WildEarth is taking on the pet food industry, here is why that’s a BFD

Americans spend over $70B on their pets every year. It’s an eye opening figure that doesn’t begin to capture the love affair we have with our four-legged friends. Lavishing our pets with toys, treats and of course, their very own instagram account is part of the playbook for every responsible pet owner (the last part I am half serious about). Despite this, the space has flown mostly under the radar and even within, there are intriguing pockets and subsets that have not received much investor fanfare and now look poised to break out.

With that said, we are excited to announce our first foray in the pet health space — we’ve invested in WildEarth alongside some incredible groups such as the likes of Felicis Ventures, MARS, Founder’s Fund, and others. Based in San Francisco, WildEarth are a BioTech company developing clean protein pet foods that are healthier, better for the environment, and more humane than conventional products. Their first line of products will be made with Koji (aspergillus oryzae), an ancient fungi with strong nutritional properties that have been a mainstay in Eastern diets for thousands of years. (for the interested/curious, more info on Koji here).

This one is a little bit more personal for me. As the owner of 2 adopted dogs, and an investor looking at food I’ve long been on the hunt for company’s addressing this market. As you’ll learn more about below, pet food is a space that has been dominated by ‘Big Food’ and as a result has been largely absent of innovation, specifically from a product perspective. In other sectors, this incumbent stranglehold is familiar, but in food there is a sense of greater urgency when its implications relate to health, nutrition and overall well-being.

As an investor one of the core questions you look to answer when speaking to any company is Why Now? Maybe there are clear signs pointing to untapped growth in a certain area, or perhaps the incumbents are asleep at the wheel — bottom line, what about this market makes it a compelling investment opportunity today.

With this in mind, I’d love to share some factors at work which highlight why we think this space is prime:

  • The U.S. pet food market is the world’s largest, currently at $30B in size. That is 32% in the context of the global pet food market, which has reached an estimated $94B.
  • If you zoom in, the U.S. appears to be a relatively mature market with over 68% of all households (~85M families) owning a pet, however if you look even deeper there have been some notable shifts in demographics:

→ Pets per family or Multi-Pet Households have increased. According to a 2014 report from the American Pet Product Manufacturers Association, nearly one-half of all dog owners own cats, and nearly one-half of all cat owners own dogs. This has separate implications for other fields within the pet market like insurance, where multi-pet insurance is growing — something I can address in a future post.

→ Millennials (18–34 years old) have surpassed baby boomers in pet ownership and are now responsible for 62% of all pets owned in the U.S. They will also be the primary driver of ownership going forward, with 43% of those in this cohort stating that although they do not have a pet now, want one in the future.

  • Pet owners of today have far greater expectations (and scrutiny) when it comes to the food they choose. Looking deeper into ingredient origins, the brands sustainability track record, and being vocal consumers overall are far more evident today than ever before.
  • A 2016 Nielsen report pointed out that 55% of American and French pet owners claimed that, if they were on a strict budget, they’d be willing to give up chocolate in order for their pet to have high-quality food with the features that are important to them. Additionally, 43% of American pet owners with a Netflix subscription said they’d be willing to trade it for the same.
  • This has been helped by the availability of data, which has given consumers a much greater understanding of what optimum nutrition looks like. For example, while protein appears to be the major ingredient consideration, the concentration of the right amount of amino acids are just as crucial for pet health.
  • China has already become the third-largest pet owning country (>100M pets) after the U.S. and Japan, despite the fact only between 2–4% of Chinese households own pets. This is in comparison to the US, where over 68% of households own pets.
  • Chinese consumers spend less on their pets than the U.S. ($44.4B vs. $2.8B) today, but the market in China is growing faster at 20%, compared to only 2% YOY for the U.S.
  • One of the biggest growth drivers has been cultural. Owning pets in China was once banned and branded bourgeois during the Cultural Revolution. Recent decades have seen a massive transformation in attitudes towards pet ownership as Chinese citizens have subsequently become wealthier and globalized. We are still very much in the early stages of this transformation.
  • Other market factors to be aware of:

→ Chinese Millennials are driving growth in ownership and spending, expectations are that China will increase spending on their pets to $7B by 2022.

→ The rise of e-commerce and mobile-only economies is going to be a key point of distribution for brands. Already, 38% of pet food is purchased online in China vs. 7% in the US.

→ Outside of rising disposable incomes, changes in consumer lifestyles (spend in travel, experiences, luxury goods) are big drivers in behaviour around this industry.

2016 Pet Food Revenue by Brand
  • The market for U.S. pet food is dominated by large food companies, the top 5 of which account for ~$35B of total revenue in 2016. Mars and Nestlé are the biggest players.
  • Despite their dominance, the industry has not been without problems, with a recent slate of notable food safety issues:

→ March 2018- FDA confirmed that J.M. Smucker has recalled 107M cans of dog food contaminated with a euthanasia drug.

→ March 2018- FDA forced a recall of Advance Dermocare dry dog food (Mars Petcare) after over 74 documented cases of dogs eating the food then contracting fatal megaesophagus.

→ April 2018- FDA withdrew three raw dog foods from the market after finding Salmonella contamination at their production facility.

  • Pet Food is estimated to be responsible for a ¼ of the environmental impact of meat production in terms of the use of land, water, fossil fuels, phosphates and pesticides.
  • To contextualize this further, imagine the entire population of dogs and cats in the U.S. seceded and formed their own nation. This nation would rank fifth in global meat consumption, behind Russia, Brazil, the United States and China (!).
  • Despite the resource intensity, you are still only looking at ~18% protein content for a bag of premium dry dog food.
  • Further, because of the loose regulations around the production of pet food, it’s questionable what meat manufacturers are actually using.

These are just some of the areas that show why we are excited about the space and why we are going to continue to keep an eye out for companies that are building solutions across the value chain.

WildEarth has launched their first line of products, which are available today in 2 flavours. We are fortunate enough to partner with Ryan, Ron and the team as they work towards building a leading pet food brand.

*Relating to changes in consumer attitudes in China. As far as they have come, there is admittedly still a very long way to go. Dog meat consumption is still prevalent in many areas, horribly epitomised by the annual Yulin Dog Meat Festival. If you have a moment, please sign this petition

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