The “pandemic puppies” you pass by on your neighborhood walks are a big boon for the pet industry. However, unlike other booms, the inevitable pullback in demand may be moderated by two factors he specific to this situation. First, pets continue to require food and care, driving future spending. strengthens the tendency to Together, this means that spending on pets is expected to normalize to a higher level. Euromonitor research analyst Anne Scott Livingston said, “Prior to the pandemic, the growth of dog and cat populations was not very volatile. But the desire for companionship early in the Covid health crisis. led to a boom in pet adoption in 2020 and 2021, she said. Media reports at the time detailed that some animal shelters were completely empty of dogs and cats. That initial explosion has eased and shelters have inevitably filled up again, but people are still adding new pets to their homes at a higher rate than in 2019, Livingston said. Clearly, some degree of consumer mobility has returned, but as many companies have established work-from-home or hybrid models, many consumers are thinking, ‘Oh, I’d rather spend more time at home than I do. We are going to be spending a lot more time.” This helped drive more adoption this year and last year,” he said. Euromonitor expects the pace to normalize next year, but the ripple effects are already evident. He has about 5 million more pets in the US today than he did in 2019, according to Morgan Stanley estimates. However, the bank’s research found that a roughly 4% increase in pet owners increased her spending per pet by 11%. Analysts led by Simeon Gutman said in a recent research note that the majority of new pet parents are young adults who tend to spend more on companionship. Millennial “pet moms and dads” have fewer families or are late to have children, analysts say. Ready to handle, treats and toys, which Gutman says is creating a tailwind that will help accelerate sales growth in the pet industry in the coming years. He expects average annual pet-related spending to grow at an accelerated pace of about 8% from 2019 to 2030. This will boost industry revenue to $277 billion by 2030, according to the company’s baseline forecast. Notably, the momentum outpaced the compound annual growth rates of nearly every other retail subsegment, the company said. But Morgan Stanley’s selection of top pet industry stocks may not be the first name that comes to mind. Instead of picking retailer names like Petco Health and Wellness or Chewy, Gutman believes it’s best for investors to enter the pet market by focusing on their service provider. His Morgan Stanley betting on veterinary power named his Zoetis, a specialty pharmaceutical company that makes heartworm prevention and other medicines and animal vaccines, a top pick in the field. He also likes Idexx Laboratories, a leading manufacturer of diagnostic tests used by veterinarians. The bank has overweight ratings on both stocks. Zoetis has a price target of $264, up about 60% from Thursday’s close. The stock has lost about a third of its value since his January. Morgan Stanley has set a target price for his Idexx stock at $603. That means he’s up nearly 63% from Thursday’s close. Meals and treats make up the largest portion of a pet owner’s budget, but veterinary services ranks his second and fastest-growing, according to Morgan’s Stanley estimates. field. And while cat toys, plush dog beds, and elaborate fish tanks are freely available, as consumers become addicted to their pets, regular veterinary care is seen as a must. According to Morgan Stanley consumer research, the majority of pet owners visit veterinarians for regular care and value their medical expertise a lot. At this time, many of these visits do not include blood tests for preventive diagnostic testing, but Gutmann expects that to change over time. However, given that preventive care protocols, veterinary training, and educating pet owners about the importance of these measures will take time, we expect penetration to grow at a more cautious pace in the near to medium term. ,” he wrote. Gutman also expects more use of Zoetis’ Simparica Trio, a next-generation flea, tick and heartworm repellent. Launched in 2020, the product hit his $168 million in global sales in its first year. Morgan Stanley said sales should grow from that base as more veterans recommend the product over other options. We recognize the importance of veterinary care in our models. Petco is reimagining itself as a health and wellness company. Chewy recently added his CarePlus, a pet health and insurance plan, to its existing health offerings. This already includes online pharmacies, telemedicine services and online marketplaces dedicated to vets. Both retailers see pet health as a way to compete with Walmart and Amazon, which have expanded their reach in pet care. Both Walmart and Amazon, the top retailers of pet products, can compete aggressively on price, and Petco and Chewie are trying to claim their expertise in the field. Having the opinion of highly trained veterinarians on your side can strengthen this image. Livingston, whose Euromonitor specializes in food and nutrition, says his channel online is particularly important for pet products. About a third of industry sales occur online, she says. The shift to ‘human-grade’ food Livingston said her pet owners love the convenience of being able to order items such as pet food through her online subscription, which is contributing to this trend. … apparently … Most major pet supply retailers offer some form of this service. On Wednesday’s earnings call, Petco’s management spoke about the importance of the premium pet food brands it sells to encourage repeat visits by shoppers. Shoppers who buy pet food and other consumables say they have about 30% more lifetime value than customers who don’t shop in those categories at Petco. Also on Wednesday, the retailer unveiled her WholeHearted Fresh Recipes, a line of frozen human food for dogs. According to Livingston, the new brand is very much on trend. Owners have “humanized” their pets. They want to give them the same kinds of healthy, nutrient-packed foods they look for in their own food. We’ll cut costs in other areas of life before downgrading pet food,” she said.Sales of nutritional supplements for pets have increased as well, according to Euromonitor. Petco believes its premium pet food and vital care program, which has 282,000 members as of the second quarter, is a way to build loyalty and drive sales. For a monthly fee of $19.99, the recently revamped program allows customers to get discounts on veterinary exams, as well as products and services like toothpaste and nail clippers. During the company’s earnings call, CEO Ron Coughlin said the program would encourage customers to shop more often in stores, resulting in a “double-digit” increase in spending. “About 30% of Vital Care customers are new to our food and 40% are new to our service, a much larger share compared to Vital Care 1.0. [the original version of the loyalty program]Growth in the program was up 180% year-over-year and 28% over the first quarter, fueled by the addition of members from Thrive Pet Healthcare, a veterinary network acquired earlier this year. Goldman Sachs analyst Kate McShane said in a research note that vital care could be very attractive to customers looking to save in the current inflation environment. benefits from membership dues recurring revenue and higher spending levels of members.Vital Care customers are estimated to have 3.5 times the lifetime value of general shoppers, according to Petco. , Petco shares fell 8.8% on Wednesday as investors reacted to lower forecasts for the 2022 fiscal year. McShane has a buy rating on Petco, but has lowered its 12-month price target by $1 to $20 given lower earnings estimates. We expect that strategy to drive revenue and margin expansion over the long term. Petco shares fell 23% from January, she closed at $15.23 on Thursday. Chewy will report the results this Tuesday. Analysts pay close attention to customer churn rates. The fear is that the company needs to invest more in marketing to attract new customers. Wedbush analyst Seth Basham said in late July that he downgraded Chewy’s rating to neutral. One of his concerns, he said, is that search rates for pet-related products have dropped, and Apple’s privacy changes have made it harder to target potential customers online. Future quarterly results will show whether these trends have affected his Chewy. As of Thursday’s close, the stock is down 31% year-to-date. That said, Chewy’s strength lies in its dominance among customers who buy pet food and other essentials online. These purchases are so significant that Chewy stands firm. Livingston said history offers some comfort here. Spending on pets actually increased during the Great Recession of 2008-2009, she said.
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