With almost two million cats, 550,000 dogs, 500,000 rodents, 300,000 birds and schools-worth of fish... there’s no doubt about it, the Swiss love their pets. The latest figures from the Swiss Society for Pet Nutrition (VHN) show that almost one in two households now has a pet. This proportion has risen sharply in recent years, particularly for felines and canines. "For investors, the pet market boils down to dogs and cats," says Jack Neele, portfolio manager at Robeco. "Other animals are insignificant." Identitas, which operates the Swiss animal database, estimates that the number of cats registered in the country rose by nearly 150% between 2016 and 2024 and the number of dogs by more than 13% over the same period.

"Switzerland merely reflects a global trend: the number of pets is increasing worldwide," says Christoph Wirtz, portfolio manager at Rothschild & Co Wealth Management. Over the last 20 years, the pet industry has grown at an average of more than 5% a year, and the trend is likely to continue. Bloomberg Intelligence predicts that the global market will increase from $320 billion currently to about $500 billion by 2030.

And it covers more than just food, which already only accounted for less than half of the market in 2023 (44%), according to estimates from the American Pet Products Association (APPA). This diversified sector is flooded with increasingly high-tech toys and accessories: connected cat flap doors, microchip implants, smart feeders to control food portions, and collars equipped with webcams and GPS trackers. Animal healthcare has also grown into a lucrative sector, as demand increases for veterinary care, pharmaceutical products and pet insurance.

Another notable aspect is that the pet market is proving to be particularly resilient. "Even during the economic crisis of 2008–2009, this sector continued to grow," Jack Neele points out. "You might think that in a recession people would cut back on spending on pets, but that’s not the case. They’d rather go out to restaurants less, for example." Then came the COVID crisis, which was a boon for the industry. Throughout the pandemic, more people wanted to adopt animals, leading to a massive surge in prices. Allianz Global Investors reported that, in the UK, prices of the most popular breeds of puppies rose by more than 100% between July 2019 and July 2020. "With the lockdowns, people spent a lot more time at home, sometimes alone, which boosted pet industry sales," Christoph Wirtz says.

Apart from this epiphenomenon, several demographic factors explain the sector’s longevity and robustness. First, younger generations are less inclined than their elders to have children and therefore own more pets than older age groups. According to the APPA, 32% of millennials in the United States (Generation Y) have a pet, compared with 27% for Generation X and 24%of baby boomers. Millennials are not only more often pet owners but are also more attached to their pets: in the United States, 81% admitted that they love their pet more than a family member, compared with 76% of Generation X and 77% of baby boomers.

"Pets are becoming more and more humanised by their owners, who consider them family members. They would therefore do anything for them: look after them as if they were their own children, give them the best food so that they stay healthy and live longer, and give them toys," Wirtz explains. An Ipsos poll published in 2023 reported that 97% of French people say they feel deeply attached to their pet, with 68% going so far as to consider it a full-on family member. Annual household spending on four-legged companions has therefore gone sky-high. A Morgan Stanley study published in July 2024 predicts that, in the United States, annual spending per animal could reach $1,445 by 2026 and $1,733 by 2030.

The phenomenon is boosted by the ageing population. Older people may own fewer pets than younger people, but they spend much more on them. Allianz Global Investors found that, in the United States, older generations with grown-up children and therefore higher disposable incomes, spend almost 60% more than other age groups on their pets.

THE CHINESE LOVE THEIR PETS TOO
While the United States remains the world’s largest pet market, with forecast revenue of $150.6 billion in 2024 according to the APPA, up from $90.5 billion in 2018, new emerging markets, particularly China, are also driving industry revenue. An article in Nikkei Asia said that 75 million Chinese urbanites now own a cat or dog, up 30% from 2018. And it doesn’t stop there. According to Chinese consultancy iiMedia Research, China’s pet market is expected to reach $161 billion in 2028, up from $82.99 billion in 2023, an almost 100% increase over the next five years.

For investors, the pet market is therefore attractive in many ways. "It has a good background; it is not very sensitive to economic cycles, and all indicators show that it will continue to grow over the next few years," says Jack Neele, portfolio manager at Robeco. For Switzerland, home to one of the industry giants in Vevey on the shores of Lake Geneva, these forecasts give reason to rejoice. With its many pet food brands (including Purina and its Gourmet, Friskies and Felix lines), Nestlé is the world’s number one dog and cat food company, ahead of such behemoths as General Mills, Mars Inc., Archer Daniels Midland (ADM), The J.M. Smucker Company and Colgate-Palmolive.

For the Swiss company, pets are hardly a side business. In 2023, its PetCare division generated $18.9 billion, or 20.3% of the company’s total revenue, compared with 12.3% in 2013. Pet food companies across the board are benefiting from premiumisation. Sales of organic, no-sugar-added or even vegan food, which have the highest margins, are growing fast, while the market share of more traditional products is shrinking. 

However, the best way for investors that want to gain exposure to the pet food market is not necessarily by investing in these giants. "Pet food is a vast growth market. But the industry leaders are companies that are also active in other sectors, such as Nestlé. The pet business represents only about 20% of their revenue and so their share price is mainly influenced by other factors" says Jack Neele. "To capture growth in pet care, it’s better to invest in pure players." And these companies are mainly in the animal healthcare sector, especially pharmas and medtechs.

GOOD TIME TO INVEST 
"We are focusing our attention on animal health, which we think is a very good investment," Jack Neele continues. Some relatively unknown stars, such as US companies Zoetis and Idexx Laboratories, seem particularly attractive. "The animal health sector is too small to attract big pharma like Novartis or Roche, but it’s also too complex for new players to emerge easily," Christoph Wirtz says. As a result, a few players like Idexx, which has almost 60% of the animal diagnostics market, dominate their sector, with excellent growth prospects and little likelihood of competitors eroding their market share."

Another advantage is that veterinary drugs are faster and cheaper to develop than medication for humans, due to less stringent regulations. "It takes three to five years and an investment of around $100 million to launch a drug for animals, compared with around 10 years and several billion dollars for a product for humans," Wirtz explains. "The failure rate of clinical trials is also lower."

As Jack Neele points out, "The competitive environment is right for investing in animal health. During the pandemic and the explosion in pet sales, shares in these companies soared. Since then, the market has now found a new equilibrium and the valuations have normalised," he says, making it a good entry point. At its peak in July 2021, Idexx Laboratories, for example, was trading at around $685, compared with $425 today. Most analysts who follow the stock are now expecting it to rise again. This view is supported by the continuing growth in the pet insurance sector, with penetration rates now exceeding 50% in countries such as Sweden. "The more people take out pet health insurance, the more likely they are to take their pets to the vet," Jack Neele says. "The strong growth in the sector will therefore help to boost the sales of animal health specialists."

However, a threat may be looming. Dogs and cats are harmful to biodiversity and the environment. Several regions worldwide have decided to restrict the freedom of these animals and, by extension, that of their owners. For example, several municipalities in Australia have introduced curfews and other limitations for cats. Other countries are considering introducing taxes on pets. Similar restrictions are being brought to the table in the United States and Europe. 

Is that enough to affect the pet market? "Nowadays sustainability is a major issue, so it’s a complex question," Jack Neele says. "Maybe pet ownership has a negative impact on the environment, but it also has positive effects. Scientific studies show, for example, that pet owners are healthier than non-pet owners, as they on average spend more time outside walking their dogs for instance."