Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Pet Food Industry
Transcript
- Lucas: So here's a stat that stopped me this week. In 2025, Americans spent more on pet food than they did on baby food — roughly 62 billion dollars versus 11 billion. That gap has been widening for a decade, and it's not just about people loving their dogs more. It's demographic. Luna: Wait, 62 billion on pet food alone? That's almost 6 percent of the entire global packaged food market, isn't it? Lucas: Yeah, about 6.2 percent. And the growth rate is around 5 percent annually, while baby food is essentially flat. So today, let's talk about how falling birth rates are reshaping the pet food industry — specifically the premium, human-grade segment that's exploded over the last five years. Luna: Because if there are fewer babies, there's more disposable income to spend on the pets people already have. I've seen the marketing — 'Feed your dog like family.' It's not just a tagline anymore. Lucas: Exactly. And the numbers bear it out. A 2024 survey from the American Pet Products Association found that 67 percent of U.S. households own a pet — up from 56 percent in 2011. But here's the demographic kicker: Millennials and Gen Z are driving the growth, and they're also the cohorts with the lowest birth rates. So you have more households choosing pets, and they're spending more per animal. Luna: Right. So what does that look like for the actual products? Because the standard kibble in a bag isn't exactly what I think of when I hear 'premium.' Lucas: No, it's not. The premium segment has really been defined by fresh, refrigerated, or frozen food that mimics human-grade ingredients. The poster child is The Farmer's Dog. They launched in 2015, hit 200 million dollars in revenue by 2023, and they've been valued at over a billion. Their whole pitch is 'human-grade, vet-developed, delivered fresh.' And they're not alone — there's Nom Nom, Ollie, JustFoodForDogs. These are subscription models that ship fresh food to your door. Luna: And the incumbents have noticed. I remember Nestlé launching Purina Pro Plan Veterinary Diets Fresh — it's like a direct response. Also, Mars, which owns Royal Canin, has been acquiring in the space, right? Lucas: Yeah, Mars bought a stake in Freshpet in 2020, and they've been expanding their own fresh offerings. But let's talk about why this demographic shift matters specifically. The pet food market is actually pretty mature in volume terms — the number of pets isn't growing that fast anymore. The growth is coming from 'premiumization,' which is a fancy word for trading up. And that trade-up is directly linked to households without children. Luna: Because if you're not spending on diapers, day care, and college funds, you have more to spend on your dog's dinner. Lucas: Exactly. A 2023 study from the Journal of Economic Behavior found that childless households spend about 40 percent more per pet than households with children, all else equal. And the number of childless households is rising in every developed economy. In Japan, over 30 percent of households now have a pet but no child. South Korea is similar. So this isn't just a U.S. story. Luna: Let's talk about Japan specifically. They have one of the lowest birth rates in the world and one of the most mature pet markets. What's happening there? Lucas: Japan's pet food market is about 4.5 billion dollars, and it's growing at 3 percent a year despite the overall population shrinking. What's interesting is the product innovation — things like 'anti-aging' pet food for senior dogs, because the pet population is also aging. There's a brand called Petline that sells a 'kibble for elderly dogs' with joint supplements and lower calories. They're basically treating pets like the elderly family members they replace. Luna: That's both fascinating and a little sad. But economically, it makes total sense. So how are investors playing this? I know there's a lot of private equity interest. Lucas: There is. In 2024, the Swiss company Nestlé actually sold its baby food business in several markets to focus on pet care. That's a huge strategic signal. Nestlé's pet care division — Purina — is now their largest category by revenue, bigger than coffee. And Mars, which is private, has been on an acquisition spree: they bought Champion Petfoods in 2023 for over a billion. The thesis is that premium pet food has better margins and more growth than human food. Luna: So from an investment standpoint, you want to look at companies with exposure to that premium shift. But are there any risks? If birth rates somehow rebound, does the thesis break? Lucas: Short answer: not really. Even if birth rates tick up — and they haven't in any developed country in decades — the pet ownership rate is sticky. People don't give up their pets. The real risk is oversaturation. There are dozens of fresh-food startups now, and the category is getting crowded. We might see