Vitamins for Fido: thesis on the emerging pet supplement industry

Flinstones for Fido? One-a-Day for Oliver? Consumers’ willingness to spend on pet wellness is more topical than ever, and suffice it to say, pet supplements is big business.

The industry primarily consists of over-the-counter products for common ailments such as digestive, immunity and joint health. It’s well-positioned to grow from a confluence of trends that have emerged over the last decade including a shift towards health & wellness coupled with the humanization of pets.

Further, several characteristics make the category attractive from an investor’s perspective including high velocities, revenue that is recurring in nature as well as healthy gross margins.

While competition will likely intensify, brands that are able to offer products that meet consumers where they are (online, in-store and /or through alternative channels like veterinary), with reasonable price points, transparent and clean ingredients, elegant packaging and proven channel expansion will capture meaningful share in what will likely be a billion+ dollar category over time.

Large Addressable & Underpenetrated Market:

• According to the 2019–2020 American Pet Products Association (APPA) National Pet Owners Survey, 67% of U.S. households own a pet, nearly 85mm homes – up from 56% in 1988
• Pet supplements in the US is a ~$600mm industry (<1% of $100bn annual US pet spend)
• By contrast, human supplements in the US is a $30bn industry ($30bn / 300mm people = ~$100 per capita), nearly 30x pet supplement spend on a per capita basis ($600mm / 180mm cats & dogs = ~$3 per capita)
• Research suggests up to 20% of dogs will experience joint issues, the most common ailment, at some point during their lifetime

Humanization of Pets:

• Millennials continue to delay marriage and children, while turning to pets to fill that void
• ‘Fido’ doesn’t live in a doghouse in the backyard anymore. He’s a fully integrated member of the family
• Pet spend in the US has grown at a 5% CAGR over the last decade across food, tech and services
• Clean ingredients have extended from human plates to those of our pets with premium offerings including fresh, frozen and made-to-order
• The same consumer who is willing to spend on their own health & wellness (clean label food & beverage, gym membership, vitamins & supplements) is likely willing to do the same for their pets, especially at a <$30 per month price point.

Investable Characteristics:

• High velocities: The nature of supplements is they need to continuously be taken and are typically sold in 30–90 day quantities
• Embedded retention: When a product appears to be working and a pet tolerates a specific brand, consumer is unlikely to switch especially given relatively small ticket size
• Healthy margins: Gross margins north of 50%+

While all are at different stages of their lifecycle, a few pet-focused supplement brands that I am tracking include:

• ZestyPaws (https://www.zestypaws.com/)
• Finn (https://www.petfinn.com/)
• Petlab Co. (https://www.thepetlabco.com/)
• BIXBI Pet (https://www.bixbipet.com/)
• Goodboy (https://www.trygoodboy.com/)

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April 2022 Update: The M&A landscape has accelerated meaningfully since I wrote this post in May 2020. Since then, several strategics as well as sponsor-backed platforms have transacted:

• March 2021: Private equity firm Wind Point Partners acquired FoodScience Corp, parentCo of pet supplement brands Pet Naturals and VetriScience
• July 2021: Private equity firm Vestar Capital Partners acquired PetHonesty, a leader in premium pet supplements
• August 2021: ZestyPaws was acquired by international health and nutrition company, H&H Group for $610mm (8x LTM revenue)
• August 2021: Belgium-based investment firm NXMH acquired White Pet Brands, parentCo of Dogswell and several other pet supplement brands
• December 2021: Voff Premium Pet Food acquired AniForte, a natural pet supplement producer
• January 2022: Carlyle-backed Manna Pro acquired Oxbow Animal Health, a 30-year old supplement and wellness brand focused on small animals
• February 2022: Swedencare AB acquired natural supplement producer NaturVet for $448mm (23x EBITDA)