U.S. PET SPENDING: COMPARING GENERATIONS – “BOOMERS” WIN!

U.S. Consumers spent $6.8 Trillion dollars in 2014. Of this huge sum 0.95%, $64.3B was on our companion animals. In our recent posts, we have started to look at the key demographics behind “who” is spending the money. By looking deeper, all of the industry participants can better target their products and marketing efforts to maintain and gain retail sales…keep the industry strong and growing.

In terms of demographics, nothing has a higher profile in the media than comparing the actions between generations. How do the Millennials compare to the Baby Boomers? What’s happening with Generation X? These are valid questions and the Generation Demographic is the one measure that defines a very specific group of individuals for a lifetime. Emigration, immigration or death can change the mix and of course, marriage and divorce will affect the number of households. However, we can still track how aging, technological changes, economic events, in fact any change in society affects the behavior of a specific group of individuals.

The USBLS which provides us with a variety of helpful business reports, including the CPI and the Consumer Expenditure Survey, just announced an addition to the CE Survey – spending by Generation. The first report is for 2014. It is still officially in the experimental stage, as they fine tune the details. The “official” inclusion in the CE is currently scheduled for 2016. The published version of this CE Report includes over 150 line item details – (2 Pet – Total & Supplies). The “prepublished” version is much more detailed, with over 1500 items including all Pet Industry Segments. Obviously, we looked at the “prepublished” version.

Unfortunately, the data had to be sorted by birth year so it can’t be compared to previous years, which were sorted by age. However, this new report provides an immediate “snapshot” of purchases for an incredibly topical demographic that will become even more valuable as time goes by and we can track changes.

Before we get into the specifics of Pet Spending, let’s look at a few key overall Generational demographics:

Gen-1KeyDemo

Observations

  • # of CU’s (H/H’s) – Baby Boomers are by far the largest group. The Millennials will be adding H/H’s as more of them become independent adults but all the others will inevitably decline.
  • CU Composition – Other CE reports show that households with children and 2 Earners are both important demographic groups in regard to Pet Spending. Both peak with Gen X. The 2 earner households are relatively strong from Gen X through the Boomers but the “with children H/H” fades with the aging Boomers.
  • Housing – Home owners, especially those with mortgages, buy the largest share of Pet Products and Services among the Housing demographic groups. The Millennials are still renting. Home ownership doubles with Gen X but reaches a peak, in fact a plateau, with the Boomers and Older Generations. 75% of Americans over 85 are homeowners and 70% of them have no mortgage!
  • Race/Hispanic – The data presented from this particular survey is very simplistic. In terms of Hispanics, you can clearly see the radical increase in Gen X due to changes in Immigration rules in 1965 and a significantly higher birthrate for this group. In regard to African Americans, a huge migration from the South began in 1940, first driven by job opportunities relating to WWII. The effect of improved economics and an increased birthrate shows up in the Baby Boomers. The Racial and Hispanic demographics are relevant to the Pet Industry as African Americans and individuals of Hispanic descent spend an average of 60+% less per household on their pets than White, non-Hispanics. Income is a factor but such a large disparity also indicates significantly fewer “Pet” H/H’s. This is a situation which should be researched further.
  • Spending – Let’s start the discussion. Here is a summary of 2014 U.S. Pet Spending:

Gen-2Summary

The chart below shows how each generation compares to the U.S. Consumer Unit (H/H) average in terms of gross income, annual expenditures and pet spending.

Gen-3HHSpend

Observations

  • Note: You will see similarities to our recent post on Age Groups. However, it’s not an exact match as the Age Groups fall into 10 year increments while Generations range from 16 to 19 years.
  • Income: Gross Income peaks with Gen X but is still strong with the Boomers. The previous generations are into retirement and the Millennials are still building.
  • Expenditures: Gen X and the Boomers are pushing the National average up. However, the expenditures of both the earlier and later generations are significant contributions in relation to their lower incomes.
  • Pet Expenditures: The “Pet” Boomers are obviously the biggest spenders. However, you can see the importance of companion animals across the generations, even after age 85.

Let’s translate averages into total Pet $. Here’s how much each Generation spent on their Pets in 2014.

Gen-4-PieChart

Now, let’s put each group’s spending into perspective with their…

  1. Share of Households (127 Million Total)
  2. Share of Gross Income ($8.5 Trillion Total)
  3. Share of Pet Spending ($64.3 Billion Total)

Gen-5Share

Observations

  • The Baby Boomers are still the major market for the Pet Industry. They lead the pack in all categories…number of H/H’s, gross income and they spend it on their Pets.
  • Generation X is the only other group “earning their share” of Pet Spending vs number of H/H’s.
  • The Pet Spending of Millennials is lagging, considering their numbers, but is actually pretty good in relation to their income.
  • While their share of Pet spending is not equal to their H/H numbers, the contribution of the older generations is excellent considering their significantly reduced income.

Let’s look a little deeper…at spending by Industry Segment. First: Food & Supplies…Comments will follow the graphs.Food

Supplies

Food and Supplies Observations

  • Both these segments are very similar to the Total Pet Spending Chart.
  • Food – Spending in this “necessity” segment shows a commitment across all groups. The most encouraging observation is the fact that the Millennials share is higher than their share of Total Pet. They are adding pets to their “families”.
  • Supplies – The Supply Segment does have more “discretionary” spending items and the group with the highest income, Gen X, buys more….but still not as much as the Boomers.

Now, The Service Segments

Gen-8Vet

Gen-9Serv

Veterinary and Pet Services Observations

  • Veterinary – A “need” segment, increasing prices have become a major factor to everyone but… Boomers, who spend an incredible 59% of the total. However, 80% of the spending comes from them and Gen X which represents 62% of the households but 74% of the total U.S. income.
  • Services – Convenience, Need & Cost. Once again, Baby Boomers and Gen X are the leaders with 75%. However, there is a bit of an “uptick” in the “retired” Silent Generation.

Overview By Generation

  • The Greatest Generation – (Born: <1929) – With the youngest members 85 years old, pet ownership and spending have significantly declined in this group. However, they still spend 0.65% of all their annual H/H expenditures on their pets.
  • The Silent Generation – (Born: 1929>1945) This Group is over 70 years old. Their income and expenditures have fallen but not their commitment to their pets. Their share of spending in every Pet Segment exceeds their share of income. In fact, 0.94% of their H/H spending is on their pets. (National ave is 0.95%)
  • Baby Boomers – (1946>1964) Accounting for 45% of all U.S. Pet Spending, this group could be called the Pet Boomers as they have largely driven the spectacular growth of the Pet Industry. They lead the way in every Industry Segment, including a spectacular 59% of Total Veterinary Spending. Boomers spend 1.19% of their total household spending on their Pets. However, they are starting to retire and income will fall. Based upon what we have seen from the Silent Generation, the Boomers will continue to spend a significant percentage of their income on their Pets but their overall market share will inevitably begin to fall.
  • Generation X – This group has the second largest share of Pet Spending $ at 26.7%. However, they have 24% fewer households and spend Pet $ at a 21% slower rate than the Boomers. Their Total Pet Spending is $12B (40%) less than the Boomers….Now, the good news. They are just approaching the “prime” pet spending age (55>64). Their Pet Spending should steadily increase for at least the next 15 years. Because they are a significantly smaller group, they will probably not match the dominance of the Boomers but they are on track to take over the #1 position.
  • Millennials (Born: 1980>) – They are justifiably getting a lot of media attention because they are the future of the consumer market. Guess right on their needs and wants and your future success is assured. Guess wrong and… The final birth year has not yet been set. My vote would be for 1999. That would make their span the same as the Boomers and start the next generation with the start of a new century. They still have “growing up” to do before they all become independent adults. Their Pet Spending is not yet equal to their share of households but there are encouraging signs. Their annual H/H spending on Food is 83% of the national average and their share of the Total Food expenditures is greater than their share of Total Gross Income. Pets are a current and growing commitment. Their spending on the Service segments is well below average but cost is definitely a factor….And, remember they don’t even start to reach the peak age for pet spending for over 20 years.

Some Final Thoughts

The Baby Boomers truly are the major source for the current and past success of the Pet Industry. Gen X and The Millennials seemed to be well positioned to ultimately take their turn at #1. However, it is critically important to transition the Boomers into retirement. Income will become an issue so we need to encourage their spending with …products designed to meet the needs of Senior Pet Parents…Senior discounts. This Demographic view also shows that a commitment to pets spans all the current generations…a lifetime commitment.

One question is sure to come up. “Just what is the term of years for each Generation?” The years used by the USBLS come from PEW Research, a well-respected, non-partisan “fact tank”. I have read their rationale and it makes sense, but there is no shortage of opinions on this issue.

As we said, this report is still in the process of being revised and finalized. The USBLS has mentioned the possibility of making the data available by individual birth year. This would be a huge amount of data but one could build reports to exactly match up with other generational research efforts.

I look forward to their next report. Hopefully, we will then be able to begin to track movement in the spending of the Generations.

A detailed Appendix on Pet Spending by Generation is available through the link below. Just click on the button to download and save the file as a PDF. If you would like this in Excel format, send me an e-mail request.

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Pet Prices Update: October 2015 – Supply Prices In Record Drop↓

In September things were “looking up”. All segments posted increased prices – even Food and Supplies. Based upon the CPI history since the recession, we expected a calm marketplace for the balance of 2015, with moderate increases in October and November…and a possible “dip” in December. However, this is the Pet Industry where the “unexpected should be expected.”

