m8bA common refrain in the pet industry is that to predict the future of the consumables category, you need only to look back on the prevailing human trends three years prior. Today, I would argue that this rule-of-thumb applies more broadly, to a cross section of pet industry categories, than previously appreciated. As an example, the rise of ecommerce in the pet industry follows a similar trajectory to a number of human categories that were thought to be “Amazon proof”.  This is why I think pet industry participants should be paying attention to recent funding deals for Freshly, Inc., whose $77 million Series D was led by Nestle, USA, and Chef’d, LLC, whose $17.6 million Series B was led by Campbell Soup Company.

Both Freshly and Chef’d are in the business of delivering fresh food to your door step.  In the case of Freshly, these are fresh prepared meals, which require minimal intervention to get them from the packaging to the plate.  Chef’d delivers personalized meal-kits, which you then prepare at home, in as little as 10 minutes.  As a side note, I’ve never completed a meal kit from any company in under an hour, but maybe that says more about my cooking skills than anything else. Notably Chef’d partners with culinary and media personalities to create menu inspirations.  That said, what these companies deliver is less interesting than who is financing the growth of their business.

Large human food companies have significantly increased their investment activity in emerging food brands over the past 24 months.  Major industry players have set up dedicated investing units to source and evaluate opportunities.  The human food industry has largely outsourced its research and development function to start-ups who are seeking to capitalize on emerging consumer trends.  These companies become investment or acquisition targets if their solution set demonstrates the ability to resonate with a large enough audience and if their production processes can scale.  However, this pattern has, to-date, largely been confined to product companies.  Freshly and Chef’d are direct-to-consumer distribution companies cloaked in a product orientation.

The pet industry has its Freshly and Chef’d corollaries.  Companies like JustFoodForDogs and The Farmer’s Dog, have both recently received major cash infusions from financial players.  There are numerous others competing for this emerging space — Ollie Pet, NomNomNow, PetPlate, to name a few.  Yet, I believe the investment trend illustrated by the Freshly and Chef’d transactions tells us more about the real value of scale direct-to-consumer businesses such as A Place for Rover and Bark & Co., than the potential for fresh food delivery in the pet category, whose future we also think is bright.

What the pet food and products manufacturers have in common with their human counterparts is their core means of distribution are under siege by small retailers who provide better service and/or in-store experience as well as by the internet.  As such, any opportunity to get directly to the end customer is highly coveted, and therefore of great value. Within the pet category, there are a very limited set of players that have proven their ability to directly access a critical mass of pet owners.  Therefore, as large manufacturers look for direct-to-consumer exposure they will be left with a choice of ascribing a very high value to an asset with breadth or taking a calculated risk on an upstart.

What these large strategics are looking for is the ability to build a relationship directly with a consumer that is tied solely to the product or offering, and that exists outside of that buyer’s relationship with any retailer, physical or digital. If they own the customer they can look to monetize him or her in a variety of ways, capturing more the the margin along the way. We believe this trend to be applicable to both product and service providers in the pet category.

The question then becomes what would a tie-up between a Mars/Purina/J.M. Smucker Company and a Rover/Bark & Co. mean for the acquired entity.  Would consumers have the same affinity for their Bark Box if it only included treats from the buyer organization, or is the lack of affiliation that part of the value proposition?  We don’t know the answer to that question, but if we follow the story of Freshly and Chef’d going forward, we may well find out.

/bryan

Note: This blog is for informational purposes only. The opinions expressed reflect my view as of the publishing date, which are subject to change. While this post utilizes data sources I consider reliable, I cannot guarantee the accuracy of any third party cited herein.