Spending, CPI, demographics of overall market

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 (+1.9%). 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.

 

 

 

 

 

 

Pet Products Spending by Generation: Mid-Year 2018 Update

Pet Products spending totaled $51.17B for the 12-month period ending 6/30/18. This was an increase of $5.3B (+11.5%). Total U.S. spending for the period totaled $7.95 Trillion, up $370B (+4.9%). Driven by big increases in both Food and Supplies, Pet Products Spending growth far exceeded the pace of Total U.S. spending.

In this report we will update Pet Products Spending for arguably the most popular demographic measurement – by Generation. Baby Boomers built today’s Pet Industry, but they are getting old. What happens next? Gen Xers are next in line but most of the discussion revolves around Millennials. Last year at this time the Gen Xers had a big year. Are they still performing? What about the youngsters? Are they stepping up in life and spending? Have the Boomers still got it? Let’s take a closer look. The numbers come from or are calculated from data in the US BLS Consumer Expenditure Survey.

First, let’s define each generation and look side by side at their share of Consumer Units (H/H’s) and Total Spending.

          Generations Defined:

  • Millennials: Born 1981 and after
    • In 2018, age 19 to 37
  • Gen X: Born 1965 to 1980
    • In 2018, age 38 to 53
  • Boomers: Born 1946 to 1964
    • In 2018, age 54 to 72
  • Silent: Born 1928 to 1945
    • In 2018, age 73 to 90
  • Greatest: Born before 1928
    • In 2018, age 91 and over

  • Boomers are still the largest group with 44.4M CUs (34.0%) and the biggest spenders – $2.8T. Their numbers are down but their spending is still growing and over performing as their share in relation to their share of CUs is 105%.
  • Gen X is the second largest CU group. Their overall numbers are down slightly as more singles “pair up”. However, their spending was up $123B to $2.56T. They are the leaders in spending performance, and it got even better, 121%.
  • Millennials are the largest generation in sheer numbers, but third in CUs. More are developing financial independence as CUs grew by 2.7M – up 5M (+17%) in 2 years. They also had the biggest increase in spending +$228B. Their total spending was $1.77T – 3rd However, their spending performance is only 86%.
  • The Silent generation actually gained slightly in CUs and their overall spending was up $18B so they remain a viable force in the marketplace. The Greatest Generation will soon be too small to be a measurable, separate spending group. They will be replaced by Gen Z by 2020.

There is the obvious difference in age to be considered and differences in behavior. However, we have also learned that there are key Consumer Unit characteristics, like income, family situation and home ownership that make a difference both in Total Spending and in Pet Spending. Let’s look at some of these key differences.

  • It just takes 2. CUs with 2 or more people account for 84.8% of all Pet Products Spending. (up from 81% last year)
  • The size of the CU and number of children is all about Family responsibility and all the financial pressures that this generates. The CU size overall is unchanged from Mid-2017 and still peaks with the Gen Xers. However, the Boomer and Gen X generations decreased by 0.1 person. Perhaps, their Millennial kids are moving out.
  • Married couples with children under 18 are an important segment, 23.4% of all CUs. They account for 26.5% of all Pet Products spending and 32.8% of Supplies Spending. However, as the number of children grows, the increased financial responsibility can slow Pet Spending.
  • Boomers still average 2+ people in the CU. However, they are much less likely to have children <18 at home. As their human children leave home, they turn their attention and spending to their Pet Children who are still with them.
  • Pet Products spending is also tied to the number of earners in a CU. 2+ Earner CUs account for 41% of the total but they spend 49% of Pet Products $. As you can see the “earning” is being done in America by Gen Xers, Millennials and Boomers with Gen Xers at the top, as to be expected. Boomers are down 0.1 as more move into retirement.
  • Homeownership – Owning and controlling your own space has always been a key to increased Pet Ownership and spending. Homeowners currently account for 80.2% of all Pet Products Spending, which increased by $4.89B (+13.5%). Renters’ spending was up too, but only $0.4B (+4%), which highlights the importance of homeownership.
    • Nationally, Homeownership remained steady at 63%. Gen Xers remain at or near the national average. Homeownership continues to increase until we reach the oldest Americans.
    • The Millennials are obviously lagging behind but they did increase from 34% to 36% and are up from 32% in 2016. This is encouraging. Boomers also moved up 1% to 78%. The homeownership rate for the over 25 Millennials still remains 20% below the rate for the older generations when they were the same age.

Next, we’ll compare the Generations to the National Average in Income, Spending, Pet Products Spending and Pet Products Share of Total $pending:

  • CU Avg Income – $76,335 
  • Total Spending – $60,815
  • Pet Products Spending – $391.90
  • Pet Products Share of Total Spending – 0.64%

  • Income – The 38>53-year-old Gen Xers are the leaders. The Boomers earn about 20% less and their income will continue to fall as they age. The big drop begins with the Silents as retirement becomes almost universal. The Millennials income is still 20% less than the Boomers and only 64% of the Gen Xers.
  • Total Spending – The Gen Xers make the most and spend the most, but their spending is not out of line with their income. Boomers also spend more than the average, but their income can still support it. Spending doesn’t fall as fast as income with the older generations. In fact, they are actually deficit spending in relation to their after tax The Millennials under 25 are also in an after tax income deficit spending situation. The rising income from the 25>37 group makes up the difference and brings their overall generational spending more in line with income.
  • Avg CU Pet Products Spending – The Boomers have been alone at the top since they made the move to upgrade to Super Premium Food in 2015. Their lead began dropping when they began value shopping for food in 2016 but it has bounced back with the 2nd wave of Super Premium. The Millennials are closing the gap but still trail the Gen Xers by 27% and the Boomers by 41%. The Gen Xers made a big move in Pet Products spending last year as they broke the national average for the first time since 2014. However, they lost ground this year – down to 104.9% from 112%.
  • Pet Products Share of Total Spending – One measure of the level of commitment to their Pets.
    • The Pet Products share of total spending increased to 0.64%. Only Boomers exceed the National Average but everyone under 91 years of age is at least 87% of the national average.
    • In a flip flop from last year, Gen Xers were the only big group to decrease their pet products spending in terms of its share of their overall spending. The drop was small and should be put into perspective. This group not only makes and spends the most money, they had by far the biggest increase per CU in these areas.
    • Millennials are in 3rd place in both income and total spending and moved up to 3rd place in Pet Products Spending share. Their Total Spending was up 5.5% but their Pet Products Spending was up 18.5%.
    • You can see that spending for the very Oldest, “Greatest” Americans continues to drop but the 73 to 90-year-old Silent Generation is still making “noise” with their commitment to their pet companions.

Now let’s look at Pet Products $ spent by Generation and their share of the total.

