ProShares Pet Care ETF (PAWZ) has enjoyed a good year so far, with performance of over 11 per cent year to date, achieved on a wave of resilience that reflects, the firm says, the critical role of companion animals in pet owners’ lives during social distancing, as adoption and foster applications reached record highs.
Increasing pet ownership and humanisation trends have led to decades of steady growth in the pet care industry, the firm says, with, historically, the pet care industry showing resilience during recessions. The Covid-19 pandemic will be a unique test for the industry, ProShares says, quoting data on a segment of the pet care industry, tracked by the FactSet Pet Care Index, which outperformed the S&P 500 by more than 14 per cent through 30 June.
Demographics and consumer trends in the pet care sector show that growing pet ownership and increased spending is driving performance in the sector. According to the American Pet Products Association (APPA), 67 per cent of US households have a pet, up from 56 per cent in 1988. Similar trends are at work globally, Pro-Shares says, with the number of pet owners increasing in both developed and emerging nations.
In the US, 37 million millennials own a pet, reportedly welcoming a furry friend into their family prior to, or even in place of, having children. Domestically between 2008 and 2018, the pet adoption rate of baby boomers grew 5 per cent, while households with an income of USD100,000 or more saw a 9 per cent increase in adoption rates over the same time frame.
ProShares’ paper says that the humanisation of pets, where they are treated as part of the family, has driven purchases of premium pet food, speciality health services, toys, treats and even outfits. From 2013-2018, America’s pet spending increased 50 per cent while annual income only increased by 23 per cent.
Globally, pet industry sales are forecast to grow from USD190 billion in 2018 to USD270 billion by 2025. These durable trends may indicate a long-term opportunity, but Covid-19 has also had its effect.
“Stay-at-home orders and social distancing guidelines have caused a form of isolation that most of the world has never experienced. While the lockdowns have disrupted everyday life and economic activity, there are indications that the trends supporting the pet care industry may, in fact, be reinforced during these difficult times.
“Our pets have been one of the few bright spots during the pandemic. Not only are people spending more time with their pets, but early signs indicate that more pets are joining households. Animal shelters have reported significant increases in both foster and adoption applications, leaving some shelters vacant for the first time.
“The pandemic has also highlighted the critical role of pets in their owners’ lives. When asked, 72 per cent of pet owners agreed that spending time with their pet was helping to reduce their stress and increase their sense of well-being during Covid-19, and 60 per cent of owners said that the extra time helped them feel more bonded with their pet.”
Pandemic driven recessionary headwinds are certainly affecting many consumers, ProShares writes but, when asked if the current economy had influenced their spending on their pet in the previous month, only 15 per cent of pet owners reported that they had spent less. Twenty-one per cent of pet owners said they had spent more.
“As part of this, just like many other wellness services, veterinary visits may have been deferred during the pandemic, with 19 per cent of surveyed pet owners saying they have changed their use of veterinarian services during Covid-19. However, it’s expected that demand for veterinary services may have become pent-up during office closures, and appointments will be rescheduled as businesses are permitted to reopen.
“The pandemic has sparked the first recession since the financial crisis, and very few sectors and industries have been insulated from the pain. However, while the impacts of Covid-19 are still unfolding – and different pet care businesses may experience different effects – as a whole, the pet care industry has shown signs of resilience.
“This strength has been on display in the past. Looking at pet care spending during previous downturns since 1970, the amount of money spent on pets increased regardless of recessionary or expansionary periods. Perhaps similar to how parents feel about their children, our pets are one of the last things we are willing to look to when cutting costs.”