Pet stores in the us industry report

WWW.IBISWORLD.COM Pet Stores in the US February 2012 1

Lucky dog: Pet owners will invest in premium
products as disposable income rises

IBISWorld Industry Report 45391
Pet Stores in the US
February 2012 Caitlin Moldvay

2 About this Industry 16 International Trade 30 Industry Assistance
2 Industry Definition 17 Business Locations
2 Main Activities 31 Key Statistics
2 Similar Industries 19 Competitive Landscape 31 Industry Data
2 Additional Resources 19 Market Share Concentration 31 Annual Change
19 Key Success Factors 31 Key Ratios
3 Industry at a Glance 20 Cost Structure Benchmarks
21 Basis of Competition 32 Jargon Glossary
4 Industry Performance 22 Barriers to Entry
4 Executive Summary 23 Industry Globalization
4 Key External Drivers
5 Current Performance 24 Major Companies
8 Industry Outlook 24 PetSmart Inc.
11 Industry Life Cycle 25 PETCO Animal Supplies Inc.

13 Products Markets 28 Operating Conditions
13 Supply Chain 28 Capital Intensity
13 Products Services 29 Technology Systems
14 Demand Determinants 29 Revenue Volatility
15 Major Markets 30 Regulation Policy

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com


About this Industry

Industry Definition Pet stores sell a variety of pets, including shampoos, medication, toys, pet
dogs, cats, fish and birds. Stores also sell containers, dog kennels and cat furniture.
pet foods and pet supplies, such as Some stores offer pet services, such as
collars, leashes, health and beauty aids, grooming and training.

Main Activities The primary activities of this industry are
Retailing pets
Retailing pet food and supplies
Providing pet grooming and boarding services

The major products and services in this industry are
Live animals
Pet food
Pet services
Pet supplies

Similar Industries 54194 Veterinary Services in the US
Establishments in this industry provides veterinary services.

81291 Pet Grooming Boarding in the US
Operators in this industry provide pet grooming and boarding services.

45411a E-Commerce Online Auctions in the US
Businesses in this industry retails pet foods and pet supplies via the internet.

45411b Mail Order in the US
Establishments in this industry retail pet foods and pet supplies via mail-order or catalogs.

Additional Resources For additional information on this industry
www.americanpetproducts.org/
American Pet Products Association
www.petage.com
Pet Age Magazine
www.petbusiness.com
Pet Business
www.hsus.org
The Humane Society of the United States


Industry at a Glance
Pet Stores in 2012

Key Statistics Revenue Annual Growth 07-12 Annual Growth 12-17
Snapshot
$14.7bn 2.8% 3.8%
Profit Wages Businesses

$634.1m $1.9bn 13,730
Revenue vs. employment growth Number of pets (cats and dogs)
Market Share
PetSmart Inc. 10 210
4
4.3% 8 200

PETCO Animal 6 190
% change

Supplies Inc. 4 180

Millions
2
0.7% 2 170

0 160

−2 150

−4 140
Year 04 06 08 10 12 14 16 18 Year 03 05 07 09 11 13 15 17
Revenue Employment
SOURCE: WWW.IBISWORLD.COM
p. 24
Products and services segmentation (2012)

Key External Drivers 4.5%
Number of pets 10.2% Live animals
Pet services
(cats and dogs)
Per capita disposable
income
External competition
Number of households

27.3%
58% Pet food
Pet supplies

p. 4


Industry Structure Life Cycle Stage Growth Regulation Level Medium
Revenue Volatility Low Technology Change Medium
Capital Intensity Low Barriers to Entry Medium
Industry Assistance None Industry Globalization Low
Concentration Level High Competition Level Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 31


Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage

Executive The Pet Stores industry is ahead of the the five years to 2012. From 2011 to
Summary pack when it comes to sales. Even 2012, revenue is projected to gain 4.1%.
during the Great Recession, which The emerging trend of pet parents has
slowed most of the retail sector, the also brought about high demand for
industry continued to yield positive premium pet products and services.
revenue growth. This trend was mainly Since pets are often considered family
driven by an increasing number of “pet members, pet owners frequently indulge
parents” – pet owners who treat their them with all-natural and organic pet
four-legged friends as family members. foods and treats, in addition to services
During the economic downturn, when such as grooming and day care. These
positive drivers, combined with rising
sales, have increased profit margins for
I

ndulgent pet parents will drive up demand for industry players in the five years to 2012;
IBISWorld estimates that margins have
premium pet food and services like grooming increased from about 3.7% of revenue in
2007 to about 4.3% in 2012.
consumers of all income levels Over the five years to 2017, industry
tightened their belts, pet parents cut revenue is projected to maintain
back on their personal discretionary strong growth. As the economic
spending first before scaling down on recovery gains traction and consumers
their spending for their pets. are equipped with heavier wallets,
Consequently, revenue growth slowed revenue from premium products and
during the recession but maintained its services is projected to increase. From
overall positive trend. Revenue is 2012 to 2017, revenue is forecast to
expected to increase at an average rise at an average annual rate of 3.8%
annual rate of 2.8% to $14.7 billion in to total $17.8 billion.

