Case Study and Sample Slides Pet Product Market in Brazil
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Pet Product Market in Brazil Client • The client is a leading pet specialty retailer in the US , aspiring to expand to other geographies
Client Ask • The client required SGS to assess the market attractiveness of key pet markets such as Brazil, Canada and Mexico w.r.t. – Market size and potential of pet food, and allied products and services – Status of organized pet retail in terms of its segments, CAGR over years, distribution channels and so on. – Demand side analysis i.e. consumer trends and buying behavior – Competitive landscape including identifying major players in the pet retail market, their respective networks, products offered etc. – Regulations
Sutherland’s Solution • Analyzed the potential of the pet care market including segmentation by pet food, products , services and vet care, most attractive cities in terms of high demand, store formats, type of households in terms of income segment and brand-wise share • Assessment of consumer buying behavior e.g. spending patterns, purchase frequency, preferred products, etc. • Analysis of important parameters like Store footfall, average ticket size, preferred brands, spending on food vs. non-food, buying frequency • Detailed analysis of key pet care market, detailing out top three cities with macroeconomic, demographic, lifestyle, retail spending, pet ownership and key pet spending indicators
• Benefits to the Client • While the overall market potential for pet products and increase in pet humanization trends made the market looked positive, high level of informal market and consumer preferences for near-by local pet shops due to convenience rendered the market unattractive in the short-to-medium term • Important benefits gained by the Client included key insights into the functioning of the pet retail market, identifying important favorable customer behavior trends, strategic high demand locations and detailed description of regulatory requirements © 2012 Sutherland Global Services Inc., All rights reserved. Privileged and confidential information of Sutherland Global Services Inc.
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Pet retailing strategy needs to focus on the Class C household which accounts for ~60% of pets in Brazil Pet Population in Million by Income Segments
11.6
48.5
Class A / B
10.1
Class C
Class D
•
Ownership of dogs in class A/B population is about 50%
•
Ownership of dogs in class C population is about 60%
•
Ownership of dogs in class D population is about 55%
•
Pet humanization trend is very strong amongst the top strata
•
Class C, forming the middle class of Brazil, maintain small pets which are convenient to maintain in space crunched urban areas
•
Class D is the lower middle class of Brazil
•
•
Rich people treat their dogs like children; and some fine restaurants are happy to have them as customers
•
Class A customers typically buy accessories from brands such as Louis Vuitton, Gucci and Hermes
Class C customers typically buy packaged pet food and are known to switch over from private label products to branded products
13.1
•
•
Class D pet owners usually buy private label pet food or feed them with homemade food and leftovers
=83.3 Mn
Class E •
Ownership of dogs in class E population is the same as class D at about 55%
•
Class E constitutes the poor sections of the population
•
These consumers feed only homemade food and leftovers to their pets
These consumers are price sensitive and do not mind switching brands for attractive discounts
Source: Euromonitor, SGS Estimates, PetFoodIndustry.com
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Consumers are price-sensitive w.r.t pet product purchases; economy brands dominate pet food demand but a clear preference for MNC brands exists
Share of Top Brands by Retail Sales (2009)
Share of Top Brands by Retail Sales (2009)
14
R$ Billion
10 7.7
8 6
4.9
5.6
8.1
8.9
9.5
10.1
10.7
11.4
23.8
12.0 CAGR 6%
6.4
4 2
CAGR 13%
0
~72% of Retail Sales Top Pet Food Companies
12
18.1
8.5
8.0
6.2
3.4
2.1
1.7
2.3
2.1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Dog & Cat Food Other Pet Food
12.9
Pet food market by brand classification (2009)
Economy 65%
Permium 8% Super Premium 4%
Top Pet Food Brands
~39% of Retail Sales Standard 23%
6.5 4.8
3.8
3.5
2.6
Source: Euromonitor, SGS Estimates, ANFAL Pet, PetFoodIndustry.com
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Pet care market has seen significant growth in services and accessories segment; pet food and vet care market is growing at a steady rate Retail Pet Care And Services
Key Observations
CAGR- 16.2%
•
The pet retail market is dominated by sales of pet food which constitutes about ~65% of sector total
•
The pet food market is dominated by Mars and Nestle who together accounts for 40% of the overall food market
•
Presence of around 100 pet food manufactures in the country, ~45 enrolled in the pet food association
•
Share of pet food in overall retail sales value has declined over time as demand for services has increased significantly; nonetheless, the food sector has been growing at a decent rate of nearly 13%
