Spending, CPI, demographics of overall market

2018 U.S. Pet Spending by Generation – A Baby Boomer Bust?

In 2018 Americans spent $77.60B on our companion animals, 0.98% of $8.0 Trillion in total expenditures. Pet Spending was up only $1.47B (+1.9%), a marked change from the +$9.8B in 2017. There were a number of factors affecting pet spending in 2018. The FDA warning regarding grain free dog food helped drive spending down. Increased tariffs on Supplies flattened spending late in the year in that segment. Veterinary Services had a small increase, but it was almost entirely driven by inflation. The only truly good news came from Services, which had the biggest increase in history.

In this report we will look at how these factors and others affected the Pet Spending for today’s most “in demand” demographic measurement – by Generation. Baby Boomers have driven the industry. Are they starting to fade? Are Gen Xers and Millennials stepping up? Using data from the US BLS Consumer Expenditure Survey we will look for answers.

We’ll start by defining the generations and looking at their share of U.S. Consumer Units (CUs are basically Households)

GENERATIONS DEFINED

              • Millennials: Born 1981 to 1999. In 2018, Age 19 to 37
              • Gen X: Born 1965 to 1980. In 2018, Age 38 to 53
              • Baby Boomers: Born 1946 to 1964. In 2018, Age 54 to 72
              • Silent Generation: Born 1928 to 1945. In 2018, Age 73 to 90
              • Greatest Generation: Born before 1928. In 2018, Age 91+

  • Baby Boomers are still the largest number of CU’s at 43.8M and 33.3% of the total but they are losing ground. In fact, they have 1.3M fewer CU’s than in 2016.
  • The 2 Oldest Generations will continue to lose CUs primarily due to death or movement to permanent care facilities. On the other side, the Gen Xers increased their CU count. One factor is a rising divorce rate in the 45+ age group.
  • Millennials have the largest number of individuals, but they rank only third in the number of CU’s. However, this number is rapidly growing as once again a significant number gained financial independence in 2018.

Now let’s look at some key CU Characteristics

The only significant change was the increase in homeownership by the Gen Xers and Millennials. However, the overall homeownership numbers didn’t change due to a decrease by the oldest Americans.

  • CU Size – CUs with 2+ people account for 70.5% of all U.S. CUs (down from 71.3% in 2017) and 80.9% of pet $ (down from 82.5% due to a spending drop by 2 person CUs). Despite 2+ million more CUs, Millennials held their ground. CU size, with all the related responsibilities, still peaks with the Gen Xers and then starts dropping. The Boomers are the last group with 2+ CUs. However, their size fell from 2.2 to 2.1 probably because many adult children moved out.
  • # Children < 18 – 28.0% of U.S. CU’s have children and they generate 30.5% of Pet Spending. Driven by a $2.4B increase by Married Couples with children, CUs with children are once again earning their share. However, the story is more complex. As expected, Single parents spent the least, but the big change came in Married Couple only CUs – down -$1.72B. However, the Pet Spending drop for all 2+ CUs without children was even worse, -$2.5B. Thankfully, single CUs were up $1.64B. There were no changes in the # of children per CU in 2018 but there were definite changes in pet spending behavior. Married with Children and singles both spent significantly more on their pets. The Married with Children group tends to skew younger, but singles have higher numbers at both ends of the age range.
  • # Earners – While not as important as income, Pet spending is also tied to the number of earners in a CU. 2+ person, 2 Earner CUs annually spend 19% more on their pets than 1 Earner CUs. As the chart shows, the “earning” is being done in America by Gen Xers, Millennials and Boomers. However, the Boomers will inevitably fade.
  • Homeownership – Owning and controlling your own space has been a major factor in increased Pet Ownership and spending. Driven by the younger groups, homeownership increased to 63.48% from 62.9%. Homeowners w/mtges spent $3.3B more on their pets but couldn’t overcome a -$3.4B drop from homeowners w/no mtge. As a result, the homeowners share of Total Pet Spending fell from 81.4% to 79.8%. Ultimately, renters, with a $1.64B increase kept the industry positive for the year. The key to increased pet spending in 2018 was paying a monthly housing bill.
    • Millennials are still the most common renters in society, but their level of Homeownership increased from 35% to 37%. However, it is still only 58% of the national average and about 2/3 of the rate of Gen Xers and Boomers when they were the same age.
    • Gen Xers passed the national average in 2018 and Homeownership continues to increase up to age 90.

Next, we’ll compare the Generations to the National Avg.:

In Income, Total CU Spending, Total Pet Spending and the Pet Share of Total CU Spending

CU National Avg: Income – $78.635; Total CU Spending – $61,160; Total Pet Spending – $598.41; Pet Share – 0.98%

  • Income – The Gen Xers are the leaders and widened the gap with a 12.1% increase. The Boomers earn 25% less but are the only other group to exceed the national average. Income drops radically in the older groups as retirement becomes almost universal. Millennials’ income grew 9% but is less than the Boomers and only 63% of the Gen Xers.
  • Total Spending – The Gen Xers make the most and spend the most but it’s not out of line with their income. Boomers also spend more than the average but their after tax income still supports it. The older groups are actually deficit spending in relation to their after tax income. The Millennials’ spending increased 3.1%, second only to the +3.3% by Gen Xers. With increases in CUs, Income and Spending, the Millennials’ retail importance is still growing.
  • Pet Spending – Only 2 groups exceed the national average. However, for the first time, Boomers don’t hold the top spot. That now belongs to the Gen Xers. Millennials also made a significant move, up to 81.4% from 69.6% in 2017.
  • Pet Spending Share of Total Spending – The national number fell slightly from 0.99% to 0.98%. However, the most significant change can be seen in comparing the 2017 and 2018 numbers for all groups. The Boomers dominated in 2017, with 1.28% of all their expenditures being spent on their pets. In 2018, they are still the only group to spend more than 1% of their total on their pets. However, every other group had an increase. In fact, all CUs under 90 yrs old now spend at least 0.92% of total spending on pets. This is an amazing balance and bodes well for the future.

Now, let’s look at Total Pet Spending by Generation in terms of market share as well as the actual annual $ spent for 2014 through 2018. The 2018 numbers are boxed in red (decrease) or green (increase) to note the change from 2017.

  • Boomers are still the biggest force in Pet Spending, but their share fell precipitously to 37.7% from 46.8% in 2017.
  • There are definite age-related patterns which are readily apparent in the bar graph. Spending in the oldest groups is relatively low and falling. In contrast, the two youngest groups are showing consistent year after year growth which spiked in 2018. The Boomers are in the middle. They still have the biggest share but are also the most likely group to have a strong reaction to trends, especially in this era of super premium foods. With their tremendous buying power, this can cause major spending swings impacting the whole industry.
  • In 2018, the Boomers spending plummeted, -$6.5B, but the Gen Xers and Millennials stepped up, +$7.2B. The older groups also contributed, with double digit percentage increases.
  • Boomers – Ave CU spent $672.03 (-$132.91); 2018 Total Pet spending = $29.61B, Down -$6.48B (-18.0%)
    • 2014>2018: Up $0.14B; They have been on a spending roller coaster and are now back to their 2014 $ level.
  • Gen X – Ave CU spent $708.32 (+$91.95); 2018 Total Pet Spending = $25.15B, Up $3.81B (+17.9%)
    • 2014>2018: Up $7.39B; Their annual Pet spending growth since 2014 has been the most consistent of any group, but their 2018 increase of $3.8B surpassed their total increase from 2014 to 2017.
  • Millennials – Ave CU spent $486.85 (+$73.71); 2018 Total Pet Spending = $16.92B, Up $3.42B (+25.4%)
    • 2014>2018: Up $7.23B; The Millennials had a big lift in spending in 2014 but Spending grew only slightly in 2015. Since then, their total pet spending has grown by over $7B, with almost half of this coming in 2018.
  • Silent Gen. – Ave CU spent $420.46 (+$51.66); 2017 Total Pet Spending = $6.72B, Up $0.66B (+10.8%)
    • 2014>2018: Down $0.15B; They still spend a relatively high amount on their pets, but age is becoming a factor.
  • Greatest Gen.– Ave CU spent $179.73 (+76.82); 2017 Total Pet Spending= $0.19B, Up $0.06B (+40.8%)
    • 2014>2018: Down $0.34B; After a lifelong commitment to their pets, their Pet Parenting days are fading away.

The Boomers backed off in Pet Spending in a big way in 2018, but the younger groups immediately made up the difference…and more. Plus, the oldest groups also stepped in to help generate a more positive year for the industry.

Let’s look at the individual segments. First, Pet Food…

  • For Boomers and the younger groups, the up and down, trendy nature of Pet Food is readily apparent, but the swings in spending are more pronounced for the Boomers. In the older generations, pet ownership is fading.
  • The Millennials’ have led the way in food trends, including value shopping and their performance in any given year was matched in the following year by Gen Xers and Boomers …until 2018, when the Boomers broke the pattern.
  • Boomers – Ave CU spent $264.73 (-$84.19); 2018 Pet Food spending = $11.78B, Down $3.93B (-25.0%)
    • 2014>2018: Up $2.04B – After a big lift in 2017, spending plummeted, in part as a reaction to the FDA warning.
  • Gen X – Ave CU spent $234.05 (+9.53); 2018 Pet Food spending = $8.32B, Up $0.61B (+7.9%)
    • 2014>2018: Up $1.33B If this highest income group reacted to the FDA, it was to further upgrade their food.
  • Millennials – Ave CU spent $174.76 (+$20.36); 2018 Pet Food Spending $6.04B, Up $0.99B (+19.6%)
    • 2014>2018: Up $1.76B They are the only group with increases in 2016, 2017 and 2018. They are growing in numbers and in their commitment to their pets. Since 2014 they have been the pioneer in food upgrades.
  • Silent Generation – Ave CU spent $170.43 (+$13.80); 2018 Pet Food spending = $2.67B, Up $0.10B (+3.9%)
    • 2014>2018: Down $0.21B; They remain committed to their pets, but their numbers are starting to fade.
  • Greatest Gen. – Ave CU spent $34.76 (-$16.94); 2018 Pet Food spending = $0.03B, Down $0.03B (-53.1%)
    • 2014>2018: Down $0.15B; CUs are down 60% since 2014. At 91+ years old, their pet parenting days are ending.

Pet Food Spending is driven by trends. In 2018, the FDA warning for grain free dog food created a turmoil. Boomers dialed back to more regular food. However, it appears that the younger groups were unaffected or may have upgraded to even more expensive varieties. Now, let’s look at Supplies Spending.

  • Boomers still have the largest share, barely, but the younger groups have their biggest “presence” in Supplies. Gen Xers and Millennials together account for 57.6% of Supplies spending.
  • Baby Boomers – Ave CU spent $156.81 (-$10.71); 2018 Pet Supplies spending = $6.86B, Down $0.62B (-8.3%)
    • 2014>2018:Up $0.19B; A big lift in 2017, then a cut back in 2018. They may be the only group impacted by tariffs.
  • Gen X – Ave CU spent $192.20 (+$20.46); 2018 Pet Supplies spending = $6.82B, Up $0.85B (+14.2%)
    • 2014>2018: Up $1.34B; Gen Xers perform best in Supplies. They paid for their Food Upgrade in 2015 with Supplies $ but they have come back strong. They lead in CU spending and are virtually tied in $ with the Boomers.
  • Millennials – Ave CU spent $131.13 (+$18.79); 2018 Pet Supplies spending = $4.57B, Up $0.90B (+24.7%)
    • 2014>2018: Up $1.54B; Supplies are again Millennials’ best performing segment. In 2016 they cut spending to help fund increases in Food and Veterinary. Since then, they have come back strong, +$1.8B.
  • Silent Generation – Ave CU spent $90.69 (+3.77); 2018 Pet Supplies spending = $1.47B, Up $0.04B (+2.7%)
    • 2014>2018: Down $0.23B; Pattern is similar to Gen X, but not as pronounced and with lower results.
  • Greatest Gen. – Ave CU spent $65.77 (+$50.99); 2018 Pet Supplies spending = $0.07B, Up $0.05B (+249%)
    • 2014>2018: Down $0.05B; Supplies generally have a lower priority for these oldest Pet Parents, but not in 2018.

Most groups cut back on Supplies spending in 2015 due to a combination of rising prices and an attempt to compensate for the cost of upgrading their pet food. In 2016 Consumers value shopped for food and spent some of the saved money on Supplies. Supply prices dropped in 2017 and basically everyone under 90 years spent more! Late 2018 saw added tariffs. Boomers dialed back their purchase frequency. Everyone else was either unaffected or bought more, early.

Next, we’ll turn our attention to the Service Segments. First, Non-Veterinary Pet Services

  • Gen Xers took over from the Boomers. This segment is skewing younger as the Gen X/Millennial share is now 60.2%.
  • Baby Boomers – Ave CU spent $62.99 (-$2.53); 2018 Pet Services spending = $2.76B, Down $0.17B (-5.9%)
    • 2014>2018: Up $0.08B; Boomers still need Services. Their spending drop was the smallest of any segment.
  • Gen X – Ave CU spent $94.22 (+$39.54); 2018 Pet Services spending = $3.34B, Up $1.44B (+75.9%)
    • 2014>2018: Up $1.75B; Had a big increase in income. Spent significantly more for the convenience of Services.
  • Millennials – Ave CU spent $54.71 (+$17.96); 2018 Pet Services spending = $1.91B, Up $0.71B (+59.0%)
    • 2014>2018: Up $1.20B; They are the only group with an increase every year, but spending “took off” in 2018.
  • Silent Generation – Ave CU spent $43.66 (-$0.92); 2018 Pet Services spending = $0.71B, Down $0.02B (-3.6%)
    • 2014>2018: Up $0.05B; They definitely have a need. Their spending has been reasonably consistent.
  • Greatest Gen. – Ave CU spent $6.62 (+$2.92); 2018 Pet Services spending = $0.007B, Up $0.002B (+42.6%)
    • 2014>2018: Down $0.03B; A continued drop in the number of CU’s and in pet parents, but eked out an increase.