Key External Drivers Number of pets (cats and dogs) household and leisure products before
As households adopt more cats and cutting down on pet food and toys. A rise
dogs, demand for industry goods such in per capita disposable income, though,
as pet foods, medicine and accessories increases the propensity for households
will increase. The average dog or cat to purchase a greater quantity of goods
owner spends about $250 annually and more premium items that are higher
just on food, according to the in price. This driver is expected to
American Pet Product Association’s increase slowly during 2012.
(APPA) National Pet Owner’s Survey.
This driver is expected to increase External competition
during 2012, creating a potential Pet food, toys and accessories supplied by
opportunity for the industry. this industry compete with comparable
products offered by supermarkets and
Per capita disposable income grocery stores. Supermarkets and grocery
Consumers increasingly perceive pets as stores often sell the same products or
members of the family, so products for very similar products as pet stores,
pets can be considered nondiscretionary. providing consumers with added
A decrease in disposable income has little convenience. This driver is expected to
effect on demand, since households remain flat but high over 2012, posing a
typically reduce spending on other potential threat to the industry.



Key External Drivers Number of households number of households will likely lead to
continued According to the APPA’s most recent growth in pet ownership levels in the
National Pet Owners Survey, 62.0% of United States, supporting industry
US households own a pet. demand. This driver is expected to
Consequently, an increase in the increase slowly during 2012.

Number of pets (cats and dogs) Per capita disposable income

210 4

200
2
190

% change
180
Millions

0
170

160
−2
150

140 −4
Year 03 05 07 09 11 13 15 17 Year 05 07 09 11 13 15 17


Current Despite the economic downturn that
undermined most of the retail sector,
to increase at an average annual rate of
2.8% to $14.7 billion over the five years
Performance sales for the Pet Stores industry have to 2012. In particular, the industry is
remained positive in the five years to expected to post an additional 4.1%
2012. Financial resilience in this growth in sales from 2011 to 2012 as
industry has been powered by owners’ higher disposable income encourages
tendencies to treat their pets like family greater spending on pets.
members; by offering more innovative, With strong demand and rising sales,
specialized and premium products and pet stores have experienced increasing
services, pet stores have been able to profit margins over the five-year period.
cash in on pet owners’ desires to pamper Sales of premium pet food and supplies
their pets. In addition, growth in pet in particular have driven up profitability
ownership in the United States has led because they typically have higher
to higher demand for pet food and markups. IBISWorld estimates that in
supplies overall. Consequently, revenue 2012, the industry will reach margins of
for the Pet Stores industry is estimated 4.3% of total revenue.

Growth during the Industry growth over the past five years Association (APPA), about 62.0% of US
recession is largely attributable to higher pet households own a pet, which equates to
ownership and accompanying demand 72.9 million homes. Pet ownership has
for pet products. According to the been growing slowly but steadily over the
2011/2012 National Pet Owners Survey past two decades. The APPA reports that
published by the American Pet Products in 1998, about 51 million homes owned



Growth during the at least one pet; 64 million owned a pet
recession in 2002; and 69 million owned one in R

ising pet ownership led
continued 2005. Such growth rates have translated to high industry demand
into rising demand for pet supplies in the
five years to 2012, even during recessed despite the recession
economic conditions.
Because supplies such as food and of pet owners in 2010 conducted by Pet
treats are required for the well-being of Business, a publication dedicated to the
pets regardless of household income, pet supplies retailing industry, the
demand for the Pet Stores industry has majority of respondents (68.0%)
proved resilient against the headwinds of indicated that they had reduced their
low confidence in the economy and spending on pet supplies compared with
decreased disposable income. To this the previous year.
end, pet food, which accounts for about With such declines in overall
58.0% of industry sales, has been the spending, operators have been actively
leading contributor to positive sales adding pet services to capture more of
during the recession. According to APPA the consumer dollar. Pet Business
data, sales for pet food increased 3.7% in reported in another survey that in 2010,
2008, 4.5% in 2009 and 6.8% in 2010. 22.0% of retailers added pet-related
Nonetheless, while many pet owners services, such as grooming and pet
sheltered their spending on pets from boarding, to improve sales and margins.
otherwise drastic cutbacks on household IBISWorld expects that in 2012, the
and leisure items during the recession, continued emphasis on pet services will
the endurance of these poor economic be a primary driver for sales. As the
conditions has adversely affected the unemployment rate slowly subsides and
industry to some extent. Between 2008 households gain more disposable
and 2010, revenue growth slowed as income, consumers will likely increase
consumers were forced to cut back on their spending on these discretionary
specialty products. According to a survey pet services.

Part of the family In the five years to 2012, the pet according to consumer research
humanization trend has benefitted the website Packaged Facts. Examples of
Pet Stores industry. A tipping point pet services go beyond the traditional
was reached in 2005 and 2006 when grooming, dog walking and training;
people began rewarding their pets in today, premium services like pet
human terms, according to the APPA. therapy sessions and pet-only flights
As such, the name “pet parents” was are available for four-legged family
coined to describe enthusiastic pet members. Additionally, doggy hotel
owners (especially of dogs and cats) services have emerged, equipped with
who treat their pets as members of the heated beds and flat-screen TVs that
family. With such humanization, the show high-definition DVDs in private
interest in pet pampering has gained suites. The rise in demand for pet
popularity over the five-year period, services has positively affected the
leading to thriving demand for industry over the years. Since there are
industry pet services. In fact, more few variable costs associated with these
than $6.0 billion was spent on services, any increase in revenue
nonmedical pet services in 2010, directly improves stores’ bottom lines.



Product innovation In 2007, melamine-contaminated dog pets, a strong push toward innovating
and cat food reportedly caused the death higher-quality and personalized pet
of more than 3,500 animals, prompting products has occurred in the industry.
a nationwide recall and hurting the Examples of such products include
industry’s reputation and sales. This monogrammed sweaters, digitized
incident accelerated the trend toward collar tags, handmade treats and
premium pet foods with natural and designer pet clothes and accessories. To
organic ingredients. further support this trend, big
Natural and holistic pet food sales companies such as Paul Mitchell,
reached $15.0 billion in 2008 and Omaha Steaks, Harley Davidson and
have been growing 20.0% annually Old Navy have also invested in pet
since, according to Pet Business. The supplies, now offering products such as
rising popularity of this food has dog shampoo, pet attire and name-
brought in additional sales while brand toys. Over the five years to 2012,
providing pet stores with an the trend toward pet indulgence has
advantage over external competitors. been a significant contributor to the
With the ongoing humanization of growth of industry revenue.

