I have always been curious as to why our industry is so attractive to investors. Of course, all of us can see the positive trends in front of our faces—trends such as rising pet ownership (especially dogs and cats), the humanization of pets and expanding retail shelf availability of pet products. But even with this in mind, why would an investor spend $140 million to acquire a pet product manufacturer that has approximately $25 million in annual revenue, as was the case in one recent deal? If every manufacturer could sell its business for six times its revenue, you might find a “for sale” sign at many booths the next time you attend a trade show.
To investigate what is drawing a high level of investment in the pet industry, I recently reached out to a couple CEOs of prominent pet brands that are well versed with this question, either by first-hand involvement or by witnessing it from a view that most of us don’t have.
The first factor that came up in my investigation was how easy it is to get into business in the pet industry. “The pet industry has a very low barrier and cost of entry,” says Marco Gianinni, CEO of Dogswell, a manufacturer of healthy dog and cat food and treats. “Few markets are dominated like the pet industry by independents. Other industries are far more difficult to enter, such as the defense industry—they have very few large players, and their products are extremely high in cost; whereas in the pet industry the average consumer spends less than $100, and many spend less than $50.”
Of course, no investors would bet on a business in which their money has less than even chance of increasing. Money always matters. Every business is started, or acquired, for financial reasons. In the end, each senior pet industry executive I spoke with agreed that there is one simple reason for the increased investor interest in the pet industry: it is a good investment that provides a better chance than not to return a positive dividend for your dollar.
I am eternal optimist. I believe the pet industry still has its brightest days ahead. However, I would be remiss if I didn’t bring up one issue that almost every industry giant I spoke with mentioned: The fact that the baby boomer generation (born 1946–1965) is aging, and that generation is the current dominant pet-owing demographic. What does this mean? It could mean that as baby boomers age, they will be less likely to own and care for pets. If that happens, who will pick up the slack? What will happen to this boom that the industry has been enjoying?
Time will tell.
What will our industry look like in 10 to 20 years? Will there be even more non-pet oriented corporations jumping in? I believe it is more than likely that brands like Pepsi and Frito-Lay will jump in eventually—and if not them, brands just as large will do so for financial reasons.
More Pet Peeves
It has been almost a year since I took over as Pet Business’ “Industry Insider” columnist by publishing a list of my pet peeves about the pet industry. Since most of them have been resolved (okay, maybe I’m a bit of a wide-eyed optimist), I thought it was time to share my second list.
Where’s Our Game-Changer?—Where is our industry’s version of the Apple brand? Don’t get me wrong, there are many nice useful products out there, but where is the brand that is so unique we all gasp and say, “Why didn’t I think of that?” Where is the product that will inspire long lines of customers waiting for your doors to open on the day it is launched?
Slow Road to Pet Store Shelves—It can be fairly hard to get a new product on the shelves at retail, particularly within the independent channel. As a retailer, when you see a new product at a trade show, in an advertisement or online, you need to communicate your interest to you distributor—and not just to your local representative. Pick up the phone and call the buyer.
Anti-Social Retailers—When was the last time you actually spent a considerable amount of time online communicating with your customers via social media? Too many retailers would say never. Having Facebook and Twitter accounts is good, but you have to use these resources. Did you know you can hone your Facebook advertisements down to specific zip codes to focus on your customers? You can even use a location-specific tool such as Facebook Places and Foursquare to directly draw customers into your business.
Complaining About Complaints—Brands such as Southwest Airlines, Starbucks and JC Penny actually like receiving complaints. Successful businesses go out of their way to ask for complaints, so why aren’t you? We live in the digital age, where everything—and I mean everything—is out there for the public to see. Go out of your way and out of your comfort zone to make it easy for both customers and employees to complain. Trust me, it will make your business better, as long as you listen and act on the complaints.
Howard C. London has been in the pet and animal health industries for 25-plus years, as a retail-chain owner, sales and marketing executive, and business owner. He is currently president of Sales & Marketing Consultants Group (dba Pet Industry Guru). For more information, visit www.petindustryguru.com, or email London at firstname.lastname@example.org.
Published: September 1, 2012
With the success that the pet industry has experienced, it’s no wonder that it is drawing so much interest from outside investors.