This segment has always found a way to grow every year – until 2017. The small drop in spending was caused by a combination of factors. An extremely competitive environment created deals so even with increased frequency, consumers paid less. In 2018, the increased number of outlets really hit home, especially for the younger groups. Gen Xers and Millennials used some of their rising incomes to spend $2.15B more for the convenience of Pet Services.

Now, Veterinary Services

  • Boomers are still the biggest spenders in this segment, but they only lead the Gen Xers because they have more CUs.
  • The younger groups both have a consistently growing commitment to this Pet Parenting responsibility. The combined veterinary spending of Millennials and Gen Xers has increased $5.7B (+106%) since 2014.
  • Boomers – Ave CU spent $187.50 (-35.48); 2018 Veterinary spending= $8.21B, Down $1.76B (-17.7%)
    • 2014>2018: Down $2.17B; Like Food, the other “need” segment, they cut Veterinary spending by a double digit %.
  • Gen X – Ave CU spent $187.85 (+$22.42); 2018 Veterinary spending= $6.67B, Up $0.91B (+15.9%)
    • 2014>2018: Up $2.97B; Since 2016, their Veterinary spending has exceeded the CU Average. In 2018, although only by a margin of $0.35 per year, they took over the top spot in CU spending.
  • Millennials – Ave CU spent $126.25 (+$16.60); 2018 Veterinary Spending $4.40B, Up $0.82B (+23.0%)
    • 2014>2018: Up $2.73B; Their CU spending is up 100% since 2014. Veterinary has become a much bigger priority.
  • Silent Generation – Ave CU spent $115.68 (+$35.01); 2018 Veterinary spending $1.87B, Up $0.55B (+41.1%)
    • 2014>2018: Up $0.24B; Money is always a factor, but they are still committed to the health of their pets.
  • Greatest Generation– Ave CU spent $72.58 (+$39.79); 2018 Veterinary spending= $0.08B, Up $0.03B (+73.5%)
    • 2014>2018: Down $0.12B; Veterinary care is still a big priority for the remaining pet parents in this oldest group.

Gen Xers and Millennials have consistently increased their commitment to Veterinary Services. In 2014, their share of Veterinary Spending was 30%. It is now 52.1% – a 74% increase. This is a big, fundamental change in spending behavior.

One last chart to compare the share of spending to the share of total CU’s for the 4 largest generations.

  • Gen X Performance – Total: 118.5%; Food: 106.8%; Supplies: 127.6%; Services: 142.0%; Veterinary: 116.3%
    • In 2018 the Gen Xers took over the top spot in performance from the Boomers. They “earned their share” in every industry segment as well as Total Pet. They have increased their Total Pet Spending every year since 2014. During this time, their spending has become more diverse and their performance has improved. The only reason that they are not the leaders in Total $ is that the Boomers have more CUs. Gen Xers range in age from 38 to 53 so they are just entering the peak earning years. Expect their commitment and pet spending to continue to grow.
  • Baby Boomers Performance–Total: 113.1%; Food: 122.7%; Supplies: 104.1 %; Services: 94.9%; Veterinary: 116.1%
    • Boomers led the way in building the industry and are still the “top dogs” in $. They earn their share and in fact, are the still the spending leader in Total Pet and every segment but Services. However, their CU numbers are beginning to fall – down 1.3M (-3%) since 2016. Their spending drop in 2018 was by far the biggest ever and the only time that they spent less in every segment. They should hold the lead in Pet $ for several more years and be a major force for many more, but the Gen Xers and then Millennials are preparing to take their turn at the top.
  • Millennials Performance – Total: 81.2%; Food: 79.0%; Supplies: 87.1%; Services: 82.4%; Veterinary: 78.2%
    • Like the Gen Xers, Millennials have increased their pet spending every year since 2014. Their spending has also become more evenly balanced across the segments. They are growing in CU numbers but their future as the Pet Parenting spending leaders is still a long way off. They need increased income and a more stable home situation. They are educated and well connected. Indications are that they may lead the way in adopting new trends, especially in food. Their progress is good news, but in reality, their leadership is still more than a decade away.
  • Silent Generation Performance – Total: 69.4%; Food: 75.1%; Supplies: 60.2%; Services: 65.8%; Veterinary: 71.6%
    • This group ranges in age from 73 to 90. Pet Parenting is more challenging after age 75. The desire and the commitment to their pets is still there. This is evident in the fact that 0.92% of their total CU spending is on pets.

Baby Boomers are still the Pet $ leaders, but Gen Xers, followed by Millennials are ultimately the future of the industry. Both groups seem ready, willing and able to take their turn at the top. As these groups have risen, Pet Spending has become more balanced across the generations. This bodes well for the continued strong growth of the industry.

 

 

 

 

 

 

 

 

 

2018 U.S. TOTAL PET SPENDING $78.60B…UP ↑$1.47B

In 2018 Total Pet Spending in the U.S. was $78.6B, a $1.47B (1.9%) increase from 2017. This was a huge change from the $9.84B increase in 2017. There were a number of factors behind the smaller increase, including some outside the control of the industry. The FDA warning regarding grain free dog food wreaked havoc in the second half and the new tariffs on supplies flattened spending during that period. Veterinary prices turned up again resulting in a net “no gain” in the amount purchased by consumers. There was also a human factor as a significant number of adult children living with their parents moved out and took their pets with them. The Services segment saved the year with a spectacular increase in spending as consumers finally responded to the convenience of significantly more outlets. Here are the $ changes:

  • A -$2.27B (-7.3%) drop in Food
  • A $1.22B (+6.6%) increase in Supplies
  • A $0.56B (+2.7%) increase in Veterinary
  • An unprecedented $1.95B (+28.9%) lift in Services

Let’s see how these numbers blend together at the household (CU) level. In any given week, 27.2 Million U.S. CU’s (1/5) spent money on their Pets – food, supplies, services, veterinary or any combination – down from 28.4M in 2017.

In 2018, the average U.S. CU (pet & non-pet) spent a total of $598.41 on their Pets. This was a small 0.8% increase from the $593.63 spent in 2017. However, this doesn’t “add up” to a 1.9% increase in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

  • 1.1% more CU’s
  • Spent 6.4% more $
  • 5.3% less often

If 67% of U.S. CU’s are pet parents, then their annual CU Total Pet Spending was $893.15. Now, let’s look at the recent history of Total Pet Spending. The rolling chart below provides a good overview. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys – The 2016>2018 Totals include Veterinary Numbers from the Interview survey, rather than the Diary survey due to high variation)

  • In 2015, the Food upgrade began, but early in the year consumers were trading $ in other segments to pay for it.
  • In 2016, they were intensely value shopping for super premium foods. They started spending some of this saved money on Supplies and Veterinary Services, but not quite enough as spending fell slightly for the year.
  • In 2017, spending took off in all but Services, especially in the 2nd half. Consumers found more $ for their Pets.
  • In 2018 a spectacular lift in Services overcame the FDA issue in Food, tariffs on Supplies and inflation in Veterinary.

Now we’ll look at some Demographics. First, 2018 Total Pet Spending by Income Group

Only CU’s with an income over $100K increased Total Pet Spending and most of the increase came from $150K+.

Nationally: · Total Pet: $1.47B   · Food: ↓$2.27B  · Supplies: ↑$1.22B  · Services: ↑$1.95B  · Veterinary: ↑$0.56B

  • < $70K(59.7% of U.S. CUs); CU Pet Spending: $383.10, -2.7%; Total $: $29.88B, ↓$1.49B (-4.8%) from
    • Food ↓$1.53B
    • Supplies ↑$0.07B
    • Services ↑$0.47B
    • Vet ↓$0.50B

Money matters a lot to this group, especially to those on the low end. They were quick to dial back Food spending after the FDA warning. They also cut Veterinary spending and Supplies $ were essentially flat. However, the convenience of more readily available Services appealed to this group too.

  • >$70K – (40.3% of U.S. CUs); CU Pet Spending: $914.90, +0.4%; Total $: $48.72B, $2.96B (+6.5%) from…
    • Food ↓$0.74B
    • Supplies ↑$1.15B
    • Services ↑$1.49B
    • Vet $1.05B

This group continues to grow, up 6.1% in 2018. This accounted for almost all of their spending increase. They also show that income remains the single biggest factor in Pet Spending. 40% of U.S. CUs spent 62% of Total Pet $. Although they too spent less on Food, without them, Total Pet $ would have been down $1.5B.

  • < $30K(28.7% of U.S. CUs); CU Pet Spending: $259.13, -9.5%; Total $: $9.47B, ↓$1.44B (-13.2%) from…
    • Food ↓$0.64B
    • Supplies ↓$0.05B
    • Services ↑$0.011B
    • Vet ↓$0.77B

This lowest income group demonstrated their price sensitivity in 2018. However, even they managed to eke out a small increase in Services spending.

  • $30>$70K – (31.0% of CUs); CU Pet Spending: $493.91, +0.2%; Total $: $20.41B, ↓$0.06B (-0.3%) from…
    • Food ↓$0.89B
    • Supplies $0.11B
    • Services $0.46B
    • Vet $0.27B

This low to middle income group is by necessity price sensitive, but is also committed to their pets. They  dialed back Food $. However, they had a strong increase in both Service Segments and a little in Supplies.

  • $70>$99K – (14.5% of CUs); CU Pet Spending: $670.87, -3.9%; Tot $: $12.92B, ↓$0.49B (-3.6%) from…
    • Food ↓$0.69B
    • Supplies ↓$0.16B
    • Services ↑$0.13B
    • Vet $0.24B

This upper middle income group reacted negatively to the situations in Food and Supplies. Pet Services saw a 13% increase and they did ramp up their Veterinary spending by 7%, but it was not enough to compensate.

  • $100K>$149K– (13.1% of CUs); CU Pet Spend: $874.85, -2.9%; Tot $: $15.34B, $0.32B (+2.2%) from…
    • Food ↓$0.80B
    • Supplies ↑$0.56B
    • Services ↑ $0.38B
    • Vet $0.18B

They were the Star of the income groups in 2015 and 2017. In 2016, they had the worst performance with decreased spending in every segment. They are very responsive to industry trends, especially in Pet Food. They have the money to do what is needed or what they want, but are still very “value” conscious.

  • $150K> – (12.7% of CUs); CU Pet Spending: $1238.40, +2.0%; Total $: $20.46B, $3.12B (+18.0%) from…
    • Food $0.75B
    • Supplies ↑$0.75B
    • Services ↑$0.99B
    • Vet $0.6

Money Matters! They are the proof. They are the best performing income group in Total Pet Spending with 12.7% of U.S. Households generating 26.0% of all Pet $. They are also the only income group to increase annual Pet Spending every year since 2014. In fact they have furnished 55% of the Pet Industry’s $14.3B spending increase since 2014. There is more good news. This group is growing. They added 2.5 million CUs in 2018, a 17% increase. In fact their $3.12B was primarily fueled by additional CUs. It does demonstrate that pet spending grows with consumers’ income, especially once you reach the $150K+ level.

Income Recap –  The top 2 drivers in consumer spending behavior are value (quality + price) and convenience. That makes income , especially disposable income, very important. You see this in the huge difference in pet spending behavior at the opposite ends of the income spectrum and the increase/decrease spending dividing line of $100K. This line is somewhat deceptive as there were still values to be had in Veterinary and Supplies that appealed to most groups for much of the year. Plus, all groups responded to the increased convenience in Services. The biggest issue was in Food. The FDA warning about grain free elicited 2 different responses. Many in the <$150K groups dialed their spending back to more traditional foods, but the $150K+ group may have upgraded to even more expensive varieties. The trend to super premium has made income more important to this segment and more susceptible to big swings in spending.

Next let’s look at 2018 Total Pet Spending by Age Group

All groups but 55>64 yr olds spent more but the 35>44 yr olds led the way.

Nationally: · Total Pet: $1.47B   · Food: ↓$2.27B  · Supplies: ↑$1.22B  · Services: ↑$1.95B  · Veterinary: ↑$0.56B

  • <25 – (5.8% of U.S. CUs); CU Pet Spending: $355.36, +37.3%; Total $: $2.79B, ↑$0.81B (+41.0%) from…
    • Food $0.50B
    • Supplies ↑$0.004B
    • Services ↑$0.18B
    • Vet $0.13B

This youngest group stepped up in 2018, but they are the only group to increase Pet $ every year since 2014.

  • 25-34 – (16.2% of U.S. CUs); CU Pet Spending: $489.10, +9.5%; Total $: $10.35B, $0.79B (+8.3%) from…
    • Food $0.20B
    • Supplies ↑$0.30B
    • Services ↑$0.31
    • Vet ↓$0.02B

These older Millennials are just starting their families and careers, so they are prone to trading $ between segments. However, they have shown slow, but steady total pet spending growth since 2015.

  • 35-44 – (16.7% of CUs); CU Pet Spending: $659.61, +13.9%; Total $: $14.46B, $2.31B (+19.0%) from…
    • Food ↓$0.05B
    • Supplies ↑$0.56B
    • Services ↑$0.96B
    • Vet $0.84B

This group has the largest families and is in the middle of building their careers. This makes them very sensitive to value. However, they have a growing commitment to their pets. Their Food spending was basically unchanged, but they truly “stepped” up with big increases in the other segments, especially Services and Veterinary.

  • 45-54 – (17.5% of U.S. CUs); CU Pet Spending: $769.35, +5.4%; Total $: $17.73B, $0.56B (+3.3%) from…
    • Food ↓$0.32B
    • Supplies ↑$0.27B
    • Services ↑$0.43B
    • Vet $0.19B

This group has the highest income and now occupies the top spot in Pet Spending. This was their second consecutive annual increase, which hasn’t happened since 2009, when the Boomers owned this group. They did this despite having 2% fewer CUs. Food spending dropped but all other segments were up, especially Services.

