Petbuddy Group, the Sweden-based pet-food and pet-nutrition business, has finalised its biggest acquisition to date, snapping up UK company Thrive Pet Foods.
Just Food sat down with Petbuddy co-founder and CEO Alexander Retzlik to discuss the deal, his company’s M&A strategy and why he believes premiumistation will continue to drive the overall sector.
Dean Best (DB): Why did Petbuddy move for Thrive?
Alexander Retzlik (AR): Because we see a very strong brand in Thrive that has been around for over 20 years. It’s been the pioneer, let’s say, in terms of freeze-dried products and high-quality cat food, especially with shredded products with real chicken fillets. They were one of the first super-premium brands in the UK market. The founder [Paul Finger] is incredibly detailed when it comes to the product development. He’s never compromised on this since the beginning of the brand, which can be quite different in the pet market. Usually, you bring a product on the market and then brands try to find more margin here and there – and it all turns into business. He’s never had an aggressive growth mindset. It’s always been about having a good brand and strong products. Over time that grows into a very strong, healthy company.
We have the infrastructure to onboard Thrive onto our distribution network and the other way around, of course. We’ve also added a very strong supply chain with long-lasting relationships, all very good manufacturing in freeze-dried and high-quality wet food, which we were lacking in PBG before. It was very complementary. For Thrive, it was also the point where now it needs to be professionalised because it’s come to the size where it might require more professionalised management to turn it into a large, leading brand. I think we found a perfect partnership between Paul – the seller – and the group.
DB: How does this acquisition boost Petbuddy’s geographic presence?
AR: For Petbuddy, it’s a strengthening of our foothold in the UK. Thrive has very good retailer and grocery relationships in the UK, a very strong network of veterinarians in the UK as well. We have the leading supplement brand in terms of oil-based supplements from the Nordics within the group with which we just entered the UK.
The brand Nutrolin has been on the market for over 15 years in the Nordics. These we would very much like to place with veterinarians in the UK, so that’s also one of the rationales on acquiring Thrive to really truly understand the UK market. We are Nordic in essence and the UK is a market of its own, so here we can knowledge share quite well. At the same time, we as a group are strong in South East Asia, central Europe and South America. There Thrive hadn’t really had its focus, so here we are also leveraging our relationships to place the Thrive brand with leading retailers in Asia, South East Asia and South America predominantly.
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On a European level, we’re sitting down with the largest retailers and understanding how Thrive can become the brand that you partner with to drive the premiumisation of the market through your retailer. When you look at the US, for example, freeze-dried products have been a big trend for, let’s say, the last seven years whereas in Europe it’s only just starting. We don’t see that slowing down.
DB: Is Thrive predominantly a UK-focused business at the moment?
AR: Yes, it is. It is present in 20 markets, so it is a global brand and it has been well accepted by all markets but it has a UK core, or let’s say it doesn’t really have a UK focus, but it is from and is best known in the UK. Then again in the Nordics, for example, it is also very well known. I mean, the brand awareness of Thrive especially in Europe and the UK, is comparable to the biggest players in the market. That’s also where we see the value of the brand but now it requires a solid innovation process that’s driving the brand forwards actively.
DB: Is that part of the professionalisation you mentioned earlier that Thrive needs?
AR: Yes, exactly. It doesn’t need – it’s a very well-functioning business, so it doesn’t need the professionalisation but it wants it.
DB: Was the business growing in its last 12 months of trading before you acquired it?
AR: I would have to check the exact numbers to be honest but it was around 20% growth organically, so it was really healthy. We see that continuing and accelerating.
DB: What were Thrive’s annual sales in its last fiscal year?
AR: We don’t really want to tell the market, to be honest.
DB: Are you able to say what the bigger Petbuddy group’s annual sales will be with Thrive?
AR: I think we will release a statement at the end of the year to show that to the market. I think for now we’re growing so strongly that I think we’re in a good position to keep that as is for now. We like to release annual statements once we’ve achieved the growth.
DB: Thinking about Petbuddy’s overall portfolio and sales channels: is the business more focused on pet specialists, mass retailers or e-commerce?