  • In terms of 2018 Mid-Yr Performance, all but the Greatest were up, but the lift was driven by Boomers & Millennials.
  • Boomers still have the largest share, but the Millennials gained the most, moving up to 19.4% from 17.3% last year.
  • Overall – Ave CU spent $391.90 (+37.98); 2018 Mid-Yr Pet Products spending = $51.17B, Up $5.3B (+11.5%)
    • The bulk of the lift is coming from 2017. July>Dec 17, Up $3.82B; Jan>Jun 2018, Up $1.48B
  • Boomers – Ave CU spent $502.14 (+$56.71); 2018 Mid-Yr Pet Products spending = $22.47B, Up $2.52B (+12.6%)
    • Big lift in 2017 but spending turned down in 2018. – Jul>Dec 17, Up $3.25B; Jan>Jun 18, Down $0.73B.
  • Gen X – Ave CU spent $411.04 (+$14.03); 2018 Mid-Yr Pet Products Spending = $14.39B, Up $0.47B (+3.3%)
    • Relatively flat but turning up in 2018. – Jul>Dec 17, Down $0.24B; Jan>Jun 18, Up $0.70B
  • Millennials – Ave CU spent $298.37 (+$46.65); 2018 Mid-Yr Pet Products Spending = $9.95B, Up $2.00B (+25.2%)
    • The most consistent, strong growth of any group. – Jul>Dec 17, Up $0.77B; Jan>Jun 18, Up $1.23B.
  • Silent Gen. – Ave CU spent $262.63 (+$23.33); 2018 Mid-Yr Pet Products Spending = $4.29B, Up $0.36B (+9.1%)
    • Growth in both halves but the bulk of the lift came in 2018. Jul>Dec 17, Up $0.07B; Jan>Jun 18, Up $0.28B.
  • Greatest Gen.– Ave CU spent $71.37 (-$0.83); 2018 Mid-Yr Pet Products Spending= $0.08B, Down $0.04B (-35.3%)

The increase was driven by Boomers in 2017 and  Millennials in 2018. Let’s look at individual segments. First, Pet Food

  • Boomers drove the lift in the 2nd half of 2017, then they began value shopping at the start of 2018.
  • The Millennials had a big lift at the beginning of 2018. Perhaps this is the start of a Pet Food new trend?
  • Overall – Ave Cu spent $240.44 (+$21.01); 2018 Mid-Yr Food spending = $31.36B, Up $2.92B (+10.2%)
    • After a big lift in the 2nd half of 2017, growth slowed markedly. Jul>Dec 17 (+$2.67B); Jan>Jun 18 (+$0.25B)
  • Boomers – Ave CU spent $333.30 (+$45.96); 2018 Mid-Yr Food spending= $14.96B, Up $2.11B (+16.5%)
    • July>Dec 17 (+$2.86B) – Wave to Super Premium continues. Jan>Jun 2018 (-$0.75B) – In 2018: Value shopping.
  • Gen X – Ave CU spent $222.45 (-$10.83); 2018 Mid-Yr Food spending= $7.83B, Down $0.32B (-3.9%)
    • Some value shopping in 2nd half of 2017 then began to bounce back. Jul>Dec 17 (-$0.43B); In Jan>Jun 18 (+0.11B)
  • Millennials – Ave CU spent $177.16 (+$26.95); 2018 Mid-Yr Food Spending $5.85B, Up $1.06B (+22.1%)
    • Jul>Dec 17 (+$0.26B); Jan>Jun 18 (+$0.80B). Some of the lift is coming from a big increase in CUs. However, we could be seeing the start of a new food trend. Remember, Millennials pioneered the move to Super Premium.
  • Silent Generation – Ave CU spent $164.31 (+$8.53); 2018 Mid-Yr Food spending $2.65B, Up $0.09B (+3.6%)
    • Spending was flat in the 2nd half of 2017, then picked up in 2018. Jul>Dec 17 (+0.01B); Jan>Jun 18 (+$0.08B)
  • Greatest Gen. – Ave CU spent $56.32 (-$1.57); 2018 Mid-Yr Food spending= $0.06B, $0.03B (-34.9%) – fading.

We are still seeing the impact of the 2nd wave of Super Premium in 2017. However, 2018 started off strong for Millennials while Boomers began value shopping. It could signal the beginning of a new Food trend. Now, Supplies.

  • Boomers still have the largest share but Supplies spending skews younger – Gen X and Millennials control 53.7%.
  • The lift is consistent and widespread. The Oldest Americans are losing CUs, driving spending down.
  • Overall – Ave CU spent $151.46 (+$16.97); 2018 Mid-Yr Supplies spending = $19.81B, Up $2.38B (+13.6%)
    • Supplies spending has been strong and growing for 24 months. Jul>Dec 17 (+$1.15B); Jan>Jun 18 (+$1.23B)
  • Baby Boomers – Ave CU spent $158.09 (+$10.75); 2018 Mid-Yr Supplies spending= $7.50B, Up $0.40B (+5.7%)
    • With a big increase in Food $, the Supplies lift is more subdued. Jul>Dec 17 (+$0.39B); Jan>Jun 18 (+$0.01B)
  • Gen X – Ave CU spent $188.59 (+$24.86); 2018 Mid-Yr Supplies spending= $6.56B, Up $0.78B (+13.4%)
    • Consistent growth with biggest lift in the 1st half of 2018. Jul>Dec 2017 (+$0.19B); Jan>Jun 18 (+$0.59B)
  • Millennials – Ave CU spent $121.21 (+19.70); 2018 Mid-Yr Supplies spending= $4.09B, Up $0.94B (+29.9%)
    • More CUs and a strong lift in both halves. Jul>Dec 17 (+$0.51B); Jan>Jun 18 (+$0.43B)
  • Silent Generation – Ave CU spent $98.32 (+14.80); 2018 Mid-Yr Supplies spending= $1.64B, Up $0.26B (+19.2%)
    • Surprisingly consistent growth in both halves for this older group. Jul>Dec 17 (+$0.05B); Jan>Jun 18 (+$0.21B).
  • Greatest Gen. – Ave CU spent $15.05 (+$0.74); 2018 Mid-Yr Supplies spending= $0.02B, Down $0.01B (-36.8%)

2015 saw a steep drop in Supplies spending as consumers upgraded to Super Premium Pet Food and reduced the frequency of Supplies purchases. Spending flattened out in the first half of 2016 but then this segment began a magical 24 month run. Consumers began value shopping for Pet Food and spent some saved money on Supplies. There were great values to be had as Supplies prices deflated for 22 months. This combination of circumstances generated an incredible $4.97B Supplies spending lift. The increase was driven by Gen X and Boomers, +$3.62B, but the Millennials stepped up in the last year, +$0.94B. Only the Greatest Generation spent less which was due to their declining numbers.

In the final chart we will compare each generation’s share of spending on Total Products, Pet Food and Pet Supplies to their share of CU’s and see “Who is earning their share?” Then we will review their actual performance numbers.

Performance = Share of Spending/Share of CU’s;    100+% indicates you are “earning your share”

If a share of market is outlined , then performance exceeds 100%.

