Article
12 Oct 2021

Pet Shops Buoyed

Leadership
Contributor(s): Citi Global Insights
More time and money to spend during lockdown has fuelled a rise in pet ownership among younger millennial and Gen-Z consumers- pushing the U.S. pet care market to retail sales of $107 billion last year. As the economy opens up, and alternatives for their disposable income re-emerge, will these consumers continue to pay a premium for pet care? A new report by Citi Research’s Wendy Nicholson takes a closer look at this rapidly growing sector.

Today, more and more consumers consider their pets a part of their families. As such, they are willing to pay more to feed them and care for them. Many consumers found pandemic lockdowns to be the perfect time to adopt a pet (or a second pet) they never had time previously to adopt and train. By Citi research (and U.S. Packaged Facts’) estimates, there was more than 5% growth in total pet-owning households in the U.S. during Covid, compared to less than ~1% growth in 2018 and 2019.

The full note poses the following questions:

  • Pet Population: How many pets are out there?
  • Pet Category: Which sectors of the pet industry (food, products, retailers, services, etc.) are growing the fastest?
  • Pet Parent Behavior: What is driving consumer behavior in the pet landscape today?
  • Pet Stocks: Which companies (and stocks) are best positioned to benefit from a growing pet population?

Broadly speaking, Citi analysts reckon the increase in the number of pet households over the past year will be a tailwind for the industry for several years to come, not only in terms of pet food and pet products purchased but also in terms of pet services provided. The analysts also see a high probability that new pet-owning households will replace their pets over time, creating a consistent stream of new pets and frequent pet purchases.

During the pandemic, many consumers had more time and energy to spend on their pets. Without vacations or visits to restaurants, consumers also had more discretionary income to spend on their pets. They spent more on pet food) and non-pet supplies, by trading up and experimenting with more premium brand offerings. However, consumers spent less on veterinary supplies and non-medical pet services.

 

Most Pet Owners Spent More on Their Pets During the Pandemic... 

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Source: Citi Research, Packaged Facts (U.S. Pet Market Outlook 2021-2022); March 2021

 

Looking ahead, the Citi report raises the idea that newer and younger pet owners might not have the same level of discretionary income as historically long-standing pet owners. This could affect their ability to sustain their level of spending on their pets, particularly as they are able to resume their pre-pandemic consumption habits (e.g., vacations, clothes, gym memberships, eating out, etc.).  Further, Packaged Facts found that ~40% of new dog owners said that their decision to get a dog was somewhat impulsive, and as a result, the analysts said there is at least the chance that some people who adopted a pet during Covid might look to give the pet back to a shelter or its previous owner.

40% of New Pet Parents Said That Their Pet Acquisition Was in Part an Impulse

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Source: Citi Research; Packaged Facts (U.S. Pet Market Outlook 2021-2022); March 2021

 

Similarly, a study of new pet owners conducted by Merck Animal Health in November 2020 found that many new pet owners:

  1. considered re-homing their new pets once the pandemic was over
  2. wished that taking care of their dog’s health did not take so much time
  3. were unaware of how much it costs to care for a dog. 

 

To be sure, pets are a big, long-term financial and lifestyle decision. 

  • Financial:  The true cost of pet ownership includes much more than just an initial outlay of cash to bring a pet home – it includes the cost of food, toys, supplies, veterinarian visits, vaccinations, and much more over the course of a pet’s lifetime.  The average spend per household on a pet in 2020 was $1,460 ($1,274 for dogs and $942 for cats), and dogs and cats live for 10-12 years and 10-15 years on average.  Citi analysts said there was a possibility new pet owners might not have thought through the long-term costs/ lifestyle changes associated with pet ownership.
  • Lifestyle: In addition to the financial burdens of pet ownership, the report pointed out that there are certain lifestyle factors associated with pet ownership that younger consumers might not have considered quite as carefully before getting their first dog: Who is going to walk your dog when/ if you return work?  Who will care for the pet when you go on vacation? 

The analysts said they don’t necessarily believe there is going to be an influx of dogs in shelters (and they recognized that many new pets entered loving pet homes over the past year as second and third dogs). But they said they do expect there could be some change in psyche of newer pet owners over the next 12 months, which could in turn impact the overall level of spending in the pet category.  It remains to be seen if the upsurge in pet care sales and interest from these newer consumers will be sustained as Covid restrictions lift over time.

For more information on this subject, please see United States Food Manufacturers - Citi’s Perspective on Pets: Post-Pandemic Points and Picks first published on September 30.

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

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