The pet fish industry is currently navigating troubled waters. PetSmart (NASDAQ:PETM) executives noted in their third quarter earnings call on Nov. 22 that the entire aquatics category is "challenged." As a result, company executives are focused on serving existing customers since there aren't any new ones entering the market.
Indeed, the pet fish industry has been stagnant since Disney (NYSE:DIS) Pixar's 2003 animated film Finding Nemo sparked new interest among families to buy their own personal Nemos. In the aftermath of the film, families went out and purchased 185 million freshwater fish, according to the American Pet Products Association (APPA).
Since then, however, the pet fish industry has been unable to maintain that momentum. In 2007, there were only 142 million freshwater fish sales, per the APPA. During the same year, Wal-Mart (NYSE:WMT) announced that it would stop selling live pet fish at many of its stores and would decrease floorspace for all of its aquatics products. The reason given at the time was "lowered customer demand." Most recently, ownership of freshwater fish has remained steady at 145 million, says the APPA.
Pet stores and retailers have less incentive to push fish sales compared to other animals. This is because the real money maker for these companies lies with pet food. Some $21.26 billion is projected to be spent on pet food in 2013, nearly half of the total $55.53 billion that pet parents plan to spend on their pets, reports the APPA. Even PetSmart's earnings are dependent on consumables. Some 54.5% of the $1.7 billion PetSmart generated in revenue during the quarter came from pet food sales.
Meanwhile, Spectrum Brands (NYSE:SBH), which sells fish food under the Tetra, Marineland, Perfecto, Jungle, and Instant Ocean brands, reported in its third quarter earnings call on Nov. 21 that its pet category delivered a net sales record of $25.9 million, driven largely by "continued growth in North American aquatics." Of course, Spectrum's strong revenue is largely because the company basically holds a monopoly on fish food sales through its various sub-brands.
Even the hungriest fish is likely to annually consume only one or two cartons of fish food that cost an average $7.99. By comparison, rabbits can consume a similarly priced bag of pellets each week. So it makes sense that retailers would focus their shelf space and sales staff on the more profitable animals.
Bubbling back up?
Now, there are some signs that the pet fish industry is about to experience another upswing.
For one, ownership appears to have bottomed out in 2006 at 139 million freshwater fish and now remains relatively consistent, per the APPA. Simply put, it's not dramatically declining year after year. Plus, one of the most popular preschool TV series right now is Nick Jr.'s Bubble Guppies, which likely will encourage children to want their own "Little Fish" characters.
Lastly, PetSmart is embarking on a new partnership that executives hope will reignite the pet fish market. In spring 2014, PetSmart is introducing an exclusive collection with National Geographic that includes branded habitats, accessories, and food. However, it remains to be seen if PetSmart and National Geographic plan on introducing fish castles based on National Geographic's popular Doomsday Preppers series.
Fool contributor Larissa Faw has no position in any stocks mentioned. The Motley Fool recommends PetSmart and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.