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Why The Pet Industry Is Recession-Proof

By Jeremy Bowman and Parkev Tatevosian, CFA – Nov 2, 2021 at 4:21PM

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Pet sales grew even during the financial crisis. That's a great reason to invest in the industry.

It's rare to find a sector that offers both growth and defensiveness in recessions. But that's exactly what pet stocks offer as people need to feed their pets no matter what the economy looks like.

In this episode of Upgrade or Topgrade, Fool.com contributors Jeremy Bowman and Parkev Tatevosian join Millionacres editor Deidre Woollard to discuss the special nature of the pet industry and why it's attractive right now.

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Deidre Woollard: Absolutely. I want to go ahead and launch the poll to give people a chance to weigh in on which of these companies they like most. I think there's so much to talk about here in terms of how we think about the future of pet care. First question. Do we think that the pet boom is going to shift in any way? Is Generation Z going to hate pets? I don't think so. I feel like the overall addressable market in terms of people having pets is solid. I think what may be interesting and the thing that I worry about as a potential headwind is short-term supply and logistics. I think that affects every business. I'm not so worried about that. Long term, is there going to be an inflation problem? Is that going to reduce pets spending? Spending on your pet is mandatory. How much you spend is up to you, and I think that may shift. All of these companies have talked about having to raise their prices a little bit because of some of the pressures they are experiencing. Short-term, I don't think that's a huge problem. Long-term, maybe, depending on how the next year goes. What are you thinking?

Parkev Tatevosian: You want to go first, Jeremy? I'll follow.

Jeremy Bowman: Well, sure, yeah. I mean, I think something interesting about the pet industry, I think it was Freshpet (FRPT -1.28%) or one of those companies said this, but it was one of the few industries that during the financial crisis, spending actually continued to increase which I think is a bit surprising. You might think during an economic crisis, people would pull back on spending on their pets, but that actually didn't happen. It shows it's a recession-proof industry. I think it goes to that humanization of pets trend. People are going to spend on them even if maybe, they're pinching dollars elsewhere. I think that's certainly a good long-term growth sign.

Tatevosian: Yeah, I agree with you, Jeremy, that spending on pets is not really discretionary. You need to buy them food, you need to buy them medicine. Then maybe on the outskirts of the spending, like on toys or maybe getting replacing their bed as often as you would, it starts to raise in prices. The core of the spending I don't think is going to decrease all that much, but maybe on the outskirts of it, those splurging items that you mentioned earlier, maybe those decrease a little bit.

Woollard: Maybe a little bit fewer dog costumes? [laughs]

Tatevosian: Yeah. Maybe your dog goes as Spider Man for two years in a row, [laughs] more often than not.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Freshpet. The Motley Fool has a disclosure policy.

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