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With more than half of European households now owning a pet, the industry serving our animals is booming. According to one estimate, Europe’s pet care market is now worth more than $40bn — and investors are still betting big on it.
Private equity and venture capital investments in pet care, food and supplies globally surged 659% in 2023, to $2.89bn, according to S&P Global Market Intelligence.
But in an increasingly crowded pet care market, where do investors see the future opportunities? Who is staying for the long-term, and who has bowed out? We asked two leading European investors about how the industry is evolving.
Owners are obsessed with their “fur babies”
“If you are a consumer investor, this is one of the most exciting sectors to be active in, and that’s likely to be the case for the next 20 years,” says Gilles Vanhouwe, an investment director at Verlinvest, a Belgian investment firm.
It’s not just that pet numbers are rising — but that owners are obsessed with their “fur babies”, adds Vanhouwe. “The humanisation of pets, with people really treating their pets more as children, is driving an incredible increase in spend per pet.”
The combination of growth and the opportunity to professionalise makes this a very interesting investment opportunity.
This phenomenon of humanisation has given the sector resilience even as consumers cut back on other discretionary spending.
“We’re getting closer and closer to our pets — especially younger generations who are buying pets for the first time and don’t have a family yet,” says Sophie Luck from JamJar Investments, a British consumer VC firm.
Another tailwind comes from the opportunity to consolidate parts of a highly-fractured market, says Vanhouwe.
“This is a sector that is still relatively unorganised and at times even unprofessional,” he says, pointing to fragmentation in areas such as pet retail, veterinary services and grooming in many European markets. “The combination of growth and the opportunity to professionalise makes this a very interesting investment opportunity.”
The new pet tech opportunities
Vanhouwe highlights opportunities in retail and services such as boarding and grooming. In 2022, Verlinvest acquired a stake in Tom & Co, a Belgian pet store which also provides expert advice and services to owners.
“The definition of a retailer in this space is evolving,” he says. “Specialty retail is less and less about just putting boxes on a shelf, and it’s more about becoming a centre of gravity in a community of pet parents, for services, health, grooming and advice. I think there’s a fairly exciting opportunity there.”
Veterinary services are another attractive segment, he argues: “There are a lot of countries in mainland Europe where this sector is still stuck in the last century, with very small clinics, vets working late hours and going into burnout. So there’s really an opportunity to create a win-win by consolidating and professionalising that sector.” One of Verlinvest’s portfolio companies is Nesto, a European chain of over 50 veterinary clinics.
Travel is a massive market that VCs are invariably very excited about.
In April, JamJar Investments led the seed round for Marleybones, which makes fresh premium dog food that can be stored in a pantry, overcoming challenges associated with the need for cold-storage in homes and supermarkets.
Following a wave of premiumisation of pet food, Luck says she is looking for an evolution in the supplement segment.
“For most pet owners, buying and giving your pet multiple different supplements per day is not a long-term sustainable behaviour,” she says. “Some brands are now offering a huge range of SKUs, but it’s very tough to build a large, high retention business doing that.”
She is also looking for opportunities in the “intersection of travel and pets”— such as platforms that could help owners plan pet-friendly holidays.
“Travel is a massive market that VCs are invariably very excited about. So seeing how that comes into this relationship with our pets, is a space to watch,” she says.
The limits of D2C
However, Vanhouwe points to “a disconnect between where we think the opportunity lies and where founders are most active”. He gives the example of the direct-to-consumer (D2C) food segment, in which Verlinvest has backed KatKin, a British fresh cat food group, and London-based Butternut Box, which is nearing unicorn status.
But some D2C startups are struggling in the space. Catering to growing demand for premium feed, their services boomed during the pandemic, however many brands have struggled to scale — either by crossing borders or creating omnichannel strategies.
The joy of having a pet is actually that you are disconnecting from your computer.
“Particularly in Europe, building a D2C brand has proven to be very difficult,” says Vanhouwe. “Expanding channels is already tough, but then crossing borders into new European markets is even tougher. So for a late-stage investor, I would say that the D2C space is generally a bit risky and overcrowded, because the scalability of the brands in Europe is somewhat constrained.”
Consumer pet tech is another active segment that Luck says she is cautious of. The pet tech market was valued at $10.5bn in 2023, and forecasts suggest it will grow rapidly as demand rises for tools that monitor activity and health — and enable early veterinary interventions.
But “pet ownership is such an offline activity. The joy of having a pet is actually that you are disconnecting from your computer”, Luck argues. “So I’m quite cautious about the idea that people are going to start downloading apps and monitoring things like their pet’s health proactively.”
While there is an opportunity for technology in the sector, “this will always be a hardcore offline business,” agrees Vanhouwe. “For tech entrepreneurs in this space, I would think about how to enable progress of existing infrastructure, rather than launching another app that doesn’t add much to the offline relationship that I have with my pet.”
Raising capital in a competitive market
But raising capital in the pet market is getting tougher, Luck says, as activity in the consumer investment space has slowed.
“A lot of the generalist funds that did a bit of consumer have moved out, and the consumer funds have gone more general. So on the whole, there are fewer potential pet investors now than there were in the last two or three years,” she explains.
Building a modern brand is about having that diversification.
Both investors advise founders, who often launch passion-projects based on experience with their own pets, to be hard-headed about growth from the start.
“They need to think as commercially as possible as early as possible,” says Luck, warning D2C groups to prioritise omnichannel strategies.
“You can start a brand online, but ultimately you need to be everywhere, whether that’s in online channels like Amazon or in brick-and-mortar stores,” she says. “Building a modern brand is about having that diversification.”
Vanhouwe advises founders to pick their markets carefully.
“The main thing in Europe is that scaling across borders is tough,” he says. “So if you are starting a business in Europe, try to first launch it in a country that is somewhat big, and to pick a market that is somewhat big, otherwise you are setting yourself up for a lot of challenges.”
Read the orginal article: https://sifted.eu/articles/pet-tech-investors-brnd/
