Latest / The Demographics Podcast with Fexingo: Aging Populations, Birth Rates, and Economic Impact / How Falling Birth Rates Reshape the Pet Industry
Transcript
- Lucas: So you know how we've been tracking the economic fallout of falling birth rates across a bunch of industries? Diapers, toys, orthodontics, insurance — we've covered a lot of ground. Luna: Right, and the pattern is usually the same: fewer kids means a shrinking market, and companies either contract or pivot hard. Lucas: Exactly. But today I want to talk about an industry that is doing the exact opposite. It's growing — fast — and it's growing precisely because there are fewer children. I'm talking about the pet industry. Luna: Oh, that's a great one. I've seen the statistic that in Japan, pet food sales actually overtook baby food sales back in — what, 2017? Lucas: Yeah, Japan crossed that threshold years ago. But globally, the numbers are staggering. The global pet industry is estimated at around one hundred fifty billion dollars in 2024, and it's growing at about six to eight percent annually. That's faster than GDP in most developed economies. Luna: And the driver isn't just more pets — it's more spending per pet. People are treating their dogs and cats like children. Lucas: Exactly. There's a term for it: the 'humanization of pets.' And it maps almost perfectly to declining fertility rates. In countries where the total fertility rate has dropped below replacement — that's about two-point-one births per woman — pet ownership rates and pet spending per household both trend upward. Luna: So you're saying the pet economy is essentially a substitute economy. People who aren't having kids pour that parental instinct and disposable income into a fur baby instead. Lucas: That's exactly the thesis. And the data supports it. Let me give you one concrete number: pet insurance. In the U.S., pet insurance premiums grew at a compound annual growth rate of about twenty percent from 2019 to 2024. That's not a fluke — it's a structural shift. Luna: Twenty percent CAGR is insane. For context, that's faster than streaming subscriptions grew during the same period. Lucas: Right. And the reason is simple: as people delay or forgo having children, their disposable income doesn't shrink — it often grows. And they redirect that money toward the creatures they do care for. So you see premium pet food, pet health insurance, even pet tech — GPS trackers, automatic feeders, smart litter boxes. Luna: I saw a startup that does fresh-cooked, human-grade dog food delivered weekly. It's like Blue Apron for dogs. They charge something like fifty dollars a week per dog. Lucas: And that's not even the high end. There are pet supplements now: CBD treats for anxiety, probiotics, even personalized vitamin packs based on a DNA test for your dog. The pet supplement market alone is projected to hit one-point-two billion dollars by 2027. Luna: Let's talk about the major players. How are companies like Mars and Nestlé responding? Because they dominate pet food. Lucas: Mars is actually the biggest player in pet care globally — bigger than its confectionery business now. They own brands like Pedigree, Whiskas, Royal Canin, and they've been acquiring premium brands aggressively. In 2024, they bought a majority stake in Champion Petfoods, which makes Orijen and Acana — those are super-premium, biologically appropriate foods. Luna: So they're betting that the premiumization trend continues. That makes sense. Nestlé Purina has been doing the same with its Pro Plan and Beyond lines. Lucas: Right. And it's not just food. Veterinary care is another massive growth area. As pets become family members, owners are more willing to spend on surgeries, cancer treatments, dental cleanings — things that were once considered optional. Luna: That's where the pet insurance boom comes in. In South Korea, pet insurance penetration is still low — under two percent — but it's growing fast. And Japan has seen a surge since they introduced a specific pet insurance regulatory framework a few years ago. Lucas: Let's look at the macro view. In countries like Italy, Spain, and Greece — all with fertility rates around one-point-two or one-point-three — pet ownership has become a cultural norm. Over sixty percent of households in Italy own a pet. Compare that to a country with higher fertility like Israel, where pet ownership is around forty percent. Luna: So there's a clear inverse correlation. But is there a point where the pet market saturates? I mean, you can only have so many dogs per household. Lucas: That's a good question. The ceiling might be higher than you think. In the U.S., about seventy percent of households own a pet. But the average spend per pet is still rising, partly because people are having fewer pets but lavishing more on each one. The 'single pet, high spend' model is replacing the 'multiple pets, low spend' model. Luna: That mirrors the 'one child, heavy investment' trend we've seen in parenting. The same psychology, just applied to animals. Lucas: Exactly. And it's not just about dogs and cats. In South Korea, there's been a boom in 'pet cafes' — not just cats, but sheep, raccoons, meerkats. It's a whole ecosystem of animal-based entertainment and companionship. Luna: That feels like a separate trend — more about experiential