  • Greatest Generation – is not included in this section as both their market share and CU share are too small.
  • Silent Generation Performance – Pet Products: 65.7%; Pet Food: 66.2%; Pet Supplies: 64.9%
    • This group ranges in age from 73 to 90. Pet ownership is more difficult after age 75 and this is reflected in the low share of Pet Products spending. However, the desire and the commitment are still there. Their performance is remarkably consistent between Food and Supplies, but it is definitely dropping as they age.
  • Baby Boomers Performance – Pet Products: 129.2%; Pet Food: 140.4%; Pet Supplies: 111.5 %
    • The Boomers truly led the way in building the pet industry and they are still at it. They are earning their share and are the spending leader in both Food and Supplies. Driven by their 2017 spending increase in Food, their overall performance is up from last year. Ultimately this will begin to fade as they age. However, based upon their history, they will continue to perform well for many more years.
  • Gen X Performance – Pet Products: 105.7%; Pet Food: 93.9%; Pet Supplies: 124.5%
    • The Gen Xers are next in line and next in performance to the Boomers. They outperform the Boomers on supplies. However, their Food performance fell below 100% as they were in the value shopping phase. Gen Xers range in age from 38 to 53. They already make and spend the most money. As they grow older, their children will start to move away from home and their focus will increasingly turn to their Pet Children. Expect their overall performance to continue above the 100% level and to ultimately surpass the Boomers.
  • Millennials Performance – Pet Products: 75.3%; Pet Food: 72.4%; Pet Supplies: 80.0%
    • The Millennials are widely touted as the future of the industry. This is ultimately true, but the future is still a ways off. The Millennials are currently 19 to 37 years old. They have a lot of pets, but their responsibilities are growing, and money is still in short supply. They continue to spend a lot on Supplies as they establish pet households and seek products that make Pet Parenting easier. There is also strong evidence that they are leading the way in each new food trend. One thing is certain. Value shopping is their golden rule, especially on the internet. They are 17 years away from occupying the highest income age group. Plus, they are having children later so the spending lift from children leaving will undoubtedly be delayed. They may be 20 years away from Pet Spending dominance.

A Final Word – In the 2017 mid-year update, Pet Products Spending belonged to the Gen Xers. They produced $2.33B of a $2.41B increase with a strong performance in both Food and Supplies. This year the honor should be shared between the Boomers and the Millennials. With a huge lift in Food, Boomers accounted for 85% of the spending increase in the 2nd half of 2017. Then the Millennials stepped up to provide 83% of the lift in the 1st half of 2018. Overall the Boomers won, with a $2.52B increase. The Millennials finished 2nd, +$2.0B but they win the consistency award as they spent more in both halves in both Food and Supplies. Note: An Honorable mention should go to the Silents, who also had a small lift in both halves in both segments. Overall, it was an incredible 12 months for Pet Products spending, up $5.3B.

             

 

 

 

 

U.S. Pet Services Spending (Non-Vet) $7.87B (↑$1.3B): 2018 Mid-Yr Update

The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2017 to 6/30/2018. In our analysis of Pet Supplies Spending we saw that it remained “gold”. Spending was up across virtually every demographic segment for the second consecutive year. Pet Food Spending was also strong for the year but growth had slowed significantly in the first half of 2018. Now we turn our attention to Pet Services. The Mid-year numbers show that spending in this segment was $7.87B, up $1.30B (+19.9%) from the previous year. This segment is known for consistent, albeit small increments of growth. In 2017 spending fell 4% at mid-year and was down 1% for the year. This was the first decline in any 12-month period in 4 years and the first annual decline since 2011. Then, driven by a spectacular 1st half of 2018, Services rebounded with literally the single biggest $ increase in history. This deserves a closer look. First, we’ll review recent Services spending history.

          Here are the Mid-Year 2018 Specifics:

  • Mid-Year 2018 vs Mid-Year 2017: ↑$1.30B (+19.9%)
    • Jul > Dec 2017: ↑$0.20B
    • Jan > Jun 2018: ↑$1.10B

Pet Services is by far the smallest industry segment. However, except for 2010 and 2011, the period immediately following the Great Recession, it had consistent annual growth from 2000 through 2016. Spending in Food and Supplies have been on a roller coaster ride during that period. Service Spending more than tripled from 2000 to 2016, with an average annual growth rate of 7.6%. Spending in the Services Segment is the most discretionary in the industry and is more strongly skewed towards higher income households. Prior to the great recession, the inflation rate averaged 3.9% with no negative impact. The recession affected every industry segment, including Services. Consumers became more value conscious, especially in terms of discretionary spending. Services saw a slight drop in spending in both 2010 and 2011, but then the inflation rate fell to the 2+% range and the segment returned to more “normal” spending behavior. In mid-2016 inflation dropped below 2% and continued down to 1.1% by the end of 2017. This was primarily due to increased competition from free standing businesses but also an increase in the number of Pet Stores and Veterinary Clinics offering pet services. While prices still went up slightly, there were deals to be had and consumers shopped for the best price. There was no change in purchase frequency. Consumers just paid less. There are 2 periods on the chart which best illustrate the impact of this behavior. In the 1st half of 2013, inflation fell to 0.7% and spending decreased by -$0.44B. In the first half of 2017, inflation dropped to a record low 0.4% and spending fell -$0.28B. Obviously, some inflation is necessary in Services. In the 2nd half of 2017 spending turned up again. That brings us to the huge $1.1B lift in 2018. This is unprecedented. Only increased purchase frequency and and/or deeper market penetration could have produced this spectacular increase.

Let’s take a closer look at some spending demographics – Age and Income.

In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/18 to the previous period ending 6/30/17. In our graphs we will also include the 2017 yearend $pending. This will also allow you to see the spending changes in the 2nd half of 2017 and the 1st half of 2018.

The first graph is for Income, the single most important factor in increased Pet Spending, especially in Services. Here’s how you get the change for each half using the Over $70K group as an example:

  • Mid-yr Total Spending Change: $5.62B – $4.53B = Up $1.09B (Note green outline = increase; red outline = decrease)
  • 2nd half of 2017: Subtract Mid-17 ($4.53B) from Total 2017 ($4.82B) = Spending was up $0.29B in 2nd half of 2017.
  • 1st half of 2018: Subtract Total 2017 ($4.82B) from Mid-18 ($5.62B) = Spending was up $0.80B in 1st half of 2018.

  • Both the Over and Under $70K groups had a 12-month spending increase. However, Over $70K was responsible for 84% of the $1.3B national lift. The Under $70K group decreased spending in the 2nd half of 2017 so their overall increase was produced solely by a big lift in the 1st half of 2018.
  • The individual groups over $70K all showed growth in both halves. The over $150K had a minimal increase in the second half of 2017 but made up for it with a big lift in 2018. This group is also growing in CU’s, up +13.8%.
  • The lower income, $30>50K group had the only 12-month spending decrease, which was driven down by a drop in the 2nd half of 2017. The $50>70K group mirrored this pattern but their 2018 lift was enough to put them on the plus side. These groups caused the 2nd half spending drop in under $70K. Both had a big lift in Pet Food Spending during that time so they either found great values or cut back on discretionary spending.
  • Perhaps the most significant fact on the chart is somewhat “hidden”. If you look closely, you will see that every income group, from top to bottom, posted an increase in Services spending in the 1st half of 2018. In the industry segment that is most driven by income, this is a truly rare occurrence. Something was happening.