Competition from Pet stores are traditionally small and
bigger stores independently owned operations, with S

maller operators compete
about 58.7% of industry players being
non-employers (stores without paid
with big-box retailers
employees). Even among businesses and pet stores alike, from
that have employees, the majority Walmart to PetSmart
employs fewer than four workers. Just
19.4% of total operators have more than
20. Because of their predominantly including pet supplies. Time-poor
small size, industry enterprises have consumers have turned to this type of
faced external competition from store to streamline and simplify errands.
supermarkets and mass merchandisers, Meanwhile, mass merchandisers have
while fending off big-box specialty emerged as major retailers of pet
stores from within the industry. This products, offering cheaper prices for
has contributed to overall consolidation money-poor consumers. Due to their
of the industry. Over the five years to significant sizes, stores such as Walmart
2012, the number of industry operators and Costco exert higher buying power
contracted at an average annual rate and purchase in bulk from wholesalers.
of 1.5% to an estimated 13,730 The cost savings achieved become
companies. This is partly due to bargain prices for consumers. During the
increased external competition coupled recession, consumers were increasingly
with continuing merger and acquisition drawn to discount retailers for this
activity in the industry. reason. As such, grocery stores and mass
In recent years, supermarkets have merchandisers have become leading
lured customers from smaller specialty retailers of pet supplies over the five
stores by offering the convenience of years to 2012. These external retailers
one-stop shopping. Grocery stores allow represented 57.0% of the pet-care market
consumers to shop for a wide range of and 61.0% of the pet food market in
household products in one location, 2010, whereas specialty stores accounted



Competition from for 17.0% and 14.0% of the markets, savings down to consumers in the form of
bigger stores respectively, according to Pet Business. lower prices. Furthermore, these large
Smaller operators even face stores have also provided premium
continued
competition in selling premium products, products, a factor that had protected
which are often a boon for small retailers. small specialty stores from external
High-end goods are primarily sold competition. As a result, the big-box
through specialty pet stores and other strategy has been a sweeping success in
niche retailers, providing a degree of the Pet Stores industry. PetSmart alone
guaranteed sales for operators and increased its market share from 39.3% in
shielding them from direct competition. 2007 to an expected 44.3% in 2012. This
Yet big-box specialty stores such as internal competition has placed
PetSmart and PETCO offer customers the incredible price pressures on small
best of both worlds by providing a broad specialty stores, some of which were
selection of pet products while operating forced to exit or find niche markets to
on a scale large enough to pass cost remain competitive.

Industry The five years to 2017 look positive for
the Pet Stores industry. Rising pet Industry revenue
Outlook ownership is expected to serve as a
10
strong driver for demand and sales boost
for pet stores. In addition, slowly 8
improving economic conditions will
likely boost consumer spending, allowing 6
% change

customers to splurge even more on
premium pet products and services. As 4

such, revenue is projected to increase
2
at an average annual rate of 3.8% to
$17.8 billion over the five-year period, 0
beginning with 4.6% growth from 2012 Year 04 06 08 10 12 14 16 18
to 2013. However, the Pet Stores industry
will continue to face strong competition SOURCE: WWW.IBISWORLD.COM

from grocery stores and mass
merchandisers, which to some extent will dogs, is expected to rise over the five
place a cap on the industry’s growth. years to 2017, primarily driven by
The number of pets owned by more common single-person
households in the US is the primary households and the aging population,
driver for pet store demand. Because the demographic segments seeking
industry sells pets, including cats, dogs, companionship. IBISWorld projects
birds, hamsters and guinea pigs, an that the number of pets will increase at
increase in ownership generally an average annual rate of 2.0% over
translates to higher revenue. In addition, the five-year period, contributing to
a rise in pet ownership leads to higher the industry’s growing revenue.
demand for products such as food, treats With rising sales volumes, the
and toys, since these goods are needed industry’s profitability will likely
every day for pets’ general well-being. increase as well in the five years to
Fortunately for industry players, 2017. IBISWorld forecasts profit
demand for pets, especially cats and margins to increase from 4.3% of



Industry Outlook revenue in 2012 to 4.5% in 2017. Rising number of enterprises is projected to
continued profitability will also continue to bring increase at an average annual rate of
new entrants into the industry. The 1.9% to about 15,084 in 2017.

Premium products will Since a devastating pet food recall of pets’ overall health, demand for natural
remain popular 2007, which is suspected to have caused pet food will likely remain strong.
more than 3,500 animal deaths, pet With improving economic conditions,
owners have become increasingly demand for specialized pet services is
conscious of the food that they give expected to continue. Over the past five
their four-legged companions. As a years, pet services have served as primary
result, many natural and organic foods drivers of growth within the industry, a
and treats have gained popularity, trend that will likely continue as per capita
proving to be lucrative sources of disposable income is expected to grow on
revenue over the past five years. average 1.8% annually from 2012 to 2017.
IBISWorld projects that the 20.0% As now-rampant unemployment declines
growth rates of previous years will over the later part of the five-year period,
continue over the five years to 2017. As more consumers will use their extra
households continue to review their income to pamper their pets with services
animals’ diet as a means of improving such as grooming and boarding.

