The $400B Pet Care Opportunity

0:00This is Why We Like It, a quick dive into the industries capturing our attention in the lower middle market in the United States. We're asking the questions that unlock why and where we see value in the lower middle market. I'm Sam, and each episode I'll share why a sector stands out. We're going to bring in the voices who know it best, and we'll point to where we think the future's moving.

0:25Welcome to Why We Like It. I want to begin with the scale of the market we're talking about today, because I think it's consistently underestimated that people don't really know that global pet care is on track to approach$400 billion by the end of the decade. That is a massive number. And what's striking is that a market of that size still runs at the point of delivery generally through small and independent operators. They're the grooming salons, the boarding kennels, they're the daycare stations, there's training studios, they're the neighborhood vet practices. They're businesses that are built on local relationships and personal trust.

1:10Largely, they're operating like they always have. That tension is the subject of today's conversation. It's one I'm really excited about. Substantial amounts of money and sustained demand are moving into pet care. And while the businesses that actually deliver it remain local and personal, they are typically relatively resistant to standardization. And how those two forces reconcile or don't is one of the more consequential questions in the category. And I believe it gets a lot less attention than it probably deserves. So it's worth being clear about why this market matters. Pet care is often treated as discretionary.

1:56It's a softer category adjacent to the real economy. And today, I would argue the opposite. Who doesn't love animals? And if you're answering that, listening to this, it's time to drop off because we all love animals. Pets are a massive part of the economy, of society, and of the life we lead on this planet. And perhaps most importantly of all, it represents one of the most durable demands available. Households reduce spending almost everywhere else before they reduce spending on their pets because they love them. But a durable market does not make necessarily for an easy business. The owner of a single grooming salon or a two vet practice contends with all the usual stuff.

2:45rising costs, persistent labor shortage, clients devoted to their pets, but feel the price very acutely, all while lacking the operational infrastructure and scale that most other industries take as a given. So the question then is, what would it take to give these businesses access to the capabilities they never had without eroding what made them worth building? And the straightforward answer is consolidation. Acquire 100 of them, impose a single brand, standardize the operations, create that economies of scale. The more interesting proposition is to strengthen these businesses while allowing them to remain distinctly themselves for the local customer.

3:30And that's the model we're examining today. Hold that thought, Sam. As you know, many of our listeners out there will be either running businesses that could be acquired or looking to acquire high quality businesses. And the largest and fastest growth part of the investor market is the independent sponsor segment. Independent sponsors contributed towards 26 % of market deal volume last year, but the data on this exciting part of the market is light. That's why independent sponsor news, ISN, exists. ISN brings you the market news, data, research, events, and partnerships straight to your inbox.

4:04Subscribe for free at www.independentsponsor.news. So all of that being said, that brings me to my two guests. And I couldn't be joined by two better people to discuss the pet care industry than who we have today. And they see it from two very different vantage points. Jeff Halverson is a friend and chief executive of Wagway, an access holdings portfolio company. And he is exactly the kind of leader you'd want building this. Jeff spent his entire career in pet care, with leadership roles across companies including poor care, vetted pet health, destination pet. So he understands this industry from the inside out.

4:47He is also, by the account of the people that have worked for him, who I spoke to in my research for this podcast, a genuine servant leader, someone who believes a rising tide lifts all boats, and who invests in the people around him. exactly the kind of leader we think a business like this needs. And at Wagway, he's partnering with independent boarding, daycare, grooming, and training businesses, giving them a platform beneath them, the technology, marketing, and operational support, while he retains the local identity and relationships and trust that's required. His focus is the operator's world, the economics, the growth, and the specific levers that move a business of this kind forward.

