GLOBAL PET FOOD RETAIL: CURRENT STATE AND FUTURE OPPORTUNITIES FOR GROWTH PFAC 2014 ANNUAL CONFERENCE NOVEMBER 14, BANFF, CANADA

GLOBAL PET FOOD RETAIL: CURRENT STATE AND FUTURE OPPORTUNITIES FOR GROWTH PFAC 2014 ANNUAL CONFERENCE NOVEMBER 14, BANFF, CANADA

CURRENT STATE OF GLOBAL PET FOOD RETAIL EMERGING MARKETS AS DRIVERS OF GROWTH LOOK AT BRAZIL AND RUSSIA NORTH AMERICA REVIEW LOOK AHEAD NEW CONCEPTS IN GLOBAL RETAIL SUMMARY Q & A

CURRENT STATE OF GLOBAL PET FOOD

GROWTH IS POSITIVE GLOBALLY IN DOG AND CAT FOOD 4 25,000.0 14.0 US$ mn, constant value, fixed exchange 20,000.0 15,000.0 10,000.0 5,000.0 0.0 Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa North America Western Europe 12.0 10.0 8.0 6.0 4.0 2.0 0.0 % growth 2014 2013-14 % growth Global growth positive, at 3% in constant value in 2014, on total sales of US$76 billion Dog and cat food leads, with regional variations in economy segment performance - double digit growth in Latin America and decline in North America Alternative sources of protein in pet food (e.g. kangaroo in Australia pet food starting 2014)

OTHER PET FOOD FACES CHALLENGING ENVIRONMENT IN MANY MARKETS 5 3,000.0 10.0 US$ mn, constant value, fixed exchange rate 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0-500.0 Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa North America Western Europe 8.0 6.0 4.0 2.0 0.0-2.0 % growth 2014 2013-14 % growth Other pet food slow in many developed markets, but pockets of growth exist with the changing dynamic in pet population

RISE OF EMERGING MARKETS 6 Netherlands Top 15 Pet Care Markets by Value Sales: 2004 USA UK Germany France Japan Brazil Italy Canada Australia Spain Russia Belgium Mexico China 0.0 5.0 10.0 15.0 20.0 25.0 30.0 US$ Billion Top 15 Pet Care Markets by Value Sales: 2014 USA UK Brazil France Germany Japan Italy Russia Australia Canada Mexico Spain Netherlands China Venezuela 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 US$ Billion Drivers of growth include rising incomes, urbanization and changing attitudes towards animals as companions, shrinking family size

PRODUCT DEVELOPMENT TRENDS 7 Dog Chow Abrazzos Peru, 2013 Treats for small dogs Added calcium Natural ingredients Help to reduce plaque and tartar Dreamies Russia, 2013 Treats for cats Marketed as tasty gourmet, crunchy outside and soft inside Enriched with vitamins Momi Rabbits Taiwan, 2013 Freeze dried treats, positioned as 100% natural and use fresh fruits; No added colour s and preservatives Dried papaya, strawberry and banana varieties Kit Cat Singapore, 2014 Premium wet cat food Grain free, less salt No pork /lard, to adapt to Muslim culture High in Omega 3 and 6 ph balanced Nutrience Grain Free Taiwan, 2013 Premium cat food Claims to help greater absorption of nutrients and healthy digestive system Ocean fish & turkey and salmon flavours; includes fruits and vegetables

UNDERPERFORMER FROM 2012 LAUNCHES FOOD FOR THOUGHT 8 Best in Show Morning Sun turtle food by Dr Josh Laboratories JM & K Pty Ltd, Indonesia Launched under a popular Australia-made brand Marketed as most technically advanced life stage diet for aquatic turtles The product did not gain significant traction on the market Strong competion from local manufacturers of turtle food with wider retail distribution and better pricing. Best In Show is better known for dog food and failed to communicate its expertise in turtle food to customers. The 240 grams packages are too big, as more common and more popular packaging ranges from 50 to 100 grams.

LOOK AT BRAZIL AND RUSSIA

BRAZIL: PLENTY OF UNTAPPED POTENTIAL 10 46% Households own a dog 20% Households own a cat 50% Unprepared food

BRAZIL: DYNAMIC MARKET 11 5,500.0 6.0 US$ mn, constant value, fixed exchange rate 5,000.0 4,500.0 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 Dog and Cat Food Bird Food Fish Food Small Mammal/Reptile Food 5.0 4.0 3.0 2.0 1.0 0.0 % growth 2014 2013-14 % growth Growth across all pet food segments, although difficulties in reptile population and related foods due to regulations French agricultural group InVivo acquires Total Alimentos the fourth largest player in dog and cat food market in Brazil

BRAZIL: GROWTH ACROSS ALL PRICE SEGMENTS IN DOG AND CAT FOOD 12 US$ mn, constant value, fixed exchange rate 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 6.0 5.0 4.0 3.0 2.0 1.0 % growth 0.0 Economy Dog and Cat Food Mid-Priced Dog and Cat Food Premium Dog and Cat Food 0.0 2014 2013-14 % growth

