Rising prices and reduced affordability are leading to declining pet ownership, taking a bite out of industry valuations and potentially signaling a coming wave of consolidation, according to equity analysts.
The share of US households with a pet has declined in the past two years by about 2.6%, and dog adoptions have fallen, according to Bank of America research. The cost of veterinary care has also risen, adding to pet owners' concerns.
"It's clear that people still love their pets, but the cost associated with owning a pet is increasingly shaping household budgeting decisions, and we see that really clearly in our data," Taylor Bowley, the Bank of America Institute economist who wrote the research note, said in an interview with. "Ownership every day is getting more expensive."
Shares of Chewy (CHWY) and Trupanion (TRUP) are both down about 50% in the past year, and Bark (BARK) is off by 43%. PetMed Express (PETS) is down 41%, Freshpet (FRPT) has lost 22%, and Petco Health and Wellness (WOOF) has dropped 7.8%.
Decreased valuations will likely make pet companies, which have recently become e-commerce companies as more consumers buy food and supplies for their furry friends online, attractive targets for companies seeking acquisitions in the segment.
Bank of America equity analyst Michael McGovern said that while it's hard to predict M&A activity, the share price drop across the pet sector within the e-commerce industry is notable.
"These are some of the most attractive valuations that we've seen across recent - call it 10 years - for the e-commerce sector specifically," he said in an interview.
Recent M&A activity in the pet sector includes two deals by Chewy in the animal health area - an April offer to acquire Modern Animal to expand its veterinary care services and a deal from October 2025 for SmartPak Equine, which is an online seller of horse supplies and supplements. In February, Elanco bought AHV International BV for $380 million to expand its business in the Netherlands.
Freshpet is a long-term acquisition candidate, Oppenheimer analyst Rupesh Parikh said in a March report. The maker of refrigerated cat and dog food didn't respond immediately to an email seeking comment.
Pet food manufacturers and retailers have shown a growing interest in the fresh pet food category. Freshpet's leading product portfolio and position in the fresh segment are making it an attractive target, and the stock has "downside support" precisely because of its takeout potential, Parikh said.
M&A in the pet segment, as with most other sectors, comes with certain risks for not just industry players but also consumers. That can be seen in consolidation in the veterinary services industry, Bank of America said. About 25% to 30% of US veterinary practices, which represent roughly three-fourths of all specialty clinics, are now owned by large corporations or private equity firms. That's drawn the attention of some members of Congress.
"Such consolidation can erode competition, elevate prices, and weaken service quality, ultimately reducing consumer choice," BofA economist Bowley said in the note.
Still, not everybody is convinced that the pet sector is seeing any sort of downturn.
Jeff Simmons, the chief executive at Elanco Animal Health (ELAN), said the company has researched pet health spending that shows no decline.
"The resiliency and the willingness to spend on pet health, maybe not toys or premium dog food, but on pet health, is actually the same or increasing during these economic times," Simmons said in an interview with.
Only 5.2% of pet owners in a TD Cowen survey conducted in May said they plan to spend less on pets, pet products, or veterinary services in the next six months, down from 5.4% in January. More than half - 55% -- said they expect spending to be unchanged, and 40% will spend more.
Shares of Elanco doubled last year and are up 9% year to date as of June 26.
"We're seeing a durability at a time of a consumer pullback on a lot of stuff," Simmons said. "We're not seeing it in our industry, and I will tell you, we're not seeing it in our results."
Morgan Stanley analysts said in a recent note that the pet industry will remain in neutral amid inflation that drives ownership costs higher.
"The pet industry is entering a more mature growth phase after COVID-related outperformance and a subsequent inflationary period, which has continued to date," the analysts said in a May 29 note to investors.
The Bank of America note showed that spending on pets dropped the most among lower-income households and younger pet owners. If prices continue to rise, veterinarians will likely have to rely on repeat visitors to offset economic trends.
"If current macro headwinds persist, veterinary pricing will become increasingly harder for everyday pet owners to absorb, accelerating pressure on visit volumes through deferred care," the bank said.
Matthew Leising
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