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While there are many reasons why some businesses are successful and others are not, one of the most important factors is choosing the right industry at the right time. The pet industry is one of the industries that many investors are currently betting on, and here are six reasons.
1. It is resistant to recession.
Some time ago, I asked Alexis Perakis-Valat, former CEO of L’Oréal Germany and now a member of the global management committee, why he chose the cosmetic industry. He said that while there are many reasons, one of the most important things for him was to choose an industry that is resisting the recession.
Since then, I have analyzed some industries in which to open my businesses to see how resilient they are during the recession. The pet industry seems to defy the odds during recessions and has been largely unaffected by the economic crisis so far.
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Here is an excerpt from Google Trends for the search terms “dog toys” and “cat toys”:
As seen above, the demand seems to be constant – and the demand for puppies has even increased:
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2. It’s predictable.
The nightmare of any entrepreneur and investor is having a seasonal business. Seasonal demand limits cash flow to a few weeks per year, which means that you need to accumulate inventory based on an estimate of future demand. Needless to say, it is not ideal. However, there is a difference between a seasonal product and a relatively well predictable demand that experiences seasonal peaks.
Predictability is worth more than a high demand during Halloween (for example for a costume store) or Christmas (for example for a manufacturer of Christmas trees), because it reduces the risk of having too much inventory and allows a long-term planning. As can be seen from Google Trends traffic, the pet industry experienced peaks in December, but maintained a constant level of basic demand throughout the year.
3. There is no need to educate the client.
If you are a fan of Shark Tank or Dragon’s Den, you know that some of the most innovative products and services are not funded. The reason being that the biggest expense would be to educate the customer about what the product does and why it is so important.
The vast majority of new pet products need no explanation. Pet owners already know that the health, training and entertainment of their fur family members are important and are happy to give new products a chance in the hope that this will benefit their animals.
4. The industry benefits from Kinderschema.
Ethologist and biologist Konrad Lorenz has studied what set of traits makes things cute for us. This set of features is now known as Kinderschema which describes the head / body ratio, the position of the eyes (below the midline of the head) and the size of the eyes relative to the size of the head and more . The idea behind the Kinderschema is that we are wired to find cute things, whether we like it or not.
One of the reasons why children’s and pet products attract many entrepreneurs and investors is that these industries benefit enormously from Kinderschema. We are attracted to puppies, kittens or any young animal for that matter because they have the perfect Kinderschema. Big eyes, a big head, the good head / body ratio and other features that our subconscious perceives as adorable.
5. Good margins
For retail businesses, you are looking for an average margin anywhere north of 60%. While the margins for dog and cat food are mostly around 50%, the most popular items such as chew toys and bones have margins of 70%. Pet food accounts for just over a third of the overall market, with $ 23.04 billion spent annually on pet food. Designer collars, luxury clothing, and other high-end dog accessories also have large margins, which helps keep the average margin high.
6. Growing market
The pet industry is not only attractive to retailers but also to service companies. There has been a sharp increase in demand in recent years, with the number of domestic animals increasing to 312.1 million. Since 1994, the market has more than tripled from 17 billion to more than 60 billion in 2015 in the United States alone. This means that not only are there more animals that need to be fed, walked, entertained, cared for and taken on board, but pet owners continue to spend money on them.
Dog owners spend on average about $ 1,641 and cat owners around $ 1,125 a year. Less than two-thirds of the costs are spent on veterinarian visits, leaving the remaining two-thirds to retailers and service companies.
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