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 want to start with a number that stopped me cold. U.S. pet spending hit roughly $130 billion last year, which is more than double what it was just fifteen years ago. And birth rates kept falling the whole time. Luna: That's a huge jump. So you're saying the two trends are connected — fewer kids, more money spent on pets? Lucas: Exactly. The link isn't just correlation; there's a real economic and behavioral mechanism. When birth rates decline, households have more disposable income and more time. A lot of that gets redirected to pets. The American Pet Products Association tracks this — the number of pet-owning households has been steadily climbing, especially among millennials and Gen Z, who are having children later or not at all. Luna: It's like the nurturing instinct doesn't disappear — it just finds a different outlet. I've seen that anecdotally with friends in their thirties who treat their dogs like kids. Lucas: Exactly. And the industry has responded by 'humanizing' pets. The fastest-growing category isn't basic kibble; it's premium, refrigerated, or fresh-prepared food — companies like Freshpet and Nom Nom Now. Veterinary spending has also surged, including specialty care like oncology and dentistry. Pet insurance premiums have grown at a compound annual rate of about 25 percent over the last five years. Luna: Twenty-five percent? That's faster than almost any consumer insurance segment. Is it purely more people buying it, or are premiums also rising? Lucas: Both. The North American Pet Health Insurance Association reports that the number of insured pets in the U.S. has gone from about 1.9 million in 2015 to over 5 million in 2025. But the average annual premium has also increased — partly because people are opting for richer plans with lower deductibles, and partly because veterinary costs themselves are rising. Luna: So the pet is essentially becoming a family member with a healthcare budget. I'm curious how much of this is driven specifically by childlessness versus just general affluence. Lucas: Good question. The economist Emily Oster looked at this a few years ago and found that, controlling for income, childless households spend about 30 percent more on pets than households with children. And the gap is widening. But it's not just about millennials. Empty nesters — people whose kids have left home — are also adopting more pets and spending more on them. In fact, the fastest-growing segment of new pet owners is adults over 55. Luna: That makes sense. They have the time, the money, and the space. So if you're an investor or a business owner in the pet space, the demographic tailwind is pretty clear. Lucas: Very clear. But there are nuances. The pet food market is consolidating — Mars Petcare, Nestlé Purina, and J.M. Smucker dominate. But the real innovation is happening at the high end. Freshpet, which makes refrigerated food, has seen its revenue compound at over 20 percent annually. And then there's the tech side — smart feeders, GPS collars, activity trackers. That's still a small piece of the pie, but it's growing fast. Luna: What about veterinary services? That seems like a more defensive play, since people will cut back on food before they skip a vet visit for a sick pet. Lucas: Right. Veterinary spending tends to be more inelastic. But there's a capacity issue — the U.S. has a shortage of veterinarians, especially in rural areas. That's driving up prices and wait times. Companies like Zoetis, which makes animal health pharmaceuticals, benefit because they sell high-margin products that vets prescribe. And private equity has been rolling up large animal hospital chains, like VCA and Banfield, to capture economies of scale. Luna: So the whole ecosystem is expanding. But I wonder — is there a risk that this trend reverses? If birth rates somehow rebound, or if the economy tanks and people downsize their pet spending? Lucas: Birth rates are unlikely to rebound sharply — the long-term trend is down across developed economies. But a recession could ding pet spending, especially the discretionary stuff like premium food and tech gadgets. However, during the 2008 recession, pet spending actually held up better than most consumer categories. People treat their pets as family, so they cut elsewhere first. Luna: That's a good data point. So the secular shift is probably durable. I want to ask about the global picture — is this a U.S.-only story? Lucas: Not at all. Japan has one of the lowest birth rates in the world, and its pet industry is massive. The Japan Pet Food Association says spending on pet food and supplies has grown even as the human population shrinks. China is another interesting case — its pet economy is booming, partly because of the one-child policy's legacy. Young adults who grew up as only children are now seeking companionship in pets. The market there has been growing at 20 to 30 percent annually. Luna: So the demographic thesis applies globally. And that means companies with international exposure, like Nestlé Purina or Mars, are well-positioned. Lucas: Yeah. But the competitive dynamics vary by country. In China, local brands like Yumy and Myfoodie have gained share by tailoring products to domestic preferences — for example, more seafood-based pet food. In Europe, premiumization is already advanced, so growth rates are lower but margins are higher. Luna: This reminds me of something you said last week about how investing in demographic trends is like betting on a slow-moving glacier — you know it's coming, you just have to be patient. The pet industry is a good example. Lucas: Exactly. And if walking through the economy with us has made something click for you, we'd love your support. We keep the show ad-free and independent, and listener contributions make that possible. If you're inclined, you can find us at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure at all — just knowing people listen and find value is the real reward. Luna: Yeah, it really does help us keep doing what we do. Now, back to the pets — I want to dig into one more angle. How much of the spending is actually on services like boarding, grooming, and walking? Lucas: That segment has exploded. The American Pet Products Association estimates services now account for about 15 percent of total pet spending, up from 10 percent a decade ago. The rise of the 'pet parent' has created demand for doggy daycare, pet sitters, and even pet-friendly travel accommodations. Companies like Rover and Wag have built platforms that connect owners with service providers, and they've grown rapidly. Luna: And that's a labor-intensive business. Do you see automation creeping in? Like robot dog walkers? Lucas: Not quite robot dog walkers, but there are automated litter boxes, self-cleaning water fountains, and programmable treat dispensers. The broader trend is 'pet tech' — wearables that track activity and health, like the Fi Smart Collar, which raised significant venture funding. But the human touch is still central for services. People want the reassurance of a real person caring for their pet. Luna: So the service side is more recession-sensitive, but also has higher moats once trust is established. I think the overarching lesson is that falling birth rates aren't just a problem for societies — they also create opportunities in unexpected sectors. The pet industry is a clear beneficiary. Lucas: Exactly. And it's a reminder that demographic change is not a single story; it's a mosaic of winners and losers. The key is to look for where consumer needs are being redirected. In this case, the need to nurture, to care for something, to have a constant companion — that doesn't go away. It just finds a new form. Luna: Well said. Thanks for walking through this, Lucas. I think our listeners have a lot to chew on — pun intended. Lucas: I set myself up for that one. Next episode we'll look at another sector quietly being reshaped by demographics. Stay curious.