Axios Pro: Retail Deals

September 12, 2022

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🇬🇧 Top o' the morning to you, Retail readers. Kim is fresh off a red-eye and reporting from London this week.

👠 Situational awareness: New York Fashion Week 2022 ends Wednesday (with takeover target Tom Ford closing the show).

1 big thing: Freshpet expects pet food consolidation

Photo illustration of Billy Cyr and Scott Morris with pets.
Photo illustration: Gabriella Turrisi/Axios. Photos courtesy of Freshpet

The fragmented pet foods category will see increased M&A, Freshpet COO Scott Morris and CEO Billy Cyr tell Kimberly.

Why it matters: U.S. consumers spent over $123 billion on their pets last year, according to SDR Ventures. That market size is fueling a flurry of activity, with consumer packaged goods, health care and private equity firms all taking an interest.

State of play: Earlier this year, Mars acquired direct-to-consumer pet food brand Nom Nom Now for a reported $1 billion, and Swedencare snagged U.S.-based pet supplement maker NaturVet for $448 million.

  • Freshpet estimates the fresh pet food market could grow from an estimated $1 billion today to $4 billion to $6 billion by 2025 and slightly beyond.
  • "That's what's given us the confidence to go to the market, raise additional dollars, and continue to really build out our manufacturing facilities," Morris says.

Catch up fast: In May, Freshpet raised $350 million in an equity offering to set up a new manufacturing plant in Ennis, Texas. It also has a credit line it can tap.

  • The Secaucus, New Jersey-based company plans to open the Ennis facility in October, which will help it meet growing consumer demand, Morris says.
  • The plant will diversify some manufacturing and help it better logistically serve parts of the Southwest and the West Coast.
  • Once it’s fully up and running, it expects the facility’s total capacity to reach about $2 billion.

What’s next: The best investment so far has been putting money back into the company, Morris says, though he adds the company will always keep an “ear as close to the ground as possible” for opportunities.

  • Morris said the company’s growth — sales rose 34% in 2Q to $146 million — has helped Freshpet innovate, including in areas such as plant-based foods.
  • Freshpet also recently relaunched its Nature’s Fresh brand, which the company says has more eco-conscious ingredients, sourcing, manufacturing and waste processes, and a better carbon footprint.
  • While only a single-digit part of its business today, Morris says he expects Nature's Fresh to grow to 25% to 30% of its business in the “not distant future.”

Between the lines: Morris says the fresh pet category is fragmented, with "a lot of smaller companies that are developing and bringing their products to market" — those new entrants will contribute to the M&A feeding frenzy.

  • “One of the leading retailers said to us that their strategy has always been to serve a family,” Cyr says, “and they've come to realize that the family has grown to include the pets.”
  • The same can be said of large CPGs, “who are recognizing that the definition of a consumer base they serve has now grown to include the household pets," Cyr adds.
  • “That's caused a bunch of them to rethink a little bit, the scale of their investments, the opportunities for growth that they have, and pet food becomes a very, very high growth opportunity relative to many other things in their portfolio.”

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