Thursday, 9 August 2012

Capitalize on the Recession-Resistant Pet Industry

BioLargo (BLGO): Capitalize on the Recession-Resistant Pet Industry

Biolargo OdorNoMore Litterbox

BioLargo Inc. (OTCBB: BLGO), developer of Nature’s Best Solution® – a proprietary version of iodine – formed to help solve a variety of common problems around the world, has been largely focused on the pet industry through its agreement with Central Garden & Pet Co. (NASDAQ: CENT) to develop its product that could eventually hit retailers like PetSmart Inc. (NASDAQ: PETM) and Petco, (a privately held company).

Large & Growing Industry

The pet industry is a large and growing industry in the United States. Currently, more than 62% of U.S. households own a pet, while spending on pets has increased from $17 billion in 1994 to nearly $53 billion in 2012. Moreover, growth in spending has been consistent during economic downturns throughout that period, making it a relatively recession-resistant industry.

When you start to add up the annual average associated costs from owing a cat for instance; such as vet visits ($655), food & treats ($324), boarding ($274), vitamins ($95), grooming ($73), and toys ($43) the annual amount of money spent can become staggering. It is obvious from watching the trend of animal ownership (92 million cats & 78.2 million dogs in 2011), as well as annual U.S. pet industry expenditures, that Americans love their pets, and are more than willing to spend money on them.

The pampering of pets has shown a phenomenal growth curve in the last two decades. From the creation of doggy day care to the purchase of all kinds of high-end accessories, products for our companion animals now extend well beyond the traditional ‘necessities’ of the past. Big name companies such as Paul Mitchell, Omaha Steaks, Harley Davidson (NYSE: HOG), and Old Navy have all reacted to this uptick in spending by introducing lines of pet products ranging from dog shampoo to pet attire.

Of the $53 billion pet market; some $11.77 billion of that is spent on pet supplies and over the counter medicine, including cat litter boxes and bedding for horses. BioLargo hopes to capitalize on these markets with its unique Odor-No-More products; designed to create a cleaner and drier litter box without the odor for cats, and for use as an effective bedding alternative for horses. The inventor of “kitty litter” (Ed Lowe) once stated, “This is a recession- proof business, people will go without a lot of things before they’ll go without their cats. And they’re not going to have cats without litter.”

Cats and other true carnivores metabolize a higher percentage of protein than omnivores, which leads to particularly nasty smelling feces. As a result, the industry has developed what it terms second and third-generation litters. Second generation litters originally involved adding highly proprietary perfuming agents to the litter, which simply tried to mask the scent. But as the market grew, and research and development teams scrambled to find agents that would prevent the odor from forming, a third generation of litters came into existence that aimed to slow microbial growth by treating the litter with a mild disinfectant. Stronger disinfectants would seem a simple answer to the odor problem for the entire industry, but all companies walk the fine line between what’s bad for bugs but okay for cats and people, and that is where BioLargo’s proprietary version of iodine comes into play.

Industry-Leading Partnership

Last year, BioLargo announced an agreement with Central Garden & Pet Supply Co., a leading marketer and producer of premium pet supplies in the United States. Under the agreement, the two companies will develop, produce and sell products that they believe will be most successful in the pet supplies industry, including BioLargo’s Odor-No-More product lineup.

“Most of [Central’s] brands are the number one or two brand in their respective U.S. market categories,” stated Dennis Calvert, CEO of BioLargo Inc. “They operate the largest sales and logistics network in the industry, which strategically supports its [and our] brands. With sales of more than $840 million annually, we believe they are the perfect partner for BioLargo.”

Fragmented with Need for Innovation

Despite the pet industry’s large size, the market remains very fragmented with over 500 manufacturers in the U.S. alone. Many of these smaller companies have limited production capabilities, and as a result a small number of industry players such as Mars Corporation, Hartz Mountain Corporation and Central Garden & Pet Co., end up controlling most of the industry’s volume.

Meanwhile, the lack of major competitors has starved the industry of innovation. Many pet products are based on concepts that were invented decades ago, with the exception of food choices, leaving many of man’s best friends to wonder why the neglect? BioLargo hopes that its products will help drive innovation in the industry, particularly when it comes to pet odor elimination and sanitization.

Great Investment Opportunity

BioLargo represents a great investment opportunity with a market capitalization of just over $18 million. Capturing just a fraction of the $11.77 billion U.S. pet supplies market could equate to hundreds of millions of dollars in revenues. And with its agreement with Central Garden & Pet, the company is uniquely positioned to do so over the near-term.

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