The October CPI data was released shortly before Thanksgiving. Veterinary Prices were up slightly…no surprise. Pet Food Prices were also up…stronger than expected at 0.49%. Pet Services had a 0.24% drop in the CPI. This is unusual but helped to mitigate a 1% price increase from July to September. However, the Supplies segment gets all the headlines. October saw a price drop of 0.73%. This is the first price decrease in October since 2009, which is the month that started the deflation in this segment. It is also the biggest October drop since they began keeping records for each segment back in 1997. We’ll take a look at the impact of October’s unexpected volatility.

Here are the first 10 months of 2015.

CPI-10-15-1

SPECIFICS ON CPI CHANGES

Veterinary Services

  • Oct – Up ↑ 0.18% (Last year Oct went Up ↑ 0.08% – about the same)
  • Year To Date: Up ↑4.05%

NonVet Services

  • Oct – Down↓ -0.24% (Last year Octt was Up↑ 0.03% – big difference)
  • Year To Date: Up ↑2.65%

Pet Food

  • Oct- Up ↑0.49%% (Last year Oct went Down ↓-0.05% – A welcome change!)
  • Year To Date: Down ↓-1.76%…Still big!

Pets & Pet Supplies

  • Oct- Down ↓-0.73% (Last year Oct went Up ↑0.69%…A -1.42% Swing!)
  • Year To Date:-0.85%a big stumble!

Total Pet

  • Oct- Up ↑ 0.04% (Last year Oct went Up ↑0.14% – A flat month – drops in Supplies & Services)
  • Year To Date: Up ↑0.65% – Still on track for a moderate increase.

OBSERVATIONS

  • Food prices are still trying to climb out of the deep hole that was dug in the summer. We are entering the highly competitive holiday season. It could bring a drop, probably in December.
  • Supply prices – The huge price drop in October has certainly put a damper on the “recovery” in this segment. We’ll have to wait and see what the holiday season brings.
  • Veterinary prices continue to climb at an unhealthy rate. The “correction” in Service prices in October has helped to slow their inflation rate to a more reasonable level.
  • The Total Pet Market CPI was basically flat for October but will definitely stay positive this year. The YTD increase of 0.65% looks pretty calm and reasonable. However, it is being generated by turmoil in the individual segments. Inflation, Deflation, roller coaster price oscillations…you name it. We’ve got it!

Next, let’s look at the monthly history over the last 24 months to put this month’s data into perspective. October of 2015 and 2014 are outlined so you can see the journey over the last 12 months.

CPI-10-15-2

COMMENTS

Since the recession, October has been an “up” month…until 2015. Food and Veterinary showed increases but Services and Supplies turned sharply down. This chart makes it easy to visualize our concerns. Over the last 2 years, the Service Segments are basically going steeply up while the Supplies and Food Segment are truly on a roller coaster. The prices for Food have been consistently down during the ride. Supply prices are currently lower than 2013 and 2014 but “on average” are better than 2014.

The chart below consolidates key data and compares the 2015 YTD CPI to the 2014 annual CPI. It also includes an updated projection of the annual CPI change for 2015.

CPI-10-15-3

COMMENTS – BY INDUSTRY SEGMENT

Pet Food – Since this is the largest segment in the industry, the ongoing deflation is of great concern. Prices are still trying to recover from the huge -2.35% drop in July and August. They are 1.76% below the level in December 2014 but just 2 months ago they were down 2.93%. They’re moving in the right direction. Let’s hope that they continue upward through December, like 2014 and avoid a December drop. A second consecutive deflationary year is a certainty but it would be great to keep the annual decrease under -1.0%. Right now Pet Food prices are actually -0.2% below October 2012 – three years ago. We are projecting a –0.92% decrease in the annual Food CPI.

Pets and Pet Supplies – The big drop in October certainly clouded the recovery in this segment. Prices are down -0.85% since December but the 2015 average is up 0.34% versus last year. We will definitely see an increase in the CPI for Supplies in 2015. Prices would have to drop 2.0% in the last 2 months to get to a 0.0 change. That won’t happen. The question is how much will prices increase. We need a significant increase, probably in the 0.4>0.5% range to begin to break this deflationary spiral. Right now we are projecting an increase of 0.54%, so why the concern? Two Reasons: December has shown price drops of at least 0.75% in 4 of the last 5 years. November: The last time we had a price drop in October it was followed by a -1.7% drop in November. We’ll just have to wait and see.

NonVet Services – Inflation in this segment is becoming an increasing concern. October’s decrease slowed down the acceleration. We now expect prices to increase 2.3% in 2015 but they could go higher. They are actually 2.65% above December 2014. This could slow the segment’s overall growth and limit the appeal to key price sensitive consumers, like the over 65 age group.

Veterinary Services – Prices in the Veterinary Services Segment are projected to be Up 3.63% in 2015. They are 4.05% above December 2014 and 4.4% above 1 year ago. In the Consumer Expenditure Survey we have seen the results of this high inflation rate. Lower income consumers are delaying or cutting back on Veterinary Services.

Total Pet Market – In September, we thought that we were seeing the “beginning of the end” of the deflation in the Supplies segment that began in October 2009. With the record price drop in October, the situation is in doubt again. It remains to be seen if 2015 will mark the end of deflation in Supplies or just a brief pause in the downward pricing spiral. A second consecutive year of deflation in the huge Food segment is a certainty. Since they began keeping records by segment in 1997, Food prices have only dropped in 2010(-0.4%), 2014(-0.3%) and 2015(-?%). Two consecutive years of deflation is not the kind of “record” that you want to set. Deflation puts extraordinary pressure on Manufacturers and Retailers and in a “need based” category like Food it doesn’t spur increased purchases. The Consumer just spends less. To break the deflation spiral, you have to improve the quality and appeal of the products. Today’s “instantly informed” consumer will pay more if a product has more benefits – a better value. Make it better!

It’s the opposite problem for the Service Segments. A high inflation rate may increase revenue but eventually it will limit the appeal resulting in a reduction in the amount of services sold. This is true for both need based and discretionary services.

The Total Pet Market is projected to have a CPI increase of 1.09%. This is moderate and certainly reasonable in today’s economy. For the Pet Industry, the Total certainly doesn’t tell the whole story. This “moderate” increase comes from extremely volatile pricing activity in the individual segments

This last chart should help compare the status of each segment over the last 3 years:

CPI-10-15-4

The Segments are “divided” into 2 teams – The “Ups” and the “Downs”. The Negative October clearly impacted the Supply Segment. You can also see the ongoing deflation problem in Food. Prices are still slightly below 3 years ago. The rising prices in the Service Segments are obviously accelerating in 2015 and a big contrast to the Product Segments. This chart clearly shows the turmoil in the segments that produces the very calm 1% Total Industry Inflation Rate.

U.S. PET SPENDING: Does the buyer’s “age” matter?

In our recent post on Pet Spending in the U.S. during 2014 we reported a 11.4% increase from 2013 to 2014 – $6.6B. The numbers were based upon the Consumer Expenditure Survey conducted in a cooperative effort by the USBLS and the Census Department. Here are the summary numbers:

PetAge-1

The obvious question was, “Where did the $6+ Billion dollars come from?” Are there demographic groups that are buying more…and conversely, are there groups that are underperforming? The best way to maintain and increase growth is by targeting your efforts to build on strengths and to correct weaknesses.

Since we were looking at Pet Spending, the first thing to do is “follow the money”. The first demographic that we looked at was income level. As expected, it was a complex answer but there were 2 household income levels driving overall Pet Spending: $120K and above….and $30 > $70K

The $120K+ was no surprise but the $30>$70K group raised questions. An initial review showed a connection with another demographic…age. Two age groups, 25 to 34 and 65+ were showing exceptional increases in Pet spending. It’s worth a closer look at the consumer’s age in relation to Pet Spending.

First, let’s get an overview of the various age groups. The chart below shows how each age group compares to the U.S. average in terms of gross income, annual expenditures and pet spending.

PetAge-2

Observations

  • Income: Gross Income increases rapidly up to the 35>44 age group and peaks at 45>54. Then comes a gradual decline until age 75+, where it is about 19% higher than the under 25 group.
  • Expenditures: The “under 25” group actually spends more than their gross income. Expenditures rise in a pattern which closely follows Income, peaking at age 45>54. The ensuing decline is not as steep as income. However, at age 75+ expenditures once again exceed income.
  • Pet Expenditures: At age 25>34 Pet Expenditures “take off”, more than doubling. Pet Parents are “born”. Pet Expenditures begin 30 years of increases but peak at 55>64. This peak occurs when both income and total expenditures have started to decline. Pet Parents spend at a rate equal to or greater than the national average for 40 years. The big drop comes at 75+.

Let’s translate this into total $. Here’s how much each age group spent on their Pets in 2014.

PetAge-3

Now, let’s put each group’s spending into perspective with their…

  • Share of Households
  • Share of Pet Spending
  • Share of the $6B increase

PetAge-4

Observations

  • Age does matter as 71.3% of the increase is coming from consumers over 55 years of age. The 65>74 group is especially strong accounting for almost 40% of the growth.
  • The 25>34 age group is generating 23% of the increase. Young people are including Pets as a part of their “startup” households which is important for the future of the industry.
  • The largest pet spending group, 55>64 is showing a strong increase, accounting for 23.8% of the total increase. The second largest group, 45>54 is showing a decline largely due to 945K less H/H’s.
    Let’s take a look at spending by Industry Segment:

PetAge-5

Observations

  • Since Food spending is an absolute necessity for Pet ownership, it is obvious that the young people are “adopting” pets. It may also be an indication of their feelings in regard to higher quality brands.
  • The drop in the 45>54 age group is huge. The reason is basically twofold – 945K fewer H/H’s combined with a drop in actual household food expenditures – probably due to value shopping.
  • At age 55+ as their children start to “leave the nest”, older adults may turn their focus more to their Pets…spending more and even “adopting new family members”…up to age 75.

