Before I came to the UK, I read quite a bit and talked to people about cultural differences to help ease my transition. One thing I never expected, though, was how valuable pets are in the UK and most western countries.
It took me some time to get used to seeing dogs and cats eat from the same plate as the owner, take a front seat in cars, or have a full insurance policy. During my university time, I once catered at a dog show with about 200 breeds. I never knew there were that many types of dogs. Some came fancifully dressed in strollers, others with prosthetic legs. Since then, I got interested in this cultural difference and the new business market that has emerged from it. Below is my attempt to highlight what I have observed and learnt so far.
Overview
Pets have been part of most western societies for a long time. However, in recent years, the demand for pets has been on the rise. Key growth drivers have been the growing popularity of pets as companions, general rising disposable income and the increasing awareness of the [mental health] benefits that owning a pet brings.
This increasing demand for and humanisation of pets has also led to the emergence of different new businesses catering to pet owners' needs. Pet grooming and day-care services have become increasingly popular, with many pet owners looking for professional care for their pets while they are away. The sales of pet supplies, such as food, toys, and accessories, have also increased.
Types of pets
Dogs and cats account for the most proportion of global pets, with specific numbers varying depending on source. In the US, dogs and cats account for 45% and 32% respectively.
European countries have similar proportions. There are now around 113 million cats and 92 million dogs in Europe. Germany tops the European Union region with the highest pet dog population of 10 million dogs in 2021, followed by Spain with about 9.3 million. In UK the pet dog population is same as cats, 11 million each (2023). However, the population of people who own a dog is slightly higher (29%) than who own a cat (24%). This is because about 40% of cat owners own more than one cat compared to 27% of dog owners own more than one dog.
Pets segments
Pets market can be broken down into different segments depending on the region.
Pet food and treats: Typically accounts for the largest share of revenue, 35%-58% globally, and around 42.4% (2022) and 43.7% (2021) in the US (APPA).
Pet Supplies & OTC medicines: Globally accounts for 20%-30% of total revenue, and 23.0% (2022) and 22.4% (2021) in the US. (APPA)
Veterinary Care & Product Sale: This competes with Supplies, accounting for 26.2% of the total 2022 pet industry revenue in the US.
Pet insurance: Relatively small but growing fast, accounts for less than 5% of total revenue in many geographies. However, in some regions, such as the UK and Sweden, pet insurance has a higher penetration rate and accounts for a larger share of industry revenue.
Pet adoption and rescue: Typically accounts for less than 5% of total revenue, but it can be an important part of the ecosystem, particularly in regions with high rates of pet adoption and animal welfare activism.
Growth
The past two years have been very unique for most businesses, pets market included. Throughout Covid period we saw a surge in pets acquisitions, pet-related expenditure and new pets startups. According to the American Pet Products Association, pet ownership in the US increased from 67% of households in 2019/2020 survey to 70% in 2021/2022. Europe has also seen significant growth, with about 46% households owning a pet. Although this growth has now slowed down, it's still stronger than pre-Covid. Most research reports are projecting pets market to grow at compounded annual growth rate (CAGR) of ~5-9% by the end of the decade to reach $360-$500 billion. In the US alone about, $137 billion was spent on pets in 2022, and this is projected to increase to $144 billion in 2023. This compared to €51.2 billion for Europe in 2022.
Emerging and developing markets
Pets market in east, developing and emerging markets is still small but growing fastest in some Asian countries. For example, in China, the market was valued at approximately $31.3 billion in 2020, up from $29.6 billion in 2019 (Pet Fair Asia), and is expected to grow at a CAGR of 15% from 2021 to 2028. Similarly, the Indian pet industry is projected to grow at a CAGR of 12.8% from 2021 to 2028 (Mordor Intelligence). Like for western countries, humanisation of pets is a key driver for growth.
Funding and venture capital
Despite the significant growth in the pet industry, venture capital has been slow to invest in the sector. This is partly due to the lower growth and margins compared to other typical VC industries. However, some venture capital firms are showing interest, such as Benchmark and Foundry Group (see 15 examples at Pitchbook) especially as new needs and businesses such as pet tech emerge.
Apart from the notable success stories of startups like Chewy, Petco Health and Wellness Company Inc., a number of other startups have been building in the space. Recent headline deals include a $22 million Series A raise by a London-based health cat food startup, Katkin's. Dalmatia, a French medical insurance provider, also raised a €15 million in Series A round in June 2022. In the US, Modern Animal, a subscription-based and progressive startup, made headlines with its $75 million Series C raise last year.
Conclusion
Increasingly, people are embracing pets as companions and family members, leading to a surge in pet ownership. This increasing demand has created new business opportunities in different categories, such as pet food, accessories, grooming services, veterinary care, pet day-care, and pet e-commerce.
The future looks bright as the market is expected to continue growing strongly in the coming years, with potential for more innovative businesses to emerge.
Emerging and developing markets are still behind due to long-standing cultural differences on pets, but that seems to be changing faster in certain regions like Asia.
Venture capital investment in pets market is still slow although some firms have been showing interest especially in specific tech focused startups within the space.
*Note: data might vary from source to source. As always, feel free to share your thoughts in the comments or direct message. Love to chat!
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