Mercanti Group Reports Pet Industry Growth

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Mercanti Group Reports Pet Industry Growth [02.26.07]

The pet industry may be growing by leaps and bounds, but the business itself, though a $40 billion industry, remains highly fragmented and ripe for consolidation, providing opportunities for companies and private equity investors alike. That is the conclusion of an extensive report titled “Are You Barking Up the Right Investment Tree?,” published by The Mercanti Group, a boutique investment bank headquartered here, with offices also in Los Angeles, New York and Seattle.

The industry has been growing at a 6% annual rate, and some segments -- such as natural and organic pet food, veterinary care and products, and pet boarding and grooming -- are expanding at a 10 to 15 percent yearly clip, writes Jim D’Aquila, Managing Director and founding partner of The Mercanti Group, who co-authored the report. The profile of the pet industry addresses the trends in products, services, businesses and demographics and was co-authored by Michael Dillon of Dillon Media LLC, one of the nation’s leading researchers on the pet industry.

“From high fashion dog apparel to veterinary healthcare products, a whole new sub sector of the consumer industry has begun to evolve,” says Mr. D’Aquila. “In the last ten years, consumer expenditures on their pets have more than doubled, and we believe the pet industry is a ‘lifestyle’ industry, benefiting from important trends that will facilitate above average returns.”

The report notes that compelling demographics and lifestyle trends have resulted in a recession-resistant industry that has lifted overall spending by American pet owners some 65% since 2000. “The pet industry is one of the healthiest in America, with a compounded growth rate through 2007 that is expected to reach 7%. This growth is being driven in part by increasing pet owners within different demographic groups having increasing disposable income and by a very strong attitudinal trend of humanizing pets,” it states.

Mr. D’Aquila and Mr. Dillon note: “Viewing the pet as ‘a member of the family’ continues to drive the development of new companies, products and services in the most competitive environment ever for the industry. Another significant trend is that all segments are moving upscale, with premium food, services and accessories leading the way. Additional critical trends include the aging of America, as more childless households tend to have pets, and a desire to spend more on premium, quality products.”
“Felt across all segments, from PetSmart’s nearly 60 and growing luxurious air-conditioned hotels, to $18,000 Ralph Lauren pet carriers, the trend to pampering and high-margin luxury accessories is going strong,” says the report, one of the firm’s monthly Chronicle investment newsletters. It adds that spending on the health of pets now includes chemotherapy, radioactive accelerators, organ transplants, open-heart surgery, dialysis and MRIs and the recently FDA-approved drug for obese pets.

On the retail side, the report points out that there are thousands of small independent specialty stores serving niche markets with products that appeal to a different type of customer than PetSmart or Petco. Pet trends are following human trends in food, accessories and health care, including organic and natural goods, matching outfits, and luxury accessories, the report commented, noting also that “Central Garden & Pet recently acquired Breeder’s Choice, an all-natural, holistic, ultra-premium dog and cat food brand which it plans to bring global.”

“There are no signs that the pet segment of the consumer industry is going to slow down in the near or distant future,” says Mr. D’Aquila. “There are more dogs and cats in more homes and they are living longer, and the demographic, psychological and socio-economic trends that are fueling this growth are not likely to subside in the foreseeable future. We believe that this category is worthy of intense focus for private investors and corporations.”

A copy of this report, from the February 2007 Chronicle, can be obtained at