Next…Supplies

PetAge-6

Observations

  • The increase in supplies spending is almost universal across age groups, except for “under 25”.
  • The 25>34 group is the leader again, but the over 65 consumers are not far behind.
  • Significantly, the 45>54 group is showing a strong increase which is counter to their trend in Food.

On to Non-Vet Services…

PetAge-7

Observations

  • The Service segment appears to be driven by a combination of “need” and finances.
  • The 35>54 group certainly can afford Pet Services but they are choosing to “do it themselves”.
  • As consumer’s age, the need for Pet Services increases. In fact, 114.6% of the increase came from consumers 55 years old and older. Even the over 75 group had a significant increase despite their reduced resources.
  • The “startup” Pet Parents, 25>34 also had a huge increase. Their “need” may not be “physical” but could come from a lack of time due to a more active lifestyle.

Finally, Veterinary Services…

PetAge-8

Observations

  • The largest share of Vet Spending comes from the 55>64 age group. Through personal experience, as consumers age they become even more “aware” of the medical necessities of life. This carries over to their pets. This group has the greatest resources and they spend whatever is needed on Veterinary Care for their pets.
  • Almost all (97.8%) of the increase in Veterinary Spending comes from the over 55 group. The 65>74 group is the leader by far, accounting for 50.9% of the $3B increase.
  • The 45>54 age group accounts for 20.8% of Veterinary spending but only 7.9% of the increase. They spent slightly more per H/H but the drop in the number of H/H’s minimized the increase.
  • In a big change, the 25>34 group accounts for a relatively small share of Vet spending and it is decreasing. These new Pet Parents may not yet be aware of the value of regular Veterinary care.

Overview By Age Group

  • Under 25 – Not yet a significant factor with only 6% of households and 2% of Pet Spending.
  • 25>34 – This group, with 16% of the households and increasing income, is the future of the Pet Industry. Right now the future looks bright as they are showing significant increases in all Pet Segments except Veterinary.
  • 35>44 – With 17.1% of Households and 16.9% of Pet Expenditures, this is the point where Pet Parents start “earning their share” of the Pet Business. Only the Service segment is “soft” in spending. Perhaps this healthy, active group is the least likely to need “help” with their Pet.
  • 45>54 – This group is #2 in Pet Spending at 22.1% but they are actually showing a decrease. Their Pet Spending per Household actually increased slightly but there are 1,000,000 fewer households in this group. This is evidence of the “slump” after the “baby boom”. At this point, their income is high but so are their expenses, especially in regard to their human children. As a result, this group can be very value conscious in terms of Food and selective in their need for Non-Vet Services.
  • 55>64 – At this age, income and total expenditures start to decline, but Pet Spending reaches its peak as consumers focus on their “pet children”. Both Service Segments become big factors in spending. Supplies are just “holding their own”, but Food spending significantly increased in a tough market.
  • 65>74 – The average Pet Spending per household drops about 10% from the 55>64 group. However, they still spend 1.19% of all their expenditures on their Pets. Also, the number of households in this group increased 624,000 in 1 year. That produced a $2.6B jump in Pet Spending – 39.7% of the industry’s $6.6B total increase. This group is a major driving factor in the growth all segments of the industry.
  • 75+ – With 541,000 more households, this is also a rapidly growing age group. Although their Pet Expenditures per household are only about 50% of the national average, the growth in the number of households produced significant increases in spending for all segments other than Food. Actually, 25.2% of the increase in Non-Vet Services came from the 75+ group, which represents only 9.9% of all U.S. households.
  • 65+ – 23% of U.S. H/H’s; 1.1M more in 1 yr; Produced 47.5% of the total increase in Pet Spending.

A couple of Final Thoughts

  1. The over 65 group is a fast growing segment and dedicated to their pets. Develop products and programs to make “continuing” their pet experience easier and more affordable.
  2. There are a lot of “new” Pet Parents in the 25>34 age group. They need education and quality, affordable products to insure that their pet experience is rewarding…for a lifetime.

A 2 page detailed Appendix on Pet Spending by Age Group is available through the link below. Just click on the button to download and save the file as a PDF. If you would like this in Excel format, send me an e-mail request.

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Pet Prices Update: September 2015 – Things are looking UP↑

All segments – even Food, saw price increases in September. Overall we are rebounding after the huge July drop in Food  & Supplies prices took the whole industry negative. October and November should be calm with moderate increases leading up to December. That is the big question remaining. Except for 2014, prices for Food and Supplies have fallen in December since the recession. We’ll see.

Why does all this pricing info matter? Pricing is intimately linked with Consumer Expenditures. In our recent Post on 2014 Pet Expenditures we saw how steadily rising prices on Food and Supplies in the second half of the year helped change 2014 from a good year to a great year for supplies…and turned a negative into a positive for Food. By the same token, rapidly rising Veterinary prices contributed to lower income households spending $1B less on Veterinary Services. However, it’s not just low prices. It’s value. You can charge more if it’s “worth it”…and you can prove it to the consumer, who now can compare products and prices instantly.

First, let’s take a look at what 2015 looks like so far…

CPI-9-15-1

SPECIFICS ON CPI CHANGES

Veterinary Services

  • Sept – Up ↑ 0.15% (Last year Sept went Up ↑ 0.19% – about the same)
  • Year To Date: Up ↑3.71%

NonVet Services

  • Sept – Up ↑ 0.28% (Last year Sept was Flat 0.00% – big difference)
  • Year To Date: Up ↑2.90%

Pet Food

  • Sept- Up ↑0.70%% (Last year Sept went Up ↑0.40% – welcome increase)
  • Year To Date: Down ↓-2.24%…Huge!

Pets & Pet Supplies

  • Sept- Up ↑0.55% (Last year Sept went Up ↑1.38%…Less Volatile)
  • Year To Date:↓-0.12%…coming back!

Total Pet

  • Sept- Up ↑ 0.44% (Last year Sept went Up ↑0.60% – All segments are up – more moderation)
  • Year To Date: Up ↑0.61% – On track for a moderate increase.

OBSERVATIONS

  • Food prices are still “in the cellar”. Let’s hope the September increase continues through December to moderate the impact of the deflation on annual revenues.
  • Supply prices are moving in the right direction and with an annual increase almost certain.
  • Veterinary and Non-Veterinary services are showing greater than normal increases for this time of the year. This is the opposite problem to food but can and will affect spending by price sensitive consumers.
  • The Total Pet Market Prices will definitely stay positive for the year. The YTD increase of 0.61% looks pretty nice until you look beneath the surface and see that it is produced by strong inflation in the Services and the steep deflation in the Food Segment. The annual projection will be in an acceptable range. We just need moderation in the segments.

Next, let’s look at the monthly history over the last 23 months to put this month’s data into perspective. September of 2015 and 2014 are outlined so you can see the journey over the last 12 months.

CPI-9-15-2

COMMENTS

September is often a down month for Supplies but moderate for other segments. This year all segments turned up. This chart makes it easy to visualize our concerns. The Service Segments are basically going steeply up while the Supplies and Food Segment are on a roller coaster. Unfortunately, for Food the rollercoaster is “under water”. Total Pet is up about 1.1% versus a year ago.

The chart below consolidates key data and compares the 2015 YTD CPI to the 2014 annual CPI. It also includes an updated projection of the annual CPI change for 2015. December could produce a drop in Food and/or Supplies but October & November are generally up…across the board.

CPI-9-15-3

COMMENTS – BY INDUSTRY SEGMENT

Pet Food – The price deflation in this largest segment is the biggest concern in the industry. Prices dropped -2.35% from June to August, the largest 2 month drop in history. They finally turned up in September and should continue upward through November. If we are lucky they will continue upward through December, like 2014. There is not enough time for a full recovery but this would help to mitigate the impact of what is certain to be the second consecutive deflationary year for this segment. Prices are now down -2.24% since December, but last month they were down 2.93%. Right now Pet Food prices are still basically equal to 2012 – three years ago. Remember, with a segment like Food, deflation doesn’t cause consumers to buy more. They buy the same amount…just spend less. We are projecting an annual decrease in the CPI of o.84%

Pets and Pet Supplies – In the chart prices are down 0.12% since December. However, December was the pricing peak for 2014 which was a first since the recession. When you look at the annual numbers, we are 0.36% ahead of last year’s overall pricing with at least two more months of highly probable increases. We may still see a price drop in December but we’re looking at a projected CPI increase of 0.65%

Since 2009, Supply prices have fallen 5.0%. Prices were flat in 2011(up 0.05%) but every other year showed a decline, with the biggest drop (down -2.1%) coming in 2013. It takes time and consistency to stop deflation. Let’s hope 2015 is the marks the beginning of the turnaround.

NonVet Services – Inflation in this segment is becoming an increasing concern. Instead of prices flattening out in the summer and early fall, the increases are accelerating. We now expect prices to increase 2.24% in 2015 but they could go higher. They are actually 2.9% above September 2014. This could slow the segment’s overall growth and limit the appeal to value driven consumers.

Veterinary Services – Prices in the Veterinary Services Segment are projected to be Up 3.54% in 2015. It looks like the segment will beat last year’s price increase of 3.5%. We saw in our recent post on 2014 Pet Expenditures that the segment continues to grow strongly but the increases are generally coming from the high income Pet Parents – $120K and above. Low income households spent $1B less.

