The Factory in Bethlehem hosted its Pet Innovation Challenge.

The pet industry is changing. Millennials are now the largest demographic of pet owners in the nation, and the way owners view their pets have changed. They want healthier products, more convenience, and they want to know the stories behind the brands.

All of these changes mean modern pet companies must be innovative to succeed. That spirit of innovation has been at the heart of Factory LLC, and it was on full display during the Bethlehem-based center’s first annual Pet Innovation Challenge this week.

“I think you all have a shot at success, because we’ve got some very innovative thinkers in this room, with some creative sources,” said Katy Nelston, veterinarian and host of The Pet Show. “The future of the pet industry is in your hands.”

Located in a converted a former Bethlehem Steel mill, the Factory is an innovation center for startup food, beverage, and pet health companies led by Richard Thompson, the former CEO of Freshpet.

The Factory includes a team of experienced operators with $250 million of investable capital who acquire meaningful equity stakes in client companies and partner with them to grow. The 40,000 square-foot laboratory offers services in everything from food safety, product development, supply chain, and social media marketing.

The center currently houses four companies, and two more are expected before the end of the year, Thompson said.

Richard Thompson, CEO of the Factory, speaking at the Pet Innovation Challenge.

“We help these companies grow and expand and move down the road,” Thompson said. “The idea is that they come in for 12 or 24 months, we get strategic partners and scale them up to a certain level, then we exit them out.”

Thompson said Lehigh Valley was an attractive place to establish the Factory because of the region’s strong workforce and wealth of higher educational institutions. Those factors, and the spirit of innovation exemplified by The Factory, are key components of the recently-launched Made Possible in Lehigh Valley campaign.

On Oct. 2, 10 companies pitched ideas for innovative pet products and competed for prizes. Contestants ranged from Chippin Snacks, which makes dog treats from cricket protein, to Hachi Tama, which makes cat litter boxes that can detect signs of cat diseases by measuring body weight and urine volume.

The winner of the challenge was Shameless Pets, which was awarded $1,000, Thompson said. The company creates all-natural and grain-free pet food via an environmentally-conscious process called upcycling, which takes unused food and turns it into nutritious products.

In addition to the pitch event, the Factory hosted a Pet Innovation Challenge on Oct. 3, during which selected presenting companies brought forward their biggest challenges, and participants were assigned groups based on their experience and skill sets to help resolve them.

It also included remarks from pet industry experts, including Neltson and Amy Karr, Client Development Director with SPINS, whose mission is to increase the presence and accessibility of natural and organic products to encourage healthier and more vibrant living.

Kerr said the conventional pet food still makes up the largest portion of the marketplace at $14.3 billion, but alternate markets are growing at a much faster rate. Natural pet food ($2.2 billion) grew by 25.7% and organic pet food ($22.6 million) by 25.8%, compared to 0.6% for traditional.

Nelston said millennials are now the biggest pet-owning demographic at 35%, compared to 33% for baby boomers and 32% for all other age groups, and that they want modern health products like vitamins and supplements, as well as mobility-related therapies like massage, laser therapy, acupuncture, and physical therapy.

“They don’t want a big mass marketing campaign. They want to know the story behind the brand,” Nelston said. “They want to know the product. They want to know who has used it. They want to feel good about it.”

The Factory purchased the building two years ago and spent 18 months on renovations, at a cost of $12 million, Thompson said. One of its client companies is Stuffed Puffs, which makes chocolate-filled marshmallows and is already planning to build its own factory.