  • 55-64 – (18.6% of U.S. CUs); CU Pet Spending: $709.69, -18,1%; Total $: $17.50B, ↓$3.95B (-18.4%) from…
    • Food ↓$3.51B
    • Supplies ↑$0.18B
    • Services ↑$0.03B
    • Vet ↓$0.64B

Here is the problem. These younger Baby Boomers had a huge drop in Food and Veterinary. They are committed to their Pets and react very strongly to changes in the market as is evident in the chart. Whether it is a hot new food trend, value shopping or an FDA warning, they get on board quickly and the “swing” can be $ Billions.

  • 65-74 – (14.7% of U.S. CUs); CU Pet Spending: $587.88, +0.3%; Total $: $11.29B, $0.42B (+3.9%) from…
    • Food $0.75B
    • Supplies ↓$0.09B
    • Services ↑$0.006B
    • Vet ↓$0.24B

This group is growing, +4.2%. Many are retired and now 80% are Baby Boomers. They are careful with their money, but their commitment to their pets is very apparent as 1.05% of their total spending is on their companion animals. They didn’t follow the lead of the younger Boomers and cut back on Pet Food $. They spent 18% more, but they helped pay for it by reducing their CU spending in the Veterinary and Supplies segments.

  • 75> – (10.4% of U.S. CUs); CU Pet Spending: $332.53, +9.5%; Total $: $4.48B, $0.52B (+13.0%) from…
    • Food $0.18B
    • Supplies $0.00B
    • Services $0.03B
    • Vet ↑$0.31B

Pet Parenting is more difficult, and money is tight for these oldest Pet Parents, but their commitment is still there. They increased spending in 3 of the 4 industry segments, with significant lifts in Food and Veterinary.

Age Group Recap: The age dividing lines in Total Pet Spending were very clear. The 55>64 year old Baby Boomers had a huge drop in spending which was driven by Food and Veterinary. However, the industry had a positive year due to increases by literally every other group. The younger groups, especially the 35>44 year olds had the biggest lift but the 65+ year olds also contributed a $0.94B increase.

Normally, we now look at the biggest winners and losers in each demographic category. However, this didn’t reflect the true situation in 2018. As we saw in the age group analysis, the “loser” was very defined. However, it took a group effort to produce a positive result. In our final graph, we’ll look at where these demographic spending lines were drawn.

Key Demographic “Dividing Lines” for 2018.

In 2018, 50 of 82 Demographic Segments (61%) spent more on their Pets. Usually, this would produce a strong increase, but the biggest single segment drops were so large that the overall increase was only 1.9%. Let’s look at the specifics:

Generations – Boomers have long been the biggest positive factor in the pet industry. In 2018, their influence turned negative as their spending fell -$6.48B. This affected a huge number of demographic categories. You see this over and over again in the downside entries on the chart. The younger generations led the way up, but in fact all other generations spent more on their pets in 2018 and ultimately overcame the “Boomer Bust”.

Age– The 55>64 yr olds are all Boomers. Every other group spent more, with the 35>44 yr olds leading the way, +$2.81B.

Education – As usual, higher education means higher income, better informed product decisions and more Pet $.

Housing – If you paid monthly for housing, you spent more on pets. 38% of Boomer CUs are homeowners w/no Mtge.

Area – This one goes against the norm. Lower population areas generally spend more on Pets. The 2018 situation reflects the continued urbanization of America, which is being driven both by the younger groups and downsizing older CUs.

Occupation – This demographic clearly reflects the importance of income in Pet spending.

CU Composition – We see the positive influence of both young and old groups here. Singles tend to be at either end of the age spectrum and Married, with children CUs are invariably younger. Married, w/no children CUs usually have “room” for more pet spending, but not in 2018.

CU Size – The usual phrase has been “It just takes 2” and 2 person CUs led the pack in spending. In 2018 it was “Any number but 2.”

Income – Income matters in Pet Spending with big disparities between high and low and a dividing line at $100K in 2018.

# of Earners – # of earners is not quite as important as total income, but it is definitely a factor. The “everyone works” CUs led the upside while 1 earner 2+ CUs, which generally have the greatest financial pressure, had the biggest decrease.

Racial/Ethnic – Hispanics and African Americans had a significantly greater increase in pet spending than the much larger White, not Hispanic group. This goes back to the generational differences, as these minorities are 33% of all Millennial and Gen Xer CUs, but only 22% of Baby Boomers.

Finally: The Pet Industry came out on top in 2018, but just barely. Besides normal concerns and trends, there were unusual outside issues like the FDA warning and tariffs. However, their impact was primarily on Baby Boomers, so the problem was simple. The solution, as we have seen, was not. Fortunately, virtually everyone else stepped up to produce a Pet Spending increase. I don’t know if this trend will continue but it is obviously time to take a deeper look at generational pet spending.

 

 

 

 

2018 U.S. VETERINARY SERVICES SPENDING $21.23B…UP ↑$0.56B

Veterinary Services is the second largest segment in the Pet Industry. In recent years, a high inflation rate, over 3.5%, caused a reduction in Veterinary visits and put spending on a roller coaster ride. In 2017 inflation slowed markedly (+2.2%) and consumers responded. In 2018 prices turned upward (+2.6%) and spending plateaued. Veterinary Services Spending in 2018 reached $21.23B – Up -$0.56B (+2.7%) from 2017, but “real” growth (adjusted for inflation) was only 0.1%. In this report, we’ll take a closer look at the demographics behind the 2018 numbers. (Note: All 2018 numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Interview Survey, rather than their Diary report. The low frequency of Veterinary Visits is still generating an exceptionally high variation on the data collected by the Diary method. Interview seems to be a more logical and accurate way to track Veterinary Service Expenditures.)

Let’s get started. Veterinary Spending per CU in 2018 was $161.51, up slightly from $159.01 in 2017. (Note: A 2018 Pet CU (67%) Spent $241.06) More specifically, the increase in Veterinary spending came as a result of:

  • 1.1% more CU’s
  • Spending 1.8% more $
  • …0.2% less often

We’ll take a closer look. But first, the chart below gives an overview of recent Veterinary Spending.

The big spending drop in the first half of 2015 coincided with the upgrade to Super Premium Foods – Trading $. Then consumers began value shopping for Premium Foods. The subsequent savings freed up $ for Veterinary Services. Spending began to climb until it flattened out at the beginning of 2017. In 2017, Veterinary inflation slowed markedly in the second half. The result was that spending literally “took off”. In 2018 prices turned up again. Consumers responded by essentially “holding their ground”. There is definitely some price sensitivity in Veterinary Services Spending.

Now, let’s look at Veterinary spending by some specific demographics. First, here is a chart by Income Group. Outlined in Red, Spending was Down from 2017. If Green, Spending was Up. A Pink fill indicates that 2018 Spending was lower than 2014. 

Although not as pronounced as Pet Services, Veterinary Spending is driven by income. The lowest income group cut back on spending while the all the other groups increased. The biggest lift came from the $150K+ group – up $0.64B (+11.2%)

  • Over $150K (12.7% of CU’s) – $6.32B, Up $0.64B (+11.2%) This highest income group is definitely the biggest driver in Veterinary Spending as 12.7% of CU’s generated 30% of 2018 $ and 60% of the $4.12B increase since 2015.
  • $100>150K (13.1% of CU’s) – $4.50B, Up $0.18B (+4.2%) This middle/upper income group responded strongly to the slowed inflation rate in 2017 but as prices turned up in 2018, their increase slowed
  • $70K>100K (14.5% of CU’s) – $3.67B, Up $0.24B (+6.9%) Their spending pattern is relatively stable but responsive to the lower inflation rate since 2017.
  • $30K>70K (31.0% of CU’s) – $4.95B, Up $0.27B (+5.8%) After bottoming out during the 2015 Food upgrade, the spending by this group has grown steadily. The pattern is remarkably similar to the $150K+ group, just not quite as strong.
  • Under $30K (28.7% of CU’s) – $1.79B, Down -$0.77B (-29.9%) This group is very price sensitive. After an increase in all segments in 2017, they dialed back their pet spending, especially on Food and Veterinary Services in 2018.

Now, here is Veterinary Spending by Age Group

The 25>34 Millennials spending was flat and the 55>74 yr olds, primarily Boomers, spent less. Everyone else spent more.

  • <25 (5.8% of CUs) – $89.56 per CU – $0.68B – Up $0.13B (+22.7%) This youngest group is getting serious about the responsibilities of Pet Parenting. Their Veterinary spending has more than doubled in 3 years. (+134%)
  • 25>34 (16.2% of CUs) – $118.36 per CU – $2.52B – Down -$0.02B (-0.9%) The commitment of these Millennials to their pets is growing. In 2018 they focused on the other segments as Veterinary $ stabilized after 3 annual increases.
    • 0.1% more CUs
    • Spent 5.3% less $
    • …4.5% more often
  • 35>44 (16.7% of CU’s) – $174.01 per CU – $3.83B – Up $0.84B (+28.3%) In 2017 this group had double digit increases in the other 3 Pet Industry segments. In 2018 it was the Veterinary segment’s turn as these mostly Gen Xers significantly ramped up the amount they spent on Veterinary Services.
    • 4.3% more CUs
    • Spent 27.1% more $
    • …3.2% less often
  • 45>54 (17.5% of CUs) – $234.93 per CU – $5.42B – Up $0.19B (+3.6%) This group has the highest income, but value is still a big driver. In 2017, the radically slowed inflation caused them to spend significantly more money and more often. In 2018, prices turned up. Their frequency slowed slightly but they still had a double digit increase in $ spent.
    • 2.2% fewer CUs
    • Spent 10.5% more $
    • …4.1% less often
  • 55>64 (18.6% of CUs) – $195.31 per CU – $4.78B – Down -$0.64B (-11.9%) This group is all Baby Boomers and until 2015 was the leader in Veterinary Spending. In 2015 they spent an extra $5B to upgrade their Pet Food and Veterinary Spending was severely reduced. In 2016, they regained the lead in Veterinary spending and held it until 2018 when their spending on both Food and Veterinary Services plummeted.
    • 0.9% fewer CUs
    • Spent 9.4% less $
    • …1.8% less often
  • 65>74 (14.7% of CUs) – $149.76 per CU – $2.89B – Down -$0.24B (-7.7%) This group is growing in numbers and very price sensitive. The pricing “slow down” in 2017 brought a big lift. As inflation turned up in 2018, their spending fell.
    • 4.2% more CUs
    • Spent 8.6% less $
    • …3.1% less often
  • 75> (10.4% of CUs) – $81.08 per CU – $1.11B – Up $0.31B (+38.9%) This group of oldest Pet Parents has a strong commitment to their pets – in 2015 a $1B increase in Veterinary Spending. In 2016, they upgraded their food. In 2017 they increased spending in Food, Supplies and Services. In 2018, they turned their attention back to Veterinary.
    • 3.9% more CUs
    • Spent 13.0% more $
    • …18.4% more often

Now, let’s take a look at some other key demographic “movers” behind the 2018 Veterinary Spending numbers.

Veterinary spending increased by $0.56B (+2.7%) in 2018. Considering the 2.6% inflation rate, the “real” increase in the amount of Veterinary Services was only +0.1%. 2018 Veterinary Spending was truly a “mixed bag” as 47 of 82 demographic segments (57.3%) spent more on Veterinary Services while 35 segments spent less. In the chart you see the influence of income with “winners” like, $150K+, Self Employed and BA/BS degrees and “losers” like Under $30K, Retirees and 2+ People, No Earner CUs.

There were also some of the “usual” winners like Homeowners with mortgages and White, Not Hispanic CUs. However, that doesn’t tell the whole story. There were some truly surprising outcomes:

On the winning side:

  • Single person CUs were the winner in 3 separate demographic categories – That never happens! They tend to have fewer pets and generally lower incomes.

On the losing side:

  • Advanced College Degrees – Generally have higher income and spend more on their pets, especially on Veterinary.
  • Married Couple Only – Traditionally the biggest pet spenders.
  • Rural – Big spenders in Food and Veterinary
  • Asian – Not big pet spenders but they do have the highest income, so it is not just about money.

You also see strong evidence that points a finger at Retirees for the decreases in spending including:

  • Retirees: -$0.62B
  • Homeowners w/o Mtge -$0.49B
  • No earner, 2+ CUs -$0.39B

However, you run into a problem when you recall that the over 75 age group, virtually all retired, was up +$0.31B.

The answer is obvious – The Baby Boomers. After driving the growth of the Pet Industry since the 1980’s, the Boomers seem to have “stumbled”. Veterinary spending fell -$1.8B but their overall Pet Spending dropped -$6.5B. Some of this is related to their adult children moving out with their pets. However, it’s just possible that the “Boomer Age” may be starting to fade.

In Veterinary spending the younger groups definitely stepped up as the Gen Xers (+0.91B) narrowly edged out the Millennials (+0.82B) for the biggest increase. This explains the strong performance by Center City and Singles. Also, Unmarried, 2 adult CU’s spent $0.33B more and Married Couples with children were up +$0.58B – both younger groups.

Although the younger crew deserve most of the credit for the Veterinary $ increase, the “Silents” (1929 to 1945) weren’t far behind at +$0.55B. Even the 90+ year old Greatest Generation spent +$0.03B more. Pet parenting is a lifetime calling.

Boomers have the most CUs and are the $ spending leaders. They will be a force in the industry for years to come, but the Gen Xers are the now CU spending leader in Total Pet and all segments but food. They seem poised and ready to take their turn at the top.