Total Pet Market – We could be seeing the “beginning of the end” of the deflation that has plagued the Supplies segment since 2010. It’s a welcome change to have good pricing news for Supplies. The huge Food segment is the biggest ongoing concern. A second consecutive year of deflation is a certainty. Historically, food prices have only dropped in one other year – 2010 (-0.4%). We should note that this decrease came after an 8.6% increase in 2009, in the heart of the recession. It’s remarkable that the drop wasn’t greater. Deflation appears to be good for the consumer. It’s cheaper…I can buy more. That doesn’t work for products like food and it puts tremendous pressure on manufacturers and retailers. This can ultimately result in reduced choices for consumers…which is not good…and there is no easy fix. Make no mistake. You can charge more for your product. There is only 1 requirement. As we have often said, today’s consumers are searching for Value (quality + price). To charge more, you just have to be able to prove that the increased price is worth it…to an increasingly informed consumer…who can compare similar products and prices from a variety of retail channels while standing in the retail aisle. The Service Segments have the opposite problem… as prices continue to spiral upward. A high inflation rate may increase revenue as consumers pay more but it can and will eventually limit the appeal, resulting in a reduced market penetration and ultimately a reduction in the amount of services sold.

With all this “turmoil”, the projected inflation rate for Total Pet is a reasonable 1.1%!

This last chart should help compare the recent up/down performance of each segment:

CPI-9-15-4

The turnaround for Supplies is apparent. You can also see the ongoing deflation problem in Food. Prices are even slightly below 3 years ago. The rising prices in the Service Segments are accelerating in 2015 and a big contrast to the Product Segments. I really like this chart as a visual reminder to look closer at what is producing the numbers in any analysis of data. The Total Pet numbers look very calm and controlled with an annual inflation rate of about 1%. However, when you look below the surface you see the turmoil in the segments that produced these “calm and controlled” overall numbers.

 

U.S. Pet Spending Up ↑$6.6B in 2014 – U.S. Government Survey

The latest Consumer Expenditure Survey conducted by the U.S. Bureau of Labor and Statistics was published in September. Pet Expenditures by the average Consumer Unit (Household) jumped from $459.70 in 2013 to $507.14 in 2014…a 10.3% increase…twice the rate of increase in total consumer expenditures, which was 4.7%.

Here’s what it looks like with details per industry segment:

CE-9-15-1

Let’s turn these “averages” into totals. It requires a special calculation because the data is gathered by 2 different methods but here’s what it looks like.

CE-9-15-2

Observations

  1. The number of Consumer Units also increased 1.06% to 127,006,000 so this means that the the total increase in Pet Spending was 11.4%
  2. While all segments are up, Supplies and especially Veterinary Services are the “drivers”!
  3. Pet Services and Food are not as far up as the other two, but both are radically better than they were at the mid-year update published in May.
  4. In May Pet Food spending was Down -0.4%…Now Up 4.8%; Pet Services were Up only 0.9%…Now Up 7.6%
  5. The second half of 2014 was exceptional for the entire industry. Also, remember there was no price drop in December in Food and Supplies…which helped. Let’s hope 2015 is as good or better!

The Graph below should help you appreciate just how important the the second half of 2014 was for the Food and Supplies Segments and really the whole Industry…turning a good year into a great year!

CE-9-15-3

Right now I know there is still an unanswered question on everyone’s mind so let’s address it. “If the average U.S. household spends $507.14 annually on Pets, what do actual Pet Parents spend??”

If we assume that 65% of U.S. households have a pet(s), then their average annual expenditure on Pets, Pet Products and Services is $780.22.

Next, there are a lot of consumer demographics that impact Pet Spending but the one we always seem to look at first is…income. We often look at over $70K vs under $70K because that has become the midpoint in total pet spending. That is changing. To give a better view, I have divided the Consumer Units (H/H’s) into 4 income groups. U.S. consumers spent $64.3B on their Pets in 2014. Here’s who spent it:

CE-9-15-4

Let’s put this spending into perspective.

For each of the 4 income groups this chart shows their respective % share of:

  • Total U.S. Households
  • Total U.S. Pet Industry Purchases
  • The Total $6.6B increase from 2013 to 2014

CE-9-15-5

Observations

  1. A change in the number of H/H’s is also a factor. Overall U.S. gain is 1.3M households
    • Under $30K dropping down -0.6M
    • $30>$70K up 0.1M
    • $70K>$120K up 0.5M
    • $120K> up 1.3M…($150K> up 1.5M)
  2. The vast majority of the growth in Pet $ is coming from the wealthiest households. The H/H Pet Spending for $120K> is strongly increasing (+27%) and they are growing in numbers (+8%).
  3. It costs money to have a pet. The under $30K group is 1/3 of America but spends only 15% of total Pet $. This group is getting smaller as incomes rise but they are also “watching” their spending.
  4. Another 1/3 of America is the $30>$70K group. The $2B increase from this group is a bit of a surprise and merits a closer look. At this point the <$70K income group represents 67% of American households but spends only 44.8% of the Total Pet $. However, sales in the upper half ($30>$70K) of this group are growing… primarily by increasing H/H spending….not by a big increase in the number of H/H’s.
  5. $70>$120K – This includes much of the “Middle Class” that we hear so much about. It is also the first level in which the share of Pet $ exceeds the share of households. The big concern is that this 20% of America is showing almost no growth in Pet $. Here’s a tip. If you download the detailed spreadsheets that follow this post, you will see that the Pet Spending per household in this group is actually down 4%. The growth in this segment only comes from the fact that there are more households. This should be a major concern.(Note: the increase in H/H’s was at the upper end..the $100k>$120K range)

PET $ BY INDUSTRY SEGMENT AND INCOME LEVEL

2014 was a great year for the Pet Industry. However, we have seen that it was a little greater for some households, especially those with higher incomes. Let’s now take a brief look at the Individual Segments of the industry to see what effect the consumer’s household income level has on purchases.

For our review, we will divide the Industry into 2 groups – Products, which includes Pet Food and Supplies and Services, which includes Veterinary and A/O Pet Services. The specifics of the Total U.S. performance by Segment were included in charts on the first page. We will note the totals in a recap of each section below but the primary vehicle for comparison is the “share” chart that we used for the Total Industry.

PET PRODUCTS

Here are the “Share” Charts for Pet Food & Pet Supplies

CE-9-15-6

Observations

  • Pet Food 2014 – Total $24.1B; Up $1.1B (4.8%)…51% of the $ are done by under $70K H/H’s.
    • Pet Food made a tremendous comeback in the second half of the year. The “rolling” 12 months sales were actually down -$100M through June 2014.
    • The increase was driven by $120K AND the $30>$70K Group. The $120K> group had increases in spending and H/H’s. $30>$70K was due to increased H/H spending.
    • The Under $30K group had an increase in Food spending per household but was driven down by a decrease in the number of households.
    • The $70K to $120K had a significant increase in numbers but a big drop in household spending on Food. Since it is unlikely that there was a precipitous drop in the number of Pet Households, it is likely that this group began serious price shopping.
  • Pets & Supplies 2014 – Total $17B; Up $2.03B (13.6%)…44% of the $ are from under $70K H/H’s.
    • Up 6.5% at midyear, prices moved up…but sales still accelerated in the second half.
    • Many supplies are considered “discretionary” purchases. Even with price deflation during 2014, the growth was almost totally driven by income groups over $70K as most of America shopped for value or just said “no”.
    • The Under $30K group had a slight increase but 84% of total supplies are done by over 30K H/H’s.

PET SERVICES

Here are the “share” charts for Veterinary and Pet Services

CE-9-15-7

Observations

  • Veterinary 2014 – Total $17.6B; Up $3.03B (20.8%)…40% by under $70K H/H’s.
    • As you can see the over $120K H/H’s are the big driver as Veterinary Prices continue to increase at a high rate. Most other income groups appear to be choosing to defer, delay or seek other options in terms of traditional Veterinary Services.
    • H/H Veterinary Spending plummeted in both low income and the “middle class”…down $1.7B
    • The one surprise is the $30>70K group. There must be other factors beyond income.
  • Pet Services 2014 – Total $5.7B; Up $0.40B (7.6%)…Only 34% by under $70K H/H’s.
    • Once again the over $120K H/H’s are truly driving what is a below average increase in the industry. Inflation may be becoming an issue.
    • The $70K>$120K “middle class” is showing an increase. However, as with the Supply segment, the $30>$70K group is dialing back on spending on services…but still accounts for almost ¼ of the spending in this segment.

