The New York Times November 16, 2005 WHEN A BONE IS NOT ENOUGH By Jonathan D. Glater How hot is the pet market these days? Think dog purses, cat strollers, "Cab-bone-net" wine-flavored dog treats and sitters hired to watch television with Fido, and some sense of the lunatic growth becomes clear. So far, the boom has created lucrative opportunities for small- business owners, but as more big companies take note, the market could become more difficult for the niche firms that are now flourishing. Large companies that dominate other sectors of the consumer economy -- like Wal-Mart and Target -- are adding more pet products to their shelves, and the two big players already in pet supplies, Petco and Petsmart, are expanding at a breakneck pace. "We're concerned," said Tom Measday, a co-founder of NJ Pets, which has three stores in New Jersey. He said he expected Petsmart to open a retail operation in East Hanover, N.J., near one of his stores. "What we've seen from the big companies, let's say Petco and Petsmart, is they tend to look for the most successful store and that's where they put their store." Mr. Measday had to contend with one of the two big pet-supply retailers once before, he said, but it closed. This time, he thinks that a new competitor will put up more of a fight. With about 75 employees, Mr. Measday has a solid midsize business. But for much smaller companies, the pet boom presents more opportunity than threat. Pet Dreams, a small Manhattan company selling "cratewear" -- accessories for dog training crates -- was founded by Annette A. Grignard, one of many entrepreneurs who are making a living selling solutions to a problem that customers did not know existed. The kits she sells include a mattress for the animal to sleep on, bumpers to protect the animal from injury against the crate's metal bars and a cover to make the crate more attractive. The first such kit "was just for my personal use," said Ms. Grignard, who used to work for a pharmaceutical company in Manhattan. "People were coming over to my apartment and saying, 'Omigod." " She started her business in 1999 and later received a loan from the Small Business Administration for $250,000. Today she has manufacturers in China and uses a warehouse in New Jersey to distribute the kits, which cost $30 to $70. Business has grown rapidly, and she is shipping thousands of kits every month to a range of retailers -- including big stores like Petsmart. Pet supplies now fuel a $37 billion industry. Retail sales of pet supplies, not including food and services, amounted to $8.5 billion in the United States in 2004, more than the $6.2 billion spent on baby- care supplies, according to Packaged Facts, a division of MarketResearch.com. And pet supply sales are growing at 7 percent annually, as sales of baby supplies are decreasing. Many of the companies in the business are small, said Bob Vetere, chief operating officer of the American Pet Products Manufacturers Association, a trade group in Greenwich, Conn. Over the last three years the number of members in his organization has jumped to nearly 900 from just over 500. "Maybe 60 to 70 percent of them are new or start-up companies," Mr. Vetere added. "These numbers continue to grow." Everyone has a theory about why so many people are spending more and more money on their pets -- primarily cats and dogs, by the way; Mr. Vetere said that in the 69 million households with a pet, there are 90 million cats and 77 million dogs. All the theories are difficult to prove. People who are single or whose children have moved away may become more attached to their pets, treating them as members of the family rather than as, well, pets. In a world that feels more uncertain, the benefit of coming home to an enthusiastic welcome every day may be deserving of a bigger reward. "As a human, to just buy him a dirty old tennis ball is just not enough, even though he doesn't care," Mr. Vetere said, referring to his dog, Dakota. "I feel better because I've given him something more than just a tennis ball." He added: "Does it absolutely make sense? No." But the feeling is clear. Many people refused to leave New Orleans without their pets during Hurricane Katrina, and in light of that devotion, several members of Congress have proposed legislation requiring consideration of pets in future evacuation plans. One sign of stronger human-animal attachments may be the increase in the number of social activities that people engage in with their pets, like dog runs where animals can run freely as their owners mingle. That is new, Mr. Measday said. When he grew up, most people didn't even walk their dogs, said Mr. Measday, who is 59. Instead, he said, they let pets out of the house and trusted that the animals would find their way home. Now, he said, "Dogs and cats really are an integral part of the family." But the main force pushing people to spend more on their pets may be mundane: marketing. Several business owners cited Paris Hilton and her famous Chihuahua as making the world safe for tiny dogs, clad in fashionable sweater sets, carried in matching purses. "Three years ago, we didn't sell the purses," Mr. Measday said. Now his stores sell, besides purses, strollers for very small pets. Businesses have tapped into a potent marketing tool by inciting a pet owner's sense of loyalty, said David Lummis, a pet market analyst for Packaged Facts. "This human-animal bond is just being fully exploited by marketers," said Mr. Lummis, who owns two dogs and four cats, all of which he took safely from his home in New Orleans. There is excess in the pet market, though, Mr. Lummis said. "A lot of it is trading people up to more expensive products, basically, and making people feel like, 'Hey, it's O.K. for me to spend $20 on