Owning a Pet Business Can Be a Smart Move
How the Growing Popularity of Pets Has Shaped the Industry
There are a lot of good reasons to consider owning a pet business. Pet ownership has taken on a whole new meaning in recent years, and with that, the entire pet industry has grown and diversified. And, despite the growth of large retailers, such as PetSmart, PetCo and Amazon, the market is an open playing field for niche products and services.
The pet industry has been growing steadily. According to the American Pet Products Association (APPA), U.S. total pet industry expenditures have climbed from $48 billion in 2010, to an estimated $72 billion in 2018. Revenue is expected to increase at an annual rate of 2.9%, as higher disposable incomes fuel greater spending on pet products.
Today’s pet industry is a ubiquitous marketplace of retailers, product manufacturers and service providers offer an extensive array of must-have essentials, high-end specialty items and niche services.
- Pet retailers offer more services. Offering a variety of services, including grooming, obedience classes, veterinary services, will continue to attract customers and drive sales. Specialty pet stores can distinguish themselves from supermarkets and other retailers and remain competitive.
- Small niche retailers target high-end markets. Manufacturers of ultra-premium pet products typically place restrictions and sell exclusively through specialty niche retailers that target high-end markets. Thus, small operators are shielded from direct competition with big retail chains.
- Big retailers offer larger selection and savings. Big specialty chains, such as Petco and PetSmart operate at such a large scale, they are able to offer consumers a larger selection at lower prices. Thus, they continue to post healthy gains in revenue and market share.
Pet Parents Fueling Demand for Premium Products
As of 2018, approximately 68% of U.S. households owned at least one pet. The emerging trend of ‘pet parents’, pet owners who treat their pets as family members, has had a major impact on the pet industry. With more people owning pets and more money being spent on pet food, supplies, vet care and services, the industry’s future remains positive.
- Millennials and working professionals are a driving force. With an increasing number of households owning pets, millennials stand out as a driving force. Compared to other age groups, they spend more on premium pet products. Yet, professionals between the ages of 45-64, who are typically established in their careers spend the most on pet products.
- Dog and cat adoptions are increasing. As more household adopt dogs and cats, demand for good will continue to increase. According to the APPA, the average dog or cat owner spends $200 to $300 annually on pet food. Furthermore, per capital income is expected to increase, increasing spending on more premium pet products.
- Pet products are considered a necessity. At the same time, a decrease in disposable income has shown little effect on demand for pet products. Owners are more inclined to put their pet’s health and wellness before other household items.
- Online purchases will continue to rise. As more online retails are able to offer a wider selection of products and services at lower prices than local pet stores, the percentage of purchases online is expected to grow.
- More households are expected to own pets. A recent APPA survey showed 68% of American households currently own pets. At the same time, the number of total household is also expected to increase, which will in turn increase the overall number of pet owners.
Pet Food Brings in the Most Revenue
Over 45% of the pet industry’s revenue is through pet food. This segment includes a wide range of products, including wet and dry food for dogs and cats, as well as food for birds, reptiles, and other critters. Pet food has grown increasingly specialized. A wide variety of high-priced premium products are now on the market, such as raw food, and all-natural organic food. These products also serve many special dietary and health needs, such as weight control, allergies and sensitive stomachs.
Many premium pet foods have large mark-ups and are big revenue drivers. However, pet food is a very competitive segment of the industry, with large retailers and supermarkets having the scalability to offer better prices than small operators.
Pet supplies make up the second largest segment, accounting for 40% of annual revenue. Everything from dog beds and fish tanks, to medical products, such as pharmaceuticals and flea medicine make up this segment. Revenue from pet supplies continues to go up, due to a rise in consumer spending on expensive over-the-counter medicines, as well as a higher standard of routine pet care.
Pet Services are the Fastest Growing Segment
Although pet services are only 10% of the industry’s revenue, this is the fastest growing segment. More owners are pampering their pets and ensuring they receive the best of care. Pet grooming has expanded to include mobile services, self-service dog washes and teeth cleaning. Pet boarding has expanded to high-end doggy daycare and day camps, while dog walkers offer hikes and behavioral training.
The remainder of pet industry’s revenue is through live animal purchases. Nowadays, most major retail chains, such as Petco and PetSmart, no longer sell dogs and cats. Instead, these chains work with local animal shelters to help facilitate pet adoptions. However, it is still common for pet stores to sell live fish, birds, reptiles, rats, mice and hamsters.
Big Cities are the Largest Markets for Pet Businesses
Pet businesses largely serve densely populated urban areas with high income levels and large amounts of disposable income. The highest number of pet businesses in the U.S. is the Southeast, with Florida having the highest concentration. The western region of the U.S. has the second highest number, with California having the highest number of pet businesses in the country.
While near half the market is dominated by PetSmart and Petco retail chains, there are still opportunities for many small operators to find niche markets. While big chains and online retailers are expected to continue gaining market share, small operators can establish themselves by offering high-end specialty products and services.
The Pet Industry’s Future Looks Bright
As pet ownership grows increasingly popular and demand grows for a wide variety of products and services, the pet industry is expected to make healthy gains. Industry revenue is expected to increase at a rate of 2.3% annually. As income levels are expected to rise, consumers are expected to spend more money on premium pet products and services.
- Pet ownership will continue growing. Three demographics increasingly own pets: single-person households, millennials and the aging population. Growth in pet ownership is expected to increase at a rate of 2.4% over a five year period. Thus, industry revenue from pet products will continue to rise.
- High-end premium pet products will remain popular. Pet owners will continue to spoil their pets on premium products and services, such as specialty pet food, dog walkers, grooming, training, boarding and other items. As incomes continue to rise, consumers will use extra income to purchase high-end products and services.
- Natural products and pet health will become more important. As more household see their pets as family members and themselves as pet parents, pet health will become more important. Pet owners will seek more organic pet food and holistic products. Plus, they will be more willing to spend money on veterinary services, pet insurance and other health related items.
- Niche products marketing will gain importance. Large retail chains and supermarkets will continue to perform well by offering savings on basic pet supplies, such as dry food and cat litter. Yet, a large number of small operators will continue to stand out from the competition by offering niche products.
With the growing popularity of pet ownership and rising household incomes, steady growth in the pet industry is expected to continue. Yet, big retail chains will continue to dominate the market and put pressure on small operators. To remain competitive, small operators must continue to distinguish themselves with unique products and services. In addition, consumers will continue to focus on products and services that benefit the health and well-being of their pets.
Knowing the industry outlook before entering it is very good practice and one that ultimately will help you on the road to success. Researching specific pet businesses on sale or exploring the option of buying a pet franchise will allow you to further flesh out the road to entrepreneurship.
Sources:
“Pet Stores in the US.”, IBISWorld Industry Report 45391, IBISWorld, July 2018 www.ibisworld.com. Accessed October 2018.
Springer, Julie. “2017-2018 APPA National Pet Owners Survey.” American Pet Products Association, Inc. www.americanpetproducts.org. Accessed October 2018.