Kansas City Won the Super Bowl, but Pets Stole the Show (Here’s How to Invest)

With a cost of $7 million per 30-second spot, the emotional rollercoaster from The Farmer’s Dog ad that aired during the Super Bowl was a high-stakes gamble for what was — at the time — a relatively obscure pet food maker.

The commercial centered around a little girl named Ava and her chocolate Labrador “Bear” sharing life experiences until Ava is seen much later with a family of her own and the ever-faithful Bear still by her side.

(If you’re ready to get teary-eyed, you can catch the full, uncut commercial on YouTube here.)

It was a gamble to run the commercial. But so far, it seems to be paying off.

Our friends at LikeFolio reported that the volume of social media “mentions,” or folks talking about The Farmer’s Dog online, spiked 27,666% on Super Sunday compared to the 2023 average.

USA Today even awarded The Farmer’s Dog the top spot in its 35th USA “Ad Meter” competition.

But don’t call your broker just yet looking for a ticker symbol for The Farmer’s Dog…

It’s a privately held company, so you can’t buy shares. However, its recent success in increased brand awareness highlights other potential opportunities within a vast industry serving devoted pet parents.

Today, let’s take a closer look at the overall pet food market, size, scope, and where it’s likely headed — plus, how you might take advantage of this multi-billion-dollar opportunity…

Dog and Chat Chow = Big Dollars

If it feels like everyone you know has a cat, dog, or some sort of other animal living with them, you aren’t far off: 70% of American households own a pet, according to the 2021-2022 APPA National Pet Ownership Survey.

Globally, the market encompassing pet food and treats is a growing industry generating $123.6 billion in 2021 and is projected to reach $275 billion in total sales revenue by 2030.

In the United States alone, pet food and treat sales totaled an estimated $45.4 billion for 2022.

Growth on that scale amounts to increased demand for the pet food and treat market and means that larger companies will start snapping up smaller ones to increase market share, gain new resources, or increase efficiency and capacity.

In the pet food market, there are currently four big players with a lot of cash to deploy:

🐾 Mars Inc. — The same folks that produce the Mars chocolate bar and M&Ms also have a Petcare division with over 50 brands, including popular names like Pedigree, Whiskas, and Royal Canin.

🐾 J.M. Smucker Co. (SJM) — Famous for packaging jams, jellies, and peanut butter, SJM jumped squarely into the pet division with its $5.8 billion acquisition of Big Heart Pet Brands in 2015.

🐾 Colgate-Palmolive Co. (CL) — Famous for its toothpaste and hygiene products, Colgate-Palmolive is also in the pet game with its Hill’s Pet Nutrition division.

🐾 Nestle SA — The juggernaut food and beverage conglomerate behind Nesquik and Cheerios also produces well-known pet brands like Alpo, Beneful, and Purina.

A company like The Farmer’s Dog, with its newfound notoriety, might make a good target for one of these conglomerates to add to their stable. But again, being a privately held company, that doesn’t help you.

What can help you is having an investable company on your radar that could be described as the “Amazon of the pet food industry.”

It’s been called a one-stop online shop for all things related to your pet, much like Amazon.com Inc. (AMZN) is pretty much a one-stop shop for anything you need or use in your daily life. Its offerings range from pet food, treats, toys, litter, aquariums, supplements, subscriptions, and almost anything else you can think of.

The company has partnered with over 3,000 brands, including Hill’s, Blue Buffalo, and Purina.

And best of all, you can have everything delivered right to your doorstep — no more lugging around a 35-pound bag of food from a store to your car to inside your house.

We’re talking about Chewy Inc. (CHWY).

The Company That Makes Dog’s Tails Wag

Selling pet food isn’t a novel concept but making it easier to buy through technology (much like Amazon did with books) has helped earn Chewy adoring two-legged and four-legged friends alike.

The company boasts 20.5 million active customers, in part thanks to benefits like its “Autoship” program…

Which allows you to automatically schedule deliveries for things that a pet parent may need consistently, such as prescriptions, food, and add-ons like treats and toys.

That way, you never have to worry about running out of food or having to fight traffic to pick something up.

It’s delivered straight to your doorstep.

On the schedule you want.

Automatically.

In the third quarter of 2022, Chewy not only increased net sales by 14.5% year-over-year (YoY) but it also sequentially increased sales by 12.8% from the second quarter of 2022.

YoY increases are a standard benchmark, but it’s particularly worth noting when a company can make even more money than it did in the previous quarter of the same year.

Of course, the stock market is a forward-looking animal, and there’s a lot to like about Chewy with its innovative plans.

Chewy teamed up with an insurance company to provide insurance and wellness plans for pets, with a nationwide launch set for this spring.

The pet insurance industry is expected to climb from a projected value of $6.05 billion in 2018 to $11.25 billion by 2026.

Chewy is also launching a sponsored ad feature on its website, which allows current products from select vendors to be advertised. There aren’t details on how much money this could generate, but it’s something launching in 2023 that should add even more to Chewy’s bottom line.

On top of all that, it also launched its first private brand called Vibeful, which is a line of supplements that includes multivitamins and hip and joint products.

Again: Anyone can sell pet products.

But putting this all together — from toys to insurance — and making it easy to buy really makes Chewy a standout technology platform… One that could boost other larger pet companies’ market share and potentially increase efficiency, thanks to how Chewy has set up its online ordering experience.

With everything Chewy offers, it could make for an attractive takeover target for a bigger player.

CHWY is considered a sky-high risk investment, according to our Volatility Quotient (VQ). But it’s also considered a “buy,” being in our Green Zone.

Until next time,
Team TradeSmith