5:29You're going to hear a lot more from Jeff today. Andrew Finlater was the chief veterinarian at RU and is now redefining that space as an entrepreneur in the vet industry. And he sees the other side of the examination room that Jeff sees. Andrew trained at UC Davis. He's worked in more than 80 practices from rural community medicine to emergency care to tertiary hospitals. and he's become one of the most thoughtful voices on what he calls the spectrum of care. That's the principle that good medicine meets the owners where they genuinely are. And that's not just physically, that's financially and personally and still finds a way to serve the animal in front of them.

6:12He thinks seriously about who's priced out of care and about the strain that's carried by the people who provide it. So one side of this conversation is the business of pet care and the other side is the practice of it. Jeff sees the platform, Andrew sees the patient. The most valuable ground, I think, probably lies where those two perspectives fail to align, where each can see something the other is inclined to overlook. And today, we're going to tuck into that. Jeff, Andrew, thank you so much for joining me. We ready to go? Absolutely. Looking forward to it. Thanks so much. Jeff, when we first met, you described this industry, pet care, as an industry that had huge room for development.

6:55So we're going to start there. I've been thinking the question since we first met. Where is the improvement most needed? And why has that progress been so difficult? It's not a new industry. It's not. And it's been primarily led, as you stated, by mom and pop operators that defined a niche in their community to serve the pets within that community. And then even with that consolidation that you spoke of earlier, to consolidate pets, the fear of each leader, the fear of each person that's watching the dogs is what's going to happen to the welfare and the wellness of my dog. So how are your standard operating procedures from a corporate entity going to negatively impact me?

7:35And there's a true fear there. One of the things that I love most about how we're doing it at Wagway and how access is ensuring that we are consistent on that is founder-led. So when I think to other industries to take a marker. And I think going to think of Patagonia or Eddie Bauer back in the day, you'd find rock climbers and you'd talk with them about how they use their materials and how they use the products that they are going to go leverage and they go build that for everybody else. Same thing with racing. Any other industry has this apex person that you're building a product around, golf, et cetera.

8:13Our apex people here are those founders and no one has grabbed them, put them in a room and explored how we need to build these centers for the future and allow them the same access that, you know, Apple has or Sephora or Ulta or Target to build out these centers. And that's where I think the next stage is going to be is activating the potential that everyone has latently sitting at those mom and pops to then push that across the entire landscape of the industry. I love the apex analogy. So what separates a strong local pet care business from one that can scale successfully with additional support?

8:58How do you go from being small to being large in this space? It's tough because you have an owner that's been there 40, 50 hours a week, and they're filling the gaps for the rest of their team, and they know that community. And if you go even from Greenville, South Carolina to Charlotte, well, now you're going to miss all of that time with that team and with that local community. So your solves have to be how do you feel local for each one of the consumers? How do you ensure that the leadership at the next center is going to be driving that piece? And then how are you following up on a marketing level, on a customer level when they leave?

9:37How are you sourcing your retail? All of these things were held by one person. And you can't scale that as a mom and pop. And you can't do it as an organization at the consolidated level without personnel and payroll. So you look at these two operating models and they can't exist in the same space. in the same conversation financially. Let's talk about that founder. So many, many of these owners are built highly personal, they're community-oriented businesses. When you go and sit down with an entrepreneur, what concerns they typically have about bringing on a partner and how do you, as Jeff and Wagway, earn their trust to embark on that next stage with them?

10:19Coming back to welfare. So they want to have decision authority over the safety, security of their pets. And then the next question they're going to have is how are you going to increase the benefits that they usually aren't paying for their teams? How are you going to help in the 401ks? How are you going to help with support for education and development of my team? So those are the two things that they anchor on. And then their scare and their fear is how are you going to control my business without me? because I'm the one that's been that love, that voice within this to make sure the tone is set.

10:55And for me, for almost everyone at Wagway, it's your voice is the most important thing. We're trying to take the DNA that you created in the center and distill it into a couple of key driving entities or forces that we then amplify. So we're not trying to dilute anything you did to make it scalable. We're trying to maximize your thinking and push it into the future. And that usually helps them understand how much they can trust us and where. And if they're not aligned, we're not a good match for them to grow with. And there are many founders that we can't grow with. And that's okay. They have a place in the business and we love them.