Changing Over the five years to 2017, competition
competition from external operators such as S

maller pet stores will need
supermarkets and mass merchandisers to set themselves apart by
is expected to decline slightly but
remain strong. As consumers find targeting niche markets
themselves armed with additional
spending capital, they will likely pursue favorable conditions, competition from
higher-quality pet supplies like supermarkets and mass merchandisers
premium food. is expected to remain strong for basic
During the recession and its pet supplies like dry pet food and cat
aftermath, external retailers attracted litter. Because these products show little
many budget-constrained consumers by product differentiation, consumers will
offering a limited selection of low- to likely continue to shop at large retailers
medium-quality goods at discounted to take advantage of discounted prices
prices. However, as disposable income and the convenience of one-stop shops.
levels increase in line with the economic Since much of the industry consists of
recovery in coming years, customers are a high number of smaller stores, niche
expected to loosen their budgets and product marketing will become
splurge on higher-quality items for increasingly important as each operator
everyday use. As a result, consumers attempts to set itself apart from other
will seek options based on factors other stores. For example, personalized diets
than low prices and thereby return to for pets are expected to serve as a
patronizing smaller operators that offer potential niche market for industry
higher quality and services. It is operators, including special food catered
important to note that despite these to obese animals. According to the



Changing American Pet Products Association’s potential opportunity for industry
competition 2009/2010 National Pet Owners operators. Several pet food
Survey, 13.0% of dogs and 21.0% of cats manufacturers have identified potential
continued
are considered overweight. Since many growth in customized food options,
pet owners have become health- taking into consideration pet breeds, life
conscious regarding their pets, options stages, daily activities, amount of time
to improve pet health presents a indoors and specific medical conditions.


Life Cycle Stage The industry’s contribution to the economy is
expected to grow over the 10 years to 2017
New products, such as premium pet food
and services, are being introduced
Pet ownership is continuing to rise steadily,
expanding the industry’s target market

30 Maturity QualityGrowth
%Growthofprofit/GDP

KeyFeaturesofaGrowthIndustry
Company High growth in economic
consolidation; importance; weaker companies Revenue grows faster than the economy

level of economic close down; developed Many new companies enter the market
importance stable technology and markets Rapid technology process change
25
Growing customer acceptance of product
Rapid introduction of products brands

20

15
QuantityGrowth
Many new companies;
minor growth in economic
importance; substantial
10 technology change
E-CommerceOnlineAuctions

5
PetStores
VeterinaryServices

0 MailOrder AnimalFoodProduction
Shake-out
Toy,DollGameManufacturing
Shake-out

–5

Decline PotentialHiddenGems TimeWasters
Crash or Grow? Future Industries Hobby Industries
–10
–10 –5 0 5 10 15 20 25 30
%Growthofestablishments



Industry Life Cycle The Pet Stores industry is in a growth Products Association indicated that a
stage of its life cycle, typified by new tipping point was reached in
product introductions and rising number 2005/2006, whereby people began
T
his industry of enterprises. In fact, industry valued rewarding pets in human terms.
is Growing added, which measures the industry’s Consequently, new products and
contribution to the US economy, is services have emerged in this industry to
expected to increase 3.3% per year in the cater to this trend; increasing number of
10 years to 2017. In comparison, US GDP pet stores began to offer premium pet
is projected to grow by 1.9% annually food and treats, in addition to services
over the same period. This indicates that such as grooming, training, walking and
the industry is growing at a faster rate full-service boarding. This trend of rapid
than the economy, a sign that it is in the product introductions indicates that the
growth phase of its cycle. Pet Store industry is in the developing
Over the five years to 2012, the stage. However, new products
industry has posted strong sales driven introductions are expected to slow down
by pet owners increasingly humanizing in the five years to 2017, as product
their pets. To this point, American Pet saturation is reached.


Products Markets
Supply Chain | Products Services | Demand Determinants
Major Markets | International Trade | Business Locations

Supply Chain KEY BUYING INDUSTRIES
99 Consumers in the US
The Pet Stores industry relies on consumers to purchase pet products and to utilize industry
services.

KEY SELLING INDUSTRIES
31111 Animal Food Production in the US
This industry supplies pet stores with a vast array of pet food.
33993 Toy, Doll Game Manufacturing in the US
This industry supplies pet toys and accessories to industry operators.
54194 Veterinary Services in the US
This industry provides veterinary care services such as vaccinations to industry operators.

Products Services Products and services segmentation (2012)

4.5%
10.2% Live animals
Pet services

27.3% 58%
Pet food
Pet supplies

Total $14.7bn SOURCE: WWW.IBISWORLD.COM

Pet food organic ingredients. These premium pet
Obviously food is a necessity for all pets, foods tend to be higher priced with larger
so it is not surprising that pet foods make markups; as a result, this segment’s share
up the largest product segment for the of revenue has been rising since 2007.
industry. This segment covers a wide Today, a variety of premium pet foods are
range of products such as dry and wet available to consumers. Examples include
food for dogs and cats, bird feed, crickets the raw diet for dog and cat foods, weight
and worms for reptiles and other treats control food for obese animals, specialized
and supplements for household pets. In formulas for sensitive stomachs and
2007, however, this segment was hurt by a freshly baked cakes and cookies as treats.
nationwide recall of melamine- In 2012, this segment is expected to
contaminated dog and cat food, which account for 58.0% of industry revenue.
reportedly caused the death of more than
3,500 animals. This incident, however, Pet supplies
has contributed to the trend toward Products in this segment include food
premium pet foods with natural and bowls, collars and leashes, pet clothing,


