Surprise, surprise – the impact of the recession on consumer spending and attitudes will continue to dominate economics for pet-related small businesses in 2010. It has long been thought that pet-related spending is recession proof and 2009 certainly tested that theory. As a result, I think we can certainly say the pet category is at least recession resistant, with pet-related sales growing slightly in 2009. There aren’t too many categories that can say that in this difficult economic environment!
The overall trend continues to be value for money, which doesn’t necessarily mean spending less, but less frivolously. Pet-related spending will continue to increase from 2009 levels though as pet owners breathe a sigh of relief that the world didn’t end in 2009. Trends include:
1. Pet parents continue to spend on supplies and OTC medicine thoughtfully
Spending on pet supplies and over-the-counter medicines was projected to increase 5.1% in 2008 from $9.8 billion to $10.3 billion according to the American Pet Products Association (APPA)  but it turned out to be more modest growth of 2% to $10.0 billion, a major slow down from the 6+% increases of the recent past. The APPA projects continued growth of 2% in 2010, although I would not be surprised if it bounced a little higher in the range of 4%.
People will continue to spend above and beyond on their pets as the population ages and pets take the place of children at home; however, pet parents will continue to focus their dollars on quality necessities, such as food, leashes, and bedding, or low dollar frivolities such as the Pet Snuggie. High-end specialty pet stores are going to feel the pinch as the casual shopper won’t be dropping in as much and I expect we will see a drop in numbers of these stores in 2010 as the economy slowly improves but not fast enough to save all these stores.
2. Pet services for your pets continue to grow
According to the APPA, $3.2 billion dollars was spent on pet services in 2008, projected to grow over 6% to $3.4 billion in 2009. I don’t think anyone will be particularly surprised to see this growth continue for several years to come, particularly as retail behemoth Wal-Mart expands its pet grooming facilities further into its stores.
Pet parents are including their pets in their own lifestyles so visits to the spa, exercise regimes, and restaurants have become more common in urban areas. With the recession and decline of investment capital, my impression is that the number of day care accommodations are growing in number more modestly than prior to the recession; however, the business of doggie day cares continues to be a profitable one.
3. Growing interest in pet health care
While growth in pet supplies might be “languishing” in the 2% range, veterinary services are projected to grow 9.9% in 2009. I wouldn’t be surprised to see actual growth a little lower (veterinary inflation slowed significantly in late 2009 according to the US Bureau of Labor Statistics from about 7% early in 2009 to just over 4% 6 months later) but I still expect growth in the 6-8% range. Pet lovers continue to want the same treatment options for their pets as they can get for themselves and veterinarians are able to supply it.
4. Pet insurance continues to move towards the mainstream
We estimate the size of the US pet insurance market to be $332 million in premium in 2009, up from approximately $272 million in 2009 (a 22% increase) and I expect it to reach $400 million in 2010. We project that the market will grow to $600 million in 2013. There are 10 pet insurance companies in the US selling under 14 brands. The pet insurance market is seeing an increase in interest from private equity investors looking to get in early on the huge market potential. It remains to be seen if any of them open their check books in 2010 though.
5. Teacups join the tea party
If 2009 was the year of the “hybrid”, 2010 will be the year of the “teacup”. Puppy mills are turning their attention to “miniaturizing” certain breeds or passing off genetic misfits as a one in a million dog rather than the sickly pet they no doubt will be. Celebrity dog owners have not helped in that respect, carrying around their petit-pooches in their designer purses, and driving their admirers to want smaller and smaller dogs. Here’s hoping that this craze will be short-lived to spare the lives of these poor little dogs.
The business environment continues to challenge in 2009. Pets have drawn the attention of large retailers and institutional investors who have been expanding into the pet space. Savvy small businesses will take advantage of change to successfully place themselves uniquely in the market. Trends here include:
6. Pet businesses and non-profits thrive socially.
Social networking was not new in 2009 but the successes of the early adopters such as @PetsitUSA  and @petrelocation  are driving more and more pet businesses online. Pet-related small business owners have always known the power of numbers and are turning online to get noticed, one shopper or one business partner at a time, on Twitter, Facebook, and LinkedIn. Many rescue organizations are using social networking as part of their funding drives such as the ASPCA  and The Humane Society .
7. Larger players get larger.
Target and Wal-Mart are both expanding their pet selection and in the case of Wal-Mart, their services. Big box pet specialty retailers, such as PetSmart, continue to grow and PetSmart recently saw 9+% growth in its pet services, fueled by grooming services and new pet hotels. If PetSmart is feeling any pinch from Wal-Mart’s entry into pet grooming, there is no evidence of it at this point.
8. Customers tell it like it is, whether you like it or not.
Sales of items such as electronics and books have long benefited (or not) from online reviews and passionate customers stating their views on their purchases for good (or bad.) Pet products and services are now catching up with the growing popularity of review sites such as www.petinsurancereview.com , product reviews on Amazon.com, and instantaneous feedback on Twitter. Companies that ignore the impact of these sites are going to be playing catch up in future years.
9. Increased online sophistication from pet-related businesses in ecommerce, design, and usability.
In 2009, several new players joined the pet health and pet adoption space. The web giant WebMD, known for its online human health information, has launched into the pet health expertise websites that appeared in 2008, in an attempt to use its brand and reach to take the top spot in this market. On the other hand, Petango.com, an upstart online adoption database, launched to compete with the dominating market leader, PetFinder. We shall see in 2010 whether these two plays will be successful in their chosen niches. Overall, newer websites are more sophisticated in design and ecommerce, reaching their target audience via web-site usability, SEO, paid search, and word of mouth. These websites are still in the minority of a largely fragmented pet marketplace even in 2010, but this gives a savvy small business an opportunity to stand out from the crowd.
10. Pet-related blogs continue to grow their influence.
The power of pet-related blogs really showed up during the pet food recall in the middle of 2007. Blogs such as Pet Connection , Pet Sit USA  and Dolittler continue to provide high quality commentary on all aspects of pet news and issues, and are expanding their reach and depth across the pet web. The number of quality pet bloggers continues to grow and the best are even more accessible on the blog list website Alltop pets .
And one final bonus trend
11. Pets and taxes
There are a few initiatives involving pets and tax. First, the HAPPY Act, the Humanity and Pets Partnered Through the Years Act, which is a proposal to allow taxpayers to deduct up to $3,500-a-year in pet care expenses, including vet care. I would be surprised if it went through but then again, legislators never cease to surprise. On the down side, California would seriously love to tax veterinary services, something it considered in 2009 but removed in the final budget. I fully expect that issue to raise its head again in a year or two although it would be vigorously opposed by pet lovers across the country. Finally, the Pet Health Consortium, a new group lead by AVMA (the American Veterinary Medical Association) to educate Congress and the public on the importance and benefits of pet health insurance, has a primary goal to include pet health insurance as an optional pre-tax benefit provided to employees through Section 125 cafeteria plans. This initiative, should it go through, won’t occur until 2011 at the earliest but we will likely see public discussion in 2010.