Why pets could be a long-tail investment trend

Insights from Morgan Stanley Research


The $100 billion pet industry is poised to nearly triple to $275 billion by 2030, creating potential tailwinds for pet-friendly stocks.

The pandemic has upended the lives of humans, but for pets, it's been a bonanza: Their owners have been home all day, showering them with attention and treats.

A lot of new faces are also turning up at the dog park. Morgan Stanley’s housing strategists estimate that the growth trend of US pet ownership more than tripled during the pandemic, while spending on everything from veterinary care to pet accessories has proven resilient, even during the recession.

Many investors have been following closely. What the market may not fully appreciate, however, is how multiple developments, including Millennial and Generation Z household formation, may drive this long-term trend.

“We think the US pet industry has reached an inflection point, taking topline compound annual growth rates to 8%, vs. 3% for the last decade," says Simeon Gutman, equity analyst covering hardline retail for Morgan Stanley Research.

In a recent report, Gutman joined with AlphaWise—the proprietary survey and data arm of Morgan Stanley Research—and the firm’s Economics and Housing Research teams, to look at why changes in demographics, household formation, and consumer behavior could nearly triple the size of the US pet industry, from $118 billion in 2019 to $277 billion in 2030.

Source: Bureau of Economic Analysis, Morgan Stanley Research

A multi-legged trend

Americans may be divided on many issues, but the majority rules when it comes to pets. A recent AlphaWise survey found that 66% of US households have at least one pet. Even more notably, 69% of respondents "strongly agree" that their pets are important members of the family, 37% would take on debt to pay for a pet's medical expenses, and 29% would put a pet's needs before their own.

Source: AlphaWise, Morgan Stanley Research

And while the pandemic accelerated pet ownership, household formation among Millennials and Gen Z will likely sustain it. In the AlphaWise survey, 65% of 18- to 34-year-olds plan to acquire or add a pet in the next five years, helping drive what's expected to be a 14% increase in pet ownership by 2030.

What's more, pet owners—younger ones in particular—are spending incrementally more on their pets. Average annual household spending per pet could grow from $980 in 2020 to $1,292 by 2025 and expand further to $1,909 by 2030, Morgan Stanley forecasts.

More significant still, this spending has stabilized. “Consumers are increasingly less willing to cut pet spending as a whole when real personal disposable income declines," says Gutman. Indeed, an October 2020 survey of pet owners by the American Pet Products Association found 66% of respondents said that their spending hadn’t changed in the previous month, while 72% indicated they wouldn’t alter spending on pet food, regardless of their finances.1

Source: AlphaWise, Morgan Stanley Research

Pets and portfolios

For some, this information may not be all that surprising. After all, it’s hard to take a walk these days without bumping into a few pets on your stroll (and if it’s raining, possibly even a couple sporting rain jackets). 

While the pandemic may have put a damper on socialization with friends and family, it afforded many people the opportunity to bond closely with their four-legged companions, making pet care a top priority in many households. For investors, this trend presents some unique considerations: 

  • Fido’s health is key: Pet-care spending can span many categories, from food and treats to health care. But, as the chart above shows, with more than 35% of adults indicating they would take on debt to pay for a pet’s medical needs, vet care could be among the fastest growing subsegments in the industry over the next decade.
  • Owners may not shed all pandemic shopping habits: The AlphaWise survey found pet owners have a strong loyalty to vets, which may prove problematic for online prescriptions post pandemic. For other pet-related categories, though, e-commerce continues to gain traction.
  • Think outside the (litter) box: Other ways to invest in the growing market for pets include big-box retailers (not just specialty shops) and the burgeoning pet insurance industry.

Keep in mind, even a warm and fuzzy trend should be considered alongside investing objectives. Make sure all decisions reflect individual goals, timelines, and risk tolerance.

The source of this Morgan Stanley article, Why pets could be a long-tail investment trend, was originally published on April 7, 2021.
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  1. American Pet Products Association, 2019-2020 APPA National Pet Owners Survey

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