a shakeout in the next few years, where only the brands with strong subscription retention survive. Luna: Speaking of survival, I've been reading about the economics of these fresh-food subscriptions. They're expensive — like 3 to 5 dollars per meal for a medium dog. That's more than a lot of humans spend on their own lunch. Lucas: Yeah, the average cost is about 150 dollars a month for a 40-pound dog. That's a real premium. But the customers are affluent, urban, and childless — exactly the demographic that's growing fastest. And here's the thing: those customers are also extremely loyal. Churn rates for the top fresh-food subscription firms are under 10 percent, which is incredibly low for consumer goods. Luna: Loyalty makes sense when you think of it as part of the family. If your pet is your 'fur baby,' you're not price-shopping. But let's pull back for a second — how big is this premium segment within the 62 billion total? Lucas: Rough estimate: premium pet food — which includes fresh, frozen, and high-end dry — is about 25 percent of the total, so around 15 to 16 billion dollars. And it's growing at about 8 percent a year, nearly double the overall market. The human-grade, fresh-frozen part is the fastest-growing slice, expanding at about 15 percent annually. So we're talking about a 2.5 billion dollar sub-segment that could double in four or five years. Luna: And that's largely thanks to demographic tailwinds. I want to get into one more angle: the regulatory side. In the US, the FDA regulates pet food, but 'human-grade' isn't a formal term. Is that a risk? Lucas: It's a gray area. The FDA doesn't require pet food to be made in human-food facilities, but many of these startups voluntarily manufacture in usda inspected kitchens. There's a trade group called the Pet Food Institute that's pushing for clearer standards. If regulators ever crack down on the term 'human-grade,' it could force a lot of rebranding. But honestly, the bigger near-term risk is supply chain — fresh food requires refrigerated logistics, which is expensive. Luna: And that's one reason the incumbents have an edge. Purina and Royal Canin already have massive distribution networks. They can put fresh products in every Walmart and PetSmart. The startups are mostly direct to consumer. So it's a battle between convenience and personalization. Lucas: Yeah, and the startups are starting to move into retail too. The Farmer's Dog now sells through Petco. So the lines are blurring. But I think the enduring story is demographic: fewer kids, more pets, higher spend per pet. That's a structural shift that's going to play out for decades. Luna: You know, this show exists because we dig into exactly these kinds of structural shifts. And it's always struck me how niche but powerful they are. A lot of listeners have told us they use these episodes to make sense of what's happening in their own industries. Lucas: That's the goal. And honestly, the fact that we can keep doing this — day after day, without ads, without sponsors shaping the content — comes down to a small group of listeners who chip in. There's a buy me a coffee dot com slash fexingo page, and that's literally what keeps the lights on. It's not a big ask, but it means we can stay totally independent. Luna: Yeah, it's a quiet thing. No pledge drives, no interrupting the conversation. We just put it out there for anyone who's gotten value and wants to help keep it going. And then we get right back to the data. Lucas: Exactly. So back to pets: I want to look at one more data point. In South Korea, the pet food market is growing at 7 percent annually, while the baby food market is shrinking by 2 percent. The government has even started subsidizing pet food for low-income seniors, recognizing that pets are a key part of social welfare for an aging society. Luna: That's a fascinating policy angle. If governments start treating pet food as a public health issue, that could open up institutional demand — like in nursing homes or senior centers. Lucas: Right. And it connects back to the broader demographic story. We're not just seeing a substitution of pets for children in households; we're seeing entire systems — food, healthcare, housing — adapt to a world with fewer young people and more elderly. Pet food is just one lens. Luna: So to wrap up: falling birth rates are reshaping pet food by driving premiumization, creating a fast-growing fresh-frozen segment, and prompting strategic shifts from giants like Nestlé and Mars. The key number to remember is 62 billion — and the fact that it's growing faster than baby food. Lucas: And for listeners who want to stay on top of these shifts, we'll be back tomorrow with another angle. For now, I think we've scratched the surface on what happens when a society decides that four legs are better than two. Luna: Or in the case of cats, zero legs. But that's a whole other episode. Lucas: It really is. Thanks for being here.