The Pet Care Download: Insights from Baird Equity Research

We chatted with Justin Kleber and Peter Benedict, Baird Senior Research Analysts covering Retail / Consumer Products & Services, to get their views on today’s pet industry, current trends and where it could be headed in the future.

Pet is around a $120 billion category in total. It’s shown consistent growth and really impressive resilience throughout economic cycles, historically.

Peter Benedict, Senior Research Analyst
Baird's Research Team

Baird logo against a green background

Key Takeaways

Covid-Era Trends are Moderating While Others are Here to Stay

Benedict is seeing an ongoing normalization of pet ownership trends that ramped up during the pandemic, such as pet ownership and spend on pets. He shared, “Consumers are having to make choices with their wallet share, and so we think that spend on supplies and those types of things have been under pressure and will probably remain so here in the short term as we kind of come off some of those pandemic gains.”

That said, there are other secular trends that will fuel the pet industry going forward. Benedict sees premiumization, humanization, and millennial and Gen Z household formation as tailwinds for the space. “We think that the underpinnings for mid-single-digit growth consistent longer term is still very much intact,” he said. Kleber highlighted the digital savvy of Millennials and Gen Z. “It plays into this trend of how consumer habits are continuing to evolve.”

The Rise of Digital

The broader pet market has shifted to digital over the past decade. “Chewy emerged on the scene and you've seen Amazon start to play bigger in pet. This evolution in consumer shopping habits, it really caught many of the traditional pet retailers off guard, and they were forced to retool their business in order to ensure they could effectively compete in what was becoming an increasingly digital world,” said Benedict.

Kleber added, “In most instances, the shopping journey is starting online today, so we think it's critical for brands to have a strategy that includes winning in digital. One of the key trends, I'd say, that continues to rise in popularity, and one we believe is important for the brands, but also as well as the retailers to capitalize on, is just the rise in subscription services. Pet parents love the convenience of repeat delivery, and as a brand, you benefit from this sticky, recurring revenue stream and this constant touchpoint with your consumer base.”

Winning with a Seamless Omnichannel Strategy

The pet industry’s shift to digital was about more than carving out a new commerce channel, though. As Kleber shared, “The scope of those efforts were much broader than simply developing traditional e-commerce capabilities. We've seen retailers really double down on services as a means to drive differentiation versus the pure-play online competitors, and that also helps drive traffic to the stores.” Benedict also highlighted the rise of stores as fulfillment centers, offering pet parents more convenience and flexibility – a trend that will likely fuel digitally-enabled sales in the future.

For many pet care brands, the ultimate strategy is a seamless omnichannel experience. “In our view, the winning solution is not about physical or digital. It's about blending the best attributes of both bricks and clicks and creating what is truly a seamless omnichannel pet ecosystem,” said Kleber.

Combatting Inflation Pressures

Like many industries, the pet care market is being impacted by inflation. “It's not uncommon based on the brands we track… to see 20 plus points of cumulative pricing over the past few years. And while pet food is not completely immune to unit elasticity, we haven't seen much evidence of trade down. I think that reinforces the humanization trend within the category,” said Kleber, who also shared that the hurdle for consumers to trade up has increased.

Benedict acknowledged some softness in the industry amidst the inflation backdrop, but he remains optimistic about its long-term prospects. “We've also seen some weakness in supplies as we digest some of the ownership trends that we saw during the pandemic… not unlike many categories we cover, pet has a bit of a pandemic winner overhang to it from an investor standpoint. That said, secular themes remain very much intact.”

Some areas of pet care are showing resilience, though. As Kleber shared, “We've been, I'd say, a bit surprised by the resiliency in certain service areas that one might think would be more discretionary. Take grooming, for example – that that's been a business that has – in the face of a lot of inflation just across the broader economy – held up remarkably well, and that's encouraging to see.”

Connect With the Baird Research Team

Senior Research Analyst

Peter Benedict professional headshot

Peter S. Benedict

Senior Research Analyst

Justin E. Kleber, CFA, Senior Research Analyst

Justin E. Kleber, CFA