 

2018 U.S. PET SERVICES SPENDING $8.72B…Up ↑$1.95B

Except for 2017, Non-Vet Pet Services has shown consistent growth in recent years. However, in 2018, the performance was spectacular. Spending grew $1.95B to $8.72B, a (+28.9%) increase from 2017. The number of outlets offering Pet Services has been increasing at a rapid rate. It looks like that this commitment really paid off in 2018. In this report we will drill down into the data to see what groups fueled the biggest spending increase in history for this segment. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Services’ Spending per CU in 2018 was $66.36, up from $52.06 in 2017. (Note: A 2018 Pet CU (67%) Spent $99.04)

More specifically, the 28.8% increase in Total Pet Services spending came as a result of:

  • 1.1% more households
  • Spending 21.11% more $
  • 5.24% more often

The chart below gives a visual overview of recent spending on Pet Services

You can see that spending flattened out for 18 months from mid-2016 through 2017. This was a time when competition was building in the marketplace through an increased number of outlets. Value was available but it didn’t increase the number of users. The existing users just paid less. However, the impact of increased availability and convenience really hit home in 2018. Despite a return to a more normal inflation rate, +2.4%, more people opted to use Pet Services and to do it more often. This generated by far the biggest spending increase in history for this segment, +$1.95B, which came from strong growth in both halves. Now, let’s look at some specific spending demographics. First, by Income Group.

In 2018, all income groups increased spending and the $30>70K group spent 38% more, but 70% of the increase came from $100K+ CUs. Services spending is still driven by income as the $100K+ group, 25.8% of CU’s, spends 59.8% of the $.

  • <30K (28.7% of CU’s) – $20.45 per CU (+5.5%) – $0.77B, Up $0.01B (+1.4%) – This segment is getting smaller and money is tight. However, even they managed to eke out an increase in CU spending and overall Services $.
  • $30>70K (31.0% of CU’s) – $40.33 per CU (+38.6%) – $1.64B, Up $0.46B (+38.4%) – This group dialed back their spending on Food but they spent the “saved” money on other segments, especially Services.
  • $70>100K (14.5% of CU’s) – $57.26 per CU (+14.5%) – $1.09B, Up $0.13B (+13.1%) – They cut back spending on Products and focused on Services and Veterinary. However, their Services spending is still below the 2014 level.
  • $100>150K (13.1% of CU’s) – $108.59 per CU (+19.8%) – $1.87B, Up $0.38B (+25.1%) – They cut back on Food $ and focused on the other segments, including a second consecutive strong increase in Services $.
  • $150K> (12.7% of CU’s) – $200.45 per CU (+20.2%) – $3.34B, Up $0.99B (+41.8%) – They have long been the driver in Services Spending. After a minor dip in in 2017, they came back with a $1B increase in 2018.

Now, let’s look at spending by Age Group.

Although we had to take the numbers to 3 decimal places, all age groups also spent more on Services in 2018. However, the increase was clearly driven by the <55 groups, especially the 35>44 year olds. Here are the specifics:

  • 75> (10.4% of CU’s) – $30.69 per CU (+3.3%) – $0.42B – Up $0.03B (+7.3%) This group has the greatest need for pet services, but money is always an issue. The competitive values made a huge difference in 2017. In 2018 they “got a good price” and significantly ramped up their frequency. 3.9% more CU’s spent 15.7% less $, 22.5% more often.
  • 65>74 (14.7% of CU’s) – $64.35 per CU (-3.6%) – $1.243B – Up $0.006B (+0.5%). This group is also very value conscious. They were the only age group to decrease CU Services spending. However, they grew in numbers and increased purchase frequency, so they eked out a small gain. 4.2% more CU’s spent 8.2% less $, 5.0% more often.
  • 55>64 (18.6% of CU’s) $66.96 per CU (+2.8%) – $1.64B – Up $0.03B (+1.9%) In 2016 they took over the #1 spot in Services spending. They fell to #3 in 2018. Despite decreasing in CU’s, they basically held their ground while spending in the younger groups exploded. 0.9% less CU’s spent 2.1% more $, 0.7% more often.
  • 45>54 (17.5% of CU’s)- $83.24 per CU (+32.1%) – $1.92B – Up $0.43B (+29.2%) This highest income group was the leader in Services spending until 2016. They spent a lot more in 2018, but not enough to beat the new leader, 35>44 yr olds. 2.2% fewer CU’s spent 36.6% more $, 3.3% less often.
  • 35>44 (16.7% of CU’s) – $90.81 per CU (+85.4%) – $2.0B – Up $0.96B (+93.3%) Spending fell in 2016. They began to recover in 2017, but spending took off in 2018. The group grew in size. but their income grew even more, +11.3%. Obviously, they spent some of the extra $ on Services. 4.3%, more CU’s spent 73.5% more $, 6.9% more often.
  • 25>34 (16.2% of CU’s) – $55.53 per CU (+35.2%) – $1.18B – Up $0.31B (+35.3%) In recent years this group of Millennials focused first on upgrading Food and then Supplies and Veterinary. During this time, Services’ spending has been essentially flat. In 2018 it was Services’ “turn” as 0.9% less CU’s spent 10.7% more $, 22.2% more often.
  • <25 (5.8% of CU’s) – $42.19 per CU (+133.4%) – $0.32B – Up $0.18B – (+133.3%) With increases in every segment, this small, youngest group became a “player” in 2018. The same # of CU’s spent 137.5% more $, 1.8% less often.

Finally, let’s take a look some other key demographic “movers” behind the 2018 Pet Services Spending “Explosion”

The Services spending increase was very widespread. Overall, 72 of 82 total segments (88%) spent more. As you can see from the chart, 6 of 12 demographic categories had no segments that spent less on Services in 2018.  This included:

  • Racial/Ethnic Groups
  • Education Levels
  • Age Groups
  • Regions
  • CU Sizes
  • CU Compositions

The decreases were also small. The average drop was -$0.08B, driven by Boomers and Retirees who each fell -$0.17B.

Pet Services is the most discretionary of all the Industry Segments, so income is the most important factor in spending. Although the spending lift was widespread across income groups in 2018, the biggest driver was the $100K+ CU’s. This dependence on income is reinforced by some of the winners in our chart above, including:

  • Managers & Professionals
  • $150K+ Incomes
  • 2 Earners
  • College Grads

We also see key evidence of the other big Services Spending driver – younger groups, especially Gen Xers.

  • Gen Xers
  • 35>44 yr-olds
  • Singles (A “rare” winner in any segment)

On the upside there were some of the “usual suspects”:

  • White, Not Hispanic
  • Center City – pet services began here
  • 2 People – the biggest pet spenders

On the downside, here are 5 groups with decreased spending that have a common thread:

  • Retirees
  • 2+ CU, No Earner
  • Homeowner w/o Mtge
  • $30>39K Income (avg for retirees)
  • Baby Boomers – A specific subgroup of Boomers drove the decreases

For the younger Baby Boomers Pet Services’ spending was basically flat, +$0.03B. It is the older Boomers, specifically those who have retired, that drove most of the few demographic spending decreases in the Services Segment.

2018 was a year like no other in the history of Pet Services Spending, To put the $1.95B increase into perspective, the previous biggest gain was +$0.8B in 2009. In fact, total Spending for the Services segment didn’t even break the $2 Billion barrier until 1999.

So, what caused this eruption in spending? We saw the impact in 2018, but it actually has been building for a few years. In an effort to counteract the impact of the internet and the mass market, more and more pet outlets began offering Pet Services. Afterall, “You can’t get your dog groomed online”. “One Stop Shopping” is always a great draw for consumers. Retailers began applying this to Pet Products and Services. Convenience…which included a rise in mobile grooming.

The “movement” didn’t show immediate positive results. We saw some turmoil in 2017, as Services Spending actually fell -$0.07B, quite a rarity. The increased number of outlets caused some pricing pressure. Consumers are always looking for a good deal. In 2017 they found it. It didn’t change their overall behavior or spending frequency, They just paid less.

However, in 2018 the convenience message finally hit home across the Market. Significantly more consumers began using Pet Services for the first time or more often. We’ll see if the Segment can maintain this new level.

 

 

 

2018 U.S. PET SUPPLIES SPENDING $19.80B…UP ↑$1.22B

Due to a drop in Pet Food spending, Total Pet spending moved up only slightly to $77.13B in 2018, a $1.47B (1.9%) increase from 2017. The Supplies segment exceeded this pace as spending reached $19.8B, up $1.22B (6.6%). (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

The first half of 2018 continued an upturn in Supplies spending which began in the second half of 2016. However, in the second half of the year spending flattened out. In this report we’ll “drill down” into the data to try to determine what and who are “behind” the lift and subsequent pause in 2018 Pet Supplies Spending.

In 2018, the average household spent $150.62 on Supplies, up 5.4% from $142.90 in 2017. (Note: A 2018 Pet CU (67%) Spent $224.81) This doesn’t exactly match the 6.6% total $ increase. Here are the specific details:

  • 1.1% more CU’s
  • Spent 4.8% more $
  • 0.6% more often

Let’s start with a visual overview. The chart below shows recent Supplies spending history.

Since the great recession, spending trends in the Supplies segment have been all about price – the CPI. Although many supplies are needed by Pet Parents, when they are bought and how much you spend is often discretionary. Additionally, many of the product categories in this segment are now considered commodities, so price is the main driver behind consumer purchasing behavior. When prices fall, consumers are more likely to buy more. When they go up, consumers spend less and/or buy less frequently.

2014 was the third consecutive year of deflation in Supplies as prices reached a level not seen since 2007. Consumers responded with a spending increase of over $2B. Prices stabilized and then moved up in 2015.

In 2015 we saw how the discretionary aspect of the Supplies segment can impact spending in another way. Consumers spent $5.4B for a food upgrade and cut back on Supplies – swapping $. This, in conjunction with inflation, caused supplies to suffer as consumers spent 4.1% less, but they bought 10% less often. That drop in purchase frequency drove $1.6B (78%) of the $2.1B decrease in Supplies spending.

In 2016, supplies’ prices flattened out and consumers value shopped for their upgraded food. Supplies spending stabilized and began to increase in the second half. In 2017 supplies prices deflated, reaching a new post-recession low. The consumers responded with a huge $2.74B increase in Supplies spending that was widespread across demographic segments. An important factor in the lift was an increase in purchase frequency which was within 5% of the 2014 rate.

In 2018 prices started to move up in April and rapidly increased later in the year due to the impact of new tariffs. By December, Supplies prices were 3.3% higher than a year ago. This explains the initial growth and pull back in spending.

That gives us an overview of the situation. Now let’s look at the “who” behind the numbers. First, we’ll look at spending by income level, the most influential demographic in Pet Spending.

National: $150.62 per CU (+5.4%) – $19.8B – Up $1.22B (+6.6%). (1st Half: +$1.23B; 2nd Half -$0.01B). Specifically:

In 2018 The spending increase was driven by the $100K+ group, those least affected by price, but it is not that simple.

  • <$30K (28.7% of CU’s)- $70.09 per CU (+2.3%)- $2.64B– Down $0.05B (-1.7%). (1st Half: +$0.12B; 2nd Half: -$0.17B) This group is very price sensitive as is evidenced by their spending drop due to the price increase. However, there is more to the story. Their CU supplies spending actually increased 2.3%, but the number of CU’s fell 4%.
  • $30K>70K (31.0% of CU’s)- $129.31 per CU (+2.3%) $5.26B Up $0.11B (+2.2%). (1st Half: +$0.18B; 2nd Half -$0.07B) This lower income group closely matches the national pattern and is the only group besides $150K+ to have annual increases since 2015. As you can see, they also reflect the price sensitivity of the segment.
  • $70>$100K (14.5% of CU’s) – $150.95 per CU (-4.0%) – $2.88B Down $0.16B (-5.2%). (1st Half: -$0.25B; 2nd Half +$0.09B) This middle-income group is the only group to have a drop in both CU average and total $. They fell 2% in the number of CU’s, but they also had an overall decrease in their total consumer spending, not just pet.
  • $100K>$150K (13.1% of CU’s) – $219.71 per CU (+12.4%) – $3.79B Up $0.56B (+17.5%). (1st Half: +$0.27B; 2nd Half +$0.29B) This group is growing and size and spending. They had the biggest percentage increase in Total $ and a huge lift in CU spending. The price increase has had no impact… so far.
  • $150K> (12.7% of CU’s) – $312.98 per CU (-1.1%) – $5.22B Up $0.75B (+16.7%). (1st Half: +$0.91B; 2nd Half -$0.16B) The lift in this group was driven by the $200K+ group. The drop in CU average came from the $150>199K group. Both groups spent slightly less in the 2nd Half. Money matters in Supplies but price increases can impact anyone.

The increase was driven by $100K+, but the performance of the $30>70K group showed that pet parenting is widespread across income groups. We also saw that price is a key factor to almost everyone in a discretionary segment like Supplies.

Now, we’ll look at spending by Age Group.

National: $150.62 per CU (+5.4%) – $19.8B – Up $1.22B (+6.6%). (1st Half: +$1.23B; 2nd Half -$0.01B). Specifically:

The increase was driven by 25>54 year olds, Millennials and Gen Xers, but every group but the 65>74 year olds spent the same or more on Supplies in 2018. However, the price increase had a definite impact. Here are the details.