Products Markets

Products Services brushes and combs, shovels and
continued scoopers, cat litter, cages birds and PetownershipsegmentationintheUS
reptiles, travel carriers and any other (2011)
various accessories for pets. Although Animal Share of total pets (%)
this segment makes up the second-largest Birds 4.3
product market for the Pet Stores Cats 22.9
industry, this segment’s share of revenue Dogs 20.7
has been declining in the five years to Horse 2.1
2012 primarily due to competition; Freshwater Fish 40.0
because this segment encompasses a Saltwater Fish 2.3
wide variety of goods and there are no Reptiles 3.4
regulations that limit their sale, Small Animals 4.2
competition is quite high. To this point,
pet supplies are being increasingly sold at SOURCE: AMERICAN PET PRODUCTS ASSOCIATION

a variety of retail outlets (e.g. home
improvement stores now retail doggie Live animal purchases
doors and yellow lawn spot removers). In The live animal segment of the industry
2012, pet supplies are estimated to is expected to represent 4.5% of total
account for 27.3% of total sales. industry sales, and this share has
remained stable over the past five years.
Services This product segment is small because a
Pet services have been the fastest-growing pet is normally a one-off purchase, while
product segment for the industry. It products in other segments, such as pet
includes full service grooming, haircuts, supplies and pet foods, need to be
baths, toenail trimming and tooth purchased throughout the life of the pet
brushing, but excludes veterinary services. thus requiring repetitive spending.
Other services may include such activities Furthermore, major players in the
as training, boarding and day camp. Much industry only sell small animals and fish,
of the rise of this segment has been driven and partner with local pet programs for
by a greater interest in pet pampering. As cat and dog adoptions. On the other
more pet owners adopted them as hand, smaller operations often sell all
members of their family, demand for types of animals: cats, dogs, fish, rabbits,
indulging animals also increased. In 2012, birds, small animals and even reptiles.
this segment is expected to account for Further breakdown of live animal
about 10.2% of revenue. purchases can be seen in the chart below.

Demand Demands for pets and pet supplies of pets. Thus, as pet ownership increases,
Determinants are affected by the rate of pet the number of pets purchased also rises,
ownership, food and supply prices, leading to higher demand and sales for
household income, demographics, and the industry. In addition, a rise this
health awareness. number also leads to higher demand for
products such as food, treats and toys,
Pet ownership since these goods are needed every day
Pet ownership is a main driver for for the well-being of pets. Pet ownership
industry demand by definition, as has been on the rise over the last fourteen
industry operators are primary retailers years. In 1998, 56% of US households


Products Markets

Demand owned a pet. Comparatively, in 2012, that allow more comfort for both them
Determinants approximately 62% of households are and their pet to travel together.
estimated to own a pet.
continued
Demographics and lifestyle
Income The change in demographics and lifestyle
Households with higher incomes are of households is also an important
able to spend more on discretionary determinant of demand. If households are
items and services sold at pet stores, frequently relocating or working longer
leading to higher demand. As such, pet hours, then these factors may reduce a
owning households with high disposable household’s willingness to purchase a pet.
income have been the main customers In addition, households living in
for luxury and trendy pet products, apartments are less likely to have pets
including premium pet food and since many apartments do not allow pets.
designer pet toys, in the five years to On a positive note, aging population may
2012. In addition, those with a higher increase demand for pets, since older
income tend to travel more. In turn, demographics often purchase pets for
they are more likely to utilize pet companionship after their children and
boarding services or purchase products grandchildren leave home.

Major Markets Major market segmentation (2012)
7%
Consumers over
10% 65 years old
Consumers under
25 years old 28%
Consumers 45 to
54 years old

13%
Consumers 55 to
64 years old

18% 24%
Consumers 25 to Consumers 35 to
34 years old 44 years old

Total $14.7bn SOURCE: WWW.IBISWORLD.COM

The largest market for the Pet Stores Furthermore, consumers in this product
industry is consumers between the ages market are typically employed and have
of 45 to 54, accounting for 28.0% of total steady income streams, allowing them to
revenue. Many members of this age spend freely on pet supplies.
group look for pet companions to fill the The second largest market consists of
empty space in their households after consumers between the ages of 35 to 44,
their children leave home. As such, a who represent about 24.0% of revenue.
large proportion of this segment can be Consumers in this market typically have
considered pet enthusiasts, who consider children, and they consider the health
pets family members, according to and behavioral benefits a pet can have on
PetSmart, a major player in this industry. their children. According to the American


Products Markets

Major Markets Pet Products Association, about 38.0% of The two smallest markets are made
continued households with children under 18 years of consumers under the ages of 25
old own at least one pet. (accounting for 10.0% of the market)
Consumers between the ages of 25 and and consumers over the ages of 65
34 are estimated to account for 18.0% of (accounting for 7.0%). This is because
the market. This demographic group consumers in these categories have
accounts for a lower share as they are limited income, thus decreasing their
often subject to busy schedules, making it ability to own or spend on pets. In
difficult for them to own pets. Consumers addition, these two demographics
between the ages of 55 and 64 are often do not live in houses; rather,
expected to represent 13.0% of the market they rent apartments or live in
in 2011. However, this figure is forecast to retirement homes. Many such
increase over the next five years as dwellings do not allow pets, further
consumers in the 45-to-54 group ages and hindering this segment’s ability to
increasingly enters this category. own pets.