RUSSIA: PLENTY OF UNTAPPED POTENTIAL 13 28% Households own a dog 37% Households own a cat 73% Unprepared food

RUSSIA: DYNAMIC MARKET 14 3,300.0 8.0 US$ mn, constant value, fixed exchange rate 3,000.0 2,700.0 2,400.0 2,100.0 1,800.0 1,500.0 1,200.0 900.0 600.0 300.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 % growth 0.0 Dog and Cat Food Bird Food Fish Food Small Mammal/Reptile Food 2014 2013-14 % growth 0.0 Growth across all categories as pet population growth and more pet owners shift to prepared foods Rise in popularity of exotic birds and increase in use of decorative fish

RUSSIA: PREMIUM AND MID-PRICED PRODUCTS DRIVE REVENUE GROWTH 15 US$ mn, constant value, fixed exchange rate 1,400.0 1,200.0 1,000.0 800.0 600.0 400.0 200.0 12.0 10.0 8.0 6.0 4.0 2.0 % growth 0.0 Economy Dog and Cat Food Mid-Priced Dog and Cat Food Premium Dog and Cat Food 0.0 2014 2013-14 % growth

NORTH AMERICA REVIEW

17 PREMIUM POSITIONED PRODUCTS LEAD THE WAY IN DOG AND CAT FOOD 12.0 10.0 8.0 6.0 4.0 2.0 0.0 US and CA, US$ bn, constant value, fixed exchange rate rate Economy Dog and Cat Food Mid-Priced Dog and Cat Food Premium Dog and Cat Food 2012 2013 2014 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 0.0 Economy Dog and Cat Food Mid-Priced Dog and Cat Food Premium Dog and Cat Food 2012 2013 2014 US, and CA, Volume, 000 tonnes

LOCAL SOURCING 18 Provenance and known ingredient sources are gaining greater importance in pet food, mirroring also trends in human foods Products put consumer mind at peace that no unsafe ingredients are present in their pets diet True Raw Choice: 100% Canadian Local sourcing still has stronger presence in smaller premium brands but is being picked up by market leaders Zignature Zssential: Product of USA

INCREASING VARIETY OF PROTEIN SOURCES 19 Rising meat prices and concerns over environmental impact of livestock farming spur interest in alternative protein sources More options in mixed proteins, duck meat, bison, nutria-based formulas (Marsh Dog in the US) and others, which are positioned as premium gourmet and healthier Pure Bites by Pure Treats: bison liver Among current challenges is limited supply of raw ingredients as these are not widely consumed by humans Carna4: duck formula

FREE FROM AND ETHICALLY SOURCED 20 Trends in human food towards free from and ethically sourced are moving into pet care Expanding array of pet food claiming free from grain, soy, corn, wheat Ethically sourced with claims to dolphin safe in food and sustainable materials in other pet care (straw cat litter by EnviroSmart Products) b.f.f. (Best Feline Friend): dolphin safe Challenges include lack of regulatory support and expert consensus to give weight to claims Oven Fresh Quacks: wheat, corn, soy free

SPECIALTY RETAILERS IN BATTLE WITH MASS MARKET RETAIL 21 % value share of retail sales by channel 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 Other retailers Internet Retailing Veterinary clinics Pet shops Pet superstores Grocery Retailers 20.0 10.0 0.0 2013 2014 Small pet shops and veterinary clinics continue to struggle Online sales continue to gain share of sales; Click & Collect options opening up in Canada NOTE: Walmart Supercenter format is included in Grocery Retailers

BARGAIN HUNTING IN PET RETAIL 22 Trend towards mass premium remains on the agenda Bargain hunters turn to discount retail for popular brands and lower prices Dollarama in Canada revamps stores, expands pet care aisles, including private label and exclusive brands, features smaller packaging Pricing pressure on suppliers among key challenges to listing with Dollarama Dollarama, Montreal, Canada

FRESH FOOD ENTERS MASS MARKET 23 Freshpet brand in Canada expands into leading mass market retailers Products are well placed in high visibility chilled cabinets emphasizing fresh quality familiar ingredients Competitive price: at Loblaws, 794g pack Freshpet Chicken Recipe with Carrots and Spinach dog food is C$7.69 (or C$9.67 per kg), while 283g pack Beneful wet dog food is C$2.79 (or C$9.85 per kg). Freshpet in Loblaws, Ottawa, Canada

RAW FOOD IN PET SPECIALTY RETAIL 24 Raw pet food still a small proportion of the pet food market but continues to see growth Experts concerns over exposure to bacteria and unbalanced nutrition did not dampen demand Pet shops see an opportunity to differentiate themselves from mass retail and draw customers with higher spending power PetValu store in Toronto, Canada