  • 45>54 (17.5% of CU’s) $195.56 per CU (+8.7%) – $4.51BUp $0.27B (+6.3%). (1st Half: +$0.31B; 2nd Half: -$0.05BThis highest income age group has been the leader in Supplies spending since 2007. Fewer CU’s (-2.2%) spent 17.4% more on supplies, 7.4% less often. A drop in purchase frequency often comes with a price increase.
  • 35>44 (16.7% of CU’s) $184.23 per CU (+11.3%) – $4.05B – Up $0.56B (+16.0%). (1st Half: +$0.36B; 2nd Half: +$0.20B)   This group is second in income and overall expenditures. They had the biggest lift in Supplies spending, but growth has been exceptionally strong for the last 3 years. 4.3% more CU’s spent 3.6% more $, 7.4% more often.
  • 25<34 (16.2% of CU’s) $132.72 per CU (+12.0%) – $2.83BUp $0.30B (+12.0%). (1st Half: +$0.19B; 2nd Half: +$0.12B)  These Millennials are the only group spending less on Supplies in 2018 than in 2014. During that time, they have upgraded their food and increased their veterinary spending. However, in 2018 they turned their attention back to Supplies as  0.1% more CU’s spent 5.3% more on supplies, 6.3% more often.
  • 55>64 (18.6% of CU’s) $177.48 per CU (+5.3%) – $4.34B – Up $0.18B (+4.3%). (1st Half: +$0.23B; 2nd Half: -$0.05B)  In 2017 this “Boomer” group found the lowest Supplies prices since 2007 very alluring. They bought $0.82B more. The growth continued into 2018. Then prices turned sharply upward in the 2nd half and the growth stalled. 0.9% less CU’s spent 3.5% more on Supplies, 1.7% more often.
  • 65>74 (14.7% of CU’s) $122.01 per CU (-7.7%) – $2.36B – Down $0.09B (-3.8%). (1st Half: +$0.10B; 2nd Half: -$0.19B) There a lot of “price sensitive” retirees in this group. When prices turned up, they immediately cut back on spending. 4.2% more CU’s spent 11.1% less, 3.9% more often.
  • <25 (5.8% of CU’s) $88.21 per CU (+0.7%) – $0.67B- Up $0.004B (+0.6%). (1st Half: +$0.02B; 2nd Half: -$0.02BThis small group had the same # of CU’s, spent 2.9% more $, but 2.2% less often. The net result was that the 2nd half loss essentially wiped out the small gain in the first half.
  • 75> (10.4% of CU’s) $75.87 per CU (-3.7%) – $1.04B, Even $0.000B (0.0%). (1st Half: +$0.03B; 2nd Half: -$0.03BThis group is truly price sensitive as they spend 18% more than they earn. Like the youngest group, their 2nd half spending cut back produced a net “no gain” for the year. 3.9% more CU’s spent 5.8% more, 9.0% less often.

The impact of the price increase was readily apparent in this category. While 6 of 7 groups maintained or increased their Spending in 2018, 5 of 7 had decreases in the 2nd half. The other 2 had increases but they were 40% less than the 1st half.

Next, let’s take a look at some other key demographic “movers” in 2018 Pet Supplies Spending. Those boxed in black are different from 2017. If they are boxed in red, they flipped from 1st to last or vice versa.

There was some turmoil. 18 of 24 segments (75%) are different from 2017. 3 flipped from 1st to last and 1 went from last to 1st. Overall, the winners are definitely stronger than the losers. That’s what produced the $1.22B increase.

Three categories: Housing, Area & CU size had no negative segments. You see some of the usual “suspects on the “plus” side, like White, Not Hispanics, Homeowners with mortgages, Suburbanites and Married Couples only. The importance of income to Supplies spending is also clear with $150K+, 2 Earners and College Grads all having the biggest increases.

The positive influence of the younger crowd is very apparent with Millennials, 35 to 44 year olds, 4 People CU’s and white collar workers coming out on top.

On the downside, you see the impact of the strong inflation on Supplies Spending. There are a number of lower income, and/or price sensitive groups who spent less on Supplies in 2018. They include, Retirees, 65 to 74 year olds, Single Parents, 2+ people CU’s with only 1 Earner and those without a high school diploma.

The biggest “losers” in 2018 Supplies Spending were the Baby Boomers. They were down -$0.62B after an increase of $1.11B in 2017. That’s quite a turnaround. I looked a little closer and found that they were up $0.02B in the 1st Half of 2018, then went down -$0.64B in the 2nd half. In the Food Segment we saw evidence of reduced spending due to a number of their children moving out on their own. This undoubtedly contributed to the drop in Supplies $, but the drop also coincided with the price increase. I decided to look closer at the impact of that inflation across the demographics.

The following chart shows the biggest 2nd Half “losers” in 2018 Supplies Spending along with the winner in the category. To make the list, a segment had to have a minimum change of $0.1B.

Supplies Spending started out strong in 2018. In the 1st half, 67 of 82 demographic segments (82%) spent more. Then came the 2nd Half. Prices increased by 1.7% and only 38 segments (44%) had a spending increase over a year ago. By year end, 64 segments spent more on Supplies (78%). 2nd half numbers were not all bad. 5 segments that started out negative ended up on the plus side for the year. However, 8 segments that were positive in the 1st Half ended up spending less for the year because of the 2nd Half. Plus, some of the effect of inflation was hidden. 30 segments increased spending in both halves. However, 24 of them 80% had a smaller increase in the second half. The inflation had a broad impact.

The spending decrease was -$0.01B in the 2nd Half of 2018. In a couple of cases the behavior was clearly divided.

Education: College Grads +$0.30B; <College -$0.31B

Age: 25>44 +$0.32B; 45> -0.32B

The 2nd Half numbers strongly reinforce the importance of two demographic categories in Supplies Spending – Income & Age

Income – Supplies Spending is very price sensitive. Strong inflation causes low income and financially pressured groups to spend less – <$50K (46% of CU’s), 2+CU’s with 1 or no earners, Retirees, <College grads, Married Couples with Children, 4 Person CU’s. These groups all have monetary concerns. $100>149K, 3 Earners, College Grads, Homeowners with a paid off mortgage that aren’t Retirees are generally under less financial pressure.

Age – Perhaps, it is because they are less focused on “need” and have a more expansive and active “take” on Pet Parenting than their older counterparts, but Supplies Spending has always skewed towards the younger groups. The spending in both halves of 2018 by 25>44 yr olds, Millennials and 2+ Unmarried Adults reinforces this observation.

2018 definitely validates the price sensitivity of Supplies. After 24 months of consistent, strong growth, +$4.97B, spending turned down in the second half of 2018. The most likely cause – 1.7% inflation, driven by tariffs. What comes next? Inflation continued into 2019 growing another 1.7% in the first half. In fact, Supplies’ prices in the 1st half of 2019 were 3.4% above the same period in 2018. This doesn’t bode well for Supplies $ in 2019, but we’ll have to wait and see.

 

 

 

 

 

2018 U.S. PET FOOD SPENDING $28.85B…Down ↓ $2.27B

In 2018 The U.S. Pet Industry had a year that can best be described as a mixed bag. Total spending increased to $78.6B, up $1.47B (+1.9%). Supplies and Veterinary had modest increases, while the Services Segment had the biggest growth in history. The big downside was that the Food Segment gave back half of the $ gain made in 2017. Here are the specifics:

  • Pet Food – $28.85B; Down $2.27B (-7.3%)
  • Pets & Supplies – $19.80B; Up $1.22B (+6.6%)
  • Veterinary – $21.23B; Up $0.56B (+1.6%)
  • Pet Services – $8.72B; Up $1.95B (+28.9%)

The industry truly is a “sum” of its integral segments and each segment has very specific and often very different buying behavior from the many consumer demographic segments. For this reason, we’re going to analyze each of the industry segments first. This will put the final analysis of Total Pet Spending into better perspective. Note: The numbers in this report come from or are calculated by using data from the current and past US BLS Consumer Expenditure Surveys. In 2018, this was gathered by the U.S. Census Bureau from over 42,000 interviews and spending diaries. The final data was then compiled and published by the US BLS.

We will start with the largest Segment, Pet Food (and Treats). In 2018 Pet Food Spending totaled $28.85B in the U.S., a $2.27B (-7.3%) decrease from 2017. This was the second largest decrease in history, trailing only the -$2.99B drop in 2016. It’s interesting that the 4 greatest changes in $, up and down, have all occurred in the last 4 years. The current trend in high priced, super premium foods magnifies the results of any changes in consumer purchasing behavior. As you recall, in earlier research we discovered a distinct, long term pattern in Pet Food Spending. In 2018 we broke that pattern. Take a look at Pet Food Spending since 1997 in full Retail Dollars and adjusted for inflation.

The pattern begins in 1997. Retail Pet Food Spending increases for 2 consecutive years then reaches a plateau year or even drops. There is a notable exception – the period from 2006 to 2010. During this time, there were two traumas which directly impacted the Pet Food Retail market. The first was the Melamine recall, which resulted in radically increased prices as consumers insisted on made in USA products with all USA ingredients. The second affected everyone – the great Recession in 2009. This was the first time that annual U.S. retail spending had declined since 1956. The net result was that the plateau period was extended to include both 2009 and 2010.

Pet Food seems to be driven by short term trends. A new food trend “catches the consumers’ attention” and grows…for 2 years. Then sales plateau or even drop…and we’re on to the next “must have”. The increases have become more pronounced in recent years and the whole situation has gotten even more complicated since 2014. That was the year that Food prices began an extended period of deflation due to an unprecedentedly competitive market.

After consumers choose to upgrade to a more expensive pet food, their #1 priority becomes, “Where can I buy it for less?” The internet entered this battle in a big way and “value shopping” was a major contributing factor in the big spending drop in 2016 and its influence continues to grow.

In 2017, according to the 20-year pattern, we should have been beginning a new trend. There was the expected lift in Pet Food spending but what was the new “must have” type! There were some possible candidates, but nothing stood out. A deeper dive into the data showed that the $4B increase in Pet Food spending in 2017 didn’t come from a new trend. It came from a deeper demographic penetration of Super Premium foods. Value shopping in a highly competitive market, especially on the internet had made Super Premium pet foods more accessible to a broad swath of consumers.

Like Pet Food, human behavior has changed over the years in regard to our pets. In the 90’s, Pet Owners became Pet Parents. Then, we took it a step further after the turn of the century and began truly humanizing our pets, especially our canine children. This movement is very accurately reflected in the evolution of Pet Food. We became increasingly more conscious of fulfilling the health needs of our pets, beginning with the first move to premium foods in 2004. This ramped up considerably after the Melamine scare in 2007. Now consumers read pet food labels, research ingredients and expect their pet foods to meet the same quality standards as the best human foods. We may have moved away from trends to a new standard – an expectation of excellence – nothing else will do.

Although the $ didn’t show it, now It appears that we may have  broken the pet food trend pattern in 2017. We definitely broke it in 2018. Let’s look at some specifics. In 2018, the average U.S. Household (pet & non-pet) spent a total of $219.92 on Pet Food. This was an 8.2% decrease from the $239.66 spent in 2017. This doesn’t exactly “add up” to the 7.3% decrease in total Food Spending. With additional data provided from the US BLS, here is what happened.

  • 1.0% More U.S. households
  • Spent 4.0% less $
  • 4.4% less often

By the way, if 67% of U.S. CU’s are pet parents then their annual Pet Food Spending is $328.24. Let’s look at a rolling history of Pet Food Spending since 2013.

Pet Food Spending fell in 2013 and continued down in the first half of 2014. This corresponds to the beginning of a  general deflation which continued through 2018 in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. The spectacular lift in Pet Food Spending beginning in the second half of 2014 came from a fundamental change in spending behavior. Consumers began to buy more Super Premium Food and Med/Supplements in Treat form, all of which cost more.

An increasing number of consumers chose to upgrade their Pet Food and spending peaked in 2015. Then spending began to fall in the first half of 2016 and the decline intensified in the second half. At first it appeared that consumers were backing down on the upgrade. As it turns out, they were just applying the #1 driver in their buying behavior since the great recession – price (75%). They began shopping for value and there were plenty of bargains to be found.

In 2017 Pet Food spending registered the second largest increase in history. It was time to begin a new “trend”, but this big lift was unusual. Usually the biggest increase comes in the 2nd year of a cycle. There also was no clear product focus.

Looking deeper into the data we discovered that it was not a new food trend. It was a deeper demographic penetration of Super Premium. Higher education and higher income have driven recent food trends. However, the highly price competitive market had made these high-priced foods more accessible to Blue Collar workers and those without college degrees. Baby Boomers in these groups, with their strong commitment to their pets, responded in a big way, +$3.8B.

After such a big lift in year 1, the 2018 increase was expected to be small and the first half started out that way, +$0.25B. Then the bottom dropped out in the second half of the year as spending fell -$2.51B, the biggest half year decrease in history. In July of 2018 the FDA issued a warning about the possible connection between DCM and grain free dog food. This was frightening and one suggestion was to move back to standard foods. A coincidence? Let’s look closer.

Before we drill into the spending data let’s look at another source of industry information – Global Pet Expo and SuperZoo. The number and nature of the exhibitors at these shows reflects the trends in the overall market and can even foreshadow things to come. Let’s look at the average exhibitor count for 3 specific Dog and Cat product categories:

  1. Food – 2019; Avg: 145 Exhibitors, Up 35.5% since 2014.
  2. Treats – 2019; 369 Exhibitors, Up 55.7% since 2014. Now the #1 Product Category.
  3. Meds/Supplements & Therapeutic Devices – 2019; 278 Exhibitors, Up 102.9% since 2014. This category now ranks second. Plus, meds/supplements in treat form help drive treat to the top spot.

The growth of the Food and Treat categories reflects the rise of Super Premium. Many new companies joined into the fray, creating a very competitive market. Mergers/acquisitions stabilized the exhibitor count but it’s still competitive.

The growth of the meds/supp. category has been spectacular. Together, these 3 categories reflect the Pet Parents’ absolute number 1 concern – the health and wellbeing of their Pet Children, which starts with the quality of their food.

Now let’s look at some specific 2018 Pet Food Spending Demographics. First, we’ll look at income. Prior to 2014 it was a less dominant factor in Food spending. However, the move to Super Premium has brought it more to the forefront. In 2017, with competitive pricing and the consumers’ commitment to pet health, Super Premium drove spending growth in every major income group. In this chart we will show the annual spending from 2013 through 2018. This will put the 2018 numbers into better perspective .

