Summary
The pet economy may not be what you expect as your next topic of conversation with your financial adviser, but there are several reasons why it’s a compelling investment theme.
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Key takeaways
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They spend their days lounging on memory foam mattresses, sipping nonalcoholic wine and wearing gadgets that track their physical fitness. This is not a typical day in the life of a young adult – but rather, in that of their beloved pets.
The pet economy may not be what you expect as your next topic of conversation with your financial adviser, but there are several reasons why it’s a compelling investment theme.
A thematic investment fund allows people to choose and invest in a theme that is aligned to their personal interests and goals. One segment of people interested in a pet investment fund would be pet owners and animal lovers, who are inclined to invest in companies which help to advance the healthcare and quality of life that pets enjoy – and improve services for the owners.
However, the global pet economy is also a fast growing market segment, with the US taking up the biggest share. The total expenditure in the US pet industry has demonstrated rapid growth between 2010 and 20171 (Figure 1), and shows signs that this is likely to continue. It represents a compounded annual growth rate (CAGR) of 5.3%, surpassing the US’s GDP growth of 3.8%2 in the same period. Other parts of the world are seeing similar developments – for example, the average spending per pet in the United Kingdom has seen a remarkable increase of 76% between 2010 and 2017.3
This rapid growth is attributable to the megatrend of demographic and social change such as:
- the rise of millennials
- ageing population
- growing middle class and
- more single people
- global changes in attitudes.
Figure 1: Total pet industry expenditure in the US, 2010-2017, USD billions
Source: The American Pet Association
These shifts are responsible for the two main drivers of the growing pet economy: pet adoption rates are rising at the same time as spending per pet is increasing.
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Millenials4 typically have the tendency to delay parenthood and increasingly live in urban areas – but they are still as partial to companionship and the natural world as previous generations. These could be reasons why millennials have just overtaken the baby boomers as the biggest pet-owning age group. In 2017, millennials represented 35% of total pet ownership, surpassing the baby boomers’ 32%.5
Millennials are the most likely age group to treat pets as family members, and, prioritizing their health care, they are, for example, more likely to have pet insurance. They are also the most likely age group to state that “money is no object” when it comes to their pets.6
In addition to the good news for pets regarding their increasing healthcare budget, pets are getting spoiled with a high end trend of pet pampering. The splurge on pampered pets ranges from the more standard – grooming services and human-grade pet food – to the extreme end – matching pajamas, Pawsecco (non- alcoholic wine) and wearable gadgets to monitor health.
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The psychological support from pet companionship is equally important in the hearts and minds of the older generation. With grown-up children and higher disposable incomes, older people spend on average nearly 60%7 more on their pets than other age groups in the United States. People are living longer and so there are more single people and couples who seek to benefit from animal companionship.
Increased expenditure on pets by the older generation is witnessed in almost all developed countries, and the trend of the ageing population means that this group is expected to represent one-third of the US population by 20307.
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Social attitudes have changed dramatically in the last 50 years. Pets have gone from the yard into the house – and have finally been admitted into the bed. In the US, 95%8 of pet owners consider their pets to be part of the family.
As family members are virtually guaranteed a certain level of care, regardless of the state of the economy, this leads to a perpetual demand for products that cater to domestic animals. In addition to traditional veterinary care, pets are increasingly treated to a more human-like standard. For example, in response to the obesity crisis in dogs and cats in the US – where 60% of cats and 56% of dogs were classified as overweight or obese in 20189 – a wide array of premium products such as dietary pet food and health monitoring devices are now available which are gaining momentum as preventative measures.
Due to this enduring and robust level of demand, spending on veterinary products and services has not only grown faster than overall personal consumption, but has also proven to be resilient in recessions. When the Great Recession hit, Americans tightened their belts. However, spending on pets barely declined – and veterinary services spending grew at an average pace of 5.3%, despite the difficult economic climate of 2007 to 2010. Just as people don’t stop eating cornflakes in a recession, there’re also unlikely to stop paying for their pets’ healthcare.
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Thanks to the country’s ongoing economic development and greater disposable income, China’s middle class have joined the pet lovers of the world. The pet industry in China has seen significant gains, with a climb in pet care and supplies expenditure amounting to USD 25 billion10 in 2017, representing an increase of 27% from the year before.
In China, pets are a status symbol. As they remain a non-essential luxury for those on low incomes, once a certain living standard is reached, there is then strong demand. The gradual movement to view pets as family members in developed countries has been rapidly accelerated in China.
Similarly, other developing nations like India and Russia are catching up as growing forces in the pet economy.
Conclusion
The investment theme of the pet economy appeals to many pet owners and animal lovers. As an investment, it allows them to be part of an area close to their hearts, which helps to advance the healthcare and quality of life that pets enjoy as well as the peace of mind of the owners.
Demographic and social change is one of the most prominent megatrends of our age, but it can be difficult for investors to tap into it precisely and at the right time – given its vast implications across countries, societies and industries. Investing in the pet economy could be one of the most viable ways to participate in the opportunities arising from this megatrend.11
Infographic: Pet Economy Boom
Fund: Allianz Pet and Animal Wellbeing
1) Pet Industry Market Size & Ownership Statistics, The American Pet Products Association
2) World Bank national accounts data, The World Bank
3) Expenditure on pets in the United Kingdom, Statista
4) Millennials is the phrase used to generally describe a person who reached adulthood in the early 21st century and covers the generation of people born between 1980 and 2000, according to the U.S. Census Bureau
5) Baby boomers are those born from 1946 through 1964. The 2017 – 2018 APPA National Pet Owners Survey Debut, The American Pet Products Association
6) 41% of millennials surveyed stated that money is no object when it comes to their pets – APPA National Pet Owners Survey Debut. Statista. IDEXX Laboratories Inc. Investor Day Presentation 2017
7) Administration on Aging and U.S. Bureau of Labour Statistics
8) Nielsen survey conducted by Harris Poll, 26th May 2015.
9) 2018 clinical survey, Association for Pet Obesity Prevention
10) The World Pet Markets Trend, countries experiencing growth in the pet industry, The Balance Careers
11) Performance of the strategy is not guaranteed and losses remain possible.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Allianz Pet and Animal Wellbeing is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to an increased volatility. The volatility of other Unit/Share Classes may be different and possibly higher. Past performance is not a reliable indicator of future results. Investment funds may not be available for sale in all jurisdictions or to certain categories of investors. This communication has not been prepared in accordance with legal requirements designed to ensure the impartiality of investment (strategy) recommendations and is not subject to any prohibition on dealing before publication of such recommendations.
For investors in Europe (excluding Switzerland)
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the issuer at the address indicated below or www.allianzgi-regulatory.eu. Austrian investors may also contact the Austrian information agent Allianz Investmentbank AG, Hietzinger Kai 101-105, A-1130 Vienna. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established branches in the United Kingdom, France, Italy, Spain, Luxembourg and the Netherlands. Contact details and information on the local regulation are available here (www.allianzgi.com/Info).
For investors in Switzerland
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the Swiss funds’ representative and paying agent BNP Paribas Securities Services, Paris, Zurich branch, Selnaustrasse 16, CH-8002 Zürich or the issuer either electronically or by mail at the given address. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH, licensed by FINMA (www.finma.ch) for distribution and by OAKBV (Oberaufsichtskommission berufliche Vorsorge) for asset management related to occupational pensions.
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November 2019
