If you got a new pet during 2020 to help beat the Covid lockdown blues, you weren’t the only one. Growth in the pet care industry has created strong investing opportunities, writes Toby Woods, Pie’s senior investment analyst for global funds, based in London.
Dogs, cats and other small animals have long been part of the family. But the impact of Covid-19 lockdowns around the world accelerated growth in adopting pets, and owners are now spending up large on their care. What has this meant for investment opportunities for Pie’s global funds?
Dogs, in particular, were in great demand. This meant asking prices for some of the popular breeds catapulted in the UK. Between March and June last year, dachshund prices were up +89%, chow chows were up +67% and the list goes on. In recent months, supply has started to match demand as breeding programmes were initiated leading to >40% growth in puppy registrations in some markets by the year end. On top of that, new ‘pet parents’ tend to spend more on their animals than traditional owners. This means that not only are there more pet owners, they are spending more in this retail sector.
Opportunities in pet oral health
At Pie, our global funds had already invested into this trend before the crisis began with investment in Swedencare, a company whose core product was for pet oral health, cleaner teeth and better breath. Although seeing high growth rates, it was largely a one-brand business when we first got involved. This company developed and patented a product made from a certain algae that only grows on seaweed in the North Atlantic. This algae has certain properties that are very good for oral health. So, when it's processed into a powder, it can be sprinkled into a dog's food and it kills any plaque on the dog’s teeth and makes the dog's breath much better. This is ideal for the humanisation of pets, as owners tend to cuddle them closer.
Swedencare had a clear strategy to buy other pet-related health brands in order to create a platform to cross-sell many products, which it successfully executed during the pandemic adding a handful of additional businesses to its portfolio. The result was impressive, with the run rate of sales at the close of 2020 being four times that of one year earlier. It’s been replicated in the share price, which has appreciated 460% since our initial purchase in November 2019. We remain convinced about the long-term theme surrounding pet health so it will remain an area of focus for us.
Success in online retail models
Thanks to our close attention to the pet sector, we were early to recognise the Covid-19 effect so we added two new investments in Musti and Pets-At-Home into our global funds. They are the leading pet retailers in Scandinavia and the UK respectively. Both of these businesses operate an omnichannel retail model, so were able to pivot to online sales when restrictions were enforced. They both instigated subscription services for pet requirements aimed at new owners. It has led to a dramatic increase of earnings which we believe is only gaining in momentum.
While we recognise that the demand in new pets will likely slow significantly when restrictions are ended, we are confident that requirements for products will remain high due to the lifespan of pets. This sector has provided strong investment opportunities for our global funds and we are keeping a close eye on new opportunities.
Information is current as at 18 March 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.