International Trade International trade activity is accounted number of other non-pet related
at the manufacturing level by products. However, trends in pet food
convention; as such, this retail industry trade provide some insight into trends
does not technically have imports or regarding overall pet-product trade
exports. However, products and supplies levels (IBISWorld report 31111).
in the Pet Stores industry are imported According to the latest official data
and exported at the manufacturing level provided by the International Trade
and then sold in the domestic market. Commission, imports for all kinds of pet
Precise export and import data on pet food amounted to $883.1 million in
products and supplies is not readily 2011, while exports reached $2.4 billion.
available as they are categorized into Canada is the leading partner in trade
broad segments that contain a large for both imports and exports.


Products Markets

Business Locations 2012

West
AK
0.2 New
England
ME
Mid- 0.6

Great Atlantic 1 2
Lakes NY 3
WA MT ND 7.4
5 4
3.1 0.2 MN
Rocky
0.3 1.7
WI
OR Mountains SD
0.2
Plains 1.9 MI
3.5
PA
4.4
6
7
2.0 ID IA OH 9 8
0.5 WY 3.9
0.3
NE
0.9
IL IN WV VA
4.1 2.0 2.7

West NV
0.5 0.3
KY
UT MO
0.7 NC
0.9
0.7 CO KS 1.9 2.5
2.6 0.9 TN
SC
Southeast
1.5
CA 1.3
13.2
OK AR GA
0.9 0.5 AL 2.2
AZ MS 1.0
2.2 NM
0.6 Southwest 0.4

TX LA
1.0 FL
5.6 7.7

West
HI
0.4 AdditionalStates(as marked on map) Establishments(%)

1 VT 2 NH 3 MA 4 RI Lessthan3%
0.3 0.7 2.0 0.5 3%tolessthan10%
10%tolessthan20%
5 CT 6 NJ 7 DE 8 MD 9 DC
1.5 3.3 0.5 1.9 0.1
20%ormore



Products Markets

Business Locations Pet Stores are primarily located in the
Establishments vs. population
Southeast, the West, the Mid-Atlantic
and the Great Lakes regions of the
30
United States. Industry locations are
based primarily on the number of
households in each region, as well as the 20
median income level of households.

%
Southeast 10
The Southeast holds the highest number
of industry establishments; in 2012,
21.8% of industry establishments were 0
located in the region. The Southeast is

West

Great Lakes

Mid-Atlantic

New England

Plains

Rocky Mountains

Southeast

Southwest
the most populated region of the United
States with a quarter of the nation’s
population. Therefore given the higher
proportion of households there is a
greater demand for industry retailers. Establishments
Within the Southeast, Florida has the Population
highest proportion of industry SOURCE: WWW.IBISWORLD.COM

establishments, estimated at 7.7% of the
nation’s total. United States due to their large
metropolitan centers. The region also
West has higher-than-average income levels.
The West has the second-highest Given that households within the
proportion of industry establishments; in region have a larger amount of
2012, the region had 19.8% of pet stores. disposable income, they are more able
California has the highest number of pet to afford to own a pet.
stores in the country at 13.2%. The
primary reasons for the higher-than- Great Lakes
average number of pet stores in the West The Great Lakes region is the fourth-
region are population density and most popular location for industry
income levels. The West has 17.0% of the establishments. In 2012, 15.4% of pet
nation’s total population. Furthermore, stores were located in the Great Lakes
both California and Nevada have a region. Illinois is the fifth-highest
higher-than-average median income by populated state in the nation and
state. Additionally, within California therefore a popular center for industry
more than 26% of households have operators. The state holds an estimated
incomes within the top three quadrants. 4.1% of pet stores.
Other small participating regions in
Mid-Atlantic the industry include: the Southwest, New
The Mid-Atlantic region has 17.6% of England, the Plains and the Rocky
industry establishments. The most Mountains. Among the aforementioned
popular states include: New York and regions, the Southwest commands the
Pennsylvania which account for a largest share of industry establishments
respective 7.4% and 4.4% of the at 9.3% of the total. These regions have
industry’s locations. These states have smaller consumer markets, which
some of the highest populations in the reduces demand for pet stores.


Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalization

Market Share More than half (65.0%) of the Pet Stores
Concentration industry’s revenue comes from two Companiesbyemploymentsize
specialty supply retailers: PetSmart and No. of employees Share (%)
PETCO. The other portion of the industry 0-4 57.4
Level
consists of family-owned stores, small 5-9 23.2
Concentration in
franchises and small chains of pet stores. 10-19 13.0
this industry is High The industry has a high level of 20-99 5.6
concentration with the top four companies 100-499 0.6
generating an estimated 70.2% of the 500+ 0.2
industry’s revenue. Although there is a StatisticsofUSBusinesses
high level of concentration, small SOURCE: US CENSUS BUREAU

operators are still able to find niche
markets in their geographical locations, expected to grow their share of the
and rarely expand beyond those areas. industry, with a steady stream of
IBISWorld estimates that by the end customers patronizing their stores. This
of 2012, the industry will have about is because these big-box retailers are
13,730 firms, of which about 58.7% of able to offer customers a “best of both
those firms will be operated by single worlds” scenario, where they provide
owner small family businesses. Of broad and industry-specific product
businesses that have employees, about selections, while operating on a scale
57.4% enterprises have fewer than 5 such that they can purchase in bulk and
employees, while only 19.4% have more pass on savings to the consumers.
than 10 workers. Consequently, these stores are expected
In the five years to 2017, major to grow at the expense of small stores in
players PetSmart and PETCO are the industry.

