Business Serving Animals
The first part of this Insight looked at how animals are used and sometimes exploited by business for human gain. However, businesses that serve animals provide a vibrant and diverse opportunity for investment and particularly in the companion animal space. Here we look at some of the possibilities and areas where EdenTree already has an exposure.
With our Health & Wellbeing theme, animal health presents an interesting and diversified opportunity for investment, and one in which we are well positioned. The global animal health market has an estimated value of $46bn. The market is growing strongly and is estimated to reach $67bn in just a few years. 60% of the market is animal led pharmaceuticals, the rest comprising diagnostics and feed supplements. Around two-thirds of the specialist animal health market derives from supporting the farm animal segment. The market remains fairly fragmented, with the top 10 global animal health companies being; Zoetis, Merck, Bayer, Virbac, Idexx laboratories, Boehringer Ingelheim, Elanco, Ceva, Vetoquinol and Covetrus.
Companion Animal Pet Care Market
The UK companion animal market is substantial, valued in excess of £6.3bn, and comprises disparate businesses and elements; Food £2.7bn, Accessories £850m, Grooming £263m and Veterinary £2.4bn
The investment case is based on a stable, well-supported dog and cat population as favoured companion animals in 40% of UK homes. This represents a growing insurance, veterinary and accessory market to support companion animal needs. There is a trend towards higher spend on companion animals that has moved away from a pure discretionary spend – higher quality food, nutrition, accessories. Advances in the veterinary market is supported by growing affordability in tailored insurance products. EdenTree’s exposure to the companion animal market is primarily via pet food and insurance.
In the UK, 40% of households own a pet with dogs (25%) and cats (17%) the most common. After these species, numbers fall dramatically with 1% of households owning a rabbit, the next largest segment. The wet-led pet food market is therefore substantial. According to the Pet Food Manufacturer’s Association (PFMA), the total pet food market was worth £2.7bn in 2018. PFMA has 85 members representing 90% of the UK pet food market showing its fragmented nature. The two dominant players are Mars and Nestlé. EdenTree has exposure to Nestlé and DSM.
The specialist global pet insurance market has seen strong growth and was valued at $3.3bn in 2018. Projections suggest product innovation will see the market grow to reach $10-11bn by 2025. Increasing pet ownership together with rising and unexpected veterinary costs has stimulated growth. Europe appears to dominate the global pet insurance industry, for instance 23% of pets have insurance in the UK compared to 1% in the US. The UK market is particularly strong with 3.6m insuring over 5m companion animals – but even this leaves two thirds of dogs (67%) uninsured. In the UK this growing, valuable market is dominated by Allianz and RSA.
The UK market is dominated by Allianz’s PetPlan product, followed by RSA which provides underwriting for Tesco and M&S. UK Insurance is owned by Direct Line. Overall there are over 80 branded providers in the UK market with annual premiums of over £1bn.
Pet Retail Services
The companion animal services market (pet shops) remains fragmented and local in the
main – however Pets at Home has emerged as the dominant national player offering a range of integrated retail services for the pet owner.
The company, founded in 1991, now has 452 UK stores, and despite only listing in 2014 has grown to be a FTSE250 constituent. Pets at Home offers a full range of services, products and accessories. Its USP is its unique partnering model, with 400 veterinary surgeons operating from its premises.
Vets4Pets offers a complete health plan and advice service, with a specialist referral service for complex health needs such as cancers and surgery. Its ‘groom room’ service has proved particularly popular by offering a full dog-grooming service at over 300 premises. Pets at Home has a turnover of close to £1bn. Given the volatile nature of retail operating from fixed premises, only niche multichannel retailers continue to offer performance and diversification. Pets at Home presents an interesting model in a growing, stable and committed market based on strong market share as a ‘one-stop-shop’ for grooming, health needs and retail accessories.