Pet Care Market Update – March 2024

Robust Spending Fuels Pet Care Market M&A For Diversified End Markets

Capstone’s latest Pet Care Market Update reports that the growing sentiment around pets serving as vital members of the family has bolstered the popularity and demand for pet products, services, and consumables. Despite inflationary pressures, the nondiscretionary nature of spending in the Pet Care market has persisted despite consumer prices for pets and pet products rising 7.4% year-over-year (YOY) in 2023. Leading sector participants have garnered healthy revenue increases amid steady consumer demand. Freshpet (Nasdaq:FRPT) noted that high quality pet food has proven to be among the last things cut from household expenditures in difficult times, allowing for reliable revenue streams, and encouraging merger and acquisition (M&A) activity.

E-commerce retailers have bolstered pet spending by leveraging subscription-based models to capture recurring revenues. In 2023, U.S. e-commerce pet food and pet supply sales amounted to $30.3 billion, marking a 3.5% YOY increase. Notably, major online pet retailer, Chewy (NYSE:CHWY), reported net sales of $2.7 billion in Q3 2023, an 8% increase YOY. Despite the prevalence of online shopping, Brick-and-Mortar market participants have continued to command healthy wallet share as 2023 sales reached $28.8 billion. Many brick-and-mortar retailers have positioned themselves as exclusive providers of premium, high-margin products and services, providing retail stores with differentiated offerings compared to their online counterparts. Easing monetary policy and resilient consumer spending are likely to support healthy growth in the Pet space.

Consolidation in the Pet Services and Products segments have ramped up with the increase in pet ownership and the ease of which services can be found. As return to office orders and pent-up travel demand have increased, pet owners have sought ways to continue to care for their pets while away. The Pet Boarding segment is set to benefit greatly from the reversal of remote work. Few barriers to entry define the space, creating a wealth of new entrants and adding to a fragmented market. Additionally, the Pet Care segment has faced a critical shortage of veterinarians, as wait times to access pet care have grown, exacerbated by the spike in pet ownership since the pandemic. The number of clinically practicing veterinarians grew 5.1% YOY to 82,704 in 2023, however, by 2030, an additional 55,000 veterinarians will be needed. Technology offerings including telemedicine and digital diagnostics have helped to mitigate staffing shortages. Of note, T-Medical Group has made significant strides towards improving its suite of telehealth offerings with the acquisition 365Televet.com, a provider of affordable veterinary care through its digital platform (October, undisclosed). Capstone expects deal volume to improve as growth in Luxury Products, Pet Services, and Consumer Packaged Goods end markets drive sector dealmaking in 2024.

Also included in the report:

• How M&A activity in the Pet Care market has remained robust compared to the broader Consumer industry.
• Insights into key characteristics driving premium valuations in the space.
• An exclusive interview with Pet Resort Hospitality Group’s Chief Development Officer and Co-Founder, Eyal Cohen.

Capstone Partners’ Consumer Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the consumer and retail industries. Our team partners with leading mid-to-large sized Pet Care businesses that serve growing end-markets. For more information on the Pet Care market trends featured in this report or to speak with one of our Consumer Investment Banking Team members about how to grow, value, and/or sell your company, contact us today to start a conversation.