11:37And we want them to stay successful because we care about the welfare of all the pets. But the ones that really want to magnify and grow, we can help them. And those ideas I know as a pet owner that needs boarding, daycare, I want that access for boarding, daycare, and grooming in any community that I live. And so that's where we're trying to focus it in on. And many of those founders are still with us today across our company, thinking, pushing us forward on the future no differently than that Patagonia example. They're there in there, not rock climbing. I mean, they might on the side. They certainly have the time now.

12:16but they are help pushing us on our thinking about the pet at the center of everything we do. When you think about the capabilities or the tasks that an owner would typically have to do as an independent business, when we bring them into the Wagway family, how do you think about what capabilities should be centralized and then what decisions and capabilities should remain with the local operator? I think every person going to a Barclay event is looking for this home run. How do I set up my PIMS or my POS system? What do I have available to me? Most of them are antiquated because no one's pushed them to develop something for the needs of those that they support.

13:00The next thing is how do I get a CRM system so that I can talk about reengagement of my customers? And then how do I get my website set up? how do I get my Facebook page, my Instagram page, and then who manages those? A lot of the times it's that owner. They're spending an inordinate amount of time in admin stuff that doesn't translate to being there at the moment the dog walks in throughout their journey, ensuring the pet parent is tied to that journey, and then the safety of that dog when they go back home. And telling the story of like, your dog was doing well, your dog did great, but there were some stressors that happen and we suggest that you have training or more daycare because your dog didn't know how to be a dog.

13:41It just forgot. And we can help you with that so they don't have the stress when you drop them off. They're spending time in admin and we can consolidate almost all of those admin tasks, CRM, SEO search, PIM system, data awareness for analytics saying, we think that these three things are the opportunity you have within your business because on the back end, we think that, you know, your phone answering, et cetera, hasn't been there. And you can get extra throughput by delivering on that. And it pushes them the founder's time or the team's time almost exclusively into care for the animal, which is exactly where everybody needs to be.

14:19No differently than the vet industry. No one wants their vet spending 30 % of their time writing down notes. They want that extra 30 % with the animals. So we get to allow the time back for the care of animals by consolidating those functions. And then the other thing they're not talking about is how are you getting more customers in for top of funnel? Because all of those tools that you just talked to about, they're literally for once you have a customer to keep them, they're not helping them for Google targeted search ads. They're not helping them for meta. They're not helping them for any of those other things that a main player will be leveraging.

14:56And Jeff, you found a pork hair, the technology layer to support a lot of the activities that you supported booking, the CRM capacity, marketing. How important is technology to the model relative to consistent day to day execution? Because bricks and mortar, a lot of the time we don't see enough technology creating efficiencies, especially in the independent stores. I think the most important thing about Pawcare was empowering the centers, the center owners and the teams to be able to spend more time with their animals without having to manage that admin that we were just talking about earlier.

15:35We didn't do it to the best of our abilities, but there are so many other companies that I think could. because right now most of our processes tie down to paper. You go into a kennel or suite and you have a paper printout of everything about the dog, when it ate, what its name is, some kind of coding if it can be fed with other animals or if it has medication and then there are logs. And everything is tied to paper. So that's kind of the problem statement of technology is how do you automate all of that? Well, then do I need iPads? Do I need Wi-Fi signals? And so we're sitting in this place where the future is going to be dramatically different and it's going to be potentially slower to roll.

16:17But once those people adopt technology in place of that old architecture and infrastructure, it's going to outpace them. And then the CapEx and the change management costs potentially will put them at risk in the next couple of years because the future of pet care is going to be automated, both in booking, both in how I interact with my dog through my phone while they're in your center. Can I feed my dog while they're in the center with a robot? Like there are going to be dramatically different shifts in that with technology that we haven't even thought of. But if they're still on the paper method, the change management they're going to have is going to be too much for them to scale.

