Looking toward 2006

The large pet specialty retailers took a hit in consumer traffic this summer due to a shift in consumer shopping behavior. High gas prices forced people to consolidate trips around a central shopping destination like the grocery store or home supplies store, resulting in fewer trips to PetSmart, Inc. (NASDAQ:PETM) and Petco Animal Supplies, Inc. (NASDAQ:PETC) and fewer purchases of high margin goods.

No kidding. Over the summer I found a coupon in the mail to visit the new PetSmart across town. It was for $3 off a large sack of premium food. Considering it would cost nearly that much in gasoline to drive there ($3.17 a gallon at the time), this hardly seemed worth an extra trip.

But pet services proved resilient to these changes, growing at over 20% all year. Petco announced in its 3rd Quarter conference call on Nov 22 that services customers also return to the store more often, and spend more per trip, than the average customer. Grooming is the major driver of this trend, according to Bruce Hall, president and COO of Petco.

The industry remains healthy and I believe will see 2005 overall growth above 4 percent. Central Garden and Pet Co. (NASDAQ:CENT), a major creator and supplier of pet supplies, forecasts net sales growth of 5-6 percent for 2006. While Petco and PetSmart's stock prices have declined over the last year, significant gains were seen in health-related pet companies like PetMed Express, Inc. (NASDAQ:PETS), VCA Antech, Inc. (NASDAQ:WOOF) and MWI Veterinary Supply, Inc. (NASDAQ:MWIV) during 2005.

Segments like premium food and health care saw a huge boost in consumer awareness and acceptance in 2005 due to mass-marketing and are poised to continue strong growth next year in a more competitive environment.

For businesses selling pet products and services, check out The Pet Industry Strategic Outlook Report by Dillon Media LLC.
 

Pet Insurance 2006

The market for pet insurance continues to exhibit strong growth and shows no signs of letting up in 2006, with both consumers and corporations buying more policies than ever before. The Wall Street Journal reports that pet insurance is currently offered by 5% of companies, up from 1% in 2000, and that Google (NASDAQ:GOOG), Hilton Hotels (NYSE:HLT) and Mercedes-Benz USA (a wholly-owned subsidiary of DaimlerChrysler North American Holding Corporation) plan to offer it as an employee benefit in 2006. The newspaper also reports on the fees submitted to VPI, the largest pet insurance provider in the U.S., for the most frequent claims. For dogs, the number one claim is for soft-tissue trauma costing an average of $88 each ("More Employers Are Offering Pet-Insurance Benefits," by Kerry Hannon, The Wall Street Journal, Nov. 12-13, 2005).

I think the primary driver of this segment is still the trend of humanizing pets, not only for insurance but for medications, veterinary care, pet health products and clinical trials. Treating pets just like their own children, pet owners are increasingly willing to spend large amounts of money on medical care.

The potential impact of the trend of humanizing pets may change the pet insurance industry in 2006. Pet industry followers currently cite the lack of lawsuits in the pet insurance industry as another factor in its growth, but assuming pet industry trends will once again mirror human trends implies a potential increase in lawsuits against veterinarians and pet insurance companies.

Marketing Vet or Health Services?
Market research explores health trends and consumer spending in the pet industry. Ideal for marketing, advertising and product development.

Related Links
Pet Health Reference Search
Pet Care in the 21st Century
 

SpongeBob and his pet snail

SpongeBob SquarePants, the popular children's tv show on Nickelodeon, is showing a special 30 minute episode tonight with a pet-related theme.

SpongeBob's pet snail, Gary, runs away when his owner becomes distracted, only to be reunited when SpongeBob realizes he cannot take his pet for granted. Pretty simple, and looks funny. Read more here.

Being the top show in the 2-11 age range, and with over 12 million adults also watching, I wonder if pet snail sales are booming.

Some snail resources:

Apple Snails - a common aquarium pet.

Wikipedia on Snails - general snail info.

Man and Mollusc - some info on pet snails.

Snails for Kids - snail facts for children and teachers.

MWI Veterinary Supply Q4 and 2005 Results

With solid numbers for the fourth quarter and 2005 year, wholesale distributor MWI Veterinary Supply, Inc. is rapidly establishing itself in the pet health market. Net income for the quarter rose 112 percent compared to last year, while net income for the full year rose 80.5 percent to $4.6 million.

According to President and CEO Jim Cleary, vet supplies sales have resisted the changes in consumer spending behavior seen by other retailers in the wake of higher energy prices. Like the pet services market, which retained strong growth rates relative to pet supplies over the summer, it seems to me one more indication that pet owners are unwilling to compromise on the health, wellbeing and appearance of their pets.

Along with increased market penetration, the growth of its companion animal business is positively impacting the company. Citing growth rates "above market" for both companion animal and production (eg. cattle) lines, Jim Cleary noted that the fourth quarter saw the companion animal business grow at a "significantly higher" rate than the production business. These higher margin products boosted the bottom line.

The company shows signs of moving up the value chain. With strategic plans for distribution logistics, customer service and value-added services, 2006 will also bring an expansion into private label products. With three current private label products at "relatively low" sales levels, the company mentioned several additional products are in the pipeline for 2006.

I believe the company is also riding two strong trends within the pet industry, namely pet insurance and medications. Only last year, pet insurance underwent a fundamental shift, from being marketed traditionally through veterinarians to being mass-marketed by retailers like Petco. Similarly, pet medications are produced by some of the largest pharmaceutical companies in the world that spend significant amounts of money on this segment.

Related Links:
Consumer Spending on Vet Services - purchase charts of pet owner spending trends by age, income, family size, and more.

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MWI Vet IPO
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