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Macro Minute:

CPI data was released for the United States by the FED and the published number was 8.5% for the year-over-year inflation for the month of February. This data did NOT include things like meat, eggs, gas, electricity, housing, and even eating at home. This is another case of manipulated numbers in order to show inflation is not as high as it actually is. Inflation is now being blamed on the Ukraine war and is being known as the “Putin Price Hike” in the United States. It is difficult to project how long inflation will be extremely high, but Janet Yellen said she anticipates at least another year of high inflation which leads me to believe it may be longer than a year.

Sector Description: What is the Pet Industry?

Pets, furry creators, whatever you want to call your pets, the industry is absolutely booming. People love their pets and some treat their pets like children and are willing to spend quite a bit of money on their pets. In 2020, there was $103.6 billion spent on the pet industry. The pet industry spending can be divided into pet foods and treats, supplies, live animals, & OTC medicine, vet care & product services, and other services like boarding, grooming, training, pet sitting, and walking. This large industry has plenty of players and new companies coming in trying to innovate to make pet care easier.

Large Public Companies in the Sector

Chewy (Ticker: $CHWY) - Market Cap: $31.9B

Petco Health and Wellness (Ticker: $WOOF) - Market Cap: $6.8B

Freshpet (Ticker: $FRPT) - Market Cap: $5.7B

Opportunities for Broad Exposure

The ProShares Pet Care ETF (Ticker: PAWZ) allows investors to get broad exposure to this industry. In order to learn more about this ETF here.

Key Metrics and Considerations

Pet Boom: There was a very large boom in pet adoptions and pet purchases during the stay at home mandates due to COVID-19. Now that the pandemic is somewhat in the rear view mirror, the pets still remain. Pets of all kinds are now in houses for years and new pet owners are going to spend money on these pets. Many will find new companies, products, and services for their pets and the industry is ripe for growth.

Repeat Purchases: Pets are somewhat destructive, are always growing, and will need continual care throughout their lifetime. This will cause repeat purchases and there are even services which give buyers the subscription option. The subscription option gives consistent revenue and is a great way for a business to pull in consistent money.

Humanization of Pets: People have become extremely attached to their pets, even to the point of treating them almost like children. With the increased humanization of pets, more money will be spent on pets in order to spoil people’s animals. This includes spoiling with toys or various other swag for pets that cost money. Increased spending on pets means more revenue for pet companies.

Opinion of Sector

I am bullish on the sector but cautious on pets. I believe the COVID-19 pandemic helped a lot of companies but some will not survive. There are certain companies which offer niche products and services in the pet industry that may not survive, but others that offer a wide range of products and services for pets that diversify the business. Diversifying the business can limit growth as it is not singularly focused but can make a business bulletproof or harder to fail. There will be winners and losers in this industry, but unlike the semiconductor industry I believe the growth in the pet industry is slowing. The COVID pet boom is coming to an end and less pets will be purchased over time. Also if a potential recession comes, a logical place to cut spending is excess spending on pets.

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