Now, Services’ Spending by Age Group.

  • The overall spending lift is being driven by the under 54 group, especially the 35>44-year olds. All of these groups had a small increase in the last half of 2017 followed by a big jump in spending in 2018.
  • The over 65 group also increased overall spending, but their lift occurred in the 2nd half of 2017. Spending actually fell in 2018. Retirees had a big lift in Pet Food spending in 2018 so the drop may be the result of trading $.
  • The 55>64-year-old Baby Boomers had the only decrease in Services spending. It was driven down by a sharp drop in the 2nd half of 2017. This corresponds with a movement to upgrade Pet Food by a substantial portion of this group. Their Services spending bounced back in the 1st half of 2018, but they may be in danger of losing the overall lead in Services spending to the 45>54-year olds. Their lead is down to $0.04B. ($1.69B to $1.65B)

Now let’s look at what is happening in Pet Services spending at the start of 2018 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 11 demographic categories. Remember, the increase in the 1st half of 2018 was $1.1B, much more than the $0.2B in the 2nd half of 2017.

The first thing that is readily apparent is that the increases dominate. The decreases are minor. In fact, in 5 demographic categories all segments increased Services spending. It is actually even better than that. Only 7 of 82 individual demographic segments spent less on Services in the 1st half of 2018. That means that 94% spent more. That is a strong indication that the Services segment is making a deeper penetration into the market. Further evidence is that Services spending increased or held their ground in all segments in these 4 critical categories:

  • Income
  • Race/Ethnic
  • Area (Rural>City)
  • CU Size

At the same time, the importance of high income to significant increases in Services spending is also right out front. The “winners” group is a virtual list of demographic groups with high income. Including:

  • $150+K Income
  • Mgrs & Professionals
  • 2 Earners
  • 35>44 year olds (#2 Income)
  • White, Not Hispanic
  • Advanced College Degree
  • Homeowner w/Mtge
  • Gen X (#1 income)

We also see a definite connection in some of the “losing” groups. Retirees, 65>74-year olds, Homeowners without mortgages and the Silent Generation are all related in that they are primarily older Americans.

There are 2 other winners that deserve some notice – Center City and Married Couples with an oldest child under 6. Both of these segments had the biggest $ increase in their category and are also the top performers in terms of share of spending vs share of CU’s. Both demonstrate the “convenience” appeal of Pet Services, even in the younger groups.

So, what happened to cause the record lift in Services spending in the 1st half of 2018 and what comes next? We have noted the number of outlets offering Pet Services has radically increased. This created a highly competitive market and the inflation rate dropped to near record lows. Today’s value conscious consumers saw that deals were available, and they took advantage of the situation. However, they didn’t increase the frequency of purchase. They just paid less. This drove overall Pet Services spending down in the 1st half of 2017. The segment started to recover in the 2nd half but not enough to prevent the first annual decrease in Pet Services spending since 2011. However, it was a start. In 2018, consumers started to recognize the convenience offered by more outlets. The latest big food upgrade was also winding down. The result was that Services started a deeper penetration into the market. Much of it was in their existing prime segments, but it also spread to some lower income groups. The result – a $1.1B explosion in Pet Services spending.

Will this continue? What can we expect in the 2nd half of 2018? We can’t say for sure, but inflation could be a factor. Services prices turned up sharply in May 2018, +2.5% in 1 month. By year end the CPI was up +3.4%. This is a pre-recession rate. The last time we saw this was 2011. At that time, post-recession, value driven consumers rejected it and spending fell -7.2%. High income groups may not be affected by the price increase. We’ll see if it impacted other segments and total Services $pending.

 

 

U.S. PET SUPPLIES SPENDING $19.81B (↑$2.38B): MID-YEAR 2018 UPDATE

In our mid-year analysis of Pet Food spending, we saw that the latest spending increase slowed in the 1st half of 2018 . Pet Supplies spending tells a different story, and it is all positive. Mid-Year 2018 Pet Supplies spending was $19.81B, up $2.38B (+13.6%). This comes on the heels of a $2.59B increase in the previous 12 months. Pet Supplies spending is now at the highest level since 2009, prior to the great recession. The following chart should put the recent spending history of this segment into better perspective.

                Here are this year’s specifics:

  • Mid Yr 2018: $19.81B; $2.38B (+13.6%) from Mid Yr 2017.
  • The +$2.38B came from:
    • Jul > Dec 2017: ↑$1.15B
    • Jan > Jun 2018: ↑$1.23B

Like Pet Food, Pet Supplies spending has been on a roller coaster ride. However, the driving force is much different. Pet Food is “need” spending and has been powered by a succession of “must have” trends. Pet Supplies spending is largely discretionary, so it has been impacted by 2 primary factors. The first is spending in other major segments. When consumers ramp up their spending in Pet Food, like upgrading to Super Premium, they often cut back on Supplies. However, it can go both ways. When they value shop for Premium Pet Food, they take some of the saved money and spend it on Supplies. The other factor is price. Pet Supplies prices reached their peak in September of 2009. With a few brief exceptions they have been generally deflating since then – down -5.3% from 2009 at the end of 2017. Although it is not a hard and fast rule, Price inflation in this largely discretionary segment can retard sales, usually by reducing the frequency of purchase. On the other hand, price deflation generally drives Supplies spending up. Innovation can “trump” both of these influencers. If a new “must have” product is created, something that significantly improves the pet parenting experience, then consumers will spend their money. The perfect example of this is the successive waves of new food trends. Unfortunately, we haven’t seen much significant innovation in the Supplies segment recently.

Recent history gives a perfect example of the Supplies roller coaster. In 2014 Supplies prices dropped sharply, while the movement to Super Premium Food was barely getting started – Supplies spending went up $2B. In 2015, consumers spent $5.4B more on Pet Food. At the same time, Pet Supplies prices went up 0.5%. This was a “killer” combination as Supplies spending fell $2.1B. In 2016 consumers value shopped for Food, saving $2.99B. Supplies spending stabilized by mid-year then increased by $1B in the second half when prices fell sharply. Consumers spent some of their “saved” money on Supplies. Supplies prices continued to deflate throughout 2017. Food spending increased $4.61B in 2017 but this came from a limited group, generally older CUs, less focused on Supplies. The result was a $2.74B increase in Supplies spending. This appeared to be somewhat of a break with the overall pattern of trading $ between segments.

That brings us to the first half of 2018. The spending increase in Pet Food slowed to +$0.25B. However, Supplies’ prices switched from deflation to inflation. Prices increased 0.6%, but not until May so most of the spending in the 1st half was already done. During this period Supplies Spending increased by $1.23B so there was no major impact from the upturn in prices. Although, we should note that the less price sensitive over $150K group accounted for $0.91B of the increase. If the Supplies segment could become less sensitive to minor inflation and increased spending in other segments it would be great news for manufacturers and retailers, encouraging stronger, stable growth like the last 24 months.

