or Nestlé Purina during the near future," the analysts note.

On the marketing front, U.S. manufacturers spent $520 million on national advertising of food and non-food pet supplies in 2007. Over 60% went to television and only 5% to the Internet.

However, like other categories, pet food marketing is shifting online. PF notes that both Procter & Gamble (Iams) and Del Monte (Meow Mix, Milk-Bone) have been allocating more of their spending to branded-entertainment projects instead of traditional media spends.

Meow Mix has been particularly aggressive. The brand launched its first game show for pet owners ("Meow Mix Think Like a Cat") on GSN last November, in addition to its earlier branded series for Oxygen and Animal Planet, and has been hosting high-profile "pop-up" events and seminars for cat owners.

Celebrity branding is also becoming a bigger factor in the pet food category, with Ellen DeGeneres, Cesar Millan and Rachael Ray entering the market last year.