Streetwise for Sunday, January 9, 2021
The University of Michigan Index of Consumer Sentiment fell 13% in 2021, the lowest end-of year reading since 2008. Unlike 2008, when the S&P 500 index fell 38%, the S&P 500 ended 2021 with a gain of more than 27%. That is the largest gain in a year when sentiment suffered a double-digit drop in at least 25 years.
However, those statistics are ancient history. We cannot mull over the past, good or bad. You need to look towards creating an investment program in 2022 to mimic or even exceed 2021’s performance.
To that end it should come as no surprise that one of the easiest, and often more profitable strategies is to invest in companies whose products you know and understand. One suggestion might be to look at the world of pet supplies, including food and pharmaceuticals.
According to the research firm Statista, pet food was the highest selling pet market product category in the United States in 2020 and is projected to maintain the top spot into 2021. Approximately 42 billion dollars of pet food was sold in 2020 and this figure is estimated to have increased to around 44.1 billion in 2021. The vet care segment was second highest in terms of revenue, with sales amounting to approximately $31.4 billion in 2020.
Statista’s research indicates pet owners spend about $500 on their pets per year. For the more affluent households, the average annual expenditure increases to $1,523. These costs generally include regular supplies such as food, toys, along with medical expenses.
While most on-line retailers direct their marketing towards products for human consumption, on-line suppliers of pet products are on a mission is to be the primary destination for pet products. The idea being to transform the pet industry via the two core tenets of ecommerce: speed and convenience.
The potential for on-line pet retailers derives from three key factors. First, the number of pet owners is increasing. Second, people increasingly view their pets as family members. Finally, pet product purchases are rapidly moving to the Internet, primarily for convenience.
Although any one of those factors could make for a solid investment thesis, on-line pet suppliers plan to take advantage of all three. To earn the trust of pet owners the key objective is to achieve a name branding comparable to that of the major on-line box stores. Similarly, these on-line pet supply retailers are looking for an increased market share of the brick-and-mortar pet revenue.
Although the retail sector in general has been battered this year due to COVID-19, on-line sales for pet supplies has been thriving because of the disruption. One firm commented to The Wall Street Journal that it plans to increase the number of products it sells and will continue to monetize tele-health pet services.
The objective among on-line pet retailers is to build out an extensive enough catalog so pet owners will not see a need to shop elsewhere, while also increasing the average amount spent. This is simply a mimicking of what regular consumer on-line retailers do.
An important service provided by on-line pet retailers is their pharmaceutical business. To promote the sales of pharmaceuticals, some retailers have initiated a program utilizing an on-line veterinarian. This tele-health service is aimed at providing recommendations to pet owners from licensed veterinarians.
While on-line veterinarians are unable to diagnose or recommend specific treatments, they can determine whether a matter is urgent and provide notes for a pet owner’s veterinarian or emergency clinic. This is financially beneficial to the pet owner as it often leads to a reduced need to visit what are typically more expensive urgent care centers.
The result is both peace of mind and an answer to the question of whether immediate treatment is necessary. Services of this nature are likely to become standard offering with the potential to both enhance customer retention, while leading to increased auto-shipments of both pet supplies and pharmaceuticals authorized by a veterinarian.
Note to readers: I will be teaching Advanced Investment Analysis, beginning Tuesday, January 11, for Ringling’s Osher Lifelong Learning Institute. Call 941-309-5111 for registration/information. Unfortunately, my annual talk has been postponed until further notice due to the CORONA-19 virus.
Lauren Rudd is a Managing Director with Raymond James & Associates, Inc., member NYSE/SIPC. Contact him at 941-706-3449 or Lauren.Rudd@RaymondJames.com. All opinions are solely those of the author and not necessarily of Raymond James. This material is provided for informational purposes only, is not a compete description, is not a recommendation and should not be relied on for investment decisions. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is no guarantee of future results.
The information has been obtained from a source considered to be reliable, but we do not guarantee that it is accurate or complete.