Overview by Income Group (See Data Download for details)

  • $30K or less – Pet Spending down -$0.98B. This is driven by a large (-653K) drop in the number of H/H’s and a slight drop in H/H Pet spending to $237.82. H/H spending ever so slightly up for Food, Supplies and Services. The big drop came in H/H Vet Spending -32%, which drove the Veterinary Segment down -$1B. This income group is obviously price sensitive and the ever inflating Veterinary Prices are having an impact.
  • $30K>$70K – Pet Spending up $2.02B. The increase in this segment is due to a 11.8% increase in H/H Pet spending to $447.78. There was also a 0.4% increase in the number of H/H’s (+147K). The increase in $ was not just across the board in every segment. They spent about -3% less per household on Supplies and Services which produced a drop of about -$0.13B. However, each H/H spent 8% more on food which generated a $0.6B increase. (The only other increase in Food spending came from the $120K> group.) The big dollars came from a 42% jump in H/H Veterinary spending producing $1.6B increase.
    • This $30>$70K group is obviously conscious of their spending as the two somewhat discretionary segments were essentially flat but the “necessities” of Food and timely Veterinary care were up…a lot. This is a significant change for this income group.
  • $70K>$120K – Pet Spending up $160M. This segment is growing in numbers (+482K) but Pet H/H spending is down -4% to $651.85. Like the $30k>$70K segment, results are mixed…but exactly opposite. There is increased H/H spending on Supplies and Services while spending on Food and Veterinary are down. The biggest changes are in Veterinary, down -$0.64B and Supplies, up $0.87. The changes in the other segments are slight. Food is down -$0.13B and Services are up only $0.06B.
    • With income above the National average of $67K, this group has always been a prime focus for our industry so the relative lack of performance is a concern. When you look at the income ranges within this group, you see that the drops in spending in Veterinary and Food occur across all income values. We have noted that most Americans have become more value conscious. It appears that a certain percentage of this group started “shopping around” or delayed some services.
  • $120K> – Pet Spending up $5.37B. What can you say? This is the fastest growing segment in number of households (+1.332K). The total H/H increase for the country was (+1,336K) so the net increase for all groups below $120K was (+4). Combine that with a 27% increase in Pet H/H spending to $1067.08 and you get a fairy tale. All segments are up. Veterinary and Supplies have the biggest increases with $3.1B and $1.2B respectively. Although Food at +$0.71B and Services at +$0.35B are also the biggest increases for any income group. Currently, this is the biggest opportunity in the industry. They shop at a variety of retail channels…Pet Specialty, Clubs, even Value Stores but also remember… that 94.5% of them have high speed internet service!

A Final Note

Up $6.6B! The “Headline” news for the industry is spectacularly good. However, as usual when you start looking at the details you find pluses and minuses. That’s not bad. Even the negatives are usually opportunities that, if properly handled, can generate unanticipated growth.

The Demographics of Pet Spending gives different ways to look at the market…. We looked at income. How about age, H/H composition, occupation, race/ethnic background, education, home tenure…? The USBLS has provided Pet Spending for these demographics and more. Here are a few interesting demographic “headlines” about Pet spending in the U.S. that we may address in future posts:

  • Married Couples up $8.2B; Singles down -$1.6B
  • African Americans up $1B; Hispanics down -$1B
  • Own your home up $3.5B; Renters up $2.7B (27%)
  • Over age 65 up $3.1B…”Retired” up $1.9B

Let’s take another look at that last headline. It may have given us a clue to the somewhat unusual spending patterns in the $30K>$70K group…“Baby Boomers” are generally given a lot of credit for the fabulous growth of the Pet Industry…but we/they are getting old. What is happening…what will happen? Let’s look closer…

  • Age 65+: H/H’s up 1,165K; Income $45K; Pet Spending Up $3.1B; Spend 1.02% on Pets
  • Retirees: H/H’s up 653K; Income $39K; Pet up $1.9B; Spend 1.0% on Pets; Also spend 21% of Total Service $

Well, that seems to make the performance of the $30K>$70K group a little clearer, but what action should be taken? Aging causes changes. Money becomes a concern and formerly easy tasks become harder…but you don’t want to give up the things that make life worthwhile…like your pets. Retailers and service providers could offer a Senior Discount…say 10% off for age 65 and older. This should be affordable and definitely make it easier for Senior Pet Parents, a fast growing demographic, to continue the benefits of having Pets.

One last bit of info….The 25>34 age group has an average income of $61K and their Pet Spending is up $1.5B!  It turns out that the Pet spending in the $30K>$70K is being driven by both ends of the Age Spectrum. It reinforces that Pets are a lifetime commitment and bodes well for the industry!

As promised, a 2 page detailed Appendix on Pet Spending by Income Group is available through the link below. Just click on the button to download and save the file as a PDF. If you would like this in Excel format, send me an e-mail request.

[button link=”https://www.petbusinessprofessor.com/wp-content/uploads/2015/10/PetSpendByIncomeGroup2014.pdf” type=”icon” newwindow=”yes”] Download Data (PDF)[/button]

 

Petflation Update: August 2015 – The Good, the Bad and the…???

There was pricing turmoil early in the year. However, things calmed down in May and June with the Prices in all segments showing moderate increases. That set the stage for July…with a record 1.95% drop in Food prices bringing the CPI for the total industry down. What would August bring? Remember, it’s the Pet Industry. It’s always interesting.

In August Supply prices turned up and now seem to be on a positive path for the year. This was welcome news. The Service Segments are usually quiet in the Summer Months with little or no movement in prices…not this year. They both moved sharply upward. This actually mitigated another drop in Pet Food prices and prevented the prices in the Total Industry from falling for a second consecutive month.

Here’s what 2015 looks like so far…

AugCPI-15-1

SPECIFICS ON CPI CHANGES

Veterinary Services

  • August – Up ↑ 0.46% (Last year August went Down ↓ -0.05% – basically flat)
  • Year To Date: Up ↑3.71%

NonVet Services

  • August – Up ↑ 0.71% (Last year August went Up 0.06% – basically flat)
  • Year To Date: Up ↑2.62%

Pet Food

  • August- Down ↓-0.41%% (Last year August went Up ↑0.28% a bad change)
  • Year To Date: Down ↓-2.93%…Huge!

Pets & Pet Supplies

  • August- Up ↑0.34% (Last year August went Down ↓-0.89%…A Big PLUS!)
  • Year To Date:↓-0.66%…coming back!

Total Pet

  • August- Up ↑ 0.13% (Last year August went Down ↓-0.11% – All segments but Food are up.)
  • Year To Date: Up ↑0.16% – Looks to stay positive.

OBSERVATIONS

  • Food prices turned down in January but looked to be making a comeback in May & June… then the bottom dropped out of prices over the last 2 months.
  • Supply prices turned up – over a 1.2 % turnaround versus last year.
  • Veterinary and Non-Veterinary services are generally flat this time of the year. They were actually down in August of 2014. That makes this year’s increase even more significant.
  • The Total Pet Market Prices turned positive and should stay there. The unexpected increase in the Service prices…and Supplies counteracted the continuing drop in Food. The biggest concerns..Deflation in Food…Inflation in Veterinary Services.

Next, let’s look at the monthly history over the last 22 months to put this month’s data into perspective. August of 2015 and August of 2014 are outlined so you can see the journey over the last 12 months.

AugCPI-15-2

COMMENTS

August is usually flat except for Supplies. This year it was very volatile. Service Prices had a big increase and Food continued down. This graph makes it easy to see how 2 negatives can create a seemingly positive situation as overall Total Pet prices are up 1.2% versus a year ago.

The chart below consolidates key data and compares the 2015 YTD CPI to the 2014 annual CPI. It also includes an updated projection of the annual CPI change for 2015. September and/or December could produce a drop in Food and/or Supplies but October & November are generally up…across the board.

AugCPI-15-3

COMMENTS – BY INDUSTRY SEGMENT

Pet Food – What can you say? The price deflation in this largest segment is the biggest news and the biggest concern in the industry. July saw the biggest single month price drop in history…-1.95%. One could expect a rebound in August which is generally the start of the “normal” Fall rise in Food prices, but food prices continued to fall. Prices are now down -2.93% since December. Right now Pet Food prices are basically equal to 2012 – three years ago. There is simply not enough time left for a recovery, so 2015 is projected to be the second consecutive year of deflation in Pet Food…down -0.67%.

In some segments, like Supplies, where much of the spending is discretionary, deflation can spur increased spending. However, buying Pet Food is not discretionary it’s a necessity which is purchased on a regular basis. Therefore, the consumer is much more likely to be influenced by retail price. Unfortunately, lower prices don’t result in an overall increase in sales. They just increase the competitive pressure on Manufacturers and retailers as the consumer searches for value.

Pets and Pet Supplies – Although prices are down 0.66% since December, we need to remember that 2014 was unusual. December was the pricing peak for the year. That usually occurs in November. We are 0.29% ahead of last year’s overall pricing and that should improve. We may still see price drops in September and even December but we’re looking at a projected increase of 0.61%

Perhaps the deflation caused by commoditization has “bottomed out”. Let’s hope so. Long term deflation is a tougher problem to solve than excessive price inflation. It’s also not solved in just one year. The segment will need moderate increases for several consecutive years.

NonVet Services – Prices have been growing steadily since April. They usually flatten out in the Summer months but not this year. In July prices went up and then August brought an even bigger jump of 0.71%. We now expect prices to increase 2.12% in 2015 but they could go higher. In 2014 they increased 2.9%. This can slow the segment’s overall growth and limit it to higher income households.

Veterinary Services – The Veterinary Services Segment is projected to be Up 3.44% in 2015. Last year prices increased 3.5%. The segment continues to grow but the increases are coming from the high income Pet Parents – $120K and above.

Total Pet Market – (The Good) Supplies appear to be turning around the deflation pattern that has persisted since the recession. (The Bad) The huge Food segment is now the biggest concern. With prices continuing a precipitous drop in August, a second consecutive year of deflation is virtually a sure thing. Deflation puts tremendous pressure on manufacturers and retailers and there is no easy fix. The Service Segments – Veterinary and Non-Vet have the opposite problem… as prices continue to spiral upward. The price deflation in the Food segment will not produce increased overall purchases because of the nature of the products but the high inflation rate in services can result in decreases in the amount of services or limiting their market appeal to higher income groups.