LOOK AHEAD

POSITIVE GROWTH AHEAD ACROSS MOST REGIONS 26 30,000.0 6.00 US$ mn, constant value, fixed exchange rate 25,000.0 20,000.0 15,000.0 10,000.0 5,000.0 5.00 4.00 3.00 2.00 1.00 % growth 0.0 Asia Pacific Australasia Eastern Europe Latin America Middle East and Africa North America Western Europe 0.00 2014 2019 2014-19 CAGR % Premium segment ahead in terms of growth Economy food will remain important in emerging markets

NORTH AMERICA: SLOW GROWTH IN DOGS AND CATS 27 Dog and cat population, in 000 animals 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 Canada 2008 2013 2018 US Urbanization, changing demographic and ethnic makeup of the population, ageing consumers vs Millennials No significant increases in dog and cat population through 2018 Shift to smaller dogs Opportunities in pets other than dogs and cats Reports of reported growth in urban livestock as pets

BRAZIL AND RUSSIA: SOLID GROWTH IN DOGS AND CATS 28 45,000.0 000s of animals 40,000.0 35,000.0 30,000.0 25,000.0 20,000.0 15,000.0 10,000.0 5,000.0 0.0 2014 2015 2016 2017 2018 2019 Brazil Cat Population Russia Cat Population Brazil Dog Population Russia Dog Population Cats and small dogs will see stronger increase than medium and large dogs in both markets

BRAZIL: MORE OPPORTUNITIES ON THE HORIZON 29 7,000.0 6.00 US$ mn, constant value, fixed exchange rate 6,000.0 5,000.0 4,000.0 3,000.0 2,000.0 1,000.0 5.00 4.00 3.00 2.00 1.00 % growth 0.0 Dog and Cat Food Bird Food Fish Food Small Mammal/Reptile Food 2014 2019 2014-19 CAGR % 0.00

RUSSIA: HEALTHY GROWTH AHEAD 30 4,500.0 6.00 US$ mn, constant value, fixed exchange rate 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 5.00 4.00 3.00 2.00 1.00 % growth 0.0 Dog and Cat Food Bird Food Fish Food Small Mammal/Reptile Food 2014 2019 2014-19 CAGR % 0.00

AGEING HUMAN POPULATION: CHALLENGE AND OPPORTUNITY 31 Ageing Population by Key Country 2013 and Growth 2013-2020 Source: Euromonitor International Note: Bubble size: total number 2013 ( 000) Older does not equal wealthier. OECD: percentage of 65+ with incomes below 50% of the median equalized income in 2013 was high even in some developed markets, e.g. Australia at 35.5%, Japan 19.4%, Spain 12.5%, Italy 11%, and Germany 10.5%

NEW CONCEPTS IN RETAIL

CANADA: CLICK & COLLECT IS FINALLY HERE 33 Wal-Mart Canada, 2014 Loblaws Cos Ltd, 2014

SOUTH KOREA: PET GARDEN 34 Operator (NBO): Pet Garden by Lotte Shopping Co Ltd Description: Lotte Shopping is opening pet specialist stores (Pet Garden) inside its hypermarkets. Pet Garden features over 2,500 products and provides services, such as veterinary, grooming, training school, playground, and a pet hotel

UK: ARGOS USE OF ipads IN STORES 35 Operator (NBO): Argos Description: Argos refurbishes its stores to encourage more interaction between in-store and non-store grocery retailing. Paper catalogues are replaced with in-store ipads. The stores also incorporate collect points for consumers who order online

CHINA: Ubox VENDING MACHINES 36 Operator (NBO): Beijing Ubox Science &Trading Co Ltd Description: Ubox launched vending machines offering a wide range of products and services. The machines accept multiple payment methods - cash, QR code scan, and acoustic payment system via online Alipay (consumer selects a product on the machine, opens Alipay acoustic payment software on the phone and puts the mobile handset near the vending machine receiver to connect online payment system and the vending machine).

SUMMARY 37 PETS While cats and dogs remain the key consumers, watch for changes in pet ownership dynamic Rising popularity of pets other than dogs and cats Watch the trend towards micro-livestock in urban environment and respective pet needs Retailers knowledge and expertise in maintenance and care can shape pet ownership trends, drive demand and sales PRODUCTS AND RETAILERS Enhanced balanced nutrition remains important Growing presence of products positioned as free from, local ingredients and ethical sourcing Use of alternative proteins to position products as premium, gourmet, and healthier Aligning products with pet owners lifestyle, cultural and religious affiliations Opportunities in products for pets other than dogs and cats Assess new ways to reach consumers new concepts in retail across markets MARKETS Developed markets, including North America, are mature and slow moving, with value growth supported by premiumisation Potential weakening in the EU as economic recovery remains shaky Overall stronger growth in developing markets, but potential threats to sales growth in Eastern Europe Premium segment is key to revenue growth, but economy and bargain shopping are not to be underestimated across markets

THANK YOU FOR LISTENING Svetlana Uduslivaia Senior Research Analyst Euromonitor International Chicago 1-312-922-1115 ext. 8302 E-mail: Svetlana.Uduslivaia@Euromonitor.com