Pet Tech — Thoughts on the European pet market
Never having owned a pet, I was intrigued when I first read about FirstVet’s success story and asked myself :
“What opportunities are there for startups in the pet market, and how big and interesting can this market really be? 🤔”
So I started to look deeper into the pet market, its size and potential, mapped out the value chain and analysed startups that I find interesting.
In the next few minutes I’ll give you an insight into my thoughts on:
I) The overall European pet market in terms of size, sectors and other characteristics
II) The Pet Tech value chain and exemplary startups + VC activity
III) A closer look on FirstVet and Tailwise
VI) UPDATE — Pet Tech in the COVID-19 crisis
As this is my first article on Medium, every feedback is highly appreciated — please feel free to reach out!!
I) Market overview — Size, growth and players
Before diving into the Pet Tech scene, let’s first have a look at the underlying market.
No surprise, cats 🐱 and dogs 🐶 make up the largest group of the pet population and since 2010 grew at a CAGR of 2.6% and 1.8% respectively (1).
Interestingly though, while Germany, UK, Poland, Italy, France and Spain have the largest pet population, Eastern European countries have the most pets per capita.
Overall, the pet market can be clustered in 3 main categories: Food 🍖, services 👩⚕️(e.g. veterinary services, dog-sitting, etc.) and accessories 👜. According to different reports, the food sector is expected to grow at around 4% (2,3) annually, while the veterinary market, which is the largest pet-service market, is expected to grow even faster at around 7% (4,5).
Looking at the incumbents in Europe, the pet care retail and pet food market are modestly centralized, but without a player owning the entire market, and many retailers are only active in one or a few countries. Veterinary clinics on the other hand are still relatively decentralized, with over 70,000 individual companies (7). Though, the space is increasingly consolidating as both private and public companies got a taste for independent clinics and are on a shopping spree. At the helm of the M&A activities is MARS Petcare, which became the largest operator of veterinary hospitals. (MARS in 2018 also launched a $100m venture fund focusing solely on pets. It’s called “Companion Fund”)
And of course many European pharma companies are active in the veterinary sector, also as of the huge meat-producing industry.
II) Pet Tech— Startups across the value chain + VC activity
Now that we know a bit more about the pet market in general and see that it is a quite sizable market, let’s dive into the different Pet Techs along the value chain.
To come up with some sort of framework, I looked at the market from 3 stages: 1) Getting a pet, 2) owning a pet, and lastly 3) the social aspects. Two areas that I left out are pharma and data science & performance for horses (e.g. Aironeo, Hoofstep) — nonetheless 2 very interesting spaces.
The list below includes startups across all stages and it is not an exhaustive list, but rather driven by the size of startups and which ones I found most interesting.
In accordance with the total pet population, most startups come from the UK, Germany, France, Spain and Italy, but also increasingly from the Nordics. The most crowded spaces are food, accessories (especially GPS trackers) and pet sitting — each with an abundance of players. Also, pet health is increasingly getting crowded. What is interesting is that, similar to the incumbents, many startups cater only to to their home country and have not yet expanded geographically. I expect some more international expansion, especially in pet services as FirstVet has demonstrated, which is now active in the Nordics and UK.
The most untapped potential for new startups in my opinion lies within (a) renting a pet, (b) buying a pet and (c)pet training — though the market here might not be big enough for a VC case, it seems still attractive. I was actually surprised that I found no startup for horse sharing. As the trend goes towards moving to cities, many horse riders neither have the money nor time to own a horse themselves, but use local stalls to share a horse with one or several others.
Now, let’s have a look at funding.
Among the largest European rounds in 2019 were FirstVet’s€18.5m Series B led by Omers Ventures and Butternut Box’s (freshly prepared dogfood delivery) undisclosed Series C led by L Catterton, just after raising €17.4m by Five Seasons Ventures and White Star Capital in April 2019.
Looking at the overall European VC activity in Pet Tech, we can see that while the number of rounds declined a little, total funding experienced a steep increase of 50% from 2018 to 2019. VCs seem to double down on fewer bets and I’m curious to see how this trend will evolve in 2020.
III) FirstVet & Tailwise — A closer look
And now, let’s have a closer look at two startups I find interesting: FirstVet, active in 5 countries and with €24m in total funding, and Tailwise, a pre-launch platform for dog buyers and breeders.
Starting with FirstVet 🏥, let’s go through the customer need they try to solve, their solution, the underlying market, the team, and lastly their business model.
I feel their solution meets a relevant customer need and incorporates all major stakeholders, including vets and insurers. As veterinary care has lower telemedicine regulations than human care, FirstVet can both expand geographically and to other animals — horses already account for 4% of sales. And though competition is increasing, they still have a head start in Europe.