a bag of dog treats instead of $2.99," " he said. "These dog treats are going to be really good for my dog, and he's going to love them." But describing some of the pet snacks and services available does not begin to capture the range of goodies that are out there. At Fideaux, a pet supply boutique in Healdsburg, Calif., just a few of the offerings include leather collars imported from Switzerland for $60 to $100 each; "Cab-bone-net" and "Char-dog-nay" wine-flavored treats for $9.95 a bag; and brightly striped beds for summertime, and red and green beds for the holidays that cost $60 to $150. "It's done very seasonally," said Erin E. Morris, a co-owner of Fideaux. Business at the store's two locations is booming, she said, mostly because tourists visiting the wine country nearby miss their pets and buy things to take back to them. One of Fideaux's suppliers is Up Country Inc., a Rumford, R.I., company that makes collars, toys, beds and other products. Alice M. Nichols started the business in 1984 to have more flexible hours and to be able to spend more time with her children. She had been a schoolteacher. "When I researched different industries, the pet industry was the most interesting, because it was growing very fast" and was considered recession-proof, Ms. Nichols said. "It wasn't that I really had an idea about the dog collars," she added, but she quickly focused on collars as a product with great demand, because every dog needs one. She started by designing the collars and then delivering raw materials and the designs to a belt maker in Marblehead, Mass., not too far from her home. Now she has 22 "stitchers" who make collars. Last year the company sold more than 500,000 collars and leashes through retailers nationwide. But the market may be growing most quickly in services. Reba Jackson of Austin, Tex., a part-time entrepreneur and an independent contractor to cellular telephone companies, opened up a business with her husband, Nelson, last year, offering to pet-sit while owners are on vacation. "Business picked up pretty quickly right after we opened," Ms. Jackson said. Now their two-person company, Ruff Around the Edges, has contracts with several apartment buildings, so that if tenants need pet care, the building managers call her. "We check their food and water, but basically it's just some playtime with them," Ms. Jackson said. "We're the most reasonable in the area and we charge $15 a visit." Pet-sitting costs more, about $35 a night. Over all, in a slow month, Ms. Jackson said, she and her husband take in about $3,000, and during the holidays she thinks that amount will double as more people go away. Her husband quit his job as an insurance claims adjuster to cater to pet clients full time. Then there are the special services, like watching television with a client's dog. Usually, Ms. Jackson said, it's a dog-friendly movie like "All Dogs Go to Heaven." Asked whether she had expected such demand for pet services, Ms. Jackson paused, then said, "It is crazy." She researched the business carefully beforehand, spending almost a year reading about dog massages and other services and the people who pay for them. "People will do crazy things for their pets," she said. "We do, my husband and I, so why not think that there are lots of other people like us?" The number of pet owners with similar attitudes, along with the near-100 percent markups on many types of pet supplies other than food, have led to steadily increasing sales at the industry's two giants, Petco and Petsmart. Both chains are opening stores around the country at a rapid pace and are expanding their service offerings, too. Petco, for example, which has about 765 stores and 17,000 employees, will have opened 90 new stores by the end of the year, said Kevin Wayland, a company spokesman. Petsmart, the larger company in terms of sales, has more than 750 stores and is opening more at the rate of nearly 20 each quarter. Wal-Mart is also paying more attention to pets, said Karen Burk, a company spokeswoman. "You may have noticed a few more offerings of some items as we become more in tune with what our customers are looking for with their pet needs," she wrote in an e-mail message. "We understand that pets are members of the families and people want to pamper them and have fun with them. It could be a fun new pet bowl, a stylish jeweled collar or even a costume for this past Halloween." While statements like that are worrisome to midlevel retailers like Mr. Measday, he expects that the big stores will have a hard time matching his staff's expertise and familiarity with customers and their pets. His stores also offer more specialized equipment -- high-end purses, sophisticated saltwater fish tanks or expensive bird cages, for example -- than larger competitors. He also said that his employees spend more time making sure that items are properly fitted or set up. "We have greater variety," in prices and range of items, Mr. Measday said. "That's why when you see the Petcos and Petsmarts coming, you still see the small stores." Years ago, after all, pet supplies were sold in big variety stores like Woolworths, and that business plan fell apart, as increased specialization led to smaller stores and the more focused chains of today. It is unlikely, he said, that the world will revert to an all- in-one store. "When we started, it was the time in the States that people were going to specialty stores," Mr. Measday said. By opening a specialty pet store, he said, "We guessed right." And whatever its size, not every pet industry business is destined to succeed, many of the store owners said. Ms. Nichols of Up Country recalled attending a trade show for pet suppliers and talking to a fellow would-be entrepreneur who had a bold vision.