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'There's No Medicaid for Dogs:' The Big Business of Pet Care

- By Holly LaFon

The pet care business has seen twice the percentage growth of GDP in the U.S. since 2007, including through the Great Recession. And those closest to the industry don't see any signs that pet owners will become any less willing to open their pocketbooks on pet care.



Consider the pet pharmaceuticals business. Zoetis reported 17% growth in its companion animal revenue for 2018[1]. Compare that to 2.9% GDP growth in 2018 and it is just one example of how the pet care business is growing much more rapidly than the broader economy.



In pet pharmaceuticals, there's no real threat of generics pressuring the business of drugmakers, or insurers and regulators trying to keep a lid on pricing. There is no Medicaid for dogs and cats, and pet owners are increasingly willing to spend money on giving their animals the very best in care.



Some other recent corporate earnings have also showcased the growing trend of consumers considering their pets to be part of the family, and behaving accordingly.



"It's pretty amazing how many people are actually cooking for their dog," FreshPet CEO William Cyr, said on a recent earnings call.[2]



John Ayers, CEO of veterinary diagnostic products and services provider IDEXX, recently noted the increase in preventative care diagnostics use by its vet customers. IDEXX's offerings are "a well justified annual pet owner investment in the pet's health by uncovering underlying disease as part of a wellness visit."[3]



Trupanion CEO Daryl Rawlings said of the pet insurance business: "Early indications are that for 2018 that it grew in the mid-teens. So the category is growing nicely. And having some deeper pockets probably means there's going to be continued growth for the entire category."[4]



Meanwhile, the recent IPO filing of pet-focused online retailer Chewy (NYSE:CHWY) highlighted the "Amazon-ification" of pet care retail, as consumers shift their purchases from in-store to e-commerce.



From Chewy's S-1 filing:



"The pet industry, like many others in the United States, is in the midst of a shift from in-store to online purchases, with e-commerce representing a 14% share of the food and supplies market segment in 2017, up from 4% in 2015, and projected to grow to approximately 25% by 2022. We believe that the secular trend toward online shopping can continue for a significant period as online pet product spending remains relatively low compared to some other sectors. According to third-party estimates, online spending on pet food and supplies is calculated to be $6 billion in 2017, and is expected to grow at a 17% CAGR from 2016 to 2022 as a result of the secular shift from offline to online spending and the expected consistent growth in overall market spending--though third-party estimates have historically under-forecast the speed of the shift from in-store to online."



Pet care, in fact, is ranked as the fastest-growing category online. Another sign that pet care is at the meeting point of positive trends for investors in areas including retail, food and healthcare.



Disclosure:

Data sources: American Pet Products Association 2017-2018 National Pet Ownership Survey and ProShares.



Any forward-looking statements herein are based on expectations of ProShare Advisors LLC at this time. Whether or not actual results and developments will conform to ProShare Advisors LLC's expectations and predictions, however, is subject to a number of risks and uncertainties, including general economic, market and business conditions, changes in laws or regulations or other actions made by governmental authorities or regulatory bodies, and other world economic and political developments. ProShare Advisors LLC undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



High short-term performance is unusual and there is no guarantee that such performance will continue.

This article first appeared on GuruFocus.