How America’s Love Of Cats And Dogs Became A $72 Billion Business

Cute puppies, kittens,
Instagram dogs. Americans are spending more
and more on their pets. And at Morris Animal
Inn, cats are also vacationing in style. The inn offers
luxury accommodations, including condos and kitty suites with
plush beds and TVs. Meals for pets just like
this one made with human grade ingredients. That’s become
the standard for the emerging trend of
fresh dog food. U.S. pet spending hit
$72 billion in 2018. About $3 billion more
than the year before. And if you look at the
data since 1994, you can see how rapidly the
industry is growing. The pet industry’s growth
isn’t showing any signs of slowing down. In the
United States, the number of dogs and cats could
increase faster than the human population, according
to one forecast. People are even taking out
pet insurance plans to help pay for medical
procedures and help their pets live longer. Here’s
how Americans’ love for pets turned into
big business. Americans love pets. In 2018, about two out
of every three U.S. households owned a pet. Dogs and cats remain
the two most popular companion animals in U.S. homes. Birds and horses come
in at a distant third and fourth
on that list. The number of cats and
dogs in the United States is predicted to increase at
a faster rate in the U.S. population in the five
years from 2019 to 2024. Humans and their pets
are attached at the hip. Once a clear
delineation between master and servant, the human pet
relationship has changed significantly over the last
30 years and brought humans and animals
far closer together. Years ago, we didn’t
fully understand animal welfare as well as
we do now. So what people did
with their animals before, which was commonly accepted,
might, for instance, include things like tying your
dog outside to a dog house. We now see
that that’s not really appropriate to just tie a
dog out there for a number of reasons, not least
of which is that there are weather issues and
the dog is not getting enough
social interaction. I think through our
advanced understanding of animal welfare, we’re starting
to realize that these are social creatures
that want to spend time with us. That
was Nancy Gee. In 2017, she and Rebecca
Fox published a paper in which they concluded that
since the late 20th century in Great
Britain, the relationship between humans and animals
had become more intense and responsible. People are seeing maybe their
pets more as not necessarily humans, but maybe
as part of the family. Sort of recognizing
that they’re not just an animal, but that
they’re an important individual who is important
within the family, that kind of thing. And I’m not saying
nobody did that before. But I think it’s a lot
more common and a lot more accepted now. Historically,
people only spent money on their pets when
the economy was booming. But with pets moving closer
to family status, pet owners are more likely to
pay for their pet’s needs during tough times. Industry experts call
this phenomenon pet humanization. And here’s
who’s driving. The pet industry’s growth of
late is in part coming from demographics. You have the aging
demographic, the empty nesters, and they’re having
more and more pets because they don’t
have children anymore. But also, you have the
millennials who are coming in and delaying the
raising of children and they’re having more pets. And you put
those two together. And in the U.S. today,
seven out of ten households have pets, and
that’s twice the number that have children. Humans
are going beyond basic food and vet services. We’ve begun to treat our
pets the same way we treat ourselves. To that
end, pet owners are purchasing indulgent items like
premium pet food, daily supplements, tech
gadgets, clothing and even matching streetwear. We conducted a completely
unscientific poll at CNBC to see how much
people spend on their pets. This is Bubba. He’s
an eight-year-old pit bull and he loves sleeping and
our family loves him so much. We spend about $1700
on him a year. The most expensive thing we
get for him is his monthly allergy medicine. That’s about $100
a month. He has to have a
special food for his allergies, which is about $60. We spend about $45 on her
litter and hay and just food in general
every two months. Our other pets are
a little more expensive. My two shepherds, it costs
about $110 a month to feed them. $60 every two
months to get them groomed. They’re both on
pills from the vet. So $45 each a month. I’d say for the year
in general it’s about $800 just for their
vet costs combined. This is Chewy. He’s
14-years-old and he’s the fourth dog I’ve owned. We
spend about $150 a month on him just between
treats and dog food. But we don’t
do pet insurance. We’ve never really seen
a need for it. This is Oliver. He’s
11-years-old and we have spent a good amount of
money on him buying him ridiculous things like
Halloween costumes. We did not get him
health insurance and we should have done that because
he’s had Lyme disease three or four times. But he’s our family member
and we, we love him. The average U.S. household
spent $662 on their pets in 2018. That’s a slight decrease from
2017, but it still represents massive growth
from 2013. Investors are itching for a
way to make money off of the booming trend. One
way to get a heartbeat of the industry has
been through exchange-traded funds, a collection of stocks
tied to one index or in this
case, one industry. ProShares has an ETF
called PAWZ that tracks public companies in
the pet industry. Our ETF follows the
FactSet Pet Care Index. And in Q2, as an
example, those companies grew their earnings
12 percent. And this is an environment
where we all know that earnings growth is very
hard to come by. So it’s translating into
the bottom lines of these companies. Just a little
bit less than two thirds of the ETF are
pet health care focused with the rest being pet
supplies and retail and, of course, pet food. And it’s not surprising that
a good chunk of this is in the pet health
care business because that’s where much of the growth
is in the opportunity in pet care. You know, pets
are getting older and they’re needing more and