Now we will take a closer look at the two most popular demographic measures – age and income. In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/18 to the previous period ending 6/30/17. In our graphs we will also include the 2017 yearend $pending. This will also allow you to see the spending changes in the 2nd half of 2017 and the 1st half of 2018.

The first graph is for Income, which has been shown to be the single most important factor in increased Pet Spending, especially in Pet Supplies and both of the Service segments.

Here’s how you get the change for each half using the $50>70K group as an example:

Mid-yr Total Spending Change: $2.47B – $2.30B = Up $0.17B (Note green outline = increase; red outline = decrease)

  • 2nd half of 2017: Subtract Mid-17 ($2.30B) from Total 2017 ($2.55B) = Spending was up $0.25B in 2nd half of 2017.
  • 1st half of 2018: Subtract Total 2017 ($2.55B) from Mid-18 ($2.47) = Spending was down $0.08B in 1st half of 2018.

  • The increase in Supplies Spending was widespread across income groups. The only yearly decrease came from the $70>100K group. They were down in both halves. They did have a big increase in Food spending during this time so they may have been dialing back their Supplies spending.
  • The biggest increase came from the over $150K group. Their $1.54B lift (+40.2%) accounted for 65% of the segment’s total increase while they only have 11.9% of the CU’s. However, we also should note that this group is gaining members faster than any other income segment. Their CU count is up 13.9% from a year ago.
  • There are 2 other minor dips in spending. Pet Supplies spending fell -$0.06B in the second half of 2017 for the upper middle income $100>150K group and by -$08B in the first half of 2018 for lower middle income $50>70K group.
  • Another interesting situation is the remarkably even distribution of Supplies spending among the under $100K groups. In fact, the under $50K group spent $5.7B while the $50>100K group only spent $5.3B. However, the <$50K group accomplished this with 47.6% of the CU’s in the U.S., while the $50>100K group only has 27.6%. There is no doubt that Money Matters in Supplies Spending.

Now let’s look at Pet Supplies spending by Age Group.

  • This is very consistent. Every Age group had an overall increase and an increase in each half. The groups from 25>64 each increased Supplies spending by approximately a $0.5B. The older and younger groups had smaller increases.
  • Obviously, the factors affecting Pet Supplies Spending in the last 12 months were relatively evenly dispersed across America, at least in the 25 to 64 year olds.

Now let’s look at what is happening in Supplies spending at the start of 2018 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 11 demographic categories. Remember, the increase in the 1st half of 2018 was $1.23B, slightly more than the $1.15B in the 2nd half of 2017.

  • In 4 of the 11 categories all segments increased Supplies Spending. Actually, only 9 of 82 demographic segments started out 2018 by spending less on Supplies. That means 89% are ↑. Very widespread growth.
  • There are a lot of the usual “suspects”. Winners: $150+K, Homeowner w/Mtge, White, Not Hispanic, Suburban, 2 earners. Losers: Single Parents, Retirees, Hispanic.
  • There are a couple of surprise losers: $70>99K & Advanced College Degrees. Both had a big lift in Food – Trading $ ?
  • The lift is demographically widespread but Supplies Spending does skew slightly younger: 35>44, 4 People, Gen X

The Supplies segment had a great 12 months and 2018 is off to a good start but the “winning streak” is actually 24 months. It began in the second half of 2016. Since then, spending on Pet Supplies has increased $4.97B (+33.5%). It has also been widespread across America. Of 82 separate demographic segments, only 1 has spent less on Supplies in the last 24 months – the Greatest Generation. The reason for this decline is unfortunate but can’t be helped. The number of CU’s for these 91+ year old Americans has decreased by over 40% during the period.

What are the market conditions that helped to foment this “wave” of Supplies spending? We have to first note that the world changed for Supplies because of the great recession. Prices have been generally deflating since then and spending in the segment has become more sensitive to changes in price. Prices go up…spending drops, usually due to reduced purchase frequency. Prices go down… spending turns up. This situation did not exist prior to the recession.

The other factor is spending in other segments, especially Food. Whether it is a conscious decision or not, pet spending comes out of “one bucket”. A big increase in one segment can result in a cut back in others and big savings can generate more spending. The recent upgrade to Super Premium Food was such a big $ commitment that it magnified this effect.

In Mid-2016, the market was just coming off the first big wave to Super Premium and consumers were starting to value shop so $ were available. Supplies pricing turned down and continued to decline for 22 months. The time was ripe for a big lift in Supplies Spending, and it happened. At the same time a new wave was starting in the Super Premium movement, which could have derailed the Supplies lift. However, it turned out that the demographic segments that were upgrading  to super premium food were less focused on Supplies, so the impact was negligible. Supplies Spending continued to grow. That brings us to mid-2018. What comes next?

A new food trend may be starting but the lift may be minimal in 2018. Of bigger concern is inflation. Supplies prices turned up in May and by year end had increased +2.3%. We have not seen anything like this since the pre-recession, price glory days of 2009 when prices increased (+3.2%). Unless price sensitivity has gone away, this does not bode well for Supplies spending in the second half of 2018. We will have to wait and see. We’ll get the data in September.

 

 

 

 

U.S. PET FOOD SPENDING $31.36B (↑$2.92B): MID-YEAR 2018 UPDATE

The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2017 to 6/30/2018. The report shows Pet Food Annual Spending at $31.36B (Food & Treats). The following charts and observations were prepared from calculations based upon data from that report and earlier ones. The first chart will help put the $31.36B into historical perspective and truly show you the roller coaster ride that is Pet Food Spending.

Here are the current numbers:

  • Mid 2018: $31.36B; $2.92B (+10.2%) from Mid-17. The net +$2.92B in Mid 2018 came from:
  • Jul>Dec 2017: Up $2.67B from 2016.
  • Jan>Jun 2018: Up $0.25B from 2017

2017 was a great year for Pet Food Spending. The 1st half was up $1.94B and this trend grew stronger with a $2.67B increase in the 2nd half. However, the increase slowed markedly in the 1st half of 2018. We have noted in previous reports that Pet Food spending has been on a roller coaster since 2000, with 2 years up, followed by a flat or even declining year. This chart perfectly reflects this pattern since the recession driven, down year in 2010. This up and down “ride” has been driven by a succession of Food trends. 2011 saw the movement to “Natural” begin. This trend and spending increased through the 1st half of 2013. Then another change took place. The market had become much more competitive. Prices flattened out then began to fall in the 2nd half of 2013. Consumers began to look for value and they obviously found it as spending fell -$2.34B in the 2nd half, producing a net drop of -$1.22B for the year. 2013 was a game changer for this segment as it began an extended period of deflation which continued through 2018. Midway through 2018, Pet Food prices were still 2.3% lower than in 2013.

In the 2nd half of 2014 spending turned sharply up. This was the beginning of the movement to Super Premium which was initiated by the 25>34-year-old Millennials. In 2015 this trend took off, especially with the Boomers, as spending rose $5.4B. At the same time, the Pet Food spending of the 25>34 yr olds dropped. At first, we thought they had rolled back their upgrade. However, it turns out they were leading the way in another element of the trend to Super Premium – value shopping. For consumers, the Super Premium upgrade movement consisted of 3 stages:

  1. Trial – The consumer considers the benefits vs the high price and decides to try it out. Usually from a retail outlet.
  2. Commitment – After a period of time, the consumer is satisfied and is committed to the food.
  3. Value Shop – After commitment, the “driver” is to find a cheaper price! In today’s competitive market there are an increasing number of options. Some super premium brands are moving to the mass market. Retailers are developing super premium private label and of course, the internet has become a big player.