•
Services such as grooming, training and day-care have increasingly became quite popular in urban centers such as Sao Paulo; since 2007, the services segment has grown by nearly 47%
•
Pet food revenues have registered robust growth led by resilient end product prices and increasing customer shift to premium food
•
Pet retail market is expected to continue on its double-digit growth trajectory led by greater adoption of packaged food and rising income of middle-class
•
Overall pet care market has been growing with at a CAGR of 16.2% and expected to grow by 17% over the next three years
(in R$ billion)
$6.4
$7.3
$8.4
$10.6 $11.5
$13.5
100%
CAGR: 10.7%
90%
CAGR: 32%
80%
CAGR: 30%
70% 60% 50%
CAGR: 12.6%
40% 30% 20% 10% 0% 2005
2006
2007
2008
2009
Pet Food
Services
Equipment & Accessories
Vet Medicine
2010
Source: Euromonitor, Pet South America, Interviews
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Pet products and services are sold through a variety of channels • •
Pet Shops Pet Store
• •
• • •
Neighbourhood pet-shops are the most important channel for pet retailing in Brazil Pet shops is a highly fragmented channel with more than 10,000 operating units accounting for over 50% of the total operating units providing pet care products and services in Brazil Pet shops or neighborhood pet stores, can range between 3000-5000 ft2 in size and stock about 1000 SKUs Popularity of this channel is attributed to convenience coupled with provision of personalized services at these shops
Agro-resellers, who have traditionally focused on the sale of farm supplies are now shifting to selling pet products While these agro-resellers offer pet food, accessories and veterinary services; they do not offer additional services such as bath and grooming, day care and hotel/night stay There are around 7,000 agro product resellers based in malls or having shops at city outskirts and constitute ~10% of all pet care operating units
Agro Resellers • • •
Pet superstores are large specialty stores with area ranging between 15,000-20,000 ft2 and are situated in prime locations such as malls or central business districts These stores are dedicated to selling only pet products and services and offer private label products as well but are more popular for pet accessories than pet food due to limited variety of pet food brands available They contribute ~7% in the operating units and MNCs are increasingly using this format to gain share in pet food market
Pet Superstores • •
Supermarkets
•
• •
Supermarkets are large stores with area around 30,000-35,000 ft2 located in prime areas in urban centers and are at the forefront of distribution strategies for leading players / brands These superstores stock around 20,000 SKUs and key feature is the discounts and promotional schemes they offer due to economies of scale which helps to price products competitively They offer pet food & accessories but no related services and have ~ 12% share in the pet care operating units
•
Online pet food retailing is an emerging format in Brazil and currently, constitutes only a small share ~ 2% in the pet care operating units This format offers the convenience of shopping from home but provides only pet food and accessories and cannot offer other pet related services such as day care, batch and grooming etc. Most of the leading retailers are sensing traction in this space and thus, have set up their online store
• • • •
Vet clinics provide veterinary services along with pet merchandise & bath and grooming facility and constitute ~ 20% of the pet care operating units These clinics are around 1,500 - 2,000 ft2 in area and are located all across large and small cities Offering vet care along with pet food and products is the value proposition of these clinics A few superstores have built a vet care unit within the store to provide all services under one roof
Online Retailers
Veterinary Clinics Source: Sutherland Research
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Pet population is concentrated in the South East and Southern regions of Brazil Pet Population in Million by Region
5.7
5.8
North
12.5
23.4
Central West
=83.3 Mn
35.9
South
North East
South East
•
Lowest pet density
•
•
Contributes ~12% of the Brazilian GDP
•
Almost isolated from the rest of the country
Contributes ~12% of the Brazilian GDP
•
•
Contributes ~8% of the Brazilian GDP
Contributes ~58% of the Brazilian GDP
•
Mainly savanna-like climate and vegetation
•
•
Houses ~27% of total population
•
Most populous region in the country
•
Houses over 6% of total population
High standard of living, with the best social indicators of the country and has a strong presence of immigrants
•
Has three most important national metropolitan regions: Sao Paulo, Rio de Janeiro and Belo Horizonte
•
Vegetation dominant region and contains the Amazon Rainforest
Source: ANFAL-PET
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Sao Paulo and Rio De Janiero appear the most attractive market for entry, from a size-perspective Brazil: R$ 13.5 Billion Pet Market Households
