Two Big Things: It’s Raining Cats and Dogs.

Photo by Alexis Chloe on Unsplash

After a two week break, including some time in the Cleveland National Forest, I present you the second edition of the Asset of the Week.

My closest friends have something I do not. Pets! Sevoog (German Shepard), Koolba (Black Labrador), Olive (Tuxedo Cat), Gata (Van Cat), & Sammy (mixed small dog)-they’re constantly shedding with love. Pun intended.

Pets are family. Pets, pet products, and pet care are all part of a $103.6 billion national industry; 40.5% of revenue is from food and treats alone. If this hasn’t blown your mind, just continue reading.

The pet industry is one of the most massive sectors of the American economy, with many more years of growth potential. While some markets may lag, statistics indicate that economic downturns do little damage to the industry as a whole.

• Americans are responsible for 44.7% of the global pet market.
• 67% of households nationwide keep pets.
• Over the last decade, domestic industry revenue has grown at an annual rate of 11.6%.
• $23,400–$27,200 is the average lifetime cost of raising a pet.
• U.S. pet owners spend a collective $42.0 billion on pet food and treats annually.
• Pet care service sales, such as grooming and doggie day care, doubled over 10 years but declined 47% from March to September 2020 during COVID-19 quarantines.

What do we know so far: The pandemic has upended the lives of humans, but for pets, it’s been a bonanza: Their owners have been home all day, showering them with attention and treats. Housing strategists estimate that the growth trend of U.S. pet ownership more than tripled during the pandemic, while spending on everything from veterinary care to pet accessories has proven resilient, even during the recession.

Americans may be divided on many issues, but the majority rules when it comes to pets. A recent AlphaWise survey found that 66% of U.S. households have at least one pet, with 1.7 on average.

• Even more notably, 69% of respondents “strongly agree” that their pets are important members of the family, 37% would take on debt to pay for a pet’s medical expenses, and 29% would put a pet’s needs before their own.

And while the pandemic accelerated pet ownership, household formation among Millennials and Gen Z will likely sustain it.

In the AlphaWise survey, 65% of 18- to 34-year-olds plan to acquire or add a pet in the next five years, helping drive what’s expected to be a 14% increase in pet ownership by 2030.

• What’s more, pet owners — younger ones in particular — are spending incrementally more on their pets. Average annual household spending per pet could grow from $980 in 2020 to $1,292 by 2025 and expand further to $1,909 by 2030, Morgan Stanley forecasts.

What makes up the Pet Industry?

1. Pet Food

• The largest sub-market in the industry, pet food sales account for 39.3% of the global market. Owners drive the industry, demanding higher quality products and more accountability among pet food manufacturers and suppliers.
• Over 500 pet food manufacturers produce the 3.3 billion pounds of pet food American dogs and cats consume annually.
• 44% of pet owners say buying healthy food for their pet is more of a priority than buying healthy food for themselves.
• The U.S. exports $1.5 billion worth of pet food each year, more than any other world nation.

2. Pet Healthcare & Veterinarians

• Growth in the pet healthcare industry outpaces that of human healthcare. Pet healthcare includes veterinary services, pharmaceuticals, over-the-counter medications, behavioral therapies, calming therapies, spa treatments, vitamins, allergy treatments, and more.
• 19,400 jobs with $1.1 billion in wages are included in the Pet Healthcare & Veterinarians.
• 29% of the market is flea and tick medications.
• Animal health manufacturers spend more than twice as much on research and development as they do on manufacturing costs.
• Most pet healthcare expenses go to veterinary services. Vet techs perform many of the same duties that nurses do in a regular doctor’s office and are similarly in demand. Job growth within the industry is projected to continue.
• The average annual vet bill ranges from $100 for birds to $260 for dogs and $550 for horses.
• Pet owners pay a collective $30.2 billion in veterinary bills each year.
• There are more veterinarians nationwide than there are medical doctors.

3. Pet Insurance

• Insurance for pets, while a relatively small sector of the insurance industry, is showing signs of growth as pets become more integrated into people’s lives in a dog- and cat-crazed culture. Only 2% of pets in the United States are covered by insurance, according to the North American Pet Health Insurance Association (NAPHIA), but the growth has been steady in the past five years.
• A notable difference for pet versus human health insurance is that pre-existing conditions for animals generally are not covered.
• 81% of pet insurance policies are combined accident and illness coverage for dogs.
• 250 U.S. companies include pet insurance in 80,000 employee benefit packages.
• Cancer and unspecified lameness (limping) are the second- and third-most common claims, respectively.

4. Pet Care Service

• Pet-sitting, boarding, and grooming are crucial services for many pet owners. Grooming may be essential for a pet’s health and well-being, and high-income earners are willing to pay for luxury.
• Animal training services are some of the most lucrative sectors and account for 10% of the pet care service industry.
• Animal trainers and businesses each earn an average of $373,000 annually.
• Pet care service jobs have grown exponentially in the past decades, outpacing job growth in every other pet industry.

How to pick winners within the US Pet Industry?

1. Invest in assets that have secure reliable access to pet healthcare and insurance.The animal health category will outpace the food and treat category over the next 10 years, as more and more owners seek to improve their companions’ qualities of life not only through nutrition, but through veterinary care and health care products as well.
2. Invest in assets in the pet industry targeting the Millennial generation.The fastest household formation tends to spend more on their pets than other age groups, and the majority (65% of Millennials) plan to acquire or add a pet to their household in the next five years. Those products range from antibiotics to treatments for fleas, ticks, and heart worm.
3. Invest in assets that are pushing consumers to purchase animal food, treats, accessories, and medicine online.
4. Invest in assets focused on R&D and commercialization of next generation animal medicine and vaccines.
5. Invest in private assets, for example-a “dog wellness” company called Barkyn raised a $9 million Series A in April 2021. Small Door, a “OneMedical for pets,” is among a number of startups capitalizing on boutique veterinary care. Connected collars, fancy food dispensers, and pet clothing have also caught investors’ attention, along with more outlandish ideas, like startups for extending dogs’ life spans.
6. Invest in assets working on pet-focused long distance transportation and hospitality.

The Big Money: The industry is poised to nearly triple to $275 billion by 2030 thanks to a surge in new owners, favorable demographics and increased per-pet spending.

What are some of the top assets in the pet industry?

Equity: $ELAN — ELANO

1 year performance: 68.12%

Equity: $TRUP — TRUPANION.INC

1 year performance: 128.33%

Large Cap Equity: $IDXX — IDEXX Laboratories

1 year performance: 87%

Large Cap Equity: $CHWY- CHEWY, INC.

1 year performance: 84.78%

Large Cap Equity: $FRPT — FRESHPET

1 year performance: 70.76%

ETF: $PAWZ- ProShares Pet Care

1 year performance: 57.45%

More Assets..

• ZOETIS INC
• NESTLE SA
• COLGATE-PALMOLIVE
• ZOOPLUS
• PETCO HEALTH AND WELLNESS CO
• SWEDENCARE AB
• PETMED EXPRESS INC
• VIRBAC SA

More Ideas…

• Adding an additional 1,200 dog parks in the US
• A safe place for dogs to wait while their owners shop or attend a meeting.
• As younger pet owners travel more for work and tourism, wireless pet cameras and interactive games from anywhere are on the rise.

The bottom line: Many investors have been following closely. What the market may not fully appreciate, however, is how multiple developments, including Millennial and Generation Z household formation, may drive this long-term trend.