Oct. 26 (Bloomberg) -- Muscovite Yana Repina gave up sushi dinners and cut down on salmon and brie so she could afford to give her cat Busya its preferred variety of Nestle SA pet food.

“I’ve tried to buy cheaper brands, but she refused to eat those,” said 34-year-old Repina, who works for a Moscow aviation company. Busya devours a can of Nestle’s Purina Gourmet a day, costing her owner about 50 rubles ($1.17), three times the price of the low-cost Friskies label, which she says her pet won’t eat.

Even in Russia, where the economy contracted a record 10.9 percent in the second quarter, consumers find it harder to cut spending on pets than on themselves and their families. Nestle’s nine-month sales of petcare products rose at more than twice the rate of overall food and beverage revenue. The Swiss company has increased Purina prices by more than any product other than confectionery, while introducing dog litter and pet insurance.

“In economically bad times, people do not spend less on their pets,” said Claudia Lenz, an analyst at Bank Vontobel AG in Zurich. “I’m sure there are some very rich people in Moscow who treat their dogs like in Hollywood.”

Nestle is the world’s second-biggest petfood maker, behind Mars Inc., maker of the Whiskas cat food brand. Mars controlled 25.8 percent of the $53 billion market for cat and dog food in 2008, with Nestle having 24.3 percent, according to Euromonitor. Colgate-Palmolive Co., Procter & Gamble Co. and Del Monte Foods Co. have market shares of between 3.4 percent and 6.3 percent.

‘Self Reward’

Nestle’s petcare sales rose 8.8 percent, excluding acquisitions and exchange rates, in the first nine months of 2009, compared with overall food and beverages growth of 3.5 percent. Three of the Swiss company’s seven fastest-growing major brands are pet food labels, including Purina Dog Chow, whose 19 percent growth only trailed that of Nestle’s star performer, Nespresso coffee.

“People say babies are the first priority, then you have pets, then you have children,” Nestle Chief Executive Officer Paul Bulcke said of how family animals are perceived within a household. “Then, for the housewife, maybe the husband and then herself,” he said at an Oct. 22 press conference.

Del Monte, the maker of Meow Mix and Kibbles ‘n Bits, said Sept. 3 its operating profit from pet food rose almost sevenfold in the three months through Aug. 2 as sales climbed 20 percent.

“In today’s world, treating your pet is a pretty good way to have an awful lot of self reward when the rest of the world looks pretty bleak,” Del Monte Chief Executive Officer Richard Wolford said on a Sept. 3 conference call. “It’s a place where you can have a lot of enjoyment for a very low cost.”

Pet Gifts

Mars doesn’t disclose sales figures, said Ewa Lucyk, a European spokeswoman for the closely-held company. A Procter & Gamble spokeswoman declined to comment, while Colgate and Del Monte representatives didn’t respond to requests for comment.

According to Euromonitor, the value of dog and cat food sold in North America will have risen 5.2 percent a year on average from 2004 to 2009, double the rate of packaged foods for humans such as rice and yogurt. Pet food sales will probably gain 2.5 percent on average each year through 2014, the market researcher forecasts, compared with 1.1 percent for packaged food.

“The pet food business is an excellent one, highly branded with strong consumer loyalties,” said Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania, who holds Nestle shares as one of his two largest investments.

A survey by the American Pet Products Association conducted in 2007 found that more than 50 percent of the 2,695 respondents had bought a gift for their pet in the past year.

Price Increases

According to a 2004 survey by the American Animal Hospital Association, about 45 percent of U.S. and Canadian pet owners say their pet listens to them best, compared with 30 percent of respondents who replied their spouse or partner. Half the respondents said if they were stranded on a desert island, they would rather have a dog or cat as a companion than a human.

“Pets are not just animals,” said David Goodnight, a former veterinarian who helped set up Nestle’s Purina Insurance Services Inc., which sells dog insurance for as much as $45. “Over the past several years we have noticed what we call the humanization of pets. You can go home to a pet and you get that unconditional acceptance. You leave for five minutes and you come back and the dog acts like he hasn’t seen you in five years. That’s pretty comforting.”

Nestle gets more than a tenth of sales from pet food, having acquired U.S. market leader Ralston Purina Co. in 2001. The food maker boosted its operating margin from the business by 1.2 percentage points in the first half, the best performance among all its food and beverage categories.

Slowing Growth

Consumers’ reticence to cut spending on their pets enabled Nestle to increase prices by more than any product in the first half, led by so-called premium brands such as One, Beneful and Cat Chow. Higher prices boosted Nestle’s nine-month petcare sales by 5.6 percentage points, compared with 2.8 percentage points for the entire food and beverage business. Spokesman Robin Tickle declined to disclose the company’s average price increases.

Del Monte said higher prices and growth in shipments contributed to the rise in its first-quarter pet food profit.

Cat food and dog food were among the five food categories that JPMorgan analyst Pablo Zuanic found to be most inelastic in a study of 120 categories. The others among the top five were ground coffee, canned vegetables and fresh milk.

To be sure, Nestle’s petcare shipment growth is slowing after volumes rose 5.2 percent last year, fueling a 12 percent advance in so-called organic sales. Nine-month volumes rose 3.2 percent, and organic sales gained 8.8 percent.

Dog Litter

Nestle offers products such as Purina Active Senior 7+, which contains whole grains to aid digestion, 23 vitamins and minerals including antioxidants, and designed to make dogs live longer. It’s easy to chew to make sure the canines get their whole grains. Purina says it has a 14-year study that shows dogs live a median 1.8 years longer when fed correctly.

Nestle is also adding pet food plants in Russia and Thailand to meet demand in emerging markets. These regions give producers an opportunity to start consumers on normal pet foods and then later persuade them to buy premium brands, Vontobel’s Lenz said. “It looks like this will continue in coming years.”

The cat and dog populations in China, India and Turkey rose 40 percent or more from 1998 to 2008, Euromonitor estimates.

Food isn’t the only area where Nestle aims to tap demand from pet owners. In June 2008, Purina began selling insurance policies for pet health, which sell for about $30 to $45 for dogs and $10 to $20 for cats. About 1 percent of the 150 million cats and dogs in the U.S. are insured, and David Goodnight, the unit’s president and chief operating officer. He said the percentage of insured pets in the U.S. may quintuple in coming years.

Purina also sells Secondnature dog litter to train canine pets to defecate inside like cats do.

“For the fanatics, and they are not a small segment, nothing is over-the-top!” said James Amoroso, a food industry consultant based in Walchwil, Switzerland.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.

Last Updated: October 25, 2009 20:01 EDT