Now back to our timeline. After the big lift in 2015, those CU’s that upgraded went into “value shopping” mode and Pet Food spending fell -$2.99B in 2016, which was right on schedule with our timeline. However, the Super Premium cycle was not over yet. The benefits of the product along with the very price competitive market led to a much deeper demographic penetration of this trend and spending increased $4.61B in 2017. This huge lift immediately after a down year is very unusual. Usually the biggest lift occurs in 2nd year of the 3-year cycle. 2018 started off slowly with only a $0.25B increase. It most closely resembles the 1st half of 2012. If that pattern is true to form, then we can expect a $1+B increase in the 2nd half of 2018. Two patterns in our timeline graph support this expectation.

  1. Whether it is up or down, the 2nd half change is always greater than the change in the 1st
  2. In the last 3 years, the 2nd half trend has always mirrored the 1st There were no mid-year turnarounds.

Now we will take a closer look at the 2 most popular demographic measures – age and income. In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/18 to the previous period. In our graphs we will also include the 2017 yearend $. This will also allow you to see the change in the 2nd half of 2017 and the 1st half of 2018.

The first graph is Income, which has been shown to be the single most important factor in increased Pet Spending. Here’s how you get the change for each half using the $150K+ group as an example:

Mid-yr Total Spending Change: $5.02B – $5.12B = Down -$0.1B (Note green outline = increase; red outline = decrease)

  • 2nd half of 2017: Subtract Mid-17 ($5.12B) from Total 2017 ($4.82B) = Spending was down -$0.3B in 2nd half of 2017.
  • 1st half of 2018: Subtract Total 2017 ($4.82B) from Mid-18 ($5.02) = Spending was up $0.2B in 1st half of 2018.

  • The over/under $70K groups have the same pattern – biggest lift in 2nd half of 2017; mini lift in 1st half of 2018
  • The increase is being driven by the $30>100K group, but primarily by the middle income, $50>100K segments. The biggest lift is still in the 2nd half of 2017. However, the $50>100K group was up $1.32B in the 1st half of 2018. This is significant considering the total market was only up $0.25B in that time period.
  • The change in the higher incomes is less pronounced. Both of these groups bought into Super Premium early. It looks like the $100>150K group is taking value shopping more seriously in 2018.
  • The big drop in the spending in the 1st half by the <$30K is significant but somewhat deceptive. In the first half of 2017 this group had a big lift due to the Pet Food upgrade. By 2018 they were value shopping, but they had also lost 1 million CU’s. However, it gets even more complex. 1.5 million of the members of the group making $15>30K moved out and probably up in income. They spent over 25% more on Pet Food than the <$15K segment so this was a big loss. They were partially replaced by 0.5 million CU’s making under $15K but spending 40% less on Pet Food. The $0.97B drop is spending is significant, but it also demonstrates the complexity of pet food spending analysis.

Now let’s look at Pet Food spending by Age Group.

  • The only 2 segments with an overall decrease are the 45>54 year olds and the under 25 group. These decreases are related to the spending drops that we saw in the highest and lowest income groups.
  • Quite frankly, the bulk of the 12-month lift was driven by the $3.3B spending increase by the 55>64 yr olds in the 2nd half of 2017. However, their spending flattened out in the 1st half of 2018.
  • Starting out the new year, the biggest increases are coming from the 25>34 and over 65 age groups, while the 45>54 yr olds continue their downward move.

That brings us to the obvious question, “What is happening in Pet Food spending at the start of 2018 across the whole range of demographic categories?” We will endeavor to answer that in our final chart. We will list the biggest $ moves, up and down by individual segments in 11 demographic categories.

Remember the total increase in the 1st half of 2018 vs the same period in 2017 was pretty bland – up $0.25B. However, I think that you will see that this bland result came from some rather tumultuous spending behavior…Always look deeper.

  • There are substantial differences between the winner and loser in all categories but Housing and Area. In Area the performers are those that you would expect. However, In Housing they are the opposite of the “norm”.
  • In Race/Ethnic, White not Hispanic spending was down slightly. The biggest positive move came from the Hispanics. Their upgrade lift began in the middle of 2017. African Americans have entered the value shopping stage, after 18 months of gradual increases.
  • The drop by Blue Collar workers and HS Grads with Some College comes after their upgrade commitment lift in 2017. Now, they are shopping for price and finding it.
  • The Retirees are growing in numbers and obviously increasing their commitment to quality pet food.
  • It just takes two. All Pet Spending increases sharply for married couples, especially when their only children are pets. The # of Earners also matters less in Food Spending, as long as you have 2 people.
  • In the remaining groups we see related segments with similar positive performance in the 1st half of 2018. They are:
    • 25>34-year olds. They’re all Millennials.
    • Married Couples only are obviously 2 people CU’s with no children.
    • The $50>69K income group within the 25>34 yr old segment are the most like to have no children.
    • You can see the connection – 25>34 yr old married couples with no children and an income of $50>69K.

Why is the first half performance of this younger group important? Consider this: The 25>34-year-old Millennials led the way in the super premium food upgrade in the 2nd half of 2014. After becoming committed to their new high quality, high priced pet food, they then turned to value shopping and their spending dropped. This behavior was repeated by 2 waves of other segments as super premium made an ever-deeper penetration into the market.

Could the spending lift by this group indicate a new Pet Food trend? There are several possibilities “on the table”, including clean label transparency, customization, sustainability or maybe a combination. It is unlikely to cause a huge lift like super premium but could drive up spending in the 2nd half of 2018. There is one more indicator – the lift in the Advanced College Degree segment. This is another group that “buys in” early to scientific, nutritional improvements.

The Pet Food segment has become incredibly complex. We’ll see what the 2nd half of 2018 brings.

 

 

 

U.S. Total Pet Spending – By Age AND Income Group: 2016>2017

Using data from the annual Consumer Expenditure Survey conducted by the US BLS, we have done an in-depth analysis of U.S. Pet Spending in over a dozen different individual demographic categories. This has given us a better understanding of “who” is behind the strength and continued growth of the Pet Industry.

We have seen that the key demographic factor behind increased pet spending is income. At the same time, the demographic that attracts the most broadscale interest and media attention is the spending by generation. Although we can’t  bundle these 2 together. The US BLS has again produced a report that combines the two most popular and impactful spending demographic measures – income and age group. To get the required sample size, they combined the data from 2016 and 2017. As you recall, Total Pet Spending averaged over $70B during this period . Unfortunately, due to the complexity of this report we only have the numbers for Total Pet, not for the individual industry segments.

