Is the pet industry recession proof?
From tech giants to startups, the threat of recession is hitting every facet of the tech ecosystem, leading to layoffs, reduced valuations and a funding freeze. But how are pet tech doing?
Investors, founders and analysts say that if operating conditions deteriorate, the sector is optimistic about its ability to weather the worst.
Part of the reason is that pet owners love their pets very much. The so-called “humanizing” trend, where pets are treated like family members, has been central to the pet tech boom. And that means owners aren’t tightening their purse strings when it comes to staples like good quality feed.
“The bond between pet owners and pets is getting closer,” says Christian Köhler, founder of Berlin-based Filu Vet, which helps veterinary practices modernize services through technology. “Everyone treats their pets like children. Thirty years ago dogs could not enter the house, then they were allowed in the bed, soon they will have their own room!
“The bond between pet owners and pets is getting closer”
David Newns, an investor in British start-up Pets Purest, thinks pets are one of the last segments of consumer spending during a recession.
“We’re really optimistic about the pet industry and we’re investing and trying to buy pet businesses,” he says, adding that high-end consumers “will stop feeding before they stop eating.” feed their pets.
The price scale for pet products
One thing that could change is a move from hyper-premium products — and whether that’s good or bad depends on which rung of the ladder a startup is focusing on.
Alessandro Di Trapani, co-founder of Grub Club, a UK-based sustainable pet food start-up, said consumers could switch from premium raw diets to dry food alternatives that “meet nutritional needs, but you could save a pretty penny each month by going raw.”
Shiv Sivakumar, co-founder of OMNI, a vegan dog food brand that sells dry food, says May was a peak subscription month for them. Graham Tatham, life sciences partner at Simon Kucher & Partners, agrees that expensive segments like raw and gluten-free brands could suffer in the current environment.
“Essential pet products, such as food and treats, are likely to be less affected by economic pressures, but they are by no means immune to supply chain disruptions, as evidenced by the shortage of wet pet food that hit UK stores last year. ,” says Lee Gibson, UK managing director of Pets4Homes, a pet marketplace. “The economic landscape may present more challenges for luxury pet items and accessories, although this may be offset by the growing number of pets across the UK as more and more litters are raised to meet demand.”
The benefits of market cooling
A second cause for celebration could be, paradoxically, a drop in demand for pets, chilling a sector that was becoming so lucrative that it was attracting nefarious actors.
Data from Pets4Homes suggests that demand for pets fell by 42% between January and April 2022 compared to the previous year. As a result, prices fell. The average cost of a puppy has dropped to £1,329 in March 2022, compared to £2,237 in March 2021. The price of cats fell by 20% between the first quarter of 2021 and 2022.
Lower prices discourage phenomena such as “puppy farms” which profit from pet mania by raising pets in poor conditions. Cost of living pressures also mean that potential new pet owners will determine if this is a step they want to take, reducing impulse buying, which often leads to abandonment and change of family.
“Lower prices can have the positive effect of discouraging those in the low-welfare, illegal puppy trade from targeting the pet industry as a source of profit,” says Gibson.
“Investors are looking for companies that are careful with their money, have healthy margins and have a clear path to profit“
A general cooling of the market could favor better managed companies, as investors become more and more demanding. “Investors are looking for companies that are conservative with their money, have healthy margins and have a clear path to profit,” says Di Trapani.
“VCs need to rethink in terms of profitability,” says Christian Köhler at Filu Vet, which closed a pre-seed funding round in May and is now entering discussions for an August funding round.
He quotes the month of May €11 million Series A for Lassie, a Stockholm-based pet insurance startup, as a sign that investors still back companies with strong fundamentals. “Early-stage investors have always looked at growth and now it’s about looking to positive cash flow and growing without a lot of equity financing,” he says.
For Newns, survival will depend on sustainable customer acquisition costs and retention rates.
“Over the past few years, the direct-to-consumer space has seen many brands that, without huge infusions of cash, simply aren’t sustainable, and venture capital funds aren’t going to follow with more. capital when those companies need it now,” says Newns. “Companies that have good business models and control of their supply chains, margins and acquisition costs will succeed. Companies that only buy income will struggle.
Cost-conscious consumers and veterinary practices might start looking for other ways to use technology to cut costs, helping startups in those niches.
“There has been unprecedented interest in the pet technology industry over the past two years as pet owners have embraced technology to meet the needs of their pets during and after the pandemic,” says Gibson. In the 12 months to April 2022, 34.5% of owners surveyed by the company used a pet food subscription service and one in five contacted a veterinarian online.
“The pet technology sector has seen unprecedented interest over the past two years as pet owners have embraced technology to meet the needs of their pets during and after the pandemic.”
“These startups have tended to thrive despite the economic uncertainties of the pandemic. However, as the purse strings tighten and more pet tech startups compete for owners’ attention, the industry cannot become complacent,” adds Gibson. “As inflation and high costs hit businesses and consumers, it’s the concepts of pet technologies that make life easier and cheaper for owners that will continue to grow, while others may have -be hard to adapt.”
Despite some good news, there are headwinds. Tatham warns of growing anxiety over pet bills, given varying levels of pet insurance and consumers’ lack of financial reserves.
Operating costs are also rising, according to investors and founders. “We have seen an increase in the cost of raw materials, transportation and last mile delivery,” says Di Trapani. “We have tried to absorb them as much as possible rather than passing them on to our customers. »