16:56And so they'll either get out, sell or have to quickly change. I'll just throw in my two cents on that, too. The automation side is so exciting on both the veterinary and pet care side. So many founders that I work with worry that automation will lessen or dilute out their experience because it's that whole high emotion, high touch, high relationship industry. But what I tell people is automation's your saver because it gives you that cohesive experience once you've left the room, once the client's left the door. That automated experience just elevates the whole interaction for weeks, months. As much as you build automation, the more you can make a cohesive experience.

17:33And maybe, Jeff, if you summarize, what do you think the most important value creation lever is across WAGway? Is it the tech, the marketing? Is it the talent? Is it pricing models and go-to-market? Is it operational support? How do you think about the big levers that hit the bottom line best? It's the empowerment of the entire center. And I don't know how else to put that, Sam. What we're building in our next two builds in South Carolina and in the villages, Florida, came from listening to thousands and thousands of different people from this industry and others to create a box that is built around the needs of the team, the dogs.

18:17It's set up on a labor standard level so that every action we do is curated for the team members that do those actions, curated for the safety and the security of the dog, built so that there's low stimulation for the dogs. There's no kennel fighting through windows that all the kennels are turned the other way. Our walkways are behind those dogs. So we're not even upsetting the dogs as we walk around it. So I think that's the biggest piece is we took all of those things together that you just talked about with a bunch of industry and non-industry experts, and we built what we thought the future would be knowing what we know today and knowing what we can and pull from other industries.

18:59And if you look at kind of the screenshots of what we have and the CAD drawings or what we have in the layouts, it invites people into centers. It invites the dogs in and it creates a very safe, fun place at a very low cost compared to the market. And then on the tech side, we're right there. We're not there yet, but I think that we've automated what we can to allow the pet parents into the experience that's differentiated because I think the number one risk in the industry is what happens after you leave the lobby. Does the lobby have the same feel after? Our centers are glass and you can see into every single aspect and see every single dog.

19:40And then when you leave the lobby, you can still see them on your phone. Yeah, that's really putting the customer first, not just the pet parent, but the dog. Dog is the customer. Exactly. But they don't tell you the difference. You just know if they want to go in the door when you walk them by your center or not. And that's the only way you know how at home they feel. And that's kind of our message is, you know, we're just welcoming them back home because we should take better care of your dog when you're with us than they get in their home. and we're the authority experts to help them understand the training, the care, et cetera, tied to your vet for then the other aspects that they need as well.

20:20It's no different to a human going to a hotel. It's a better experience than my home. Same thing. Hospitality is where it wins. And when you're away, your dog should have fun. Your cat should have just as much fun. And they should have those experiences that are foundational core memories for them, just as much as we do. not sit in a kennel or a crate waiting for you to come home. We're not on pause with your dog. We're trying to stimulate that same experience that you're going to have when you need to board your dog so that you're both enjoying your life at the same level versus your dog saying, oh, thank God you're home.

20:56The dog's then kind of in their way saying, hey, let me tell you about what happened to me at this center while you were out because I had fun versus I missed you so much. I think it's just a different story, even though it's probably not really happening. Andrew, let's come to you. You've worked across more than 80 practices, ranging from the rural community medicine to the emergency and tertiary care side. Tell us a little bit about what that breadth has allowed you to see that maybe someone working in a single practice might not see. Absolutely. I can say I've had some great times and I've had some adventures for sure.

21:38My biggest takeaways were even the biggest, boldest, most intensive practice, I'm talking all the way up to like academic and universities, has something they struggle with that you can kind of look at them and be like, oh, I would have thought you had that figured out. and on the flip side even the smallest most humble practice i once worked in a practice that was just a room that was it just a singular room that's the lobby treatment or everything else even the smallest practice had something they did uniquely well that no one else had figured out this new level of customer care another factor is medicine is always pushing towards perfection we'll say again medicine we want to get things right the first time always the best of the best of the best.