Even this “simplified” report requires a rather complex analysis. We have endeavored to keep it as simple as possible to make it easier to visualize and comprehend. The data is segregated into the following groups:

Age Groups

  • 25 to 34 – All Millennials
  • 35 to 44 – 85% Gen Xers; 15% Millennials
  • 45 to 54 – 75% Gen Xers; 25% Boomers
  • 55 to 64 – All Boomers
  • 65 & Over – 6 yrs of Boomers + older groups

Income Groups

  • Under $30K
  • $30K to $49K
  • $50K to $69K
  • $70K to $99K
  • $100K & over

This produces 25 subgroups, accounting for 98% of Total Pet Spending. The under 25 group is not included due to a very low share of Pet Spending and an extremely small sample size in the highest income levels. It is still very complex, especially in building graphs. Therefore, we will again focus on the largest, most impactful groups. Our first chart shows the share of CU’s for the 10 largest age/income segments. There are highlights which apply to all 3 share/performance charts in the report and should help you in viewing and comparing the data.

  • Outlined in green = gained share
  • Outlined in red = lost share
  • Filled in green = new to Top 10

Each of the age/income groups has an assigned a bar color. Ex: 55>64 $100K+ is always red. 25>34 $100K+ is orange, etc.

In terms of age, all 25>34 Income groups are a shade of yellow; 35>44 is black (only 1); 45>54 are shades of blue; 55>64 are red/pink; Over 65 are shades of green. Now that you know the “rules”, let’s get started.

  • The first thing that you notice is that there is no “middle ground”. All of the 10 largest segments are either under $50K (6) or over $100K (4). Last year it was 7 to 3 but this year the high income 25>34 group replaced 35>44 <$30K.
  • The 2 largest segments are at the opposite ends of the income spectrum but both “held their ground”.
  • 3 of the 4 segments that gained share are $100K+. Every $100K age group from 25>64 is now in the top 10. The lift in the 65>, $30>49K group comes from Baby Boomers retiring. Average retirement income is $40K.
  • All 4 of the segments that lost share are <$50K. (3 are <$30K). Most of the “losing” CUs moved up a notch in income.
  • There are no big groups in the middle ground, $50>100K. Middle income America is very fractionalized by age group.

It’s not all about income and age. There are other factors that impact Pet Spending. Two of the biggest are homeownership and family size, especially the number of children in the household. The following graphs show the distribution of these two demographic measurements across income and age groups.

# of children under 18 – Larger households can create financial pressure which can impact spending on Pet “Children”. As expected, most children, at least the ones under 18, are in the 25>54 yr old group, peaking with the 35>44 yr olds. The number children tends to increase with income. However,  the 25>34 yr old Millennials are an exception. CU’s with incomes below $50K have the most children. There are also two dips in the number of children – $50>69K and over $100K. Let’s see if that impacts pet spending.

% Homeownership – About 81% of Total Pet Spending comes from Homeowners. Having more space that you control has always been a key to increased pet spending. Homeownership regularly increases by age and income. For every age group, higher income means a higher percentage of homeownership. This is also true by income group as increased age shows increased homeownership, with one slight variation. In CU’s making over $100K, the 55>64 yr olds edge out the over 65 group – 94 to 93 to claim the overall title. The national homeownership average is 63%. You can see that the younger the group, the higher the required income to meet the average.

Now let’s get to the $pending. The next chart groups Pet Spending by income group so we can see if age matters.

  • <$30K – This group represents almost 1/3 of all U.S. households and obviously has a financial struggle. The over 45 group has fewer children and is more likely to own a home, so they have more money and space for pets.
  • $30K>49K – This is the only income group to regularly increase spending with age which puts the 65+ group on top. The average retirees’ income is $40K. Once they reach this level, the financial pressure is reduced, and they can increase their focus and spending on their pets.
  • $50>69K – Every age group increases their Pet Spending but there is a big lift in the over 55 groups. Apparently, this is a significant income threshold for them in terms of Pet Spending. We also see an incredible lift in the spending by the 25 to 34-year-old Millennials. This could relate to that dip in the number of children that we noted earlier.
  • $70>99K – We have reached middle income. The over 55 groups show another big increase and in fact the spending of the 55 to 64-year olds reaches the “stratosphere”. Last year they were the overall #1 Pet Spending age/income group. This year they are very close. The 25 to 44 group is still feeling strong financial pressure. The spending increase by the 35>44 yr olds slows and spending by the 25>34 yr old Millennials dips slightly – more children?
  • $100K+ – $100K is a magic number. At this level Pet Spending explodes for all but the 55>64-year-old group. Their number dips to $1100 but is still equal to last year. Undoubtedly the most significant increases came from the 35>54 group. With some relief from financial pressure they focused more on their pets. Although 35>44 won the overall title with $1462, 45>54 was only $18 behind ($1.50 less per month). The only group under $1000 is the 25>34 yr olds. However, their average income is 20% below the others so $800+ spent on pets is still pretty darn good.

Now let’s look at the same data from the age group view.

  • Amazingly enough the oldest group is the most stable. As their income increases, they show strong, consistent growth in pet spending. If they have more money, they spend more on their pets. It’s as simple as that.
  • The 4 younger groups have different stories to tell but they have one thing in common. At some point they reach a significant threshold income and their Pet Spending explodes, sometimes doubling or more.
  • The 55 to 64-year-old Boomers and the 25 to 34-year-old Millennials are the only groups that have dips in spending, but they also have 2 significant lifts. For both, the initial big increase occurs at $50>69K. The Boomers immediately follow up with another substantial jump at $70>99K. The Millennials lose a little ground then jump 70+% at $100K.
  • The 35>54 group is about 80% Gen Xers. They have 2 slightly different paths but end up in almost the same place. For the 35>44 group, spending consistently grows but flattens out at $70>99K. When income reaches $100K, their spending almost triples and they finish in 1st For the older 45>54 group, spending growth is minimal until they reach $70K and it jumps +77%. However, it almost doubles at $100K putting them in 2nd place overall.
  • Even with a dip by the Boomers, this view certainly reinforces $100K income as a magic level in Total Pet Spending.

Now, we will truly “show you the money”. Here are the top 10 groups in share of Total Pet $pending.

  • These 10 age/income groups account for 50% of all U.S. CU’s and 68% of Total Pet Spending.
  • Money Matters Most as all 5 age groups making $100K+ are included along with 2 in the $70>99K range
  • Age is still a big factor as 6 of the 10 groups are 55+ yrs old, primarily due to the Boomers
  • The biggest gains are from the 35>54-year olds. They took over the top 2 spots and added a group.

Finally, let’s look at the top performers which we will define as having the highest Share of Pet $/Share of CU’s. It is the same group as last year and 8 are repeats from the chart above and have matching colors in the chart below.

  • Once again age matters as only the same two under 45, over $100K income groups made the list.
  • However, money matters even more in Pet Spending performance than in Pet Spending $. There are no groups making under $50K. The 2 under $50K, 65+ age groups were replaced by 2 65+ age groups making from $50 to $99K.
  • Only 9 groups are “earning their share” (100+%). The groups with lower performance are losing share to the 35>54 yr olds (80% Gen Xers). The biggest gains came from the 35>44-year olds as every CU over $30K improved.

