Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Pet Industry
Transcript
- Lucas: Luna, I was looking at some pet industry data this morning, and it struck me just how much the narrative around pet ownership has shifted over the past decade. Luna: In what way? I mean, we've always had dogs and cats, but something feels different now. Lucas: Well, consider this: U.S. spending on pet care crossed $150 billion last year. That's up from about $100 billion just five years ago. And the growth rate has actually accelerated since 2023. Luna: That's a massive jump. Is it purely inflation, or is something structural going on? Lucas: A bit of both, but mostly structural. The key driver is a demographic one — falling birth rates. As people delay having children or choose not to have them at all, pets are increasingly filling that emotional and financial space. Luna: Right, the 'pet as child' phenomenon. I've heard millennials refer to their dogs as 'fur babies' pretty unironically. Lucas: Exactly. And the spending patterns back it up. According to the American Pet Products Association, pet owners under 35 are spending nearly 40 percent more per pet than owners over 55. They're buying premium food, pet insurance, even DNA tests for their dogs. Luna: Pet insurance has been growing fast too. I think it's still a relatively low penetration rate, but the growth is huge. Lucas: Yeah, pet insurance premiums in the U.S. reached about $3 billion last year, up from around $1.5 billion in 2020. The number of insured pets doubled in that timeframe. And it's not just dogs — cats, rabbits, even birds are getting covered now. Luna: It makes sense. If you're not spending on diapers and school tuition, you have more disposable income to spend on veterinary care and fancy toys. Lucas: Precisely. The pet industry is essentially benefiting from what economists call 'substitute spending.' When fertility rates drop, household spending shifts from child-related goods to pet-related goods. We saw similar patterns in Japan and South Korea a decade earlier. Luna: And it's not just about spending more on existing pets. Pet ownership rates are climbing too, especially among younger people. Lucas: Right. In 2024, about 70 percent of U.S. households owned a pet, up from 56 percent in 1988. The biggest growth has been among households without children. For childless households under 45, pet ownership is now over 60 percent. Luna: That's a huge demographic shift. So companies are clearly pivoting to capture this. I'm thinking of Mars, which owns a huge chunk of the pet food and veterinary market. Lucas: Mars is a great example. They've been aggressively acquiring veterinary practices and pet hospitals. They now own Banfield, VCA, and BluePearl — that's thousands of clinics. Their pet care division generates over $20 billion in revenue, more than their candy business. Luna: And Nestlé has Purina, which has been launching premium lines like Beyond and Pro Plan. They're clearly betting on pet humanization continuing. Lucas: Absolutely. But it's not just the big conglomerates. There's a whole ecosystem of startups catering to the 'pet parent' — from fresh food delivery services like The Farmer's Dog to wearable health trackers like Fi and Whistle. The pet tech space alone attracted over $1.5 billion in venture funding last year. Luna: It's interesting to think about how this ties back to the broader economy. If birth rates continue to decline, pet spending could become a more stable pillar of consumer spending, maybe even a defensive sector. Lucas: I think that's already happening. Analysts at Goldman Sachs recently upgraded the pet care sector to 'overweight' citing demographic tailwinds. They noted that pet spending has proven remarkably resilient during economic downturns — people cut back on their own discretionary spending before they cut back on their pet's food. Luna: That makes sense emotionally. And it's also a reflection of how pets have become integral to people's identity and daily routines. Lucas: Speaking of identity, there's a fascinating trend in pet-friendly workplaces. Companies are increasingly offering pet insurance as a benefit, or allowing pets in the office. It's a recruitment tool, especially for younger workers who prioritize pet-friendly policies. Luna: I've seen that. Some tech companies even have dedicated pet relief areas and pet health stipends. It's a way to signal that they understand the lifestyle of their employees. Lucas: And it's not just a U.S. phenomenon. In China, where birth rates have fallen sharply, the pet economy is booming. The Chinese pet market was worth about $50 billion last year, growing at 15 percent annually. They've even seen a rise in pet cemeteries and pet memorial services. Luna: That's a pretty clear mirror of what happened with human funeral services when birth rates fell — but now it's for pets. Lucas: Right. And this leads to an interesting question — can the pet industry sustain this growth indefinitely? At some point, pet ownership rates may plateau, and spending per pet might have limits. Luna: But given the demographic trajectory — more single-person households, more childless couples, an aging population — it seems like the tailwinds are strong for at least another decade. Lucas: I'd agree. The total addressable market keeps expanding. And one more thing — the veterinary profession itself is adapting. Veterinary schools are seeing record applications, and starting salaries for vets have risen sharply to meet demand. It's become a very attractive career path. Luna: Which is a nice counterexample to the narrative that falling birth rates are universally bad for the economy. Some sectors thrive on it. Lucas: Yeah, that's actually a good way to frame it. The pet industry is a clear winner from demographic change. And it's one where the data is very concrete — you can literally track the spending shift quarter by quarter. Luna: So if I'm an investor, should I be looking at pet stocks? Lucas: I think it's worth a look. But as with any thematic investing, you have to be selective. Some companies are better positioned than others. The ones with strong brands in premium segments, or those with recurring revenue models like insurance and subscription food, seem particularly well placed. Luna: It's also worth noting that the pet industry is relatively fragmented. So there's room for consolidation, which could create value. Lucas: Exactly. And on that note, we should probably wrap up. I think the key takeaway is that falling birth rates aren't just a problem to be solved — they also create new economic opportunities. The pet industry is a prime example. Luna: And it's a reminder that demographic trends are powerful, but they don't determine everything. Innovation and consumer preferences still matter enormously. Lucas: Well said. That's all for this episode of The Demographics Podcast. Thanks for listening.