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Dollars in the Dog Park: An Overview of the Pet Healthcare Market

SEP 23

Over the past few weeks, there has been a lot of activity and news about the retailer Petco, including a plan to go public, speculation that private equity firms would bid on it, and rumors that it might merge with its rival PetSmart. The underlying pet care industry has grown at a ~6% annual growth rate, from a $17 billion market in 1994 to an estimated $60 billion market in 2015, so on its face, this is not surprising. In fact, it follows other news from the past few years such as PetSmart’s take-private transaction completed last year by London based private equity firm BC Partners for $8.7 billion as well as Eli Lilly’s acquisition last year of Novartis Animal Health for approximately $5.4 billion.

TripleTree is interested in the underlying force behind this growth, a trend toward ‘Pet Humanization’, where pet owners are increasingly viewing their cat or dog as members of the family. Of the 65% of Americans who own a pet, 91% of those consider their pet a member of the family, according to a Harris Interactive Poll. These individuals are also reaching deeper than ever into their pockets to buy organic cat treats, fashionable dog jackets, and even chemotherapy for their pets. Even when most Americans were cutting back on discretionary spending during the ‘Great Recession,’ pet spending continued to rise.

Of the total spending on pet care, the pet healthcare market now represents a significantly large portion. Trailing only pet food spending, Americans are now projected to spend $15.7 billion on veterinary care in 2015 and retail sales on pet medications are projected to reach $10.2 billion in total sales by 2018 from $7.6 billion in 2013. Target (PetRx), Walmart and others are now essentially offering PBM services for pets, with the ability to refill a dog’s prescription with similar ease.

As pet healthcare has expanded into areas like MRIs and sonograms, some pet owners are now facing medical bills similar in magnitude to what they would receive when visiting their own doctor’s office. Since most of these healthcare related expenses are paid out of pocket, pet owners have become increasingly concerned with the costs associated with keeping their pet healthy. On average, dog and cat owners are spending $250 to $1,000 per year for veterinary visits. To help bridge this gap, pet insurance and veterinary financing have become popular options. Trupanion, a pet insurance provider, saw an increase of approximately 49,000 new pet enrollees in 2014, equal to 29% growth. However, the pet insurance market in the U.S. is still relatively tiny, as only 1% of pets are insured and total premium is expected to only reach $721 million in 2015, a miniscule amount when compared to the U.S. health insurance market.

Like in the broader healthcare market, technology has acted as an accelerant in pet health awareness and quality. Pet healthcare technology companies have emerged in recent years, like WhistleFitBark and Voyce. These companies allow owners to track their pet’s daily activity and benchmark their health, such as set custom goals, identify fitness progress, monitor long-term health trends, track medications and log food intake. Many of these companies provide owners with the ability to share results with their vet, ultimately improving the quality of care received.

These wearable technologies also leverage the network effects of social media, similar to FitBit, where users can compare their pet’s health progress with similar breeds or share/compete with friends. Online pet healthcare centric networks have also emerged. WebMD (Healthy Pets) offers pet owners dedicated health content and other niche providers have emerged as well, including petMD and Dogster.

The pet healthcare market is still young and it will be exciting to watch how this market develops over the coming years. It’s not surprising investors are circling and trying to get a piece of the action. Let us know what you think.

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Mark Edwards