How to Invest in the Pet Market – Analysts believe that the pet market is not only an investment opportunity of the moment, but an opportunity of a decade. Especially the premium market.
The pet market has seen an annual growth rate of 5% in the last ten years in the United States and is worth about 30 billion euros. The premium segment has a 32% market share in value and 18% in sales volume. These are data from a Citigroup report, revealed by the Financial Times, which show that this niche has the potential to grow at an even faster pace in the next decade. And it is a phenomenon that is not restricted to the other side of the Atlantic, since it is essentially related to the new owners of these dogs and cats: millennial generation.
This generation of young adults, born between 1980 and 2000, known as digital natives is increasing the phenomenon the humanization of animals. This same Citigroup report reveals that 43% of pet animals sleep in bed with owners daily and 28% occasionally. This humanization of animals and the new consumer profile, which is available to pay more for healthy food, leads analysts to believe in the growth of the premium feed sector of these pets. But there is another compelling reason: this type of food is a lot lighter than the traditional ration, so it is much easier to be transported online.
David Driscoll, an analyst at Citigroup on Wall Street and a specialist in the consumer goods sector, estimates that on average, pet owners spend over 235 euros when they opt for premium dog food and 100 euros for gourmet food for cats.
One of the many distinguishing factors of this millennial generation is that they are more focused and concerned about health and well-being, not just theirs with their pets. And they are available to pay for it, so this premium pet food market – without corn, soy or wheat, with high levels of protein, biological and without preservatives – has plenty of potential. A Nielsen study reveals that 81% of millennials are available to pay more for food with greater health benefits. One of the characteristics of these digital natives is that their circumstances, lack of employment relationship, own house, but also ‘seat’ of freedom make us postpone the decision to have children, so the humanization of animals is an unavoidable reality.
In this scenario, and returning to investments, there are three actions that are repeatedly mentioned when talking about investment in pet food – yes because even in times of crisis the owners of animals prefer to save on veterinary, services and others than on quality of food: Blue Buffalo Pet Products is one of the largest, and trades at $ 24.54 a share on the US Nasdaq. In 2016, the company had a market capitalization of more than 5 billion euros and registered an annual growth of around 40%. According to Investopedia, Deutsche Bank analysts predict that Blue Buffalo Pet Products will see an annual growth of 25% on average over the next three years and that the company’s ROE will shoot “astronomically” 424%.
Another of the investment possibilities is the Japanese company Unicharm Corporation which produces and markets much more than pet food, but which is one of the 10 best feed companies, and its annual revenues in this segment were 700 million euros. The company’s stock trades at less than $ 5 and its market value is at 13.7 billion. The average annual return to this action for five years is 9%.
North American Spectrum Brands is also a world-wide manufacturer and retailer of a wide variety of consumer products, including pet food. The company has a market capitalization of over 7 billion euros and offers investors a dividend yield of 1.13%. The company’s share price rose 29% last year, and is trading at $ 143 a share. The average annual return to five years is 39.06%.