more health care and people are treating their
pets like they’re members of the family. So there’s tremendous
investment there, tremendous opportunity. And the way I like to
think about it, there is no Medicaid for dogs. There’s a real opportunity
to make money there that isn’t as influenced
and impacted by public policy and
government decisions. Meet Dave Westenberg. He’s an analyst at Guggenheim
and he wrote a 138 page report for investors
on the pet industry. It looks at where the
future of pet care is headed by 2024. He writes that the
industry became attractive to investors after the recession
of 2009 when everyone was struggling
to find growth. He also writes that: “A
six percent growth rate with resistance to recession
is a good profile for companies, particularly in
the post great recessionary economy.” Stocks in the animal health
group have gone up 208 percent since 2014. The S&P 500 in comparison
gave investors a return of 48 percent during
the same time period. Veterinary services make up a
big chunk of pet spending. In 2018, U.S. households spent an average
of $662 on their pets. Just more than a
third of that came from vet bills. There’s three
major drivers of veterinary spending. One is price in which
is correlated with GDP, rise in pet growth overall, which
is a one to two percent as well. And
then there’s service intensity and service intensity
is essentially on the veterinary business
becoming better businesses and that has
equaled roughly the six percent growth
phenomenon. Medical care for pets is
getting more and more advanced. Pets now
get C.T. scans, transplants, dentistry
and chemotherapy. Owners want them to
live longer and healthier lives. And as the vet
bills pile up, more consumers are turning toward
pet insurance plans rather than paying for
procedures out of pocket. Right now, fewer than one
percent of pets in the U.S. are insured. However,
that number is expected to rise. In Sweden, for example, 30
percent of pets have insurance policies. In the
United Kingdom, about 23 percent do. The pet insurance industry
alone could be worth two billion dollars
by 2024. Employers are now starting
to offer pet insurance plans as a work perk. The biggest markets for
insurance you actually also find this
urban environment. Correlated with this urban
environment is the access to these things,
such as veterinary, acupuncture, oncology,
dermatology. They’re all really
expensive services. And so this
is all intertwined. The kind of customers that
want to go to these kind of places are also going
to be the ones that buy insurance. And more
visits to the veterinarian, coupled with
the growing pet insurance industry, also means
that there could be a surge
in veterinarian jobs. The Bureau of Labor
Statistics predicts that by 2026, more than 57,000
veterinarian jobs will be added to the economy. That’s an increase of
19 percent since 2016. As investors pile into pet
stocks, it’s easy to overlook what the underlying
forces behind the industry’s growth means for
our dogs and cats themselves. It’s part of
a decades-long trend of animal rights
and protection. It means that their lives
are getting better and longer. If you look back
at the history of animal welfare agreements, I guess it
was sort of in the 19th century that they
started making laws to protect animals. So things like the RSPCA
go back to that period and there was kind
of movements to protect animals, obviously in the
late 20th, early 21st century they’ve increased
a lot. And I think that’s for
two things, partly because maybe animals are given
a higher status. But I think it’s also
because of the society we live in now, it has to
be more regulated as well. So a lot of those
laws that discussed in that paper, not necessarily just
for the animals’ benefits, kind of regulating
them to make them fit in with human
society as well. Fewer pets are being put
down at animal shelters now. In the 1960s, one out
of every four dogs in the United States used to
live on the street. To address the national
issue, advocacy campaigns pushed dog owners to
become more responsible by sterilizing, microchipping and
licensing their pets with their
local municipalities. On the legislative stage,
Congress introduced a bill called the ‘Welfare of
Our Friends’ or the Wolf Act in
February twenty nineteen. It would revoke licenses
of dog breeders who violate standards
of care. In January, twenty
nineteen lawmakers introduced a bill which would make
animal cruelty a crime on the federal level. The’
Preventing Animal Cruelty and Torture Act’, otherwise
known as PACT, goes beyond an Obama-era animal
cruelty law by making purposeful, crushing,
burning, drowning, suffocation and impaling of
an animal a direct offense. The bipartisan
bill was unanimously passed by Congress and was
signed into law by President Trump in
late November 2019. While increased ownership
and government regulation have led to
a better standard of living for pets, it may
be counter to what evolution had in
mind for them. Experts who study companion
animals point out that pet ownership standards
might be for human benefit, not the animals. Fortunately, this concept
of responsible pet ownership is, first of
all, poorly defined. If we talk about what what
does that mean to be a responsible pet owner, people will
say we need to provide good food. We
need to provide housing. We need to make sure
our animals are free from pain. I think most people
will agree on those three things. But then when
you start to get into the nuances of what
constitutes being a responsible pet owner, do you
need to take your dog or cat to
the vet every year? Is that enough? Some people
don’t think they need to do that. You give
them their shots and that’s it. You just let
them live their life. I think that what we’re
seeing is a wide variety of different attitudes
towards what constitutes responsible pet
ownership. Regardless of pet parenting
styles, the pet industry is getting
bigger and bigger. Just look at all the dogs
and cats with their own Instagram accounts. Wall Street
wants to go along for the ride to.

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