AR: We have quite a healthy mix right now. That’s the beauty of when you have different brands. When you have one brand, you kind of have to be careful who you work with and what channel is your channel. On a group level, we have very strong partnerships with e-commerce retailers. We have our own direct-to-consumer channel, so customers can also buy directly from the brand and we value and appreciate that but we don’t have that as our set strategy. Then pet specialty is the majority of our sales within the group, so that surely is the focus but we’re also aiming to be a good partner for the grocery channel with select product ranges and potentially even specifically designed product ranges for the grocery channel.
DB: Is a pet owner more likely to find your “super-premium” and “ultra-premium” brands in a pet specialist or e-commerce than grocery? Is it harder for you to get listings in grocery retail?
AR: Yes, it is. However, that is changing. The premiumisation trend in grocery is quite strong. What we aim to do is have product lines that will work for the grocery channel, which might be completely different to what we do in pet specialty. The way that we think is that we have our brands with their own focus and their own quality level of product. We want to make each brand as available as possible to the consumer. A consumer shouldn’t be discriminated based on where they buy their food. I think products should be available everywhere for the consumer. If you want to buy high-quality cat food, you should be able to go to pet specialty, grocery or buy it online. That’s how we try to drive the distribution strategy. It’s easier said than done because of course the different segments have their own preferences but that’s at least what we aim to do.
DB: Many pet-food companies have in recent years talked about premiumisation fuelling the market. Is that still the case in your opinion? Has there been any loss in momentum as consumers have found their spending more pressured?
AR: We haven’t felt that. That being said, our brands are high-growth brands, so just by us driving new distribution, it is kind of hard to feel a trend like that if you’re in growth. At the same time, what we do see is that, with our existing customers, our sales did not decline. We see strong brand loyalty within the market. When you decide based on quality and not based on price, then you’re very loyal because it is a highly emotional purchase.
I think if you have a customer who’s unaware or is more of a convenience shopper, you probably feel a bit more price sensitivity whereas decisions on our products are quality-based decisions. We haven’t really felt an impact of decreased consumer spending.
We found a pretty nice study – I don’t have the numbers now in my head – but it compared different consumer categories and changes in consumer behaviour throughout the recession. Pet was the category where the least decisions to cut back spending were made.
DB: Thinking about other trends that have helped pet food recently, during the pandemic, pet ownership jumped. There has been some research to say that’s eased.
AR: There was definitely a spike in Covid that we’ve also seen in the market studies that we’ve done but we still see a growth in dog and cat populations post the recession. Even though the growth isn’t comparable to the numbers that we saw during Covid, it is somewhat comparable to the CAGR growth of the years before. It’s almost like we had a baseline of growth then a peak but then a continuation of the baseline – possibly slightly below – but it is not a peak and then a fall, which is very nice to see.
DB: Thrive was Petbuddy’s biggest deal so far. Are you still looking for other targets?
AR: Our focus is on growing the Thrive brand along with the other brands within PBG now. We are active within our M&A strategy. However, we are not a group that will buy 50 companies in the next 12 months. We are all about having thought-leading and quality-leading brands within the group that can be harmonised in terms of positioning and product differentiation so that we … offer a holistic brand portfolio to retailers.
There are additional categories and segments to add to the group but we have to be able to help each other
In terms of acquisitions, we have to be very selective. We will continue our M&A strategy. We will acquire new brands that fit the portfolio, that are positioned correctly, that have high-quality products and where we can – and this is important – create real synergies between the brands. It can be a new distribution channel, it can be new countries to distribute to, it can be a different category, it can be its own treat production that makes unique treats, it can be supplements that are patented and are very potent or effective. There are additional categories and segments to add to the group but we have to be able to help each other. The way that PBG is built is that that the brands within the group will all experience accelerated growth and better stability by being in one group structure.
DB: Is Petbuddy looking for further funding to fuel its expansion?
AR: Not actively right now. We have strong investors who have a horizon to build this group with us in the long term. We don’t require investment. Of course, if there will be a large M&A transaction, it can always naturally happen that new investors are interested. We are open to speak with everybody but we’re really happy with all the investors we have. We have the same ambition, the same values and the same goals. It’s not about growing 300% this year and then having a large company that you have to turn profitable in a way but it’s more about doing good business, having strong brands, creating the right products, having the right partnerships, the right distribution and doing things properly. I think it’s kind of hard to find. You partner up with large PE funds and it can be very performance-driven and I think that’s when second-class decisions can be made. We’re a bit protective but, of course, open to speak with everybody.
