Pet Owner Spending Trends in the U.S.

A new report has just been published on nationwide pet owner spending trends.

The aging population, childless consumers and the ascendancy of high-income baby boomers are analyzed by their pet spending habits. Charts and tables are included using data from the Department of Labor, Bureau of Labor Statistics that highlight core trends in U.S. consumer spending by income, age, general region, and family composition.

The Pet Industry 2008 Strategic Outlook is our annual report, written for businesses marketing to pet owners.
 

Central Garden & Pet

Central Garden & Pet Co. (NASDAQ:CENT) may be rapidly losing interest in acquiring some assets of Spectrum Brands, Inc. (NYSE:SPC), according to the Financial Times. Bad news continues to dog both companies. Central Garden & Pet experienced "softness" in lawn and garden as well as pet retail sales in April and May, and told investors to expect results below expectations ("Spectrum Brands could face new complications to asset sale process, sources say," by Aja Whitaker-Moore, Financial Times, June 13 2007).

Pet Industry News

PetSmart, Inc., the nations largest retailer of pet supplies, announced 2006 fiscal year results. Net sales in 2006 grew 11% from the previous year, to $4.23 billion. Pet services sales and revenue continue quarterly growth above 20%, generating $376 million in revenue in 2006.

The company will close all 180 State Line Tack departments, exiting the equine business to make room for higher margin pet supplies or PetsHotels.

Earlier this month, PetSmart increased its number of stores in Canada by 58% to 42 with the acquisition of 19 Super Pet stores.

One current advertising campaign directs users to the Nutrition Selector on the website, featuring highly differentiated premium dog and cat foods. Pet food is the largest segment of the industry - American's spend about $14 billion each year on pet food - and a primary driver of the consumer into the store.

Petco, the nation's second largest pet specialty retailer, went private last year but refuses to sit, expanding on services and pampering themes. The company announced a nationwide fashion show marketing campaign, and was reported to be exploring the mobile grooming business in Las Vegas.

Central Garden & Pet, the largest supplier of pet items to PetSmart, Petco, Wal-Mart, Target and many others, has been impacted recently by rising grain prices and Wal-Mart's decision to stop selling live fish. But it continues to innovate and grow across many segments of the industry, winning nine New Product awards at the 2007 Global Pet Expo.

Nestle, the world's largest food company, will open its first pet food factory in China this year as it tries to take a bite out of Mars Inc's Chinese market share. Mars has been in China for 10 years, and sells a lot of Pedigree and Whiskas to the local market through an alliance with a Chinese company, in this case Effem Foods (Beijing) Co. Ltd. Nestle may benefit from newer foreign ownership regulations.

.

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.
 

MWI Veterinary Supply

A vet supply company goes public. Although MWI Veterinary Supply, Inc. has been around for over a decade, it was acquired in 2002 by a private equity firm that apparently had its eyes on the pet industry.

Distributors to 14,000 vets of 10,000 products from 350 vendors, MWI Veterinary Supply consolidates a large number of products in a strong growth sector of the still fragmented pet industry. Serving the production animal line (cattle, for example) as well as companion animals, MWI is seeing approximately equal growth in both.

The company said third-quarter profit rose to $1.4 million, or 24 cents a share, from $71 million, or 12 cents a share, in the same quarter last year. Revenue for the quarter rose 30 percent to $138 million.

President and CEO Jim Cleary noted that eCommerce sales as a percent of total sales was 20.7 percent compared to 17.4 percent in the same quarter last year.

This company reminds me of Central Garden and Pet a number of years ago, as it transformed from a distributor to a major producer of pet products by acquiring the best of its suppliers. MWI Vet finds itself in a good position to follow that strategy, and shows signs that it will. Having acquired Vetpo Distributors in January 2005, the company has produced $8.7 million in sales from the transferred sales reps since then, and mentioned in the earnings conference call it will pursue more strategic acquisitions.
 

Central Garden & Pet

Central Garden & Pet Co. is also playing ball, today announcing a marketing partnership with the Texas Rangers. This marks the company's second deal with major league baseball this year. The first one was announced in February with the Oakland A's.

The exposure provided by this latest deal should be significantly better than the first. With the Oakland A's, the only season long sponsorship is with the grounds crew, while the Texas deal sponsors a season long retail sweepstakes aimed at the family.

The new deal also features a one day promotion using the big video board at Ameriquest Field, which improves the chances at national TV coverage, especially considering it will show someone's pet dressed in Rangers gear.