Pet food is heavy and expensive to ship, leaving most to think it wouldn’t benefit much from the increasing popularity of online shopping. That may not be the case, however, according to a new report released by IBISWorld (Los Angeles), a market research group.

Revenue from online sales of pet food totaled $484.7 million in the five years to 2011 and is projected to increase to $595.8 million during the five years to 2016, according to “Online Pet Food & Pet Supply Sales.”

Rising pet ownership is a key driver. “Rising pet ownership in the United States and growth across the e-commerce sector has caused the industry to experience overall growth, despite the recession,” said IBISWorld analyst Kevin Culbert.

Increasing demand for premium pet food and online animal pharmaceutical sales also contributed to industry growth during the past five years.

With rising revenue, industry profit margins increased over the five-year period, too. Industry profit in the online pet food industry has risen due to improvements in automation, which caused wages to decline as a proportion of revenue.

Premium pet food and supplies have boosted profitability because they typically have higher markups, said Culbert.

Niche markets are particularly benefiting from online sales. “Niche players like 1-800-PetMeds and discount retailers like Walmart have rapidly gained market share within the industry,” said Culbert.

Niche operators will likely continue entering the industry during the next five years, especially those that specialize in targeted markets, such as supplies for exotic animals or health-oriented products.

But online pet retailers also will experience increasing competition from brick-and-mortar stores that also sell pet food and supplies, including grocery stores. This is largely due to the expected closing of a tax loophole that has allowed many Internet retailers to forgo charging sales tax (for more, see Legislation, page 17). This factor is expected to cause profit margins to decline, since firms will need to reduce prices to remain competitive.

To find out more or purchase the full “Online Pet Food & Pet Supply Sales” industry report, visit http://tinyurl.com/766jbpe. [February 2012 PET AGE]