Pet Business Trends 2011

The extended impact of the current recession will continue to affect the pet world. Although it has delivered positive growth in spite of the Great Recession, the pet industry is not immune to sagging consumer sentiment. Pet-related spending in 2011 will show an increase over 2010 levels but not at the robust rates we saw prior to the recession.

All growth rates are annual unless stated otherwise.

Part I – Industry Trends

1. Spending on Pet Accessories and OTC Medicine Up

Even during the darkest days of the recession, spending on accessories and OTC medicine grew at 2%, showing that pet parents will cut back on their own expenses before those of their pets.

Recently, the American Pet Products Association (APPA) has toned down its growth projections to the 2 to 4% range, a major slowdown from the 6% of the past. On the upswing though, 2009 sales grew at a more active 4% to $10.4 billion for the year than was expected [1].

The APPA projects growth levels back to pre-recession levels of 5.8% in 2010 to reach $11 billion of spending. Whether we see a rebound to pre-recession levels remains to be seen but there’s no doubt growth will pick up again in 2011.

2. Continued Growth in Services for Pets

According to the APPA, pet services continued to show growth in 2010, although not quite reaching the 6% level projected. In fact, growth is projected to nearly halve, from 5% in 2009 to 2.8% in 2010.

Retail behemoth Wal-Mart has rolled out pet grooming facilities but not with the characteristic aggression you might have expected. Wal-Mart may be finding it hard to provide the quality of service pet parents expect or perhaps growth in services is not reaching anticipated targets.

Pets also continue to participate more fully in their owners’ lifestyles. Pet travel services, such as temporary day care for pets, are definitely a niche with plenty of room to grow. Who better to pioneer the idea than Disney, which has finally caught on to the trend of vacationers traveling with their pets, opening the Best Friends Pet Care luxury dog and cat resort right across from the Walt Disney World Resort.

3. Veterinary Spending Doggedly Increases

While growth in pet supplies and services might be “languishing” in the 2 to 4% range over the last couple of years, veterinary services continue to surge ahead. Last year’s growth projection of 9.9% in 2009 turned out to be too optimistic with an actual rate of 8.4% reported, but it’s still much higher than most people expected. This year, the APPA projects 6.2% growth, much closer to my expectations. In fact, I wouldn’t be surprised if it were even lower given the historically low level of veterinary inflation we’re experiencing.

The veterinary inflation numbers from the US Bureau of Labor Statistics continue to show a significant slowdown in 2010 from about 7% in early 2009 to just 4% six months later, and now reaching low levels of 2 to 3% at the end of 2010, levels unseen in the last decade.

Pet lovers continue to demand the same quality and level of treatment for their pets as for themselves but fewer are able to afford it when they factor in concerns about their own income. General veterinary hospitals will benefit as pet parents choose to have complicated surgery and treatment at their regular (and cheaper) veterinarian rather than at a specialty hospital.

4. Pet Insurance Inching Into Mainstream

The US pet insurance industry was not immune to the recession in 2009 and 2010. Gross written premiums (GWP) reached $290 million in 2009 [2] and are projected to reach $327 million (12% growth) at the end of 2010. The three largest pet insurance companies in the US, Veterinary Pet Insurance, Hartville Group, and Pet Health Inc, together representing 78% of the market, will show modest growth of 5.5% in 2010 compared to 16.5% in 2008. The remaining companies will report growth of 47% in 2010 compared to 82% in 2008.

Overall premium growth in 2011 will be pulled in two directions. Two factors will drag down GWP growth: the slower growth of the top three pet insurers as they work to offset a more mature book of business; as well as the inevitable decline in sales and renewals from 30% (and higher) premium increases that are being implemented by some of the younger, faster growing companies.

On the other hand, two factors encourage industry growth: the first is that VPI, the nation’s largest pet insurance company, is rumored to be rolling out a large TV advertising campaign in spring 2011, which will raise overall awareness of pet insurance; the second is that the recession continues to recede, albeit slowly. It remains to be seen which direction will win out but I expect overall premium growth of 14% in 2011 that will see the US pet insurance industry grow to $374 million in GWP.

5. Digging Further into Cat Health

There are 15 million more cats than dogs in the US [3] but veterinarians have noticed fewer veterinary visits involving cats. Most recent data showed cats made only 0.7 visits per year compared to 1.5 visits per dog per year.

CATalyst, a non-profit group aimed at reducing the perception of cats as aloof and not needing human contact or care, launched a new program in 2010 to encourage and educate veterinarians to turn this situation around and it may be one way veterinarians are bolstering their revenues during the tail end of the recession.

6. Retail Giants Get into Pet Pharma

Until recently nearly all drugs for household pets, including the big sellers of flea, tick, and heartworm medications, have been sold exclusively through veterinary hospitals. But under pressure to boost sales by widening distribution, retailers such as Target and Costco are creeping into the domain of the veterinarian and with their massive pricing power will surely erode the already slim margins within small animal hospitals.

Costco started selling Merial’s bestseller, Frontline, in 2008 and Target announced in late 2010 that it would start selling veterinary drugs in its pharmacies. As of this writing we’re unsure which specific drugs Target will be selling.

