Editor's Note: Last year one of our most popular trends posts was about the pet industry. With pets in 69 million homes in the United States alone, the pet industry attracts many small businesses. So we invited the author, Laura Bennett, CEO of Embrace Pet Insurance, back for this guest post to update us on pet industry trends in 2007. By Laura Bennett The 2007 economics for small businesses will be affected by a continuing increase in pet-related spending, focusing on improving pet health, trading up to quality for pet accessories and food, and an about turn on donations to pet-related charities. Trends include: 1. Growth in unique pet goods. The American Pet Products Manufacturers' Association (APPMA) estimates that pet goods and medicines spending will grow 6.9% to reach $9.3 billion in 2006 (out of a total of $38.4 billion in overall pet industry expenditures). Much of the growth continues to come from the newer pet items such as pet deli snacks, toys, luxury items, and convenience accessories such as programmable feeding and watering stations, warming mats, and self-cleaning litter boxes. High-end specialty pet stores continue to thrive despite competition from the big box stores as passionate pet owners look for selection, style, and a unique shopping experience. 2. Growth in pet services such as grooming, boarding, pet photography, dog walking, and pet sitting. More than $2.7 billion dollars will be spent on pet services in 2006 according to the APPMA, which will likely continue to grow at around 8% for 2007. More pet owners will pay for these services as it is becoming socially unacceptable in some cities, such as New York and Los Angeles, to leave your dog alone during the day or your cat alone for the weekend. We also predict that we will see more pet services partnering together (or perhaps merging together) to support a pet through its life, such as breeders (birth), and groomers, doggie daycare, pet hotels, and pet insurance (lifetime services), and pet trusts and cremations/burials/memorials (for a pet's death). 3. Growing interest in pet health care. This includes non-invasive surgeries, human medical devices and services being applied to pets, super-premium foods aimed at specific ailments, and alternative therapies, such as acupuncture, massage, and behavioral therapies. High end diagnostics, such as MRIs, will become more widely available for pets, with the price dropping accordingly. Online veterinary pharmaceuticals will become more main stream. Pet lovers want, and are demanding, the same treatment options for their pets as they can get for themselves. 4. Continued steady increase in pet insurance. The estimated 2006 market size is approximately $200 million, and is estimated to continue to grow by 25% to reach $250 million in 2007, according to the 2005 Packaged Facts "Pet Insurance in North America: The Market and Trends in the U.S. and Canada" report. While our prediction of one of the established companies being acquired in 2006 did not come true, it is only a matter of time before a large insurance company buys its way into the pet insurance arena. More and more employers continue to join the ranks of those who offer pet insurance as a voluntary benefit and at least one pet insurance company plans to start mass media advertising in 2007, increasing consumer awareness of pet insurance. 5. More pet-friendly environments. These environments pop up in places such as hotels (Starwood and Loews), restaurants (the Flying Fig in Cleveland, Ohio), and shopping centers (Stony Point Fashion Park in Richmond, Virginia) causing pet lovers to steer their business to where their pets are welcomed. Florida passed a doggie dining law in 2006 and other cities such as Houston are considering a similar move. 6. Philanthropy returns to the pet world. The events of September 11, the 2004 Tsunami, Hurricane Katrina, and the war in Iraq all attracted outpourings of charitable donations to the affected areas, diverting funds from smaller pet-related charities. While it will take time for donation levels to turn around, pet parents are doing good while catering to Fluffy's every need as more and more pet-related companies are donating a portion of their sales to pet-related charities. The business environment will start to become more challenging as a multitude of new players enter the market. Savvy small businesses will take advantage of change to successfully place themselves uniquely in the market. Trends here include: 7. Increased competition from larger players. Larger companies are beginning to recognize the economic potential of the pet industry. Target and Walmart are both expanding their pet selection and using pets in their advertising. Petco and PetsMart continue to grow rapidly, increasing their total number of stores by over 160 stores in 2005, which is projected to continue in the coming years according to their annual reports. These companies are moving into the full service arena if they aren't there already, to encourage customer loyalty. 8. Large companies buying smaller players or interacting with small businesses behind the scenes, via monetary investment and/or marketing alliances. Not only are the more obvious pet-related giants, such as Purina, Hills, and Iams (for example, Iams owns an 8.9% interest in Veterinary Pet Insurance) engaged in this activity, but also other more surprising companies such as paper product giant Kimberly Clark, which is very interested in expanding its revenue stream into the supermarket pet aisle. 9. Increased online sophistication from new pet-related businesses in ecommerce, design, and usability. Traditionally, small business sites have been set up by pet lovers with little thought on design, target audience, and content. Newer players, such as Urbanhound and WagginTails noted last year, and Pawspot, a pet sitting community new this year, are beginning to be more sophisticated in design and ecommerce, reaching their target audience via web-site usability, SEO, paid search, and word of mouth. 10. More meaningful pet-related blogs. Blogs, written by both corporate players and evangelists, will become more prevalent, more widely read, and will have a significant influence on driving traffic and sales to smaller niche players. New blogs in 2006 include Scratchings and Sniffings, sponsored by Purina, and the Embrace Pet Community blog, part of the broader Embrace Pet Community sponsored by Embrace Pet Insurance. And one final bonus trend that indicates the sentiment of the pet-related customer... 11. Pet adoptions continue to grow. Pet adoptions grow as the adoption network becomes more sophisticated, structured, and effective. In 2006, Petfinder, the largest online adoption facilitator, was acquired by the TV channel, Animal Planet in order to diversify the company's pet-related revenue stream. Meanwhile, the number of American Kennel Club (AKC) pedigree dog registrations will continue to drop (over 21% from 2000 to 2005 according to the AKC) as pet lovers look to rescue those in need rather than buying purebred dogs and cats. * * * * * About the author: Laura Bennett is the CEO of Embrace Pet Insurance. Over her career working in the insurance industry in Dublin, Ireland, and Toronto, Canada, she eventually landed in the United States where along with Alex Krooglik, the two of them founded Embrace Pet Insurance to combine their love of pets, the desire for entrepreneurship, and Laura's expertise in the insurance industry. Laura also writes a blog on pet-related issues, the Embrace Pet Insurance blog.