(The ???) The Total Pet Market is now projected to have a 1.11 increase in prices in 2015. This looks pretty good, even healthy and would indicate that the bulk of the Industry’s growth this year will be a “real” increase. However, as we have seen, it is being generated by 2 big negative, but opposite situations in Pet Food and Veterinary Services. Supplies and hopefully Non-Vet Services seem to be “coming around” to more acceptable levels but we need the other two to change their current courses.

This last chart should make it easier to compare the up/down performance of each segment:

AugCPI-15-4

The turnaround for Supplies is readily apparent. You can also see the big deflation problem in Food over the last 2 years but especially in 2015. Of course, the sharply rising prices in the Service Segments are a big contrast to the Product Segments. In terms of pricing, the Pet Industry has been in turmoil for the last 2 years…but you would never know it if you just looked at Total Pet numbers.

U.S. Retail Market – 2015 Midyear Update: The Race for the Consumers’ $$$?

How much is the U.S. Retail business up through June? Yes, the question is not if…but how much? Since 1992 only 2009 generated a decline over the previous year in the first half and in the annual numbers. Here is another question…which part of the Retail Market is most relevant to our industry?  Take a look:

15-JulRtl1

  • Restaurants (Food Service) – are having a good year, up↑8.97%. However, they are not really relevant. They are 12% of the Total and removing them lowers the increase to 1.2%, almost half.
  • Automobile Sales – are also doing well, up↑7.43%. These big ticket items are also not very relevant in the Consumer Packaged Goods business and they are 21% of the total. When you remove Auto and Food…the numbers go negative! Down ↓0.65%. What is driving this Drop?
  • Gas Stations – ↓Down 20.7% from a year ago. Motor Fuels account for over 80% of the total revenue of gas stations. Gas prices are down 29% from the first half. The oversupply is a conscious effort to reduce competition from alternate sources. Gas Stations are also not really relevant to our industry. That leaves us with…
  • Retail, Less Food, Auto and Gas – Up 3.1% to $1.5 Trillion in the first half of 2015. This is 58.4% of the total U.S. Retail market and it is growing 50% faster than the Total…and Very Relevant!

Before we look at individual channels, let’s look at recent overall 1st half performance:

15-JulRtl2

Regardless of how you look at it, the first half of 2015 was not as robust as the past two years. In the “best” case in the graph, the rate of relevant U.S. Retail growth is 14% less than in 2014. However, the graph does give us a benchmark to measure the performance of specific retail segments. If their growth exceeds 3.1%, then they are gaining market share. If it is less than 3.1%, they are losing market share…even if sales are up! Let’s look at how the major retail segments are doing.

15-JulRtl3

These are large slices of the U.S. Retail pie. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 58.3% of the total market. If you look back at our post on the channel migration of Pet Products Sales, you will see that in the 2012 these divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores but Pet Products are also “on the shopping list” in the outlets where they spend most of their money.

Major Divisions of the market generally don’t show much movement in market share in just one year so the change in the General Merchandise Stores and Non-Store “Divisions” is very significant. Each of the major divisions includes a number of subsegments. General Merchandise includes Traditional Department Stores, Discount Department Stores, Supercenters and Clubs as well as $ and Value Stores. These specific retail channels often have far greater movement in share because this is the level that the consumer “views” in making their initial shopping choice.

Enough “overview”! Let’s look at the first half performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. We will use 2 separate graphs to illustrate the situation in these 12 Channels. The first will show the % change in sales in 2015 vs 2014. The next will “show us the money” by translating the % into $ gained or lost.

Then we will wrap it up with some observations by channel.

This first graph shows the percentage change in the first 6 months sales of 2015 versus the same period in 2014. Remember, we determined the “norm” to be an increase of 3.1%

15-JulRtl-4

The leader is no surprise. It just reinforces what we all “thought”. Now, as promised, I’ll “show you the money!” For a reference, the Total increase from all Retail Channels –Food, Auto & Gas was $45B

15-JulRtl-5

The growth in the Internet is even more pronounced when you look at the change in $ spent!

 OBSERVATIONS

  • Internet/Mailorder – $188.8B, Up $18.9B (+11.1%). 42% of the total increase for the $1.5T Retail Market (1st Half Total) came from Internet/Mailorder. The Consumer Migration to this channel noted in a post documented earlier this year…is accelerating – gaining 0.9% in Total Market Share in just a year.
  • Super Markets – $287.2B, Up $8.2B (+2.9%) This largest subsegment is barely holding its own as it lost 0.1% in Market Share. Right now the major competition is from SuperCenters/Clubs. We’ll see if the Internet becomes a factor.
  • Department Stores – $25.7B, Down $0.5B (-3.3%). This segment is not particularly relevant to Pet but I included them as they are part of the best “visual” example of the channel migration of the U.S. consumer. 50 years ago they “ruled” the GM category. Then they started to slide as they failed to adapt to the changing wants and needs of the consumer. One small example of this is their failure to address America’s growing relationship with our companion animals.
  • Discount Department Stores – $48.4B, Down $0.8B (-1.5%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top was brief as the SuperCenters/Clubs offered true 1 stop shopping.
  • SuperCenter/Club Stores – $208.4B, Up $1B, (+0.5%). These outlets with their broad mixture of grocery and general merchandise…at great prices quickly became a dominant force in the retail market. They are second only to Supermarkets in Retail Market Share. However, they “needed” to be up $6B in the first half of 2015. They lost 0.37% in Market Share, one of the biggest drops of all the U.S. Retail Channels.
  • $ & Value Stores – $32.4B, Up $1.7B, (+5.4%). – A Great Value and easy to shop. The growth in this segment is visible proof that American consumers want Value AND Convenience.
  • Drug Stores – $128.4B, Up $5.7B, (+4.6%). 60+% of revenue comes from Rx Drugs. The growth in this segment is largely due to a 5.4% Increase in Rx Prices over the same period in 2014.
  • Sporting Goods – $20.7B, Up $2.3B, (+6.2%). A minor player in Pet, this segment enjoyed a strong first half in 2015.
  • Home Centers – $122.5B, Up $5.5B, (+4.0%). These “project driven” outlets have never done a significant Pet Business. Their growth is tangible evidence of the recovery from the recession.
  • Hardware – $12.0B, Up $0.8B, (+7.1%). Exceptional strength in this minor Pet segment. Once again evidence of ongoing economic recovery.
  • Farm and Garden Stores – $25.2B, Down-0.1B, (-0.5%). This segment had been showing growing strength in both Pet and Total sales. Spring is their largest “lift” season. We’ll have to wait until yearend to see if this year’s drop was an anomaly or reflective of an overall trend.
  • A/O Miscellaneous Stores $34.0B, Up $2.2B, (+6.6%). Florists, Pet Stores, Art Dealers…there are several segments bundled into this group. Based upon detailed data from the 2012 Economic Census, Pet Stores probably account for about 25% of this segment. With few large “chains”, this growth speaks well for “smaller” U.S. Retail Businesses…at least in the first half of 2015.

Now let’s wrap it up with a brief summary…and provide you with the detailed data for future reference.

SUMMARY 

There is no change at the top. Supermarkets remain the largest Retail Channel, followed by SuperCenters & Club Stores. The Internet/Mailorder segment is growing even faster than anticipated. Gaining 0.9% in Market Share in a $3T annual market in 1 year is definitely fast. However, this is just the first half. We’ll see if this Channel can maintain this pace for the whole year. If the current trends do continue, Internet/Mailorder could take over the #2 position in the U.S. Retail economy in as little as 2 years. You also have to wonder what will happen when the internet turns its attention to grocery items.

There are other notable points that relate to the Pet Industry  – the continued growth of the $/Value Stores and the unexpected strength in the A/O Miscellaneous Channel.

Bottom Line: The U.S. Retail Market is evolving as the consumer migrates to the channels which best fulfill their current wants and needs. To survive and prosper, you must identify those needs and adapt.

Here are the details:

2015-JulRtl-6

Contact me if you would like an Excel version of this detailed data!

Petflation Update: July 2015 – Food Drives Total Pet Prices Down in Record Drop↓

In June, the volatility in the Pet Market segments appeared to be calming down. All segments had moved up slightly for 2 consecutive months. This was expected for the Service Segments but represented a welcome change for Supplies and Food and put Total Pet back on Plus(+) side for the year.

In July we usually expect the Service Segment Prices to flattened out and prices to fall in Food and Supplies. The amount of this drop was critical. If it was less than last year, then the likely decline in Food prices for the year would be mitigated…and Supply Prices may actually turn positive…moving away from deflation.

Then in July the Food Prices went “off a cliff” with the biggest single monthly drop since they began keeping records in 1997 – down -1.95%. This also generated a record monthly drop in the Total Pet Industry of -0.64%.

Here’s what 2015 looks like so far…

CPIJuly-1

SPECIFICS ON CPI CHANGES

Veterinary Services

  • July – Up ↑ 0.19% (Last year July went Up 0.07% – basically flat)
  • Year To Date: Up ↑3.23%

NonVet Services

  • July – Up ↑ 0.23% (Last year July went Up 0.06% – basically flat)
  • Year To Date: Up ↑1.89%

Pet Food

  • July- Down ↓-1.95%% (Last year July went Down -0.63%. This year’s drop is 3 times bigger.)
  • Year To Date: Down ↓-2.53%

Pets & Pet Supplies

  • July- Down ↓-0.48% (Last year July went Down -0.86%. This year’s drop is only about 1/2 of that.)
  • Year To Date: Down ↓-1.00%

Total Pet

  • July- Down ↓ -0.64% (Last year July went Down -0.5% – This year’s drop is almost 30% greater.)
  • Year To Date: Up ↑0.04%

OBSERVATIONS

  • Food has been consistently down since December but the record drop in July was three times as big as the decline in July 2014.
  • The expected drop in Supply prices was only half as steep as 2014.
  • Veterinary and Non-Veterinary services are generally almost flat from June to July. This year they moved up 0.2%, which is small but only accelerates the inflation in these segments.
  • The July drop in the Total Pet Market Prices was also the biggest single monthly drop since they began keeping records in 1997. The increase in the Service prices actually mitigated the impact of the precipitous drop in Food and kept the overall prices about even with December 2014.

