We’re in the early stages of massive growth in alternative pet food formats. Take a walk around a pet store today and the perimeter resembles a traditional grocery store, with fresh, refrigerated options dominating the space.  

Fresh, frozen, gently cooked and raw foods are all growing faster than the traditional dry kibble format, taking market share from the largest food brands and manufacturers in the space. Market research firm Technavio expects a compound annual growth rate of 21.2% for the U.S. fresh pet food market between 2024 and 2029. This is driving consolidation in kibble co-manufacturing, with several notable brands having either been sold or exited the space altogether.  

Given the level of innovation and the emergence of smaller players in the market, opportunities for additional consolidation appear to be strong. 

Over the past decade, spending on discretionary pet products and services has risen substantially. Cat food has been particularly fertile ground for innovation, as evidenced by emerging premium providers like Smalls and Kit Cat, and by megadeals such as General Mills’ acquisition of Tiki Cat.  

The concept of “pet humanization” has driven much of the innovation in the space, as well as increased consumer spending. Pet owners are looking for food and treat brands that are high-quality, better for the pet, minimally processed, and all-natural. Treats are an increasingly larger part of the everyday pet diet, representing a total shift in consumer behavior as part of the pet humanization trend, akin to the “snackification” movement in human food: 

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  Treats are no longer solely used as a reward or training vehicle and are instead considered a critical component of the everyday pet diet 

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  The bar has risen for high-quality, functional benefits in treats 

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  These factors have driven significant increases in consumption frequency 

And while the market share for private label pet food and treats has lagged other consumer categories, it is quickly catching up. According to the most recent report from the Private Label Manufacturers Association, store brand pet food sales climbed 25.6% in 2023 year-over-year. Consumers are growing more comfortable with private label pet products, and inflationary pressures have pushed retailers to offer premium products at affordable prices.  

Meanwhile, international players are taking notice of these trends and are looking for opportunities to grab market share in the U.S. Agrolimen (Spain), United Pet Food (Belgium), The Nutriment Company (Sweden), Swedencare (Sweden), IPN (England) are among the major international companies making moves in the U.S.  

To keep pace with this rapidly shifting market, we’ll likely see more companies taking advantage of these market trends via acquisitions or debt and equity capital raises to support these initiatives. Smaller companies are endearing themselves with major retailers to expand geographically with them. Larger-scaled players are expanding to increase efficiencies and lower shipping costs to ensure products are delivered to customers just in time.  

We can attest to our own activity at BMO in financing major growth and expansion projects, as both large and small players are seeking M&A strategies to position themselves for growth in this evolving landscape. 

Todd Giles is BMO’s Group Head, National Industries Team. Thomas DeMinico leads BMO’s Pet Products and Services practice under its Middle Market M&A team.