2020: The year of the “Pet Boom”? Drivers, impact and what is next!

What a year! 2020 has challenged our resilience in numerous aspects of our daily life, namely Health, Social, Environment, Politics and International Trade. In 2020, Pet Care and Technology were 2 bright spots. Will 2020 be known as the year of the “Pet Boom”?.

Last year, we wrote about the 8 trends that would reshape the next decade. Throughout 2020, COVID-19 has accelerated almost all these trends. The Pet Care category moved from “recession resilient” to a “Pet Boom”. Let’s explore some of the key drivers, the impacts and what lies ahead!

THE DRIVERS:

1.-> More pets & more pet parents

As COVID-19 was raging and we anchored down, our emotional need to stay connected with companions took another dimension. A recent article noted that the number of households with pets was expected to increase by 4%. This could result in a straight $4B increase in category. Banfield also reported that 9.2% more juvenile dogs and 12% more juvenile cats were brought into Banfield for veterinary visits in 2020 compared to 2019.

2.-> More time with Pets = More care for Pets

Pets have played a utilitarian role for thousand years; they helped us to fish, farm and hunt, as well as they alert us about danger and protect us. Today more than ever, pets are helping us emotionally. In 2020, pet parents spent more time with their pets, thereby offering more first-hand care than usual due to the pandemic. For example, WoofTrax, an app used by pet parents, saw a 25% increase in daily dog walking activity. Overall, more time spent with pets resulted in more spend.

Alternatively, the pet services category (Boarding, Training, Sitting and walking) estimated at $10.3B has been negatively impacted by the pandemic.

IMPACT & BIGGEST PET BOOMS;

3.-> e-Commerce. Subscriptions Boom, Online sales Boom & Market Cap Boom.

• Chewy. Much bigger, but still no profit...yet.Chewy got a lot bigger in 2020. They reported a 47% user growth year on year. Sept YTD (~ 17M users total) and a 46% growth in revenue, reaching $5.1B. Finishing with a Market Cap of ~$40B!
• Amazon: With an overall 40% growth through Sept YTD, it is easy to foresee that the pet-care category experienced a similar growth. Profitero reported that pet food sales for Amazon.com were up 45% between January and June compared to 2019
•  Vet e-Commerce: Covetrus & Vetsource, the 2 leaders in e-Commerce solutions for veterinarians (online prescription management solution) both reported growths above 50% Sept YTD. Covetrus reached $300M in revenue with 50% of Volume on Autoship
• BarkBox grew by 17%, reaching $224M, with pet gifts growing by 20%. They intend to IPO in 2021 in a $1.6B deal and an estimated revenue of $370M (2021). Interestingly, they have launched their dental line (BarkBright) and their Pet Food line (Bark Eat) in 2020.
• 1-800 PetMed. Moderate growth in a very competitive market, but still grew 14% in Q2 and Q3 with an overall 9% operating profit.

4.-> Brick and Mortar Veterinary practices had a good year! All things considered.

This is a story of resilience and adaptability. At the heart of the pandemic, forecasters said, “Forecast is grim for veterinary services in 2020” . Veterinarians did not take it for granted; they adapted to the new situation by innovating with Telemedicine, Contactless payment, Curbside pickup and online commerce. In October, AVMA declared, “billing are not only back to pre-COVID-19 levels nationwide, but revenue growth is even stronger”. September and October 2020 revenue growth was around 15% above the prior year. The Banfield report highlighted a half a million more pet visits in 2020 than the year prior”.

5.-> Telemedicine is now here to stay. A more favorable regulatory environment

2020 has been a big step change for technology adoption by veterinarians and was accelerated by an easier regulatory environment. At the digital Animal Summit, BI presented the PetProConnect success and their lessons learned. AVMA reported that Televet had experienced a 700% increase (April). FirstVet, a European Telemedicine startup with more than 200k users raised $35M to launch in the US.

6.-> Manufacturers: Robust growth, profits & continued business model evolution.

• Zoetis, the leader in Veterinary Pharmaceutical products reported a Sept YTD growth of 20% (US). After a major expansion in diagnostic, they have launched Pumpkin pet insurance.
• Idexx, the leader in Veterinary Diagnostics reported Sept YTD revenue growth of 10%
• In the Pet Food, Sept YTD, General Mill’s pet segment net sales increased 11% to US$1.14 billion. All-channel retail sales were up double digits. Pet segment operating profit was up 62 percent at US$256 million. Hills Pet Nutrition reported a growth of 11% on a global basis (Sept YTD).
• Other Manufacturers such as Elanco, Virbac and PetIQ had low growth to directionally flat revenue.

7.-> Pet specialty retailers: difficult year? – Will they re-invent the pet parent experience of the decade?

Non-essentials stores have been really challenged.. Pet retailers might have been challenged too! In this context, PetCo, the second largest pet specialty store chain reported a 10% growth year on year for the first 10 months with revenue of $3.6B and a loss of $20M. PetCo was the first retailer to elaborate a strong strategy to “Amazon Proof” its business. They just successfully completed their IPO in January with a valuation of ~$4B. What will happen too PetSmart which has been fairly disconnected from Chewy (same owner)?

WHAT TO EXPECT NEXT

• The Pet category will continue its expansion: Once again, pets have proven to be humans’ best friends in this VUCA world. Can they continue to inspire us to be better humans?
• Success will be driven by organizations that focus on delivering great Pet and Pet Parent experiences. It is not only about the product; it is rather about what the brand stands for and the experience it creates. Examples of improved experiences: Shop Anytime/Anywhere, Make it easy for me, Focus on my pet well being, Educate me, Empower me and reward me to be a good pet parent.....
• Veterinarians will continue to create great value. Companies creating innovative products supported by veterinarians will generate massive value. A new favorable regulatory environment for Telemedicine coupled with better technologies will enable new IOT connected health solutions for pets and pet parents. eCommerce via the vet may drive the next big market cap. We also expect a continued consolidation with high valuation for the best Clinics. Will we see a new VCA or Banfield in the US?.
• Manufacturers, Retailers and Distributors will continue to expand their business models. Mars is the largest pet care company; Petco focuses on a 360-degree experience for Pet Parents, Zoetis became an integrated health provider (Pharma, Diagnostic and Insurance), Merck acquired Antelliq and Covetrus transitioned from distribution to a vet tech player. Will Walmart or Amazon get more aggressive? In 2020, Walmart extended their partnerships to Pet Insurance and Dog Walkers. How will the other players differentiate?
• AI will change Pet parent lives by helping them to be better pet Parents (e.g: Curated assistant) but also improve the veterinarian quality of live with more automation (record keeping), image recognition and predictive diagnostics. Will data privacy or data quality delay this next wave of innovation? We applaud Mars for launching large scale AI initiatives (E.g.: MARS AI festival)
• PetPreneurs will continue to re-invent pet care. In the last decade, 3 US Pet unicorns were born (Chewy, BarkBox and Vet1stChoice). With so many new start-ups born in the last 5 years, who will be next big IPO or SPAC?

Have a safe 2021; let’s continue to make this industry the best industry! Please get in touch if you would like to discuss these trends in more detail or want to buy our 2021 reports.

What do you see on the horizon?

Sincerely,

The “ActiVet Insights” team. Feel free to reach out [email protected]

ActiVet Insights is an Adapt1st LLC Brand