Already expanding at an impressive rate from 2014 to 2019 the U.S. pet supplements market accelerated during the pandemic as pet ownership surged and greater focus was placed on health and wellness for both humans and pets. Ongoing growth in the pet population paired with increasing pet humanization, greater recognition of and access to supplements, and the aging of the world’s pets all suggest bright prospects for the pet supplements subsector.
Here, Harris Williams Consumer Group Managing Directors Ryan Budlong and Will Bain discuss buyer interest in pet supplements businesses, key trends in the space, and what prospective buyers should be focused on.
What’s driving all the buyer interest in pet supplement businesses?
Budlong: There’s been strong interest in all things pet for several years now, and supplements represent a new frontier with fresh growth potential. Pet owners tend to be reliable and steady customers, and they increasingly want their pets to have the best of everything. Humanization has now shifted beyond food to the world of supplements, and pet owners are eager to improve and extend their animals’ lives with supplements. That’s leading to growth rates that outpace other pet categories, which are strong themselves. Pet supplement customers are loyal, too: Once they find a product that works, they tend to stick with it.
Bain: The subsector also provides significant growth potential. While many consumers use supplements themselves, far fewer give them to their pets. So you have a base of consumers who believe in the benefit of a product yet aren’t using it to the fullest extent possible. And while it used to be that supplements were mainly intended for older pets with ailments such as joint pain, they are increasingly being given throughout a pet’s life cycle to improve health and wellness. New CBD treatments for anxiety are just one example.
It used to be that the average dog was around 7-8 years old when they started taking supplements for conditions like joint stiffness. What we’re seeing more of is preventive use of supplements much earlier in the pet’s life, even in the puppy and kitten stage. That means companies are providing more types of supplements for many more years of a pet’s life, which substantially grows the addressable market.
Budlong: During a recent webinar that Harris Williams co-hosted with L.E.K. Consulting, we highlighted that the majority of current pet supplement buyers plan to spend more and use more types of supplements going forward. In addition, many non-buyers say they will probably buy pet supplements in the future. The brands that take advantage of this will do so by educating consumers on supplements and why pets need them.
The category is receiving strong interest from investors—recent transactions include Grizzly Pet Health’s acquisition by Whitebridge Pet Brands, FoodScience Corp.’s acquisition by Wind Point Partners, Custom Veterinary Services’ acquisition by Align Capital Partners, and Revival Animal Health’s acquisition by Incline Equity Partners. We expect more transactions this year and beyond given the number of interested buyers and solid businesses in the market.
What should prospective company buyers be looking for?
Budlong: Beyond product innovation to meet more consumer needs, direct-to-consumer capabilities are very important, and the best operators excel in that area. Pet supplements are bought on a recurring basis, yet they may or may not be on the shelf at your local store. There’s also the potential to apply the model we’ve seen in pet food, in which a company tailors the product to the pet’s age, breed, and health and ships it to the customer automatically. Additionally, we expect supply chain and ingredient transparency to become increasingly important for pet supplement brands, which is similar to what the human supplements market experienced a number of years ago.
Bain: Obviously, Amazon, Chewy and Zooplus are big players in the e-commerce space, and pet supplements businesses need to take a smart approach to working with these companies. Selling through Amazon and Chewy can accelerate access to consumers but can also lead to commoditization. It’s important for pet supplements companies to build strong brands and differentiate themselves, as well as manage SKUs across channels to protect margins. For instance, some companies offer certain package sizes or products on Amazon, and others through mass and specialty channels. Many people have built great businesses on Amazon, but if it’s your only channel, it could be a limiter.
To learn more about the pet supplements subsector, please contact our senior bankers.
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Published July 2021