Key Success Factors Attractive product presentation such as major shopping precincts, in
In order to draw customers and order to maximize store traffic and
encourage purchases, eye-catching sales.
I
BISWorld identifies promotions and displays are essential
250 Key Success for pet stores. Economies of scope
Factors for a Successful operators need a range of
business. The most Experienced work force the most popular pets and pet supplies
It is important to employ a highly at different levels of price and quality.
important for this
capable staff with clear knowledge of Offering a wider variety of products will
industry are: the pet industry to better assist attract a larger customer base.
customers and boost sales.
Effective quality control
Proximity to key markets Operators must ensure that pet services
Operators need to be located in high- are up to standard for the specific type
traffic and high-visibility locations, of animal and breed.



Cost Structure The Pet Stores industry is expected to Therefore, cost of goods per unit tends to
Benchmarks obtain average profit margins equivalent be higher for these players, causing
to 4.3% of revenue in 2012, up from 3.7% margins to be lower for smaller firms.
in 2007. This increase in profitability has Purchase costs will remain the single
been driven by growing pet population largest expense for the industry in 2012,
and an increasing willingness of pet accounting for approximately 70.3% of
owners to spend on their pets, total sales. Purchases include a wide
particularly on premium or high margin range of pet food and pet supplies such as
products. However, it is important to collars, leashes, medication, shampoos,
note that the actual level of margins may dog kennels and pet toys, and a range of
vary considerably between industry pets including dogs, cats, birds, fish,
participants. For instance, larger players small animals and reptiles. Unfortunately
such as PETCO and PetSmart typically for the industry, purchase expenses
purchase in large quantities, which increased slightly over the five years to
enable them spend less per item and 2012. According to Pet Business, a
improve margins. In addition, the large publication for the pet and pet supplies
scale allows major players to sell in high retailing industry, much of this has been
volume at discounted prices, which due to price increases of goods from
enables them to afford to lower markups upstream industries (i.e. manufacturing
but to profit from the frequent rate of and wholesaling industries) passed down
purchases made by customers. On the the supply chain.
contrary, smaller players in this industry Due to the labor-intensive nature of
do not have such purchasing power. the retail sector, wages are estimated to

Sectorvs.IndustryCosts

AverageCostsof
allIndustriesin IndustryCosts
sector(2012) (2012)
100
3.7 4.3 ■Profit

■Wages
13.7 13.1 ■Purchases
80 ■Depreciation
■Marketing
■RentUtilities
■Other
Percentage of revenue

60

65.8 70.3
40

20
1.6 1.5
4.6 1.6 4.0
9.2 6.7
0



Cost Structure make up the second highest expense item industry as is it very labor intensive and
Benchmarks for pet store operators, accounting for requires minimal capital costs in
13.1% of the revenue in 2012. In pet operations. Yet, this figure is high
continued
stores, labor is needed to provide care for compared other retailing industries as
pets, maintain stock levels and to provide pet stores must acquire special cages and
customer service. Furthermore, added tanks for animals, in addition to shelving
focus has been placed on labor over the and cash registers for stores. Rent costs
five years to 2012, as pet services have and utilities costs are expected to
become one of the fastest-revenue represent 2.5% and 1.5% of total sales,
generators for the industry. Nonetheless, respectively, in 2012.
industry revenue has been growing at a Operators in this industry also incur a
faster rate than the number of employees variety of other expenses, including
or wages; as such, wages as a share of administrative, insurance, security and
revenue has slightly declined in turn. advertising costs. In particular, large and
Depreciation expenses are expected to small operators both invest much of their
account for about 1.6% of industry income on advertising, in order to
revenue in 2012. This low level of generate store traffic and boost sales of
depreciation is typical for a retailing their products.

Basis of Competition Due to medium barriers to entry and Internal
growing profitability from premium Pet stores are constantly competing with
products and services, there are a large each other in price, product variety,
Level Trend number of pet store operations, giving customer service, brand awareness,
Competition in
the industry a medium level of variety of pet services, and store location.
this industry is competition. This industry has been Since product purchases make up the
M
edium and the growing strongly over the past decade as majority of sales for pet stores, logically
a result of favorable demographic trends their main basis of competition is
trend is Increasing
and the growing tendency of pet owners product range and quality, along with
to treat their pets as members of the some influence by price. Large players
family. In recent years, industry like PETCO and PetSmart benefit from
participants have exploited these trends economies of scope and are able to
and cashed in on higher margin products provide broad ranges of pets, pet foods,
and services, such as premium pet food pet supplies and pet services with
and high-quality grooming services. different levels of quality across a range
The players in this industry are of prices to appeal to individual
protected from external competition in consumer preferences. In addition, they
the premium pet food product segment, are capable of offering products through
because there are often manufacturer’s their private label brands at a lower
restrictions on the distribution of price. Both of these players benefit from
premium products to supermarkets. being able to buy products in bulk and
Industry participants are also protected producing their own products at lower
from external competition from cost, which allows them to offer products
supermarkets, grocery stores and at a low price and still attain a profit. As
discount retailers in the growing area of a result, smaller stores feel the pressure
value added pet services such as to provide more products at a lower
grooming and obedience training. price, which results in lower mark-ups



Basis of Competition by these stores and ultimately lower supermarkets generally enable them to
continued profits. However, smaller stores benefit offer lower prices than specialty retailers.
from their ability to offer personalized In recent years, additional competition
customer services and mold to the has come from mass merchandisers and
specific needs of the niche market in discount retailers such as Walmart and
their local area. Costco that stock a wide variety of
The two major players in this industry products at competitive prices. However,
also invest considerable resources toward mass merchandisers and discount
brand awareness and loyalty. For retailers do not sell ultra-premium pet
example, PETCO is now the major products as they are limited by
sponsor of PETCO Park, the new home of manufacturers’ restrictions.
the San Diego Padres. In addition, both Further competition comes from the
PETCO and PetSmart are heavily E-commerce and Online Auctions
involved in pet charities and animal industry (IBISWorld Industry Report
welfare organizations. In 2004, PetSmart 45411a) and the Mail-Order industry
introduced a new customer loyalty (IBISWorld Industry Report 45411b).
program in order to improve repeat These competing industries include
customer traffic. companies such as Petstore.com through
which consumers can purchase products
External without physically having to visit a store;
Historically, the sale of pet food products however, these operators are not
has been primarily through the classified as part of this industry. In
supermarket channel. Large addition, some competition comes from
supermarkets stock a wide variety of pet veterinary services as they also sell
food and supplies. Bulk purchases by customized pet food and some products.

