Tommy Douziech

Analyst
Tommy Douziech is above all a GARP investor who enjoys exploiting market inefficiencies on qualitative stocks with a nice margin of safety. Specialist in marketing and passionate about finance, this market analyst has made a place for himself at Marketscreener, juggling between long-term value investments, trading strategies and market psychology as he sees fit.

Pets: A growing niche

01/25/2022 | 05:06am EDT

We love them, pamper them. In return, they give us tenderness and company. The attachment of humans to their pets is at the heart of this investment theme. Overview of the drivers of this growth market.

The number of pets and the amount of money spent on them has been steadily increasing in recent years. The Covid-19 pandemic has further reinforced this trend as a way to cope with stress and isolation during the health crisis. Although pet care companies have benefited greatly from the pandemic, it is important to remember that the pet care industry was growing strongly before the arrival of the coronavirus: the global market is growing at an average of 5.8% per year.

Sales of pet products in the United States (the largest market in the world) in billions of dollars:

animaux de compagnie graphique croissance du marche

Source: APPA & Statista

Three growth drivers

This market is driven by the megatrends of demographic change and societal shifts on a global scale. On the one hand, in the developed world, life expectancy is increasing and pets have become an important source of companionship. On the other hand, the world's population tends to study longer and have children later. The new generations are therefore devoted to their "baby animals". As a proof, generation Y (also called "millenials") is the generation that owns the most pets. It is in this context that pets are becoming an increasingly important part of human life.

Another growth driver is emerging markets. As living standards rise, the number of pet adoptions is increasing. In China, for example, the number of pet-owning households is approaching 100 million and the pet industry is worth over $25 billion. That's three times more than five years ago in 2017. These trends have translated into more pets and more spending on them.

Our animal friends

Pets help us live healthier lifestyles. When you own a dog, you have to take it out for walks several times a day. So having a pet is not only good for our mental health, but also for our physical fitness. Studies show that dog owners are much more likely to meet daily physical activity recommendations. Walking a dog or riding a horse gets us out of the house, which is great for our health. So owning and caring for a pet helps us take care of ourselves.

It goes even further than that, as pets have become full-fledged members of the family. Whereas in the past, they only lived outside, they are now settled for good inside our homes. This evolution is explained by what is called the "pet effect": numerous scientific studies have shown that pets have a positive effect on our mental health. Service dogs have saved the lives of many soldiers suffering from post-traumatic stress disorder (PTSD). Pets also help their owners to better manage their emotions and help people with mental health problems to think about other things. Cynotherapy (therapy with dogs) is sometimes used to help students reduce stress.

By sharing presence and affection, humans and animals help each other. It's no surprise that 98% of pet owners consider their pets to be family members. And this bond seems to benefit their health above all. Scientific studies have shown that cats and dogs can lower blood pressure and the stress hormone cortisol. Their presence also stimulates the production of oxytocin, serotonin and dopamine, molecules that help the body relax. Some studies have even shown that dogs can reduce the risk of schizophrenia in adults. This is also what pet owners think. One survey found that 74% of respondents felt their mental health had improved since adopting a pet. In addition, 75% of those surveyed indicated that their friends and family members felt the same way.

Investing in the pet economy

Overall, this is a long-term growth trend with many positive benefits. For investors, this means that the demand for pet food, toys, medical care, accessories and even fashion should remain constant. It's a sector that can offer stable returns over the long term and is expected to continue to grow. The pet economy has been resilient to shocks, performing well during the last three recessions (2001, 2008 and 2020). This is because pets are part of the family and as such are guaranteed to receive food, medical care and insurance regardless of the state of the economy. One adopted pet typically represents 10 years of companionship; this ensures recurring profits for this market.

Many companies are aware of this and have invested heavily in this sector to take advantage of its strong growth. MarketScreener experts have created a thematic list that aims to identify the players around the world who are taking advantage of the prosperous and growing pet market.

Discover the thematic list by clicking here

 

Sources:

Johns Hopkins Medicine (December 18, 2019), Early-life exposure to dogs may lessen risk of developing schizophrenia, ScienceDaily.

Equities News (December 9, 2020). Freshpet Inc. (FRPT) Breaks into New 52-Week High on December 09 Session.

Newman, K. (May 24, 2018), More Than Horseplay, U.S. News.

Evans, J. (October 18, 2020), Petcare market booms as lockdown loneliness drives sales, Financial Times.

Agne Blazyte (2020), China's pet industry market size 2010-2019.

Zooplus AG Capital Markets Day, November 17, 2020 (November 2020).

Human-Animal Bond Research Institute (April 16, 2018), 2016 Pet Owners Survey, HABRI.

Beetz, A., Uvnäs-Moberg, K., Julius, H., & Kotrschal, K. (2012), Psychosocial and Psychophysiological Effects of Human-Animal Interactions: The Possible Role of Oxytocin, Frontiers in Psychology, 3, 234.

Allianz Global Investors (February 25, 2021).

China's pet economy surges to record highs (July 26, 2019).


© MarketScreener.com 2022
Stocks mentioned in the article
ChangeLast1st jan.
ALLIANZ SE 0.70% 200.2 Delayed Quote.-3.59%
ARRIVAL 3.43% 1.81 Delayed Quote.-75.61%
FRESHPET, INC. 9.72% 73.03 Delayed Quote.-30.14%
ZOOPLUS SE -2.46% 468 End-of-day quote.-2.46%