consumption. But it's still part of the same demographic story. Lucas: And speaking of demographics, let's talk about the aging population angle. Older people are also driving pet spending. Empty nesters and retirees increasingly adopt pets for companionship. And they tend to have higher disposable income and more time to spend on premium care. Luna: So falling birth rates create a dual effect: fewer children as potential pet owners, but more adults — both young childless professionals and older retirees — who are willing to spend heavily on pets. Lucas: Right. And the pet industry is responding with targeted products. For example, there's a growing market for senior pet food — formulas for dogs over seven years old — and for pet mobility aids like wheelchairs and ramps. That's a direct consequence of aging pet populations, which itself reflects the human demographic. Luna: You know, we talk about all these industries being reshaped by demographics, and it's easy to get lost in the numbers. But I think there's a deeper cultural shift here — the way we define family is changing. Lucas: That's a really important point. And it has real economic consequences. Governments in low-fertility countries are starting to pay attention. In Japan, they've introduced subsidies for pet ownership in some municipalities, partly to combat loneliness among the elderly. That's a policy shift you'd never have seen twenty years ago. Luna: Walk through the economy with us long enough and patterns like this start to pop out everywhere. That's part of why we keep doing this show — and why we deliberately don't run ads on it. If you find value in these connections, supporting the show at buy me a coffee dot com slash fexingo helps keep it ad-free and focused on the substance. Lucas: Yeah, listener support is what makes this possible. We don't have to chase advertisers or clickbait. So if the show's worth a few bucks to you, that's where you can find us. Luna: Alright, back to the pets. One angle I want to dig into: the pet tech boom. We mentioned GPS trackers, but what about the really high-tech stuff? Lucas: Oh, it's wild. There are now smart litter boxes that automatically scoop and track your cat's waste — detecting early signs of kidney disease or diabetes. There's a company called Litter-Robot that makes a three-hundred-dollar self-cleaning box. They're doing tens of millions in revenue. Luna: And then you have the pet wearables — Fitbits for dogs. The global pet wearable market is expected to grow from about two billion dollars in 2023 to over four billion by 2030. Lucas: That's a compound annual growth rate of about eleven percent. And the interesting thing is, much of that growth is in Asia. South Korea, in particular, has a very tech-savvy pet owner base. They're early adopters of things like pet drones — yes, drones that let you walk your dog remotely. Luna: I have to say, that crosses a line for me. But the market clearly disagrees. Lucas: Look, the core driver is the same: people are willing to spend significant money to improve the lives of their pets, because those pets are filling a role that would otherwise be occupied by children. And as long as birth rates stay low, that willingness will only increase. Luna: So what does this mean for investors? If you're looking at the pet industry as a demographic play, which sub-sectors look most promising? Lucas: I'd say pet insurance, premium pet food, and veterinary services are the most defensible. They have recurring revenue, high switching costs, and they benefit directly from the humanization trend. Pet tech is more volatile — it's prone to fads — but the long-term trend is upward. Luna: And which geographies? Obviously Japan and South Korea are mature pet markets, but where's the next wave? Lucas: China is the big one. Pet ownership in China has skyrocketed in the past decade. The Chinese pet market was worth about forty-five billion dollars in 2024, and it's growing at fifteen percent a year. And China's fertility rate is now below one-point-two — among the lowest in the world. That combination is explosive for pet spending. Luna: So the demographic tailwind is strong, and it's global. But are there any headwinds? Potential regulatory risks or shifts in consumer behavior that could slow this down? Lucas: One risk is economic downturn. If a recession hits, premium pet spending could take a hit — people might trade down from fresh-cooked food to kibble. But historically, pet spending has been surprisingly resilient. During the 2008 recession, pet spending in the U.S. barely dipped. Luna: Because pets are family. You cut your own expenses before you cut theirs. Lucas: Exactly. Another risk is regulatory. Some countries are considering tighter rules on pet food ingredients or advertising. But overall, the structural trend is powerful. The pet industry is one of the clearest beneficiaries of falling birth rates, and I don't see that changing anytime soon. Luna: Alright, so to sum up: fewer babies means more resources for Fido. The pet industry is growing, premiumizing, and globalizing — and it's a demographic story as much as a consumer one. Lucas: That's the angle. And it's a reminder that demographic shifts don't just shrink markets — they create new ones. The question is whether you're positioned to see those opportunities.