Fresh pet food combines two key trends – premiumization and humanization – which have dominated the global pet food market: humanized ingredients packaged as people-food. Freshpet has capitalized on this demand for fresh dog foods to become one of the leaders in that segment of the pet food industry.
Advertising expenses were one of the primary drivers behind Freshpet’s success, supported by their innovative refrigerators, according to Todd Cunfer, Freshpet CFO, speaking at the Consumer Analysts Group of New York (CAGNY) Conference held February 22 in Boca Raton Florida USA.
Five years ago, Freshpet was purchased by 4.5 million households in the US at an average annual spend of US$55.54 each. By January 2023, that number had more than doubled to 9.8 million households each spending US$84.50 annually on Freshpet products.
Freshpet has seen its market share in dog food increase from 2.7% five years ago to 5.8% today – representing 115% growth rate. Furthermore, Freshpet dominates in fresh pet food segment with 96% market share.
“Our franchise is built upon advertising,” Cunfer stated, adding, “We have increased our investments annually for several years – this is truly the engine behind our expansion.
Refrigerated Freshpet products require refrigeration to stay cold; thus retailers must install refrigerators in their pet food aisle to store these products, creating another form of advertising through retail visibility.
“We own all the fridges in stores,” said Mr. Wilson, “and our expertise and capability in maintaining them has been refined over the years, but they also serve as brand beacons.” Imagine walking down an unfamiliar and dusty aisle where there is one brightly-lit refrigerator with fresh pet graphics highlighting our products’ points of differentiation compared to all the others lining its shelves; such a presence highlights brand array and increases shelf space significantly; an incredible advantage which amplified for advertising!
Refrigerated dog food refrigerators continue to proliferate at an incredible rate; five years ago, 18004 stores offered freshpet dog food; by January 2019, 25,281 retailers had put refrigerated products on their shelves – representing an increase of 40%!
Retail Penetration and Challenges to Fresh Pet Food Growth
As more stores opened, more sales increased exponentially for Freshpet. Sales totalled US$16 million in 2010, five years later total sales reached US$152 million before surging 277% to over US$575 million by January 2023 – representing an impressive 35% compound annual growth rate since 2010. Company executives estimate it will reach over 20 million households by 2027 with retail sales estimated to hit US$2.7 billion or US$1.8 billion respectively.
However, this growth hasn’t directly translated to increased profits; adjusted gross margins have dropped from 51.5% in 2017 to 37.1% due to quality assurance costs, inflation and plant start-up expenses.
“Today it’s not only about growth,” he stated. “It’s also about profitability. Unfortunately, we have not done well at that.” To see this clearly in action over time, look at what has happened with our adjusted gross margin ratio over the years.
Cunfer indicated that his company has taken measures to address all three challenges to profitability.