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The second part of a two-part series covering retail sales performance for pet healthcare examines developed markets, focusing on how pet anthropomorphism is helping to drive growth. Moreover, hard times are leading a growing number of owners to forgo visiting veterinarians and take the health of their pets into their own hands.
North America (US$2.3 billion), Western Europe (US$962 million) and Australia (US$145 million) together accounted for more than 90% of global pet healthcare retail value sales in 2011, totalling US$3.8 billion. However, growth rates have slowed in North America and Western Europe in recent years. North America, having exhibited real annual growth of 3.7% in 2008, saw retail value sales remain static in 2009 before expanding by 3.7% and 2.5% in 2010 and 2011, respectively.
Even though US consumer confidence remains depressed by a combination of factors, including high unemployment, static wage rates and falling residential housing values, pet healthcare may actually be benefiting. This is because fewer pet owners are having their pets treated by veterinarians in an effort to save money.
According to the Bayer Veterinary Care Usage Study, which surveyed 401 veterinarians across the US during early 2011, there was a 17% decrease in veterinary visits over the prior two years. A separate survey of 2,000 cat and dog owners found that several factors contributed to this – the economic downturn, the increased use of the internet to find information on pet healthcare, the cost of care and a growing perception that regular check-ups are unnecessary.
There is also some anecdotal evidence that unlicensed and unsupervised non-veterinarians are offering veterinary medical services in the US, illustrating how desperate some owners are to save money. According to Veterinary News Network, “there are many people trying to perform a variety of veterinary medical and surgical services fraudulently calling them ‘animal husbandry’”. In one case, a man in Oklahoma “was vaccinating pets for rabies in Wal-Mart parking lots”.
The decline in the frequency of veterinary visits for cats and dogs in the US poses a risk to pet health, according to the Partnership for Preventive Pet Healthcare, which was launched in July 2011. “We’re seeing some evidence in some data sets of increasing disease prevalence… the kind of things that are very easily prevented,” said Dr Michael R Moyer, President of the American Animal Hospital Association. These include dental disease and flea infestation.
Owners in the US and elsewhere are also seeking to save money by shopping online, and the US Food and Drug Administration (FDA) has issued a warning to owners about buying medications for their pets online. It urged them to be particularly wary of advertisements that claim a veterinarian’s prescription is not required.
According to the FDA, it has found companies that sell unapproved pet drugs and counterfeit pet products, make fraudulent claims, dispense prescription drugs without requiring a prescription and sell expired drugs.
While some struggling pet owners in the US are looking to save money on pet healthcare, the large number of affluent households which are increasingly treating their pets as ersatz children is another major source of growth. According to SmartMoney magazine, “Pet owners across the country are forking out thousands – and even tens of thousands – of dollars to treat illnesses that would have gone undiagnosed or untreated just a few years ago. And then doing it again if they have to”.
According to Dr Apryl Steele, President of the Colorado Veterinary Medical Association, “I would say probably half my clients would spend US$3,000 if they could save their animal”. A survey conducted by CouponCabin.com in the US during September 2011 found that nearly seven out of 10 (68%) adult dog owners said that economic challenges did not affect their pet care spending.
In Western Europe, real term annual retail value sales growth in pet healthcare slowed from 4.1% in 2009 to 2.6% in 2011. However, per pet spending on pet healthcare remains relatively low in comparison with the US. This is particularly the case in the German market, where pet healthcare sales were worth just US$50 million in 2011.
In Germany, the majority of pet owners prefer to consult their veterinarians directly when faced with pet health problems and other issues. Nonetheless, with many German consumers becoming increasingly aware of the benefits of pre-emptive care, products such as dog toothbrushes, as well as value-added worming treatments, flea treatments and other pet-specific medicated products, are slowly becoming more popular.
The Italian (retail value sales of US$299 million in 2011), UK (US$181 million) and French (US$164 million) pet healthcare markets are more developed than that of Germany. As consumers in these markets increasingly treat their pets as part of the family, they are becoming more prepared to invest in their health. In the UK, demand for balms, injections, rash creams, worming treatments and flea/tick treatments has flourished, with consumers becoming more hands-on in looking after the health of their pets.
In the Italian market, demographic shifts are trumping economic stagnation as empty nesters and elderly consumers seeking companionship look to spend more on their pets. The number of single-person households in Italy rose from 6.2 million to 7.1 million between 2005 and 2010, while the number of two-person households increased from 6.6 million to 7.3 million. Over the same period, the number of three- and four-person households declined slightly, to just under 8.9 million. As a result, Italian pet owners have become keener to spend money in a pet superstore to purchase special healthcare products that promise to treat their pets’ ailments.
In Australia, increased consumer demand in recent years has primarily been driven by the increased prevalence of heartworm disease. Formerly, this disease was only found in the northern areas of Australia, but it is now present in some southern cities such as Melbourne and Adelaide. This, combined with the humanisation trend, helped to drive annual value sales from US$118 million (in 2011 prices) to US$145 million between 2006 and 2011.
There are a number of regulatory challenges to growth in the pet healthcare market. In 2011, the Environmental Protection Agency in the US, which is in charge of ensuring the safety of flea control products, requested public input on whether to continue to allow the chemical propoxur in pet products. This is a pesticide that some claim is both a neurotoxin and carcinogenic.
According to one American blogger, “The science is overwhelming. These flea collars can leave a dangerous pesticide residue on pets and is not safe for use, particularly around kids”. Regardless of their veracity, such claims have the potential to damage sales of flea and tick products in general.
More broadly, patent expirations may also result in more private label competition in this category going forward. For example, Merial Ltd’s patent protecting the compound in Frontline (fipronil) expired in the US in August 2010. However, the company has worked to protect it with formulation and method-of-use patents which expire in August 2016 and March 2018, respectively.
The Frontline brand accounted for a 40% retail value share of pet healthcare in the US in 2010. Meanwhile, private label does not yet account for a significant share of the pet healthcare market in North America, but accounted for 3.2% of retail value sales in Western Europe during the same year.
Another challenge for manufacturers may come from the declining efficacy of some products. At a veterinary conference in 2010, information was released detailing a genetic mutation in heartworms that appeared to confer slight resistance to current preventatives. Anecdotal reports in the last five years also point towards an increase in heartworm prevention product failures in the Mississippi Delta region of the US. While lack of efficacy of heartworm preventatives remains geographically limited at the moment, research is ongoing to determine the extent of this problem.
While real term retail value sales growth of pet healthcare in Western Europe (a compound annual growth rate or CAGR of 3.6%), outpaced that of North America (3.2%) over the 2006-2011 period, growth in the former is predicted to slow over 2011-2016, to a real CAGR of 1.8%, while accelerating slightly in the latter to a real CAGR of 3.4%.
The main factors behind this divergence in retail sales performance will be the fact that economic growth is likely to be slower in Western Europe for much of this timeframe, combined with the fact the pet anthropomorphism is both deeper and more widespread among North American pet owners than their Western European counterparts.