February 28, 2017

Global investment group KKR announced it has made an undisclosed investment through its China Growth Fund in China-based pet food giant, Gambol Pet Group.

Though the backing gained from KKR, Gambol is planning on expanding the company’s production capacity in its key markets – China, Thailand, the EU, and the U.S, where the company is currently the top supplier of private label pet treats to the Walmart chain of stores. KKR also will lend its expertise in food production systems to aid Gambol in the areas of food safety and security.

Gambol is one of the top pet food exporters in its domestic market of China – shipping products across North America and Europe, as well as Asia. In China, Gambol’s “Myfoodie” brand of pet food is ranked first in the pet treat category and is top supplier in the dry food category.

“High quality pet food is critical to ensuring the health of pets,” said Qin Hua, chairman and CEO of Gambol. “By partnering with KKR, we aim to expand and provide healthy packaged pet food to customers both overseas and in China. KKR will become a truly value-added partner to Gambol with their deep expertise in the global pet sector, with Chinese consumers, and in the area of food safety.”

Pet-Driven Profits

Pet ownership has skyrocketed in China along with rising incomes. Currently, with 24.7 million pet dogs, China ranks third in the world for dog ownership behind the U.S which claims 55.3 million, and Brazil with 35.7 million, according to the National Bureau of Statistics of China, reports Forbes.  The country also ranks second in the world for cat ownership with 58.1 million pet cats owned – following only the U.S with 80.6 million.

However, even at these number, Stratop Group claims that only 13 percent of Chinese urban households include a pet dog – compared to 36 percent of U.S. households, according to the American Veterinary Medical Association, states KKR.  Furthermore, market penetration for packaged pet food in China stands only at 14 percent, compared to more than 90 percent in the U.S. indicating the nascent nature of the industry in China and its potential for growth.

Once viewed as elitist during the Cultural Revolution, owning a pet in China has evolved to be an indicator of wealth, with owners often spending large percentages of their income for status-reflecting services and products for their pets. However, pet food is the segment that seen the greatest growth from China’s embrace of pet ownership.

Forbes reports that China is now the largest pet food market in Asia Pacific, according to Mintel, posting 30 percent growth in recent years to reach a value estimated to be $50 billion. Additionally, sales of dog food alone in the country are expected to triple by 2019 to reach a value of $760 million.

“Gambol is well-positioned to capture new opportunities in the pet food sector globally and in China given Gambol’s extensive industry expertise, product innovation capabilities and long-term commitment to producing safe, high-quality pet food. We look forward to working alongside this experienced and capable management team to build a true industry leader in the emerging pet market,” said Chris Sun, director at KKR China.

These numbers are not lost on private equity. In June 2015 Quadrant Private Equity acquired an 85 percent stake in Queensland, Australia-based chilled pet food business, VIP Petfoods for $410 million, and more recently, AAC Capital, in partnership with the Yarrah management team, acquired Yarrah Organic Pet Food – the leading bio-organic pet food brand in Europe.

Increased humanization of pets by highly engaged consumers is driving purchasing trends in the pet food industry parallel to those in the human food sector. The health consciousness and concern over sustainability and safety that are driving consumers’ choices for themselves and their families, are also increasingly driving their food choices for their pets.

-Lynda Kiernan

Lynda Kiernan is Editor with GAI Media and daily contributor to GAI News. If you would like to submit a contribution for consideration please contact Ms. Kiernan at lkiernan@globalaginvesting.com