Next, let’s look at the monthly history over the last 21 months to put this month’s data into perspective. July of 2015 and July of 2014 are outlined so you can see the journey over the last 12 months.

JulyCPI-2

COMMENTS

July generally brings price decreases in food and supplies. However, the severity of the drop in Food was unprecedented. Overall we are about 1.0% above the pricing of July 2014. Food is the only segment with prices lower than a year ago. But…it is the largest segment, so it is a major “driver” in the total market.

Now, let’s take a slightly different look at the data. The chart below includes a comparison of the 2015 YTD CPI to the 2014 annual CPI and also includes an updated projection of the annual CPI change for 2015. August or September could produce another drop but if we get the normal Fall increase….

CPIJuly-3

COMMENTS – BY INDUSTRY SEGMENT

Pet Food – This largest segment is the headline news. July produced the biggest single month price drop in history…-1.95%. Along with the -1.17% drop in January, prices are now down -2.53% for the year. Fall generally produces monthly increases in Pet Food prices but it seems unlikely that they can recover completely…plus December often brings a drop. Therefore, 2015 is projected to be the second consecutive year of falling food prices…down 0.42%. The competitive pressure is getting intense as today’s consumer actively searches for value.

Let’s put this price change in “historical” perspective. For most years since 1997 Food Prices have risen 1-3% annually. In 2007, a series of Pet Food recalls began. From June of 2007 to July of 2009 Pet Food prices rose 23%…yes, 23% in 25 months. It seems that the retail product mix and/or product make up was substantially changed during this time.

There were also other factors coming into play, as the U.S. was in the heart of the biggest recession since the “Great Depression” in the 1930’s. In Mid-2009 prices turned downward and the annual Pet Food CPI dropped -0.4% in 2010. The next 3 years saw moderate increases of 2%. Then in December of 2013 Food prices started down again and have not recovered. The current prices are roughly equal to those in the summer of 2012 – 3 years ago.

The recent recession is widely regarded as a “turning point” in the behavior of the U.S. consumer, with value becoming THE major factor in their purchase decisions. This invariably produces competitive pricing pressure which we are seeing in this major Pet Industry segment. Unlike other segments, “buying” Pet Food is not discretionary. It’s a necessity. Therefore, most consumers are going to be greatly influenced by retail price.

Pets and Pet Supplies –  Since I first began writing about Petflation, the lead story has invariably been the “deflation” of Supplies due to increased commoditization of product categories. With July’s price drop only being one half of last year’s, it seems increasingly probable that supply prices will increase this year for the first time since 2011 and only the second time since the recession…Up 0.45%.

It’s not a sure thing. We should see another price drop in either August or September and possibly one in December. The results in December may be critical for a positive year…then we need to string a few positive years in a row…which hasn’t happened since the recession in 2009.

NonVet Services – July’s price jump was a bit of a surprise. Increases in this segment have been moderating. We now expect prices to increase 2.02%, which is slightly below 2014 and significantly below other recent years. There is an indication from the Consumer Expenditure survey that the years of large increases have started to slow real growth in this segment, specifically limiting it to households with an income of over $120K.

Veterinary Services – The Veterinary Petflation rate is on track for another year over 3%…Up 3.32%. The continued high inflation rate has substantially reduced the rate of increase in the amount of Veterinary services and limited the growth to households over $120K in income. Households under $50K were actually showing a substantial decrease in spending according to the U.S. Consumer Expenditure survey.

Total Pet Market – Driven by Food and Supplies, July produced the biggest single month price drop since 1997. However, the projection for 2015 is still Up 1.09%. This looks pretty good…on the surface. However, when you look beneath, it is being generated by 2 big negative, but opposite situations in Veterinary and Pet Food. Supplies and Services seem to be “coming around” to more acceptable levels but we need the other two to respond for a healthy Pet Industry

This last chart should help put the recent, relative performance of each segment into perspective:

CPIJuly-4

You can readily see the reduced inflation rate for Services and the turnaround for Supplies. You can also see where the big problems lie…in accelerating inflation in the Veterinary side and the substantial deflation in the Pet Food Segment. We’ll keep you up to date in the critical last months of 2015.

U.S. Top 100 Retailers – Who is up? Who is down? Who sells “Pet”?

The U.S. Retail market is impressive to say the least. In 2014, the total retail sales were over $5 Trillion. This total comes from retailers of every size and type – from Super Centers to individually owned pet shops. Yes, it also includes online retailers. You don’t have to have a “brick ‘n mortar” store to be a retailer in today’s world.

In this post we will try to narrow the focus to the top 100 Retailers in the U.S. Market. These 100 companies account for 1/3 of the total retail market! How did they perform in 2014 vs 2013…and of course, which ones sell Pet Products? I will warn you that it is crammed with data but we’ll try to break it into smaller pieces with regular observations. All of the base data was done by Kantar Research and published by the National Retail Federation (NRF).

An important reminder: Remember you can click on the data charts to get a better view. On some of the more detailed charts you can even expand this enhanced image by clicking on the button that appears in the upper right corner. This makes the details very clear and easy to read. I have also included a download link to an excel file at the end of the post so you can sort and print all of the individual company data on the Top 100.

Now, let’s get started with an overview:

Top100-1

Observations

  • The Total Market grew $200B in 2014 – Up 3.9%
    • The Top 100 grew $83B and the growth rate of 4.5% exceeded the overall market.
    • The Top 100 accounts for 36% of the total market.
  • Let’s pare it down a bit. If you take out Auto, Restaurant and Gas Station sales, the “target” retail market for our industry is $3 Trillion. – about 59% of the total market.
    • Removing the restaurant sales from the Top 100 numbers – at $1.76T they are still 1/3 of the Total U.S. Market and…
    • 57% of the target market.

The Top 100 is obviously critically important, and right now it’s outperforming the overall market. We need to remember that this “Top 100 club” is in fact a contest. Every year companies drop out and new ones replace them. This can be the result of acquisitions or simply slumping sales. You’ll see the new additions during the course of the report. Dropping out of the Top 100 in 2014 were: Harris Teeter Groc. and Office Max – (both acquired); Ingles Markets, Roundy’s Suprmkt, Brinker Intrnlt (Chilli’s,Maggianos) and Bloomin’ Brands (Outback, Carrabas) – all with slowed sales.

Now let’s start “drilling down” on the Top 100. Here’s a summary of Regular and Online Retailers versus Restaurants.

Top100-2

Observations

  • Biggest note may be that the Retailers have 60% of the stores but 92% of the business.
  • The growth in Retailers is driving the top 100.
    • 4.9% in sales – twice the increase rate of restaurants (30 times greater in $)
    • 6.9% in stores – over 4 times the rate of restaurants. Cautionary note: The % increase in sales is not matching the % increase of sales.

Now that we have an overview of the Top 100, we’ll take a look at the “targeted” retailer segment. There are 85 total companies. How many are buying and selling Pet Products? Here’s where we can specifically see how Pets have become an integral part of the American Household and how fierce is the competition for the Pet Parents’ $.

Top100-3

  • Of 85 possible companies, 69 are selling some mixture of Pet Products in stores and/or online.
    • Total Retail Sales of all products $1.6 Trillion
    • 128,467 Stores are stocking and selling pet products
    • Growing strongly in outlets 7% and Sales $4.6%

These totals are only for the Top 100 and include only 1 Pet Chain and 1 Farm Store Chain as they were the only companies to make the list. Pet Products are sold in thousands of other outlets. The data from the 2012 U.S. Economic Census detailed over 150,000 retail stores selling Pet Items. With only moderate growth in store numbers (5%), the total would exceed 165,000 in 2014.

In the next segment we will look at the detailed list of the top 100. We’ll sort it by retail channel with subtotals in key columns. We’ll then break it into smaller sections for comments. Remember, at the end of the post there will be a download link for an Excel file with the data. This will allow you to sort it as you choose…by rank, alpha, pet/nonpet…it’s your call.

I have not done a lot of highlighting however:

  • Pet Column – a “1” with an orange highlight indicates that products are only sold online
  • Rank Columns – Change in rank from 2013:
    • Up 3 or 4 spots = Lt Green; Up 5 or more = Dk Green
    • Down 3 or 4 Spots = Lt Pink; Down 5 or more = Dk Pink

Remember online sales are included in the sales of all companies.

Top100-4

Observations

  • Drug still showing steady, slow growth overall. It is being driven by the Big 3.
  • The Department store segment overall is declining. This particular group is showing some growth, even with a reduced store count.
    • 3 companies started carrying pet (limited skus) – all online only. Penney’s moved some items to retail.
    • Sears (includes Kmart) is dropping in sales and especially store count.
  • Americans are still driven by convenience so these convenience stores are doing well.
  • The drop in Military Commissary sales is slight but somewhat surprising.
  • The Auto Parts Stores are showing strength, especially O’Reilly at +8.5%
    • Considering how much our pets accompany us in the car, it is somewhat surprising that their offering of Pet items is sparse.
  • Three of the Apparel Value retailers are showing the largest growth and they all have Pet Products merchandised at retail.