2018 National Numbers: $219.92 per CU (-8.2%); $28.85B; Down – $2.27B (-7.3%); 2013>2018 – Up $5.89B (+25.7%)

All of these large Income groups, except the over $150K, decreased Pet Food spending in 2018. Prices deflated 0.02% in 2018 which indicates that income is not the major demographic factor in the spending drop. Here are 2018 specifics:

  • Under $30K: (28.7% of CU’s) – $121.07 per CU (-9.2%) – $4.26B – Down $0.64B (-7.3%). Obviously, this group is very price sensitive. It is also getting smaller. The number of CU’s was down 3.9% in 2018 and 12.5% since 2013. This decrease masks the true food situation. While their Total Food spending is lower than 2013, their Avg CU spending on food is up 13.6%. They are still committed to their pets.
  • $30K>$70K: (31.0% of CU’s) – $202.67 per CU (-8.9%) – $8.55B – Down $0.89B (-9.5%). The spending for this group is actually the closest match to the national pattern. They had the biggest dollar decrease but it gets more interesting when you look deeper. The $30>39K group’s pet food spending was up +$0.95B while the $40>$70K group was down $1.84B, 79% of the total Pet Food Spending decrease.
  • $70K>$99K: (14.5% of CU’s) – $270.32 per CU (-13.6%) – $5.28B – Down $0.69B (-11.6%). The Pet Food Spending for this group has been very stable. In 2017, they got “on board” with the Pet Food upgrade but ceded 2/3 of the 2017 increase in 2018.
  • $100K>$149K: (13.1% of CU’s) – $285.77 per CU (-19.1%) – $5.18B – Down $0.8B (-13.3%) They have a high income but also large families, so they are very value conscious. Except for the dip in 2014, their spending matches the national pattern. In 2017, they had the largest increase in Pet Food spending. In 2018, they gave half of it back.
  • $150K> (12.7% of CU’s) – $346.07 per CU (+5.2%) – $5.57B – Up $0.75B (+15.6%). 92% are college grads so they saw the value of Super Premium food very early in the trend. There is also some hidden turmoil in this segment. The $150>199K segment is up $1.08B, the single biggest lift in the income groups. While $200K> is down

In 2017, the increase in Pet Food spending was widespread across incomes. In fact, groups totaling 84.7% of all U.S. households spent more on Pet Food. In 2018, the decrease was also widespread, as 77.0% of all households spent less on Pet Food. The 2 groups that spent more are widely separated, $30>39K and $150>199K. This indicates that while the reduction in Food spending affected most Americans, it is not directly tied to income.

Now, Spending by Age Group…

2018 National Numbers: $219.92 per CU (-8.2%); $28.85B; Down – $2.27B (-7.3%); 2013>2018 – Up $5.89B (+25.7%)

For Pet Food spending it was essentially a battle. The youngest and oldest were on the plus side while the middle groups spent less. Unfortunately, with the 55>64-year olds leading the way, the downside won.

  • 55>64 (18.6% of CU’s) – $269.94 per CU (-34.7%) – $6.73B – Down $3.51B (-34.3%). This group (all Baby Boomers) has been at the forefront of recent major spending swings. In 2015 many of them upgraded to Super Premium. In 2016 this group looked for and found a better price. In 2017 they led a deeper penetration of the upgrade. Now, in 2018 they have given back 2/3 of the gains made since 2014. It’s complicated story but this group was a key to Pet Food spending in 2018.
  • 45>54 (17.5% of CU’s) – $255.62 per CU (-3.6%) – $5.89B – Down $0.32B (-5.2%) This group is #1 in income and total CU expenditures. Up until 2015 they were #1 in Pet Food spending. They bought premium food but didn’t fully participate in the 2015 upgrade. They did take advantage of the 2016 discounts and spent less. In 2017, they became more committed to super premium and their Pet Food Spending reached a record high. In 2018 they lost CU’s (-1.6%) and spent slightly less on Pet Food.
  • 35<44 (16.7% of CU’s) – $210.56 per CU (-5.6%) – $4.59B – Down $0.05B (-1.2%) They are 2nd in income and expenditures but have the biggest families. Value shopping is a way of life and their spending pattern tends to be less volatile. They opted in for Super Premium in 2017 and basically held their ground in 2018.
  • 65>74 (14.7% of CU’s) – $251.76 per CU (+15.6%) – $4.80B – Up $0.75B (+18.5%). This group is 80% Boomers. They are starting to retire but many are still working (0.7 per CU). They do generally have reduced family responsibilities and turn their attention to their pets, spending 1.05% of total expenditures on their pets.
  • 75> (10.4% of CU’s) – $144.89 per CU (+7.7%) – $1.91B – Up $0.18B (+10.2%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. However, they remain committed to their Pets and high quality food.
  • 25>34 (16.2% of CU’s) – $182.49 per CU (+8.9%) – $3.82B – Up +$0.2B (+5.5%) In recent years their spending pattern has foreshadowed the overall market for the following year. The indication was that they were first to “buy in” on a new trend – from Super Premium to Value shopping. Let’s hope this continues as their spending was up in 2018 which would indicate spending will be up in the overall market in 2019.
  • <25 (5.8% of CU’s) – $135.40 per CU (+69.0%) – $1.12B – Up +$0.5B (+80.2%) The performance of this smallest group was spectacular. This behavior goes beyond pet food. They increased in CU count by 6.6%. Where did all these households come from? These young Millennials were living with their parents. They moved out and took their Pets with them. Now, they are responsible for the pet related expenses, including high quality food. It’s not an equal movement of dollars because these internet connected youths will definitely buy things much cheaper than their parents. However, it undoubtedly contributed to the spending drop by the 55>64-year-old Boomers.

We need to drill deeper. Let’s take a look at the segments with the biggest change in spending in 12 categories. The segments that are outlined “flipped” from 1st to last or vice versa from 2017. The red outline stayed the same.

2018 was the year of the “flip”. Four of 2017’s biggest losers moved to the top in 2018. The South maintained their position at the bottom. However, every other 2017 demographic category winner became the biggest loser in 2018. This is quite unprecedented. We saw that the spending drop was very widespread across income groups but was much more limited in terms of age – primarily the 55>64-year olds. Looking at the specific demographics we can identify…..

….The biggest “losing” household in Pet Food Spending for 2018.

It is a White, non-Hispanic, Baby Boomer couple living alone. Their last Millennial child finally moved out. They got job training after high school but only one of them still works, in a blue-collar job and earns about $70K. They live in a small community, under 2500 people. They have paid off their home mortgage and are looking forward to retirement.

There were multiple factors behind the drop in Pet Food Spending in 2018. Here are 3 that were definitely impactful:

  1. The July 2018 warning by the FDA about a possible link between grain-free dog food and DCM. Although there is no definitive link, many pet parents, especially new converts to grain free, apparently switched back to foods with a standard mixture made by a well-established manufacturer.
  2. Value Shopping – This behavior is here to stay, and its impact is noticeably magnified by the internet.
  3. Millennials moving out – A Pew research study showed that 34% of 25+ yr old Millennials still lived with their parents. In 2018, Millennials began to move out, gaining over 2 million CU’s. They took their pets with them but now they are responsible for expenses. However, it wasn’t an equal $ swap because they spent less ….on the internet.

2018 was a complex and “trying” year in the Pet Food segment. We broke a spending pattern of 20 yrs. Let’s hope that the 25>34-year old’s record of predicting next year’s market stays true. If so, Pet Food $pending will increase in 2019.

 

 

 

 

Pet Spending 2018 – A First Look!

On Tuesday, September 10th, the US BLS released the data from their Consumer Expenditure Survey. While I’m still building the detailed database from 33 separate files, I thought that I would give you a brief first look.

In 2018 Total Pet Spending was $78.6B, up $1.47B (+1.9%) from 2017. This is a pretty tame increase, but it follows a huge 14.3% lift in 2017 so it is not completely unexpected. It is difficult to maintain that kind of pace. However, the average growth rate over the last 2 years is 8.1%, which is slightly above the annual growth rate of the Industry since 1960 (7.9%).

Total Pet Spending is the sum of the individual segments. As we have seen so many times before they can have extremely different patterns. 2018 is no exception.

In this brief first look we will show you a graph of the recent spending history for Total Pet and each individual segment. That should help put the 2018 numbers into perspective. After each graph, I will include a very brief comment. The detailed analysis will follow in future posts. I just thought that you should see the topline data as soon as possible. First, Total Pet…

There have been a couple 6 month declines but the annual growth has been pretty consistent. There has only been one 12 month period that has registered decreased sales. That occurred in 2016 and the total drop was only $0.46B. It is disappointing that at Mid-Year 2018, we seemed on the way to breaking the $80B mark in 2018. However, the second half of 2018 wrote a different ending to the story. Now, let’s turn to the largest segment, Pet Food & Treats… 

Pet Food spending has been on a roller coaster for a number of years, driven by successive product trends. Since 2003 Pet Food has consistently had 2 successive years of spending increases followed by a down or flat year. After the 1st half, it looked like 2018 was on track for a small, but expected increase. However, the 2nd half changed all that. Spending fell $2.51B, driving sales down $2.26B for the year and  breaking the pattern of the last 15 years. Now, we’ll look at Pets & Supplies…

Since the Great Recession, Pet Supplies prices have generally been deflating as many categories have become commoditized. The segment is very price sensitive. Price deflation drives spending up while even a low inflation rate depresses sales. In 2018 Pet Supplies prices went up 1%, which was the biggest increase since 2009. However, sales still went up $1.22B. This combination also last happened in 2009. However, when you look at the graph, you see that spending actually fell $0.01B in the 2nd half of 2018. This makes sense as the inflation rate grew during the year. By December, prices were up 3.3% versus 2017. Now Non-Vet Services…

Pet Services is the smallest industry segment and has long been known for slow, but consistent growth. In the graph, you can see that this pattern was broken in 2017. The number of outlets offering Services began to increase sharply during this time and pricing became more competitive. At first this didn’t increase consumer usage of Services and Pet Parents were shopping for value. Apparently, this changed in 2018 and more consumers “got the message”. Spending increased by $1.95B. This is more than twice as big as the previous largest increase in the 34 years that the US BLS has been keeping records on this segment. Now, on to our final segment, Veterinary Services…

Except for 2015, Veterinary Services has grown consistently through the years. The problem has been a high inflation rate, which has slowed the frequency of consumer visits while increasing prices. The inflation rate has slowed in recent years which spurred $3B in spending increases in 2016-2017. In 2018, Vet spending was up $0.56B (+2.7%). Unfortunately, prices were up 2.6% so there was a net decrease in the amount of Veterinary Services in 2018.

That wraps it up for this brief preview of Pet Spending in 2018. In future reports we will drill deeper and deeper into the data for each segment and ultimately Total Pet. Our goal will be to determine the who, what and why behind the numbers. We will look at spending from the perspective of 82 segments in 12 demographic categories and even include the frequency of purchase as a factor. Who is spending most of the money? Which groups had the biggest changes in spending – up or down. What are the best performing demographic segments?

The Pet Industry is solid but complex. You have to look beneath the surface numbers to find out what is truly happening. Stay tuned for detailed, analytical updates.

2018 Top 100 U.S. Retailers – Sales: $2.3 Trillion, Up 4.8%

The U.S. Retail market reached $6.03 Trillion in 2018 from all channels – Auto Dealers, Supermarkets, Restaurants, Online retailers and even Pet Stores. This year’s increase of $282B (+4.9%) topped last year’s increase of $235B. The increases have been steadily growing since 2015. One factor is that rising fuel prices have put Gas station revenue back on the plus side. (Data courtesy of the Census Bureau’s monthly retail trade report.)

In this report we will focus on the top 100 Retailers in the U.S. Market. These companies are the retail elite and account for 38% of the total market. The vast majority also stock and sell a lot of Pet Products. The retail market is constantly evolving which produces some turmoil – mergers, acquisitions, closures. As you will see, the Top 100 are not immune. The report does contain a lot of data, but we’ll break it up into smaller pieces to make it more digestible. All of the base data on the Top 100 comes from Kantar Research and was published by the National Retail Federation (NRF).

We’ll begin with an overview:

Observations

  • The total Retail Market grew $282B in 2018 (+4.9%). In 2017 it was +4.3% and in 2016 +3.2%. Acceleration is slowing
    • The Top 100 grew $104B (+4.8%). This is better than last year’s +4.3% but slightly less than the total market.
    • The Top 100 generates $2.3 Trillion in revenue, 37.7% of the total U.S. retail market – the same as last year.
  • Let’s make the data a bit more relevant. If you remove the revenue from Auto, Restaurant and Gas Stations, the “targeted” retail market for the Pet Industry is $3.6 Trillion – 59% of the total market. By the way, the slight drop in share is due to the 13% increase in Gas Station revenue.
    • If we also remove Restaurant & Gas Station $ from the Top 100, the remaining $2.1T is 34.7% of the total market.
    • … and 58.6% of the $3.6 Trillion “target” market.

The Top 100 is critically important and generally outperforms the overall market, but not in 2018. The difference was very slight. Quite frankly Gas Stations and Restaurants outside the Top 100 performed better than the biggest chains. Remember, the Top 100 is really a contest. Every year companies drop out and new ones are added. This can be the result of mergers, acquisitions or simply surging or slumping sales. Here are some changes of note in 2018:

There were 3 companies in various categories that fell off the list.

◦  Toys R Us  (Closed)

◦  SUPERVALU (Moving out of retail)

◦  Petco (last year #100 – in 2018, didn’t make the cut)

There were 3 additions, primarily due to strong sales increases.

◦  Wayfair – sales surged at this internet retailer and it entered the list at #77

◦  Camping World moved into the #93 spot

◦  Stater Bros. (made it back after dropping off the list in 2017)

Now let’s start “drilling down” into the specifics of the 2018 Top 100. Here’s a summary of Regular and Online Retailers versus the bundled total for Restaurants & Gas Stations.

  • Regular & Online Retailers have 58.8% of the stores but 92.1% of the business, up from 91.9% last year.
  • Most of the increase (96.5%) is coming from Regular/online retailers. They are up 5.2% compared to +4.5% in 2017.
  • Restaurant sales were up $3.6B (2.2%) in 2018 and Gas Stations turned positive, +0.15B (+1.1%).
  • The overall Store count was up +0.8% after a -0.9% drop in 2017. The lift was driven by regular retailers (+1.4%). Restaurants were basically flat (+0.05%) and gas stations were down -2.0%.

Now that we have an overview of the Top 100, let’s take a look at the “targeted” retailer segment. There are 82 total companies. How many are buying and selling Pet Products? This will reinforce how Pets have become an integral part of the American Household and how fierce that the competition for the Pet Parents’ $ has become.

