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Pet stores in the United States, key trends and analysis

  • Pet industry growing at double the rate of the overall retail sales
  • Premiumization and healthy lifestyle driving the growth in the pet industry
  • Pet food, the largest segment to witness growth mainly from supermarkets and online sales
  • Pet stores leading the services segment, however, the overall growth has remained sluggish

 

The rapid urbanisation with the financial stability in the US has led to a growing trend of nuclear families. The growth of one-person homes and ageing population in the nation (with many elderly people living alone) has led people to seek the companionship of pets, in order to gain the missing sense of security, company and social comfort. According to the National Pet Owners Survey conducted by the American Pet Product Association (APPA), around 68% (~84.6 million) of the US households’ own pets (2017).

The majority of the pet population in the US households is dominated by dogs and cats, owing to cardiovascular health benefits (reduced risk of strokes), stress and anxiety relief, less requirement of training and easy domestication (as they do not require farms to keep these animals). This (dogs and cats) segment is estimated to grow the most in the near future.

The US pet industry’s expenditure is currently at USD 69.5 billion and it has witnessed a healthy growth rate of 5.73% (CAGR, 2001-17). The industry did not show any signs of weakening during the 2008 global financial crisis. While pet spending per-say is a discretionary spending, however, the pet owners in the US treat their pets as family members and hence, consider the spending on these pets as a part of the non-discretionary spending.

In recent times, the pet care premiumization (specialised, natural and organic product offerings) and healthy pet lifestyle aspirations are the factors driving the growth in the pet care industry (especially, the pet food segment). The gap between human and pet food continues to narrow with the premium pet food segment offering grain-free, all-natural and raw (or containing superfood ingredients) variants. According to the APPA's National Pet Owners Survey, the average dog or cat owners spend somewhere in between $200 to $300 annually, on the pet food.

Though, the US pet care industry (excluding veterinary) witnessed a healthy growth rate of 5.6% CAGR (2008-17). However, in comparison, the pet stores in the US recorded a sluggish growth of 2.8% CAGR (2008-17).

The pet stores in the US cater to all the pet industry segments except for the veterinary care. Currently, pet stores industry in the US is dominated by two players (PetSmart Inc. and PETCO Animal Supplies Inc.), accounting for over 60% of the overall market capitalisation. However, the remaining market is captured by several small players that compete primarily on the basis of product differentiation, by offering innovative specialised premium products and services.

The US pet stores industry has lagged in terms of the overall pet care industry’s growth due to an increased competition in the pet food/OTC supplies segment, which accounts for the largest chunk of the total industry size, and traditionally was serviced largely by the pet stores. The pet food and OTC/supplies segments occupied the majority (84%, 2017) of the market share in the US pet care industry (excluding veterinary) and witnessed healthy growth rates in the past decade. However, this is the most competitive segment as it is served by pet stores and non-pet stores (large grocery chains and online retailers) channel as well. The changing consumer purchase behaviour with the advent of e-commerce, increasing popularity and acceptance of online shopping by consumers, non-pet store sales channel have garnered the major chunk of the growth witnessed in the pet food and OTC/supplies. The share of non-pet store sales channel witnessed a substantial increase over the past decade resulting in the sluggish growth of the pet store industry as a whole.

  

Further, the services and live animal purchases segments are exclusively catered through pet store channels. Furthermore, with the live animal purchases segment witnessing an almost declining trend over the past decade, the only saving grace for the pet stores was the services segment, which witnessed the highest growth, but the segment accounted for only 12% of the market share of the US pet care industry (excluding veterinary) in 2017.

The overall outlook of the pet care industry (excluding veterinary) is positive as the total spending on the pet products in the United States has been growing at twice the rate of the retail sector as a whole in the past few years (Source: IBISWorld). Addedly, as the US economy continues its upward trajectory and with consumers having a high per capita income, the revenue from premium pet products and services (on the backs of premiumization) is projected to increase. In addition, the number of pet-owning households is projected to continue to rise, yielding a higher demand for premium pet products.

However, the pet stores industry is expected to continue to underperform the overall pet care industry’s growth, owing to high competition in the key revenue-generating pet food and OTC/supplies segment and the limited ability to scale up other revenue generating segments, live animal sales and services segments. The services segment has the potential to grow the fastest among all the segments by way of differentiation and premiumization, but the size of the segment is comparatively too small to provide any respite to pet stores.

Televisory expect much tougher times going ahead for the US pet stores industry.

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