Top100-5

Observations

  • Headline: Amazon sales are only up 55.9% in 2 years!
    • The Phone People – ATT, Verizon and Apple are growing faster than sending a text.
    • Toys R Us continues its decline as does Barnes & Noble
  • Signet Jewelry’s spectacular growth comes from acquiring Zales. Last year neither were on the list. Now, together they are. Some of the other huge numbers are from similar acquisition situations.
  • Mass Merchants growth is subpar.
    • Wal-Mart is the “big dog”, but in 2yrs they have increased store count 11.8%..sales 4.5%.
    • Target sales are up slightly.
    • Big Gainers are the Clubs – Since 2012 Costco is up 12.2%, BJ’s is up 11.7%.
  • Home Improvement/Hardware is showing growth from each of the “players”.
  • Home Goods sales growth is slow but steady.
  • Farm Stores: Tractor Supply deserves recognition – in 2 years, store count up 17%, sales up 25%

Top100-6

Observations

  • Supermarkets: Overall these stores are doing reasonably well.
    • Some problems with some of some long time companies – In 2 years time, Safeway down 6.8%, Food Lion down 9.2% and A&P down 12.2%
    • Some high enders like Whole Foods and Trader Joes are performing well.
    • Some of Kroger’s growth comes from the acquisition of Harris Teeter.
    • Bi-Lo, HEB, Wegman’s and Winco are all performing above the average.
  • Small Format Value Stores: This segment does more business than Traditional Department Stores.
    • Family Dollar Stores is the only one underperforming and they were just acquired by Dollar Tree.
    • Dollar Tree is performing best at +9.4%. Now they will be operating with 13,000 stores.
    • Dollar General is also doing great at +8%
    • Big Lots is actually down 0.4% over 2 years.
  • PetSmart – Acquired Pet 360 but the combined growth is slightly below par at 2.4%
  • Office Supply Stores – Sales Continue down. Seems similar to what happened to Toy Superstores,
  • Dick’s Sporting Goods is expanding in store count and sales – up 9.6%

Top100-7

Restaurant Observations

Although restaurants aren’t relevant in terms of Pet Products Sales, they are relevant in our daily lives. Almost all of the companies on this list are “fast food” or coffee.

  • Chic-fil-A Starbucks and Chipotle are leading the pack.
  • Of the big three, McDonalds, Burger King and Wendy’s, only Wendy’s is showing + numbers.

Wrapping it up!

There is a lot of detailed data here. I encourage you to use the link below to download the Top 100 data file in Excel. It is in ranked order but you can sort it however you like. This group of stores accounts for 37% of the entire $5.2 Trillion U.S. Retail Market and is gaining ground. It’s probably worth a second look.

As I was preparing this post, it brought to mind the ongoing migration of the U.S. Consumer. When you see facts about specific retailers, it seems to drive home the point that the market is constantly evolving. A few that really “hit home” with me are:

  • Amazon Sales Up 55.9% in 2 years.
  • Tractor Supply Up 24.7% in 2 years…as we Americans tend to our suburban “farms”.
  • Best Buy, Barnes & Noble, Office Depot, Staples and Toys R Us…all continue down. The age of the Superstore appears to truly be ending

Take a look at the details to see what “hits home” with you…and let me know. I would love to hear your feedback.

[button link=”https://www.petbusinessprofessor.com/wp-content/uploads/2015/08/PostTop100-US-Retlrs.xlsx” type=”icon” newwindow=”no”] Download Top 100 (Excel)[/button]

 

Petflation Update: 2015 – 2nd Quarter – Bad Start…Strong Finish!

We last looked at “Petflation” in April. That month produced another drop in Food & Supplies pricing which resulted in the second monthly decrease in the Total Pet Industry Prices since December.  In fact, for 3 of the first 4 months of 2015 the Total Pet CPI was below December 2014.

Then came May and June, which brought CPI increases in all segments. The Total Pet CPI went positive and stayed there. We also found a “hidden” pleasant surprise from the Supply Segment.

But first, let’s take a look at the specifics of what has happened since December.

CPI-Jun-15-1

SPECIFICS ON CPI CHANGES

Veterinary Services

  • April – Up ↑0.40%; May – Up ↑0.74%; June – Up ↑ 0.27%
  • Year To Date: Up ↑3.03%

NonVet Services

  • April – Up ↑0.42%; May – Up ↑0.32%; June – Up ↑ 0.33%
  • Year To Date: Up ↑1.66%

Pet Food

  • April – Down ↓-0.65%; May – Up↑0.37%; June- Up↑0.36%
  • Year To Date: Down ↓-0.59%

Pets & Pet Supplies

  • April- Down ↓-0.42%; May – Up ↑0.40%; June- Up ↑0.17%
  • Year To Date: Down ↓-0.52%

Total Pet

  • April- Down↓-0.27%; May- Up ↑0.45%; June- Up 0.34%
  • Year To Date: Up ↑0.68%

OBSERVATIONS

  • 3 of the first six months in 2015 produced drops in Food and Supplies prices.
  • The price changes in Food and Supplies have a similar pattern. However, Food is showing more volatility than Supplies
  • Average Supplies Prices are actually 4.3% higher than the same period in 2014.
  • Veterinary prices are increasing at a high rate.
  • The NonVet Service segment continues to increase in price but with some moderation.
  • The Total Pet Market Prices wasn’t positive for 2 months in row until the “across the board” increases in all segments in May and June.

Next, let’s take a look at the monthly history over the last 21 months to get a better feel for the rollercoaster ride in Food and Supplies as well as the striking rise in Veterinary prices. June of 2015 and June of 2014 are outlined so you can see the journey over the last 12 months.

CPI-Jun-15-2a

COMMENTS

The late Spring Months generally bring price increases in all segments. 2015 was no exception. Overall we are about 1.1% above the pricing of June 2014. Only Food is below the prices of a year ago. Since it is the largest segment, this is obviously a concern.

Now, let’s take a slightly different look at the data. The chart below includes a comparison of the 2015 YTD CPI to the 2014 annual CPI and also includes an initial projection of the annual CPI change for 2015. Take a look. You will find a surprise!

CPI-Jun-15-3

COMMENTS – BY INDUSTRY SEGMENT

Pets and Pet Supplies – December was the “high point” of 2014 Supplies prices. This is very unusual considering the pattern of recent years. The result is that although Supply Prices are down from December, the first six months are actually above the same period a year ago. Of course, they are still 4.2% below what they were in June 2009 – 6 years ago.

Here’s the big news! For the first time since I began tracking “Petflation” a year ago, Pet Supplies are projecting a CPI increase for the year…UP ↑0.43%. This may not seem like much. However, except for a miniscule increase of 0.05% in 2011, Supplies prices have been deflating consistently since 2009. The deflation came as a result of the commoditization of more and more product categories and put ever increasing pressure on manufacturers and retailers.

Believe me, this increase is not a “done deal”. Price drops traditionally occur in this segment in the July to September quarter, as well as in December.  Last year saw a precipitous drop in July and August (1.75%) but an unusual increase in December. It would take a combined drop of over 2% in these months to overcome expected increases in the Fall months …and deflate prices in 2015. We’ll just have to wait and see.

NonVet Services – The price increases in this segment have been moderating – in the range of 2-2.5% annually. Recently we have started to see slowed growth in purchases. The sales growth in this segment is coming from households with income over $120K. Price increases should slow in the second half producing an annual CPI increase of 1.99%

Veterinary Services – The Veterinary Petflation rate of over 3% is exceptionally high compared to the other segments. However, it has actually moderated in recent years. From 1999 to 2009 the average annual Veterinary price increase was 6.0%. The cumulative effect of these increases in conjunction with the recession was that 2011 and 2012 produced actual decreases in the amount of Veterinary Services sold and the annual adjusted growth rate since 2010 has slowed to 0.9%. Like the Service Segment, the growth is limited to high income households over $120K. Based upon recent years, prices should almost flatten out for the balance of 2015 producing an annual CPI increase of approximately 3.24%

Pet Food – This largest segment has become the biggest concern. Prices rose in December of 2014 but then came the huge price drop in January – the largest in 17 years. However, it goes beyond that. Retail pet food prices have actually been flat to trending down since March of 2013. In 2014 the annual Food CPI decreased 0.3% from 2013. The only other annual decrease in history occurred in 2010 as a result of the recession.

As of June, the Food segment has regained about ½ of the CPI that it lost in the first 4 months. However, it is still projected to be down ↓-0.2% for the year. Remember, the CPI numbers from the U.S. Government include both food and treats so deflation is a bit more complex than if it were food alone.

Last year there was a big drop in July while all the other second half months were up or stable in price. December is also a big “if” this year. Last year’s December increase was unusual. We really do have to “wait and see” until yearend on this segment.

Total Pet Market – Services, especially Veterinary, increase their upward spiral. There may be some moderation – at least in NonVet Services. The Supply segment is showing some positive trends for the first time since 2009. That leaves only Food to “turn around”. The projected increase in the Total Pet CPI for 2015 is 1.11%.

If Food prices can get back to the positive side and Veterinary price increases drop below 3.0% the result would be a truly healthy Total Pet Industry with an average CPI increase in the range of 1.3 to 1.5%.

One Last Chart – that compares our June numbers to recent history:

CPI-Jun-15-4

2013 and 2014 were a tough years from a pricing perspective. 2015 is shaping up to be a little better. There are some critical waypoints approaching. We’ll keep you up to date.