There remain questions about the legitimacy of the drugs sold – are they grey market versions or are they, as manufacturers claim, just “excess stock” from veterinary clinics? Will 2011 be the year that the pet pharma market is burst open and veterinary hospitals cede billions of dollars in revenue and profit to the retail giants?

Part II – Marketing Trends

7. Pet Businesses Thrive Socially

Social networking in the pet space went mainstream in 2010, drawing out large and small organizations, as well as pet-focused individuals looking to help out pet non-profits who amongst companies of all sizes.

2010 saw the first social media conference solely for pet bloggers, Blogpaws, closely followed by BarkWorld, covering a broad spectrum of pet social media. Large brands such as Bissell, Iams, and PetSmart actively participated in these pet-focused events as part of their broader social media marketing programs, which includes blogging, Facebook and Twitter strategies. I expect more effort and money spent by large brands on their social media strategies in 2011 as they get over the “ROI” hurdle presented up to now.

On the non-profit side, while many rescue organizations are using social networking as part of their funding drives, pet lovers are taking fund-raising into their own paws with online “pawpawty” events on Twitter that raise thousands of dollars for charity at a time, as well as “personal” fund-raising drives, where pet parents finding themselves in a financial predicament over their pet’s health are turning to organizations such as GiveForward to help raise the necessary funds.

8. Large Retailers Still Playing to Win

Target and Wal-Mart continue to expand their pet aisles and, in the case of Wal-Mart, their pet services; however PetSmart and Petco continue to dominate the pet retail space despite these encroachments. PetSmart continues to work on its profit margins by narrowing its food choices to only super-premium brands and adding GNC pet supplements and the Martha Stewart line of pet products. Petco is taking advantage of the increasing use of smart phones, launching a version of its site for mobile computing to interact further with their customers.

Smaller businesses will have to compete on personal relationships with their customers because the big players have the clout and the resources, and they are using them wisely.

9. Customers Are Talking About You Online

Online reviews continue to have great impact on the purchase of pet products and services. Pet parents looking for a new veterinarian in their area can turn to Yelp.com, those checking out pet insurers go to PetInsuranceReview.com, and of course, Amazon provides customer reviews for everything they sell or advertise.

Social media is having a distinct impact on every brand. One large UK retailer, John Lewis, was forced to pull a TV ad featuring a dog left outside in the snow when dog lovers expressed outrage through a Twitter and Facebook campaign. Whether you actively participate or not, if you aren’t listening to what pet parents are saying about your brand in social media, you might be in for a rude surprise.

10. Pet-related Businesses Have Unfulfilled E-commerce Aspirations

A website is a must these days for a small business trying to break through the clutter and the best way to succeed is to have an online experience fully integrated with social media and community discussions. Having said that, there are only a few sites that have been successful at this integration in any industry, let alone pet-related sites.

Amazon has always let the pack in this respect and Home Depot is trying hard with its recently launched How-To Community. I have yet to find anyone in the pet space succeeding on this front. I have to say that in 2010, there was a paucity of web development in the pet world – a missed opportunity indeed. This really is an area that can make a small business stand out but it is much harder and more expensive to accomplish than one would think.

And websites full of Comic Sans font, animated pets, and Midi music files definitely need to be euthanized in 2011.

11. Pet-related Blogs Become Everyday Reading

Pet-related blogs will continue to influence in 2011 as pet parents integrate blogs as a daily part of their informational lives.

Bloggers such as Pet Connection, Pawcurious, About.com’s Dr. Janet Crosby and Yes Biscuit! continue to gain respect and readership, building a small but influential community around their blogs. There are few more mainstream pet bloggers, Martha Stewart being the only one I can think of (both Martha and her dogs blog), which surprises me. Most “celebrity” pet bloggers tie any blogging with their TV shows or products, not their thoughts and experiences. They must not feel the need to interact with the pet owning public in this way – for the moment.

Most large pet-related brands have a blog, although some are not much more than blatant product marketing instead of quality conversations with pet parents. Eukanuba and Petco lead the pack in engaging readers with their brands. Look for more large brands to jump on this wagon in 2011.

12. Veterinary Advice Goes Virtual

If you ask most veterinarians about online veterinary advice, they’d strongly denounce such interactions as amateurish, unqualified and even life threatening. Having said that, if there is a need for a second opinion on a condition or perhaps clarification, that can be provided by qualified online veterinary services such as VetLive.com or PetDocsOnCall.com. For a small fee, a veterinarian will answer your questions online in an instant message format, 24/7.

Veterinary opinion has yet to crystallize around the acceptability of the virtual vet consult but pet owners, especially rural ones, may not be so reluctant given that it is convenient and inexpensive. I expect we will see discussion around and use of this convenient veterinary service grow in 2011.



About the Author

Laura Bennett FSA CFA is the CEO and Co-Founder of Embrace Pet Insurance. Her career working in the insurance industry has taken her from Toronto, Canada and Dublin Ireland to the US, where she obtained her MBA from the Wharton School of Business at the University of Pennsylvania. Laura was the first pet insurance actuary in the United States and was named to the Society of Actuaries Top 100 Actuarial Pioneers for her ground-breaking work in pet insurance. Laura strongly believes in furthering awareness of pet insurance across North America and leads that work in her current role of Chairman of the Board of NAPHIA, the North American Pet Health Insurance Association. Laura also writes a blog on pet-related issues, the Embrace Pet Insurance blog.

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