22:18But all my adventures, I reconciled and realized that there's a tension that there is no one size fits all to medicine, just like there's no one size fits all for dogs. So being able to see that there's many different ways to drive positive outcomes, not only from medical aspect, but from a customer experience aspect, it was pretty eye opening. And then last is just, man, everyone in this profession loves dogs. I like to say that veterinary medicine is a menagerie of all different types of personalities, people, dogs, hair colors across the board. But regardless of where people come from, they're all in it.

22:51It's not a glamorous feel, but they're all in it because they really love pets. So those are some of my exciting takeaways, we'll say. I mentioned earlier the spectrum of care. This is such a fascinating topic. And not only did you coin the topic, but you're the master of it. And in some of your writing, you talk about that spectrum beginning with the ideal clinical recommendation, but not ending when the owner can't afford it. And that's a dichotomy we see and hear about a lot, both in human medicine and veterinarian medicine. So where does the profession still struggle to put that principle into practice?

23:29Excellent question. I'm so glad you asked it. You can tell I have to lean forward in my chair here because now you're talking about what's front of mind for me at all time. So again, as a veterinary profession or as just a health care professional, no different than MDs, we always want to practice a very high standard of medicine and care. starting in we'll say early 2000s or 90s passionate people started to advocate more and more for dogs and say hey you know we don't have to kind of act on autopilot we should be doing the best possible we should be pushing ultimately towards this thing that we coined the gold standard which is saying your dog has a back injury the old answer is just say hey here's some pain meds gold standard says well you know we should do a ct and an mri on your dog we should do everything humanly possible and that had great intentions and really expanded everything we could do in modern veterinary medicine.

24:19It pushed us to invent new treatments. But then over time, we almost created this psychological peer pressure with no one actually doing it, where it's like, well, if I'm not doing gold standard, am I really being a good doctor? Am I really doing the best by my patients? Which kind of led to this snowball effect of doctors only recommending the most expensive treatments, the most thorough diagnostics, not from a monetary perspective, not trying to drive revenue through the business, but trying to offer the best and brightest, which ultimately ended up in pushing a lot of clients to be like, wow, it's prohibitively expensive to go to the veterinarian.

24:54My dog's got to hurt back. They told me I need$9 ,000. I can't afford that. So we need to kind of scale that back so much. So the American Association of veterinary medical colleges, the AAVMC who decides the curriculum, put out this, dare I say, scathing review last year. They, and to quote them, said the use of the term gold standard is damaging to the veterinary client-patient relationships, patient-client experiences, and patient outcomes because we've essentially raised the bar and then left no other option. So spectrum of care, access to care, all of that is taking it back to the drawing board and saying, well, we can still offer the best, but that's not the only thing we're going to offer.

25:32We need to get back to offering a full spectrum of everything in between so that clients can always walk away with a solution, regardless of what their capital allocation is. And let's for a moment, just going to direct some of that brainpower to the human, the vet professional, because there is like in human healthcare, a huge pressure on workforce, on hours and burnout. And I think where the subject is your dog or your pet, often we forget about the person administering it. And, you know, I say that from a place of huge empathy because my wife is a doctor and I see it firsthand in our home. So from your perspective, what are the primary causes there and what are the solutions you think can make the greatest difference both to the vet, but also to how that service is delivered?

26:21Absolutely. Again, another critical question that I'm so happy to talk about. If I could distill it down to one word, it's just complexity. In 2026, everything is more complex. The medicine is, the treatments are, the diagnostics are, but the real kicker, the real thing that adds to it is the increasing complexity of owner interactions and owner communications. I'm expected not only as a veterinarian to go from being very solemn and helping a owner make a very hard decision to say goodbye and not five minutes later have a new puppy exam, have to be bright and go through all those, but I also need to understand the complexity of how this owner values their pet.