  • Of 82 possible companies, 70 are selling some mixture of Pet Products in stores and/or online. (up from 67 in 2017)
    • Their Total Retail Sales of all products is $1.96 Trillion which is…
      • 93.8% of the total business for Regular & Online Retailers in the Top 100
      • 32.6% of the Entire $6.03T U.S. Retail market – from 70 Companies who sell Pet Products.
    • 56 Cos., doing $1.83T in sales are selling pet products off the retail shelf in 142,982 stores – 1000 more than 2017.
      • As you can see by the growth in both sales and store count, in store is still the best way to sell pet.
    • Online only is another story and the story gets complicated
      • Amazon includes Whole Foods, which has stores so the Amazon $ are in the “Pet in Store” numbers.
      • Many traditional Retailers who only sell Pet Products online are losing market share. However, internet only retailers, like Wayfair are showing strong growth

Pet products are an integral part of the strongest retailers and are widespread across the entire U.S. marketplace. Of the Top 100, 143,000 stores carry at least some pet items at retail. There are thousands of additional “pet” outlets including 20,000 Grocery Stores, 10,000 Pet Stores, 16,000 Vet Clinics, 5,000 Pet Services businesses and more. Pet Products are on the shelf in over 200,000 U.S. brick ‘n mortar stores… plus the internet.

Before we analyze the whole list in greater detail let’s take a quick look at the Top 10 retailers in the U.S.

  • They did $1.2 Trillion in Sales
    • 52.9% of the Top 100’s $ales
    • 19.9% of Total U.S. Retail $
  • It’s the same list as 2015>2017, but 4 changed rank
  • Amazon moved up to 2nd place
  • Albertsons had the only decrease  and it was minor

In the next section 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.

I have not done a lot of highlighting however:

  • Pet Columns ’18 & ‘17 – a “1” with an orange highlight indicates that products are only sold online
  • Rank Columns – Change in rank from 2017: (Note: Acquisitions, Divestitures and Corporate Restructuring can cause big changes in ranking.)
    • Up 4-5 spots = Lt Blue; Up 6 or more = Green
    • Down 4-5 Spots = Yellow; Down 6 or more = Pink

Let’s get started. Remember online sales are included in the sales of all companies

Observations

  • Drug is still in turmoil with acquisitions a big factor. We see the results of the Walgreens’ acquisition of hundreds of Rite Aide stores.
  • The Traditional Department store segment continues its overall decline. The “high end” Nordstrom stores were an exception with gains in both sales and number of outlets.
    • Macy’s stabilized somewhat in 2018, but Sears sales and store count plummeted.
    • Although all carry a few pet items, generally online, this channel has never fully embraced Pet Products.
  • Much of the growth in the Convenience Store Chains in the Top 100 in recent years has come through acquisitions. This continued in 2018.
  • Military Exchanges/Commissaries have added locations in recent years, which fueled the growth in sales. In 2017 they began reducing the number of Army/AF Exchanges. This trend continued in 2018 and for the second consecutive year they also opened no new Commissaries. Sales were essentially flat.
  • Auto Parts Stores have become more stable as all chains increased their store count. Overall, sales were up slightly but it came from a mixed bag, ranging from O’Reilly’s +5.8% to AutoZone’s down -0.2%.
  • Among Apparel retailers, the value outlets continue to show strong growth. All three of these chains carry pet products. Cosmetics stores are also showing surprising strength. Unfortunately, they don’t carry any pet items…yet.

Observations

  • Amazon continues to drive the evolution of U.S. Retail. They moved into the #2 spot in 2018 and sales are up 129% in 5 years. Since the acquisition of Whole Foods in 2017 they also have a brick ‘n mortar presence in the market;
    • All three of the Phone People had sales percentage increases that exceeded Amazon’s – a good year!
    • QVC acquired HSN in 2017 which moved them up to #40. Sales were only up 1.8% in 2018 and they fell to #41.
    • In 2018 we officially lost Toys R Us, a long-time fixture in the Top 100.
  • Signet Jewelry’s sales fell 3.4% in 2018 which follows 3.9% drop in 2017.
  • Mass Merchants have 2 of the 4 largest volume retailers in America – Wal-Mart and Costco. Recently, these two companies have driven the growth in this channel and 2018 was no exception, but all companies did increase sales.
    • Wal-Mart had a 3.4% increase in sales which is slightly above last year’s 3.3%. Their business is mixed as SuperCenters continue to grow and their online sales are taking off. However, “regular” Discount Department Stores are losing market share. These trends impact the overall business in both Wal-Mart and Target.
    • Target posted a second consecutive sales increase in 2018, after 3 years of flat or declining revenue.
    • Costco continues its strong growth (+9.0%), building new stores and increasing sales – both in store and online.
    • BJ’s turned it around in 2018. Sales were up 4.5% after a string of annual declines since 2013.
  • All Home Improvement/Hardware companies increased sales, but overall, the category dialed back its growth a bit. There was a drop in total store count which was driven by Lowe’s and True Value. Home Depot was up over $5B (+5.8%) in revenue but Lowe’s, another Top 10 retailer, was up $1B, only +1.5%.
  • All Home Goods Companies but Bed Bath & Beyond increased sales. However, 67% of the overall increase came from Wayfair who entered the Top 100 for the first time at #77.
  • Tractor Supply was up 11.4% which exceeds their average annual growth rate of 9.4% since 2013.

Observations

  • Supermarkets – $391B in Sales; 15 Companies; 15,000 stores; All Selling Pet Products. This is a very important group for the Pet Industry. With the highest frequency of consumer visits of any channel, the competition is fierce. The mergers and acquisitions have slowed. Kroger sold off 800+ convenience stores which accounts for the overall drop of 1000 stores in the category. SuperValu exited the retail grocery business and Stater Bros returned to the Top 100.
    • Southeastern Grocers filed for bankruptcy which resulted in store closures and sharply reduced sales.
  • Small Format Value Stores: Remember, this retail channel does more business than Traditional Department Stores.
    • As expected, Dollar General increased its lead over Dollar Tree in Sales, Sales Increase and Store Count.
    • Dollar Tree continues to increase sales and number of stores, but its growth rate has slowed.
    • Big Lots cut back in stores and sales turned slightly negative, after 3 consecutive years of small increases.
    • This retail channel continues to grow in numbers and popularity. They are committed to Pet Products and their focus on value appeals to today’s ever more price conscious consumers. Plus, they are easy to shop.
  • Pet Stores – After the huge lift in sales caused by their acquisition of Chewy in 2017, PetSmart’s sales returned to a more normal growth rate, +4.7%. Petco made big news in 2016 by qualifying for the Top 100 for the first time at #98. This was viewed as evidence of the strength of the U.S. Pet Industry. They had a fair year in 2017 (+3.7%) but they fell to #100. In 2018, they just couldn’t keep up with the competition from 70 companies in the Top 100 selling pet products and they fell out of the Top 100. Perhaps, they will find a formula to make it back into the club.
  • Office Supply Stores – This channel continues its decline as Consumers are increasingly moving to online ordering.
  • Sporting Goods – Sports Authority closed in 2016 but acquisitions produced 3 Sporting Goods companies in the 2017 Top 100. However, the prosperity was short lived as sales for all 3 turned sharply down in 2018. The only positive note in the category was that Camping World made the Top 100 at #93.

Restaurants & Gas Stations and the Grand Total

Restaurant & Gas Station Observations

Although restaurants & gas stations aren’t relevant in terms of Pet Products Sales, they are relevant in our daily lives.

  • In 2018 the revenue for Restaurants in the Top 100 was up 3.6%, a slight increase from 3.0% in 2017. However, it is significantly below the 5.9% increase in the total restaurant channel. Except for Subway, all restaurants in the Top 100 posted increases. Burger King almost made it back, going from down 2.1B in 2017 to up $1.3B in 2018. The other biggest increases came from Chick-fil-A, McDonalds and Starbucks, who all increased revenue by $0.9B.
  • Rising gas prices in 2018 drove the revenue of the total channel up 13.2%. The Top 100 Gas Station sales are up only 1.1%. If consumers are trying to cut back on Gasoline usage, perhaps it shows up in these big chains.

Wrapping it up!

The Top 100 became the Top 100 by producing big sales numbers and their performance usually exceeds the overall market. The gap has been narrowing in recent years and in 2018 it turned negative. +4.8% for the Top 100 vs +4.9% for Total Retail. However, when you look a little closer you see that the “problem” is with the Top 100 Restaurants and Gas Stations. If you just compare the “regular” retailers – both brick ‘n mortar and internet, then the Top 100 “wins”, +5.0% to +4.3% for the total “relevant” retail market.

Pet Products are an important part of the success of the Top 100. Seventy companies on the list sell Pet Food and/or Supplies in 143,000 stores and/or online. Let’s take a closer look at the fifty-six companies that stock pet products in their stores. This group generated $1.96T in total sales. How much was from pet? Let’s “Do the math”. If we take out the $8.7B done by PetSmart and the remaining companies generated only 1.5% of their sales from Pet, we’re looking at $29B in Pet Products sales from only 55 “non-pet” sources! (Note: The 1.5% share for Pet items is a low end estimate based on data from the U.S. Economic Census.) The APPA reported $48B in Pet Products sales for 2018.

That means that 55 mass market retailers accounted for 60% of the Pet Products sold in the U.S. in 2018 and…

Pet Products are widespread in the retail marketplace but the $ are concentrated. Regardless of your position in the Pet Industry, monitoring the Top 100 group is important. This group also reflects the ongoing evolution in the retail market – the growing influence of the internet and the importance of Value. The Intense competition is evident in the number of mergers & acquisitions. In business, just like in biology, you must adapt to a changing environment or face extinction!

Finally, here is a link to download the 2018 Top 100 Retailer Excel file so you can do your own analysis.

 

 

 

SuperZoo 2019 – It’s a great Opportunity and a Sure Winner!

SuperZoo 2019 is only a month away. It is most definitely a great “Opportunity” for attendees and exhibitors and the “surest bet” in Vegas. Like Global Pet Expo, SuperZoo is a “must do” if you want to be a player in the U.S. Pet Market.

There are differences between the two shows. After all, GPE started the U.S. Pet Industry with the first trade show 61 years ago. It is still the largest annual show and has a huge international following with 295 exhibitors from outside the U.S. On the other hand, SuperZoo traces its roots to a regional trade show for independent pet shops. It too has come a long way since those early days. SuperZoo has expanded both in size and its reach. With 1100 exhibitors, targeted special floor sections, including one devoted to the important grooming segment, and over 120 international exhibitors, it too has become a “destination” for manufacturers, distributors and key players from all retail channels. However, Independents are still a major focus of the show. This has a benefit for all attendees as “hopeful” new product offerings and trends often show up first at SuperZoo because Independents are generally more open to adding new, untried items than the larger chains and mass market retailers. You will see this in 2019 with the “explosion” in exhibitors offering CBD products. (With 63 exhibitors, I assigned CBD its own separate product category. It also earned 2 Educational Seminars.)

SuperZoo’s growth has not come without challenges. Recently, they have had to move the show dates twice, once last year to accommodate the need for more floor space and again this year to return to the expected and traditional late summer “timing” of the show. This caused a little “hand wringing” and 37.4% of 2018 exhibitors didn’t return. This is up from the “usual” 30%. (Note: GPE 2019 was 34%) Although down by 98, the final exhibitor count should again reach 1100, the benchmark set in 2016. The booths are also larger. Exhibitors will occupy 269,000 sq ft, with an average booth of 254 sq ft, up from 245 in 2018 and 200 in 2016. Plus, the New Product Showcase this year will cover 30,000 sq ft.

Let’s take a closer look. We’ll start with some overview exhibitor trends then move to the special floor sections.

  • Assigned Exhibitors: 1096; ↓ 98 (-8.2%) from 2018
  • Booth Sq Ft: 269,000; ↓ 15,000 (-5.3%) from 2018
  • 447 SZ 2018 Exhibitors (-37.4%) aren’t at SZ 2019
  • 352 (32.1%) are new. They didn’t do SZ 2018
  • 462 (42.2%) SZ 2019 Exhibitors weren’t at GPE 2019
  • 261 (23.8%) are really new – Not at SZ 18 or GPE 19

  • You first notice that the count in Special Floor sections grew 20.6% while the overall exhibitor count fell by 8.2%. Once the exhibitor count reached the 1100+ range, defined floor sections became increasingly important for both exhibitors and attendees. After falling to a 36.6% share last year, they are back to a more normal level – 48.1%.
  • Every special section but Groomers has more exhibitors than last year. The Grooming segment is still very important, but it is becoming even more competitive and exhibitors are becoming more widespread across the show floor.
  • The 1st Timers section grew 43.2% but remember that 352 exhibiting companies weren’t at SuperZoo 2018 so the 106 doesn’t reflect the true count of new exhibitors.
  • The Natural Section is still growing as this trend continues to be strong in the marketplace.
  • Function is the biggest trend, but Fashion is still important, and Rodeo Drive is back to a more representative size.
  • Like every element of the marketplace, SuperZoo is evolving. They are extending their “reach” with an International Section. Although this doesn’t reflect their coverage as there are over 120 International exhibitors at SuperZoo 2019.

Now let’s look at the Exhibitors by type, including animal.

  • Remember there was a 8.2% drop in exhibitors so the most accurate measure of trends may be the change in share.
  • All animal types gained in share which is appropriate as the industry’s focus is pets. Birds, small animals and horses even increased their booth count. Fish gained the least in share while cats continue to “claw their way up”, +3.3%.
  • The importance of pet retailers at the show is very evident by the 34.6% increase in Distributors.
  • Gifts/Gen Mdse/Uncategorized exhibitors fell sharply and is down -31.7% from their peak of 139 exhibitors in 2016.
  • The rise of Business Services continues as a major trend – up 16 (+12.4%) from 2018, but up 96 (+202%) from 2014.
  • As always, Dogs and Cats are the royalty, but the Cat share of exhibitors has grown markedly – up from 44% in 2014.

Let’s take a closer look at the “royalty”. Here are the top 10 Dog and/or Cat Categories at SuperZoo 2019.

