Pets are a VC’s best friend
They say a dog is man’s best friend. I’d argue it’s more than ever a VC’s best friend.
BarkBox recently raised $60M, Whistle was acquired for $100M by Mars for it’s fitbit-like dog collar, Blue Buffalo and FreshPet successfully IPO’d at $1B+, and Stella & Chewy was bought by Stripes Group…
Investors love markets that are (1) large, (2) fast-growing and (3) active with M&A / exits. The pet industry today is ripe with all three.
(1) Large Market
The pet industry in terms of market size in the United States today is roughly $60 Billion, double the $25 Billion it was in 2000. Packaged Facts expects industry sales to reach $96 billion in 2020. This includes spending across all types of pets and all types of products/services (food, vets & supplies).
Dogs are the largest segment of the market, responsible for 68% of overall sales in 2015. There are 80 million dogs in the US, representing about 40% of households.
(2) Fast-Growth
The pet population in the United States has grown more rapidly. than the human population since the mid-1970s. We’ve now reached the point where there are about as many pets as there are people in the United States.
However, population growth has not been the strongest contributing factor to market growth lately; rather, increasing spend on increasingly premium dog food has been the major source of growth. Ther has been a major demographic shift in pet ownership from Baby Boomers to Millennials. These generations have dramatically different attitudes and consumer behaviors towards pet ownership and the ‘human-animal’ bond.
For Baby Boomers, a dog is a pet. For Millennials, dogs are family members. In Packaged Facts February 2016 National Pet Owner Survey, 79% of dog owners agreed with the statement “I consider my dog or cat(s) to be part of the family.” This trend is called Pet Humanization, whereby pet owners are increasingly treating their pets like children and are highly receptive to products similar to the ones they use for themselves. They want to buy them the best possible of everything — a trend called Pet Premiumization. They want the highest quality food, treats and toys. Consumer surveys by market researcher Mintel found that 79 percent of U.S. pet owners said the quality of their pets’ food is as important as their own.
And in addition to basic needs like food, we’re now buying remote-controlled treat dispensers and cameras to play with your dog while you’re at work or away on vacation. The current generation of owners has reached the highest spending on a per-dog basis in history, and despite many analyst predictions the spend has yet to reach a ceiling.
(3) M&A / Exit Activity
The two largest companies in pet food nationally and internationally are candy companies — Mars and Nestle, so the industry structure lends itself to being acquisitive.
So where is the opportunity for VC’s?
(1) Natural Pet Food
US pet food spending increased by over $18 billion in the 30 years from 1984 to 2014 — a whopping 366% (see chart below).
In the early 1900’s when cereal became popularized, some smart people combined scraps from the nearby meatpacking industry with the excess capacity of cereal machines to create dry dog food — “Kibble”. While generally accepted as the right way to feed your pet, the prevailing wisdom amongst todays vets and pet nutritionists deems this very dehydrating for your pet and instead they reccomend more natural food. Natural pet foods accounted for 80% of new product introductions in US pet specialty in 2015.
The main opportunity here for VC’s exists in direct-to-consumer, subscription, all-natural & human-grade dog food companies like The Farmer’s Dog, where I’m an investor.
(2) Pet Insurance
There is a structural problem with the current pet insurance product since it’s 80% sold by vets in office, so there is moral hazard which leads to stricter plans and an incredibly low 35% reimbursement rates for the industry. Whereas other countries have 30–50% pet insurance penetration, the US is currently at 3% for dogs and 1% for cats. After pet food, veterinary care & supplies is the largest expense for pet owners, which presents a large opportunity for someone to fix the way we care for them.
(3) Creating an online marketplace for buying & selling Pets
More and more people are buying pets online instead of at the pet store, and breeders/shelters websites — if they even have one — are incredibly janky. They are rarely updated, horribly structured and exist independently. People often resort to Craigslist or Oodle, Facebook pages, etc.
There exists an opportunity for someone to create a pet marketplace, essentially empower breeders to build, manage and maintain a site on the front end, and then aggregate all of that inventory (pets) into a dedicated marketplace on the backend. Know anyone doing this? I’d love to chat with them.
Pets are everyone’s best friend.
As I write this post, a trailer for “The Secret Life of Pets” comes on. I see a social post for the Outdoor Voices #doingthings dog walk, Baublebar is marketing fashionable dog collars, Casper launched their dog bed and I receive an email invite to a happy hour for dog owners at WeWork.
Seems VC’s aren’t the only ones riding this trend around pets…
For the best free industry report on the pet industry, check out the Packaged Facts 2016–2017 report here.