Lastly, I really like their business model as it’s more scalable than traditional vet services, their solution is sticky as switching costs increase once the company built a record after a few consultation and as it allows for recurring revenues.
Back-of-the-envelope revenue estimation: Assuming that cats and dogs need to visit a vet twice a year (for a checkup that can be done remote), that FirstVet takes an average €25/consultation, and that FirstVet achieves a 5% market share in the market it’s currently active in (575k cats, 600k dogs), this would lead to annual revenues of €30.6m. Of course this is just a very rough estimate, but it shows the potential of the company, and again, this is only for cats and dogs — though FirstVet already caters to other animals. If the company is to expand to other countries, especially Germany and France, this number could be a lot higher.
And now let’s have a look at Tailwise🐾, which has been in pre-launch for some months now and says it will launch in the UK in early 2020.
Tailwise caters to the need of both buyers and breeders and comes at the right time, as legislation tries to fight harmful puppy farming. In its quite niche market it faces low competition from startups and willingness to pay is high. Potentially, the service could be rolled out to other markets, animals and a broader offering around pets be created. The difficulty with the business model is that in the current setup it’s based on one-time purchases and has no recurring revenue. After being founded in 2017, the company has not yet launched their service, so I’m very curious to see how this will develop.
Back-of-the-envelope revenue estimation: Assuming that Tailwise would be able to capture 5% of the 1.5m puppies sold annually in the UK, that the average price of a puppy is €200 and that Tailwise’s revenue is 10% of the total sales volume, this would lead to €1.5m in annual revenue. Again, these are just very rough estimates.
IV) UPDATE — Pet Tech in the COVID-19 crisis
At the time I wrote and published this article, I had no idea what was coming for us. And as Pet Tech, just as almost every other sector, is affected by COVID-19 and the isolation, I will share some personal thoughts on possible future trends. (Updated April 16, 2020)
1: We grow closer to our pets
During the isolation and the mental stress this is putting us in, I feel animals can provide more companionship and consistency than ever. This is likely to tighten the bond between human and animal even more. Despite the debate going on whether animals can spread COVID-19, as of now it seems highly unlikely that pets can spread it. (Of course I am no professional in this matter)
2: Pet care services with human interaction suffer, but might rebound
Services such as pet sitting or pet training and pet communities that are not online are likely to be hit the hardest, as people isolate themselves. Seattle-based pet-care startup Rover (which owns DogBuddy) already laid off 41% of its workforce and put an additional 9% on standby. Depending on how long the isolation will go on, this will most likely lead to a market-shakeout, which could benefit players with enough runway. And as pets are here to stay and the ties between humans and animals grow closer, I think demand in services such as pet sitting will rise once the situation normalizes (also as human interactions can be minimized for these services).
3: Online services and e-commerce subscriptions thrive
With closer ties to pets and more time at home, I feel especially online services such as telehealth and subscription services for food or accessories will see a spike in demand. (If you have any concrete numbers from startups, please let me know!) FirstVet for example now provides all its services for free during the outbreak, attracting many new customers who don’t want to or can’t leave their house to visit a vet. Another startup I expect to thrive is ButternutBox, as its hassle-free to get your dog food delivered now and as people have an incentive to treat their dogs to some better food.
The million-dollar question here, as for many other industries, is of course how much of the revenue increase can be sustained after we slowly go back to normal. But as the bond to pets might be tighter than ever and as of the high convenience of these services, I think chances are high that a fair amount of this increase will stay.
Conclusion
Overall, and despite all the negative buzz created by SoftBank-backed Wag, I feel Pet Tech is a really interesting market. Both it’s size and the emotional attachment of pet owners and their high willingness to pay makes the market worth a closer look. And though some spaces, such as dogsitting, are getting very crowded, there is still great potential for new entrants. Also, as FirstVet shows, the market also allows for some VC cases (i.e. startups with the potential to generate sufficient revenues for a unicorn valuation). And as of COVID-19, let’s see where the market is headed and weather my assumptions prove to be true or not.
Again, as this is my first article I’m very happy about your feedback — please reach out to me if you have any!! 🙌 🙂
Also, I plan on writing some more market analyses like this and though I have a short-list of markets that I find interesting, please let me know if you have some ideas!
Cheers
Dominik
Sources (excluding graphics)
1)FEDIAF, 2019
2)Agriculture and Agrifood Canada
3)Mordor Intelligence
4)Market Data Forecast
5)Inkwood Research
6)MARS
7)Eurostat