  • The members of the top 10 are unchanged from 2018. There was a shuffling in the rankings from #5 to #10 – 3 moved up while 3 dropped, but basically, they all “held their ground” in their importance.
  • The big news is the seemingly unstoppable momentum of Meds & Supplements. This category has also helped drive Treats to its unparalleled prominence at #1 as Supplements are often produced in Treat form. They again rank #1 & #2 in terms of exhibitor count, which is up 57% for Treats and 84% for Meds & Supplements from 2014. Amazing!
  • The importance of grooming is showcased here as 2 related categories are in the Top 10. In fact, Grooming Tools was 1 of only 2 categories in the Top 10 to increase exhibitor count in 2019.
  • Food maintained its prominence, gaining in share and ranking although falling slightly in numbers.
  • Beds had the biggest decrease. It raises the question, “Can attendees “survive” with only 144 booths offering beds?”

SuperZoo is down 8.2% in exhibitors, equal to 2017 and 17% more than 2014. The Average Booth is also 25% larger than 2016 and still growing. There are products and services available to fill virtually every need or want of the attendees and the show is keeping “in tune” with changes. Increasing the number and size of special floor sections along with the big increase in educational sessions are prime examples.

924 exhibitors (84%) focus on Dog/Cat. Let’s take a closer look.

There are 98 fewer Exhibitors at SuperZoo. Those offering Dog and/or Cat products fell by 76. However, the Dog/Cat share increased slightly from 83.7% to 84.3%. Once again “share” may be the best measure for comparison.

  • Only 10 of 33 (30%) Dog/Cat categories have more exhibitors in 2019 than in 2018
  • However, 23 of the 33 (70%) categories increased their share of exhibitor booths

In the Top 10 categories we saw a big loss in numbers and share by Beds, but Medication/Supplements and Grooming Tools gained ground in both measurements. Treats are down 1 in exhibitor count but up 2.6% in share. There are only 2 other significant gains in the other Dog/Cat categories:

  • Dental: +9 (+14.8%); Share ↑1.3%
  • Exercise/Agility: +6 (+50.0%); Share ↑0.6%

When you look at the Dog/Cat Categories making gains, you see that the most common thread is the health and wellness of our companion animals. We also can’t forget the recently added category of CBD products, which debuted with an exhibitor count of 63. All of these fit right in with the ongoing trend to more nutritionally focused Pet Food.

SuperZoo certainly showcases what is “happening” in the Pet Industry and offers a great opportunity for attendees and exhibitors to make a mutually beneficial connection. Once again, it’s the surest bet in Las Vegas!

Finally, the chart below details the specifics for all 33 of the Dog/Cat product categories that I defined for the Super Search Exhibitor Visit Planner.  (Note: The SZ 2019 Super Search will be released next week, no later than 7/30/19.)

TAKE A LOOK. I HOPE TO SEE YOU IN VEGAS!

 

 

 

U.S. Retail Trade – 2018 $ales by Channel – Going for the Gold

The Total U.S. Retail Market in 2018 reached $6.03 Trillion dollars – up $282B (+4.9%). This is slightly better than last year’s (+4.3%). For this report, we will focus on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations from the data. This segment totals $3.6 Trillion. We should also note that in 2018, Gas prices continued to increase. As a result, for the second consecutive year there was an increase in revenue in all these major segments.

How are specific Retail Channels performing? We’ll start with a market overview and then work our way down.

(Base Data is from the U.S. Census Bureau Retail Trade Report)

Remember: This data is very relevant to the Pet Industry. According to the last Economic Census:

  1. Retailers other than Pet Stores generated 66.5% of all the Pet Products revenue in the U.S.
  2. Pet Products, on average, generated 1.94% of the total revenue of all non-pet stores that chose to stock them.

  • Restaurants (Food Service) – 11.9% of Total Retail – Up $40B, +5.9%, which was double last year’s (+2.7%).
  • Automobile Sales – 20.4% of the Total – Revenue grew $35B, +2.9%. The growth is significantly slowing.
  • Gas Stations – 8.5% of the Total – Up $60B, +13.2% from 2017. Gas prices turned up in March of 2016 and continued to increase until turning downward in November of 2018. This again drove a major increase in $.
  • Retail, Less Food, Auto and Gas – Up $147B, +4.3% to $3.6 Trillion, better than last year’s +4.0% but once again less than the total market. This segment is 59.2% of the Total U.S. Retail market.

To put this year into perspective, let’s look at the overall performance over the last 5 years.

The U.S. retail market has grown each year since 2013 but each segment has a different pattern. The low point for the total came in 2015 due to a precipitous drop in gas prices. However, with a big turnaround in gas prices beginning in May of 2016, the growth rate of the overall market has returned to more normal levels. Restaurant sales growth had been slowing since 2015 but came back strong in 2018. Auto sales are still strong, accounting for 1/5 of the total market but the growth is definitely slowing. Our “Relevant Retail” Segment has been the most consistent, at or near 4% growth each year. However, we should note that after 4 consecutive years of exceeding the growth rate of the total market, its growth rate didn’t meet this standard for the second consecutive year. It will still serve as a benchmark as we review the individual channels. Above 4.3%, a channel is gaining market share. Below 4.3%, they are losing ground.

Now, we’ll slice up the U.S. “Relevant Retail” Channel “Pie”

These are large slices of the U.S. Relevant Retail pie. If you look closely you will see a troubling situation. 2 divisions maintained their share but 6 lost ground. In fact, only Non-Store retailers increased their share of the total retail market. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 59.8% of the total. This is up slightly from 59.3% in 2017. However, the increase is all due to Non-Store Retailers. The other two major segments continue to lose market share. All three are very important to the Pet Industry. Based upon the last U.S. Economic Census, these three major divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores – 33.1% of their Pet Products $. However, they spend over 80% more in these 3 major retail channels. Pet products are “on the list” wherever the consumer shops.

Because they are so huge, major Divisions of the market generally don’t show much movement in market share in just one year so the changes in General Merchandise, Food & Beverage, Non-Store and Sporting Goods are very significant. Each of the major divisions includes a number of sub segments. For example, General Merchandise includes Traditional Department Stores, Discount Department Stores, Supercenters and Clubs as well as $ and Value Stores. These specific retail channels can have even greater movement in share because this is the level that the consumer “views” when making their initial shopping choice. Change at this level is where any ongoing consumer shopping migration first becomes apparent.

Here is the Market Share change “Rule” for 2018: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 4.3% sales increase PLUS an additional $3.6B. Example: If a channel did $100B in 2017, they need to do $100 +$4.3 + $3.6 = $107.9B to gain just 0.1% in 2018 share. You will see channels with revenue increases that still lose share because the increase was less than 4.3%. It shows that even small changes in share are significant.

With that overview, we’re ready to drill deeper into the data. Let’s look at the 2018 performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. Eleven of the twelve were chosen because they generated at least 1% of the Total Pet Products (food & supplies) spending in the last Economic Census – 2012. I have also included Traditional Department stores on the list. Even though they have never truly embraced Pet Products, they have long been a fixture in the U.S. Retail Marketplace. Their continued decline, as consumers migrate to outlets which better fit their needs, has profoundly affected U.S. retail shopping as generally they were the “anchor” stores for the Shopping Malls across America.

We will use 2 separate graphs to illustrate the situation in these Pet Relevant Channels. The first will show the % change in sales in 2018 vs 2017. The next will “show us the money” by translating the percentages into $ gained or lost. Then we will have observations on each segment.

Remember, you must be up at least 4.3% or you’re losing market share!

9 of these pet relevant channels are showing increased sales. However, in market share, 5 are gaining, but 7 are losing. Hardware stores is a surprise on the plus size. The market share losers include the traditionally largest channels plus Farm Stores, last year’s leader. In the next chart, we’ll “show you the money!” Remember, the Total increase for the “Relevant Retail” Market was $147B and you must be up 4.3% PLUS $3.6B just to gain just 0.1% in Market Share.

The continued, spectacular growth of the Internet is obvious as the $ increase in this segment was equal to the combined increase of Supermarkets, SuperCenters/Clubs and Home Centers. The revenue from Home Centers and Hardware is also still growing as weather related property damage continues to be a major problem. Consumers again turned their time and resources to repairing their homes. The continued strong increases by $ Stores is evidence that consumers want value plus the convenience offered by these smaller outlets. The A/O Miscellaneous segment is holding its own as consumers desire more personalized service in certain categories – like Pet Products.

OBSERVATIONS BY CHANNEL (Note: % of Total Business from Pet Products for stores that stock Pet)

  • Internet/Mail Order – $597.1B, Up $52.1B (+9.6%) – 35.4% of the total increase for the $3.6T Relevant Retail Market came from Internet/Mail Order. The Consumer Migration to this channel continues. – +0.8% in Market Share. They passed SuperCtrs/Clubs in 2016. Soon they will take the top spot from Supermarkets. (1.2% Pet)
  • Super Markets – $632.0B, Up $22.5B (+3.7%) Despite increasing sales, this largest sub-segment continues to lose ground. Sales are up $58B since 2014 but Market Share is down 0.94%. The Internet/Mail order channel has increased focus on grocery products and is pushing very hard to become the leading retail channel. (1.6% Pet)
  • Department Stores – $52.0B, Down $2.1B (-4.0%). Their decline continues. 50 years ago, they “ruled” the GM category. However, 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. (N/A Pet)
  • Discount Department Stores – $97.0B, Up $0.7B (+0.8%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top of GM was relatively brief as the SuperCtrs/Clubs offered true 1 stop shopping. Now, they have the Internet to contend with. Sales have stabilized, but not a good outlook. (2.3% Pet)
  • SuperCenter/Club Stores – $481.3B, Up $18.3B, (+3.9%). These outlets, with their broad mixture of grocery and general merchandise…at great prices, quickly became a dominant force in the retail market – second only to Supermarkets in Market Share for many years. In 2016 they were passed by the internet. Consumers still like them as their sales are still growing, but not enough. They continue to lose market share – Down 0.05% (2.4% Pet)
  • $ & Value Stores – $83.8B, Up $5.2B, (+6.6%). – A Great Value and easy to shop – 2 of U.S. Consumers’ major “wants”. This segment has shown steady growth in recent years and got even stronger in 2018. (4.3% Pet)
  • Drug Stores – $286.2B, Up $9.3B, (+3.3%). There still is a lot of turmoil in this segment. Intense competition has led to a large number of mergers and acquisitions, which have slowed growth. (0.3% Pet)
  • Sporting Goods – $42.2B, Down -$2.4B, (-5.4%). A Minor player in Pet. The turmoil in the category continues with mergers, acquisitions and store closings. (N/A Pet)
  • Home Centers – $300.1B, Up $12.7B, (+4.4%). These large, “project driven” outlets have never done a significant Pet Business. The top 2 retailers – Home Depot and Lowes, continue to drive the growth. (0.6% Pet)
  • Hardware – $28.4B, Up $2.3B, (+8.7%). Extensive weather damage in the past 2 years has had a huge impact on this channel, turning sales sharply upward after years of slow or even flat growth. (2.6% Pet)
  • Farm and Garden Stores – $48.6B, Down -$2.4B, (-4.7%). This segment has been growing in recent years in both overall sales and in Pet, but it was largely driven by Tractor Supply. However, even a strong increase by TSC in 2018 couldn’t overcome the decline in sales from other outlets. (8.9% Pet)
  • A/O Miscellaneous Stores $82.2B, Up $4.1B, (+5.2%). Florists, Pet Stores, Art Dealers…are typical of the segments bundled into this group. Pet Stores account for over 20% of the $ in this segment. These stores, whether chain or independent, tend to be small to medium in size. Their increase slightly exceeded the market so these stores, which focus on another consumer trend – a more personalized shopping experience, are “holding their own” against the large format retailers and the internet. +0.1% in share since 2014. (Pet Stores $ are 91% Pet Products)

The chart below puts the Market Share of each of these segments for 2018, 2017 & 2016 in a visual format so that it is easier to appreciate the relative sizes. Growth in share since 2016 is indicated by a green box, a decline is boxed in red.

Now we’ll wrap it up with a brief summary and a detailed chart for future reference.

SUMMARY 

Pet Stores remain the #1 channel for Pet Products. However, in the Relevant Market, there are 3 Olympic Medalists. SuperCenters & Clubs are firmly entrenched with the Bronze medal. The big race is for the Gold. In 2014, SuperMarkets led the Internet/Mail Order Channel by 6.1% in market share. In 2018, the lead was down to 0.97%. Barring a major turnaround, Internet/Mail Order should become the #1 retail channel in the U.S. in 2019. Amazon, the largest retailer in the segment, has firmly set their sights on the fresh grocery business. Supermarkets are trying to fight back by creating online ordering programs. However, this is probably too little, too late to stave off the internet juggernaut.

The annual increase in the Relevant Retail market has grown in recent years from +3.5% in 2015 to +4.3% in 2018. However, for the second consecutive year the increase in the “Relevant Retail” market was less than the increase in the Total Retail Market, +4.9%. This was again due to a big increase in Gasoline prices which drove up sales in Gas Stations. Once again. the Internet/Mail Order Channel provided much of the excitement and 35.4% of the growth in Relevant Retail. SuperMarkets, SuperCenter/Clubs and Home Centers generated 36.4% of the increase, but only Home Centers gained market share and that was only +0.01%. Traditional Department stores continued their decline while sales in the easy to shop and save, $ Stores grew. The small to medium A/O Miscellaneous Stores (Includes Pet) maintained their place in the market by appealing to consumers desiring a more personalized shopping experience.

The U.S. Retail Market continues to grow and evolve as the consumer migrates to the channels which best fulfill their current wants and needs. This is not a new phenomenon. It has always been that way. Currently, the “Channel of Choice” is Internet/Mail Order and their victory appears to be inevitable and coming soon. Traditional Brick ‘n Mortar stores will not go away but they must adapt to the new “electronic” environment if they wish to survive.

Finally, the Chart below contains Detailed 2016 > 2018 Sales Performance Data for over 30 U.S. Retail Channels.