Population
GDP
Pet Care Market
‘000
Million
R$ Billion
R$ Million
São Paulo
3,928
11.0
357.1
6,210
Rio de Janeiro
2,407
6.2
154.8
1,080
Curitiba
634
1.8
43.3
597
Belo Horizonte
846
2.4
42.2
529
Brasília
856
2.6
117.6
527
Porto Alegre
574
1.4
36.8
507
Salvador
962
2.9
29.7
391
Fortaleza
78
2.5
28.4
374
Campinas
388
1.1
29.4
338
Recife
515
1.5
22.5
296
Manaus
515
1.7
38.1
269
São Luís
305
1.0
14.7
194
Maceió
313
0.9
9.1
121
Natal
271
0.8
8.7
114
Florianópolis
194
0.4
8.1
112
Belém
424
1.4
15.3
108
João Pessoa
242
0.7
7.7
101
Teresina
252
0.8
7.5
99
Aracaju
197
0.5
6.9
92
Goiânia
483
1.3
19.5
87
Others
NA
NA
NA
1,355
Brazil Geography by Major Cities Capital
Source: SGS Computation Model, Primary Research
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Sao Paulo is the most populous city in the southern hemisphere & 10th richest in the world Macroeconomic and Demographics Indicators GDP
359.4 bn Contribution to Brazil GDP: 11.8%
Highest amongst all cities in Brazil
Key Observations • •
Population
Population Break-up
Area
Households
Employment
Average Monthly Income (AMI) Income Distribution (Basis AMI)
11.2 mn Share in Brazil population: 5.8%
Most populous in Brazil
0-19: 31.3% 30-59: 41.3% 20-29: 15.9% 60 or older: 11.5%
Employable population: 57.2%
1,523 Km2 Share in Brazil area: 0.018%
3.9 mn Share in Brazil: 5.8%
4.2 mn Share in Brazil employment:12.7%
R$1,358 Growing at approx. 4% y-o-y <800:37.7% 1,600-3,200: 18.5% 800-1,600: 26.0% 3,200: 17.8%
•
Largest city in Brazil
•
• •
Highest in Brazil
•
Share in employment is higher than share in population (5.8%)
•
Higher than Brazil’s average of R$919
•
•
Sao Paulo’s nominal GDP increased at a CAGR of 11% during 20022007, in line with Brazil’s GDP growth during this period City of Sao Paulo has undergone significant economic changes, from being a traditional manufacturing-based city to a service-oriented one. The services sector currently comprises 65% of its GDP According to PWC report, Sao Paulo is the 10th richest city in the world and is expected to climb to the 6th spot by 2025 City of Sao Paulo has a population of more than 11 million, making it the most populous city in the southern hemisphere. The population grew at a CAGR of 0.59% during 2000-2010 Due to the concentration of wealth and population, the city has become a prime target market for Western countries It is regarded as the commercial hub of the country, with 63 % of the international companies operating in Brazil have their head offices in Sao Paulo city More than 500,000 affluent families reside in the city of Sao Paulo (38% of the Brazilian total) 95% of the population is urban, with women constituting 51% and white people 57% Unemployment rate has been witnessing a declining trend and was 13.9% in 2007 as compared to 17.9% in 2002 The number of households has grown at a CAGR of 3.2% during 2000-2010. Around 60% of these households have 3-5 people
~ 62.3% population over AMI of R$800
Source: IBGE, News Articles
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All 31 prefectures in the city have monthly income higher than Brazil’s avg; a mix of prefectures is considered for analyzing location attractiveness
City of Sao Paulo’s Regional Break-up by Average Monthly Income 30 17 25
29
18
3 9 1
6
10
AMI
Population
Region
AMI
1 – Butanta
2,764
2 – Ipiranga
Population
384,069
17 – Santana
1,435
304,062
2,197
429,299
18 - Vila Maria
1,435
287,886
3 – Lapa
2,764
255,185
19 - São Mateus
937
436,329
4 - Vila Prudente
1,352
520,670
20 - Jaçanã
1,435
276,628
5 - Vila Mariana
2,197
294,627
21 – Mooca
1,352
286,598
6 – Pinheiros
2,764
233,563
22 - São Miguel
937
410,514
7 – Penha
1,352
476,489
23 - Itaim Paulista
937
399,140
928
672,901
24 - Cidade Ademar
928
402,713
1,789
328,597
25 - Casa Verde
1,177
313,026
928
578,857
26 – Aricanduva
1,352
258,203
1,177
442,722
27 – Guaianases
937
291,193
12 - M´Boi Mirim
928
544,446
28 - Cidade Tiradentes
937
242,077
13 – Itaquera
937
525,337
29 - Ermelino Matarazzo
937
210,709
1,177
148,226
928
148,239
20
14
11
Region
16
12
5
7
21
26
4 2
22
23
13
27 28
19
15
Up to R$1,200
24
R$1,200 – 1,500
8
31
R$1,500– 2,000
8 - Capela do Socorro
Over R$2,000
9 – Se
Ranks reflect prefecture’s monthly income (1 being the highest) and have been arrived at by multiplying prefecture’s average monthly income and its population
10 - Campo Limpo 11 – Pirituba
•
Five regions are selected, with at least one from each income slab based on population and affordable income level to provide a suitable mix
14 – Freguesia
1,177
416,743
30 – Perus
•
Butanta – Highest AMI, Moderate population
15 – Jabaquara
2,197
213,862
31 - Parelheiros
•
Ipiranga – Second-highest AMI, High population
16 - Santo Amaro
2,197
207,421
•
Vila Prudente/Sapopemba – Moderate AMI, High population
•
Se – Moderate AMI, Moderate population
•
Capela do Socorro – Low AMI, Highest population
Source: Sutherland Research
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AMI = Refers to Average Monthly Income per household
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