Although the $40 billion pet industry is growing by leaps and bounds, it remains highly fragmented and ripe for consolidation, providing opportunities for companies and private-equity investors alike, according to a report by The Mercanti Group, a boutique investment bank headquartered in Minneapolis. 

While the industry as a whole has been growing about 6 percent annually, some segments—such as natural and organic pet food, veterinary care and products, and pet boarding and grooming—are expanding 10 percent to 15 percent yearly, according to the report, “Are You Barking Up the Right Investment Tree?”

“From high fashion dog apparel to veterinary health care products, a whole new sub-sector of the consumer industry has begun to evolve,” said Jim D’Aquila, managing director of The Mercanti Group. “In the last 10 years, consumer expenditures on their pets have more than doubled, and we believe the pet industry is a ‘lifestyle’ industry, benefiting from important trends that will facilitate above-average returns.”

“The pet industry is one of the healthiest in America, with a compounded growth rate through 2007 that is expected to reach 7 percent,” the report states. “This growth is being driven in part by increasing pet owners within different demographic groups having increasing disposable income and by a very strong attitudinal trend of humanizing pets.”

According to the report, another important industry trend is the upscale movement of all segments, with premium food, services and accessories leading the way. Other important trends include the aging of America, as more childless households tend to have pets, and a desire to spend more on premium products.

“There are no signs that the pet segment of the consumer industry is going to slow down in the near or distant future,” D’Aquila said. “There are more dogs and cats in more homes and they are living longer, and the demographic, psychological and socio-economic trends that are fueling this growth are not likely to subside in the foreseeable future. We believe that this category is worthy of intense focus for private investors and corporations.”

For a copy of the report, visit www.mercantigroup.com.  [May 2007 PET AGE]