The New York Times recently wrote about the astounding success of the pet supply industry in the midst of what was an otherwise unsuccessful economic period. (STAY AHEAD OF THE CURVE: Follow Kapitall on Twitter)
Americans households with incomes above $70,000 "might cut back on a new car or taking a trip around the world, but they won't skimp on their pets," said Tom Nieman, the owner of Fromm Family Foods, a fourth-generation family business. "It's not going to happen."
The Rise of Boutiques
While industry giants like Purina have fared well under pet-devotion, it has been boutique pet-food companies that have registered the most growth in the past few years.
According to The New York Times, they all benefited from the 2007 pet-food recall, "when contaminated gluten and rice protein from China caused fatal kidney failure in thousands of cats and dogs around the world."
Concerned pet owners were quick to make the switch to small-time suppliers who advertised "human grade" food made with "healthy", "fresh," "organic" and "all-natural" ingredients. These typically sell at a premium to the standard brands, boosting revenues for pet stores.
There's no shortage of supply either. Many pet stores offer a variety of mom-and-pop brands, enabling pet owners to stock up on unique cat-food flavors such as "Thanksgiving Day Dinner," "Grammy's Pot Pie," "Beef & Salmon," "Venison & Green Pea" and "Turducken."
Altogether, retail sales of dog and cat food exceeded $19 billion in 2011, 5% of which came from gourmet and boutique food suppliers, according to the market research company Euromonitor International. The firm adds that profit margins for organic and gourmet pet foods can reach 40%, compared with 30% for premium brands and 20% for standard brands.
Business Section: Investing Ideas
To track the increase in spending on pet supplies, we can examine the stock performance of pet pure-play PETsMART (PETM).
Looking at the Turbo Chart below, which compares the performance of PETM against the S&P 500 index, we can see that PETM has outperformed by a wide margin. Do you think this growth will continue?
(Written by Rebecca Lipman)
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