YOUR MONEY-The U.S. pet economy didn't go to the dogs

Fri Feb 8, 2013 9:18pm GMT

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By Chris Taylor

NEW YORK Feb 8 (Reuters) - It is almost time for Alvin's massage. After a rubdown, he is off for a personal grooming session, to make sure he looks his best. Alvin is from Thailand originally but recently has been hanging out in California, and this weekend is jetting off to a hotel in New York City.

Alvin is a beagle.

Not just any beagle. Alvin is a champion of his breed, the recipient of three Best in Show ribbons at dog shows around the United States. His handler hopes he will compete for the overall crown at New York City's famed Westminster Kennel Club Dog Show, starting this Monday. But being a champion doesn't come cheap.

"I've heard of some owners taking out second mortgages or going bankrupt because of their dog," says Lindsay Bryson, Alvin's handler, who says expenses for a typical show dog run between $2,000 and $4,000 a month. "Most show dog owners know their financial limits - but some don't."

It's not just the Westminster best-of-breeds that cost Americans serious money. Indeed, not even the brutal economy of the past few years could reverse people's spending on Fluffy and Fido. Total pet industry expenditures are now estimated at almost $53 billion annually, according to the American Pet Products Association (APPA). The figure has risen every year right through the Great Recession.

That kind of robust spending - not just on dogs but also on a menagerie of pets from cats to iguanas to parakeets - is up from $41.2 billion just five years ago, making for an almost 30 percent increase over that time frame. From gourmet food to designer wear, from pet insurance to organic treats, Americans always seem able to make room in the family budget.

"American pet owners continue to spend on their animals," says Howard Telford, a pet care analyst for research firm Euromonitor International. "Long-term, I am encouraged by increasing consumer confidence, and feel that pets - treated as members of the family - will be leading beneficiaries of increased consumer spending."

TREATED LIKE KINGS AND QUEENS

These days you can find Martha Stewart-brand dog beds ($49.99 for the "Bonequilt Snuggler" model at PetSmart.com) or BK Atelier's luxury poop-bag holder ($39.99 at bitchnewyork.com). Forget tasteless dry kibble; now it's all about repasts of free-range chicken and organic quinoa, like the dehydrated meals prepared for dogs by San Diego-based The Honest Kitchen ($69.99 for a 10-pound box of the company's "Verve" mix).

When it comes to show dogs, like the ones strutting their stuff for the Westminster show, the pampering can be taken to a whole new level. Bryson, Alvin's handler, has seen owners pay up for everything from pet psychics to dog chiropractors to luxury motor homes that allow the furry little kings and queens to travel between shows in style.

But even the mutt down the street can run up some serious bills. According to the APPA's 2011-2012 National Pet Owners Survey, dog owners spent an average of $407 a year on surgical visits, $248 on routine checkups, $274 on kennel boarding and $254 on food. And that is before other costs like vitamins ($95), travel expenses ($78) and toys ($43).

The spending has helped boost the animal supply business. Petco Animal Supplies Inc, a specialty food retailer for household pets with more than 1,150 stores in the U.S., has generated consistent revenue gains in past years, despite weak economic conditions, Moody's Investors Services Inc said in October. The privately owned company is being eyed for an initial public offering, though the company will not comment on whether it will pursue one in the near future.

Add it all up, and according to a separate survey by the American Kennel Club, dog owners reported spending around $2,500 annually on our four-legged friends. In many cases, this is more than many dog-owning families signed up for. Only 3 percent of respondents said dog ownership was costing them less than anticipated; 29 percent said it was costing them more.

That is affecting a lot of families. More than 46 million American households own a dog - more than any other animal, besting cats by about 7.4 million households.

PAYING FOR YOUR PET'S HEALTH

The largest portion of a pet owner's budget is simply keeping the animals in good health. Total up those APPA figures about surgeries and vet visits, and the average dog owner reported spending $655 a year on healthcare, up by almost half from a decade prior. And according to one survey by the Veterinary Pet Insurance Co, 70 percent of pet owners said they would spend "any amount" to save their pet's life.

Wall Street has been taking note. Pharmaceutical giant Pfizer's recent spinoff of its animal-care division, Zoetis, was an unqualified success. Its shares, originally priced at $26, leapt 20 percent in their first day. That made for the biggest IPO since Facebook. The company's products include an array of pet and farm animal vaccines, anti-infectives and other medicines, like Revolution, a flea and heartworm-battling potion for cats and dogs.

"Healthcare has been one of the most successful and dynamic areas of pet care in the U.S.," says Euromonitor's Telford. "Sales of healthcare products for pets increased by 14 percent between 2009 and 2012, and I expect continued growth. It is not unreasonable to think that the likes of Sanofi or Merck could followsuit in spinning off their animal health businesses."

Other trends that Telford notes: "Premiumisation," with luxury food and treats consistently ramping up sales despite the sluggish overall economy. Telford says sales of high-end cat and dog food grew by 4 percent a year from 2007 to 2012, outpacing lower-end brands.

Even Wal-Mart Stores Inc, the world's largest retailer, understands the importance of pleasing pooches. In August 2012, it launched its own "ultra premium" dog food, called Pure Balance, sold at Walmart stores in the United States.

Pure Balance is an expansion on the company's Ol' Roy brand, which was named after one of founder Sam Walton's hunting dogs. Walmart has said it sells enough dog food each year to fill an Olympic-size swimming pool 2,050 times. Pet supplies are part of the largest business at Walmart U.S., the grocery unit. Grocery items (including dog food) accounted for 55 percent of Walmart U.S.'s $264.19 billion in sales in fiscal 2012.

Meanwhile, Iams brings in more than $1 billion in sales each year for Procter & Gamble Co. And Hill's pet products, such as the Hill's Science Diet line of dog food, account for 13 percent of sales at Colgate-Palmolive Co.

In addition to pet food, observers also note increased spending on pet insurance, to cope with the punishing cost of veterinary procedures. Payments for pet-policy premiums grew by an estimated 10 percent in 2012, to over $400 million a year.

The burgeoning business in pet care doesn't surprise Bryson, who is busy prepping 4-year-old Alvin for his big moment. If all goes well, Alvin will win his group on Monday, and then battle other breeds for Best in Show honors on Tuesday in the heart of Madison Square Garden.

"People who love dogs will make huge financial sacrifices for them," says Bryson, whose first Best in Show victory as a handler turned her into a blubbering mess of tears. "Real dog lovers will put high-quality food in their dog's dish before they put it on their own table."

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