The pet economy

By Diane Brady and Christopher Palmeri

updated 7:57 a.m. ET July 30, 2007

If there's still any doubt whether the pampering of pets is getting out of hand, the debate should be settled once and for all by Neuticles, a patented testicular implant that sells for up to $919 a pair. The idea, says inventor Gregg A. Miller, is to "let people restore their pets to anatomical preciseness" after neutering, thereby allowing them to retain their natural look and self-esteem. "People thought I was crazy when I started 13 years ago," says the Oak Grove, Mo. entrepreneur. But he has since sold more than 240,000 pairs (a few of which went on prairie dogs, water buffalo, and monkeys). "Neutering is creepy. But with Neuticles, it's like nothing has changed." Nothing, except there's a fake body part where a real one used to be.

Americans now spend $41 billion a year on their pets — more than the gross domestic product of all but 64 countries in the world. That's double the amount shelled out on pets a decade ago, with annual spending expected to hit $52 billion in the next two years, according to Packaged Facts, a consumer research company based in Rockville, Md. That puts the yearly cost of buying, feeding, and caring for pets in excess of what Americans spend on the movies ($10.8 billion), playing video games ($11.6 billion), and listening to recorded music ($10.6 billion) combined. "People are no longer satisfied to reward their pet in pet terms," argues Bob Vetere, president of the American Pet Products Manufacturers Assn. (APPMA). "They want to reward their pet in human terms." That means hotels instead of kennels, braces to fix crooked teeth, and frilly canine ball gowns. Pet owners are becoming increasingly demanding consumers who won't put up with substandard products, unstimulating environments, or shoddy service for their animals. But the escalating volume and cost of services, especially in the realm of animal medicine, raises ethical issues about how far all this loving should go.

It wasn't so very long ago that the phrase "a dog's life" meant sleeping outside, enduring the elements, living with aches, and sitting by the dinner table, waiting for a few scraps to land on the floor. Today's dog has it much better. APPMA reports that 42% of dogs now sleep in the same bed as their owners, up from 34% in 1998. Their menu reflects every fad in human food—from locally sourced organic meat and vegan snacks to gourmet meals bolstered by, say, glucosamine to ward off stiff joints. Half of all dog owners say they consider their pet's comfort when buying a car, and almost a third buy gifts for their dogs' birthdays. Richard G. Wolford, chairman and CEO of Del Monte Foods Co. DLM, refuses even to use the word "owner." "Anyone who has a pet understands who owns whom," says Wolford, who is owned by two Jack Russell terriers. His company's pet business has gone from nothing to 40% of overall sales through acquisitions of brands such as Meow Mix and Milk-Bone in the past five years.

The rising status of pets has started an unprecedented wave of entrepreneurship in an industry once epitomized by felt mice and rubber balls. There are now $430 indoor potties, $30-an-ounce perfume, and $225 trench coats aimed solely at four-footed consumers and their wallet-toting companions. Even those who shun animal couture are increasingly willing to spend thousands on drugs for depression or anxiety in pets, as well as psychotherapy, high-tech cancer surgery, cosmetic procedures, and end-of-life care. About 77% of dogs and 52% of cats have been medicated in the past year, according to APPMA, an increase of about 20 percentage points from 1996. Some spending can be spurred by vets who find such services more lucrative than giving shots or ending a pet's life when it contracts a painful or terminal disease.

Gravy train
Once acquired as sidekicks for kids, animal companions are more popular now with empty-nesters, single professionals, and couples who delay having children. What unites these disparate demographic groups is a tendency to have time and resources to spare. With more people working from home or living away from their families, pets also play a bigger role in allaying the isolation of modern life. About 63% of U.S. households, or 71 million homes, now own at least one pet, up from 64 million just five years ago. And science is starting to validate all those warm feelings with research that documents the depth of the human-animal bond.

More from BusinessWeek.com Slide Show: Americans Love to Spoil Their Pets Slide Show: BusinessWeek’s Diane Brady on The Pet Economy Why We Spoil Spot So

It doesn't take a scientist to figure out that there's money to be made in this environment. Companies from Procter & Gamble and Nestlé to fashion brands including Polo Ralph Lauren and thousands of small entrepreneurs are sniffing around for new opportunities in the pet sector. After consumer electronics, pet care is the fastest-growing category in retail, expanding about 6% a year. More new pet products were launched in the first six months of last year than in all of 2005. And that doesn't account for the ways existing products are being recast to woo pet lovers. Del Monte has refocused staples to look more like human snacks—from Snausages breakfast treats shaped like bacon and eggs to Pup-Peroni rib snacks so appetizing that Wolford had to stop a TV anchor from popping one into his mouth on air. Even Meow Mix now comes in plastic cups rather than cans.

The typical target of such products is a pet lover like Graham Gemoets, a caterer in Houston, who showers luxuries on his beloved "chi weenie" (Chihuahua/dachshund mix), Bradford. "He's my best friend and my best-accessorized friend," says Gemoets, whose splurges for Bradford include a $1,200 Hermès collar and leash, as well as $500 Chanel pearls for parties. "I know it's crazy, but I've had him for five years, and if you priced it out per month, it's like a phone bill."

Thanks to passionate consumers like that, the quality gap between two-legged and four-legged mammals is rapidly disappearing in such industries as food, clothing, health care, and services. The race now is to provide animals with products and services more closely modeled after the ones sold to humans. Most of the pet business world's attention is directed at the country's 88 million cats and 75 million dogs. The reason is simple. As Philip L. Francis, CEO of PetSmart Inc., the world's largest pet specialty retailer, explains: "You can't train a fish or groom a snake."

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