Barriers to Entry High levels of competition and stringent
regulations associated with entering this BarrierstoEntrychecklist Level
Level Trend industry may deter some from entering Competition Medium
the industry. Nevertheless, there are Concentration High
Barriers to Entry

various niche markets available for new Life Cycle Stage Growth
in this industry are players to occupy, specifically those that Capital Intensity Low
M
edium and Steady specialize in premium and innovative Technology Change Medium
food, products and services. Regulation Policy Medium
A significant factor that can hinder an Industry Assistance None
operator from entering this industry is
government regulations. There are SOURCE: WWW.IBISWORLD.COM

federal and state laws regulating pet
shops and the sale of animals. For state requirements before permission to
example, the Pet Animals Act 1951 operate is granted.
requires pet shops to get a license in The industry’s concentration can be
accordance with the Act before they can another barrier to potential entrants.
open. In addition, the Animal Welfare There are only two national retail chains
Act of 1966 dictates how pets sold in pet in this industry and together they account
stores must be maintained. Pet shops for over half of industry revenue; smaller
need to address a range of issues and stores and franchises account for the
receive licenses based on federal and remaining portion. Although this



Barriers to Entry industry is highly fragmented, there is purchasing and maintaining inventory
continued also intense price competition from mass levels, may be a barrier for new entrants.
merchandisers, online operators and Barriers are greater for new smaller
catalog retailers, which may provide a retailers because forming reliable supply
barrier for new, independent retailers. relationships with wholesalers and
Opening a new pet store and meeting manufacturers may prove to be difficult.
licensing standards is expensive. In Existing and well established distribution
addition, a significant share of funding relationships may deter potential
may be directed toward marketing to operators from entering this industry, as
build consumer interest and recognition. it provides an advantage to existing
The initial cost of establishing or retailers by giving access to low priced
purchasing a retail outlet, in addition to high quality goods.

Industry This industry is characterized by a large within a local or regional scope. In
Globalization number of small players. Many of the addition, the industry’s major companies
smaller, independent pet supply retailers are domestically owned. Therefore, this
Level Trend are family-owned businesses that operate industry has a low level of globalization.
Globalization in this

industry is Low and
the trend is Steady


Major Companies
PetSmart Inc. | PETCO Animal Supplies Inc. | Other Companies

Major players
(Market share) PETCO Animal Supplies Inc. 20.7%

35.0%
Other

PetSmart Inc. 44.3% SOURCE: WWW.IBISWORLD.COM

Player Performance Since its establishment in 1987, Phoenix- boarding and day-care service with
based PetSmart has become the top 24-hour supervision, an on-site
specialty retailer of pet food and supplies. veterinarian, air-conditioned rooms and
PetSmart Inc. PetSmart operates 1,210 stores, typically daily specialty treats called PetsHotel.
arket share: 44.3%
M located in regional shopping centers near About 189 of PetSmart stores include
other superstores and warehouse stores, PetsHotel boarding facilities and Doggie
and employs about 47,000 associates in Day Camps. Such emphasis on services
the United States and Canada. By has been a driving success for PetSmart;
offering more than 10,000 pet products pet services as a share of company
and providing various pet services, the revenue increased from 8.8% in 2006 to
retailer aims to provide a one-stop 10.9% in 2010 (latest data available),
shopping experience with low prices. and net sales from services increased
PetSmart categorizes its products into from $376.0 million to $618.8 million
three main categories: consumables, hard during those years.
goods and pets. Consumables include pet However, news has not been perfect
foods, treats and litter, in addition to for the company. In 2008, PetSmart
premium products, many of which are suspended the sale of birds in its stores
not found in supermarkets or mass nationwide after discovering that a high
merchandisers. Pet supplies such as number of birds carried a bacterial
collars, leashes, health and beauty aids, infection that had the potential to spread
shampoos, medication, toys, pet carriers, to humans. In addition, the company was
dog kennels, cat furniture, equestrian damaged by a large recall of pet foods
supplies, birdcages, aquariums and filters (manufactured by Menu Foods) that was
make up the hard goods category. Pets contaminated by melamine and
sold by the company includes fish, birds, melamine-related compounds.
reptiles and small pets. Larger animals
such as cats and dogs are not sold in Financial performance
PetSmart; however, they are available for Over the five years to 2012, PetSmart’s
adoption through the PetSmart Charities’ revenue is expected to increase an
Adoption Program developed with average annual rate of 6.9% to $6.5
humane organizations. billion. As the economy gains traction
In addition to selling products, and consumers gain additional
PetSmart has expanded its service to disposable income to spend on their pets,
include in-store boarding facilities, IBISWorld anticipates that company
grooming services, obedience training sales will grow 7.0% in 2012, following an
and full-service veterinary services estimated 7.2% increase in 2011 and
(offered in 792 PetSmart stores). In strong growth in 2010. In fiscal 2009 and
2002, PetSmart launched a complete pet 2008, PetSmart posted strong sales, with

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