The data in this report strongly reinforces the importance of income in Pet Spending. It also gives evidence that the younger groups, primarily the Gen Xers, are beginning to step up, especially in their higher income segments. The availability of disposable income results in increased Pet Spending for every age group. Pet Spending really explodes when any group’s income meets or exceeds $100K. For the lower income groups, the amount of available disposable income varies due to circumstances. The younger groups have more pressure due to family size and building a career. The 45>64 age groups have less family pressure. The over 65 folks just need to meet some low minimum income levels. One thing is certain for everyone. When disposable income increases, one of the first places that it gets spent is on pets.

 

 

 

 

 

 

U.S. PET INDUSTRY $ALES IN 2018: $72.56B – TAKING A CLOSER LOOK

According to the numbers from the American Pet Products Association (APPA), the total U.S. Pet Industry increased $3.05B (4.4%) in 2018 to $72.56B. This is slightly more than last year’s increase of 4.1% and very consistent with the 4+% annual growth rate since 2011. There was one notable exception to the “norm”. In 2016 the industry grew 10.7% due to an upward adjustment in Food $ which research had shown to be too conservative. However, the industry has gotten “back on track” in the last 2 years.

As you recall, 2017 brought considerable excitement with a record low inflation rate of 0.4%. This meant that 90.2% of the increase was a real increase in the amount of Pet products and services sold. In 2018, the pricing turned up by +1.25%, a more normal rate. Sales continued to grow but the amount of real growth fell to 70.6%, also a more normal number. However, these are “summary” numbers. Each segment has a different story to tell. In this report we’ll take a closer look at the performance of the total market and importantly, the individual segments. The report will cover 2018, but also put this year’s numbers into perspective for the period from 2009 to 2018.

Here are the specifics from 2018.

  • After record deflation of -1.1%, Pet Food segment pricing stayed low, maintaining the highly competitive market.
  • The drop in live pet sales occurred as projected. This critical industry segment continues a gradual decline.
  • Pet Supplies flipped from deflation to inflation, the highest rate since 2009. Sales surprisingly increased greater than anticipated, but 22% was due solely to price increases.
  • The inflation rate in the Service segment more than doubled. This means that the drop in the amount of Services was actually -3.2%, 4 times greater than the drop in retail dollars.
  • Veterinary pricing also moved up from a record low rate. This probably caused a slight reduction in frequency, so they didn’t meet the projection. 43% of the increase was due to inflation, which is actually low for this segment.
  • The Total Pet Market was up 4.39% as the Product segments beat their projected numbers while the Service segments missed. The upturn in prices definitely hurt both Services and Veterinary, probably through reduced frequency. The Food segment retained “the low ground” in prices and continued to expand upgrades. The Supplies segment quite remarkably avoided the usual negative impact that inflation has on sales.

The Chart below may make it easier to compare the situation in the individual Segments.

Now let’s take a look at the performance of the individual segments from 2009 through 2018 starting with Food.

OBSERVATIONS

  • The Pet Food World changed in 2014, having a huge impact in the overall numbers since 2009:
    • 6.26% Annual Growth Rate (Driven up from 4.64% by the 2016 adjustment in Food $).
    • Low average inflation – 0.51% (Pushed down to this low level by two -1+% pricing drops)
    • 5.72% CPI adjusted Growth Rate: Over 91% of the growth since 2009 has been “real” – Truly amazing!
  • In the 9 years since 2009…
    • 5 were deflationary (-0.6%) Average
    • 4 were inflationary (1.9%) Average

After 2013, deflation has been the norm in Pet Food. In a need category, this usually slows retail sales. You don’t buy more food because it is cheaper. However, this occurred at the same time as the introduction of super premium foods. This has produced the unusual situation of growing retail food sales despite extraordinarily strong deflation.

The Pet Food Market is the most competitive in history. Manufacturers, Retailers and whole Retail channels, including the internet are now actively engaged in a furious battle for the consumers’ pet food $. This price war is initially great for consumers and has allowed a much deeper demographic penetration of super premium. However, it is putting increased profit pressure on the supply and distribution channels. This could be bad for all, including the consumer, thru reduced choices. Prices may have “bottomed out” in 2018. A reasonable inflation rate, perhaps 1%, might be best for the future.

Here’s what 2009 to 2018 looks like on a graph:

Until the uptick in 2018 and excluding the 2016 adjustment, the annual retail growth rate has generally been slowing. At the same time, deflation has caused the “real” growth rate to increase since 2014. Deflation essentially stopped in 2018 and they “met” at +4.5%. What will happen in 2019? Through February the CPI is up 1.5% vs 2018. Last year it was deflating. We don’t know if this will continue or how it will impact spending. It’s time for yet another new, “must have” upgrade in Food to keep consumer spending moving up.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

  • Deflation – Turning around?
    • Prices are 4.3% below 2009 (and about equal to what they were in June 2008)
    • 2018 had the highest inflation since 2009 but overall prices are still falling at an average annual rate of -0.49%
    • Prices have deflated 5 times in 9 years but in 3 of the last 4 years they have turned up.
  • Retail Sales – Supplies had been price sensitive with increased growth rate tied to deflation. That was not the case in 2018.
  • However, over the whole 9-year period, the Consumer bought more…and paid less!
    • Retail Sales annual growth rate is 4.08%
    • Price Adjusted annual growth rate is 4.59% – 12.5% higher than the retail rate – which is beyond Amazing!

After the Recession consumers became much more price driven. This had a huge impact on Supplies as most purchases are discretionary and many categories have become commoditized. The first deflationary year was 2010. The Consumer responded very positively with a 6% increase in “real” purchases. This trend continued through 2014 with “real” purchases showing an annual increase of 5.9%. Then prices leveled out in 2015 & 2016 and the increases in both full retail and price adjusted sales fell to the 2.5% range.

In 2017, deflation returned but was not as impactful as in the past. The increase in retail sales was the lowest since 2009 and “real” sales were up less than 3%. 2018 brought a change to the pattern. Inflation was stronger, +1% but so were retail sales, +4.7%, the biggest increase since 2012. Ideally, we probably need to get to about a +0.5% rate.

Here is the graph:

Now on to the Service Segments – First, Non-Vet Services.

OBSERVATIONS

  • Growth
    • Despite the unprecedented spending drop in 2018, the annual Retail Growth rate is 6.9%, highest in the industry
    • In 2018 the Inflation rate more than doubled the rate of 2017. It had been declining then fell precipitously in 2017. The annual average since 2009 stands at 2.27%, which is second to Veterinary and the gap is narrowing.
    • Years of inflation may have caught up to this segment as the spending increases in 2016 & 2017 were about half of the increase in 2015 and spending actually decreased in 2018.
    • 65.5% “real” growth since 2009. In 2017, this reached 84%. In 2018 the decrease in the amount of services was actually – -3.2%, undoubtedly due to a drop in frequency. 75+% real growth is probably a realistic goal.

In the past there have been no big negatives regarding this segment. It is largely driven by discretionary spending, so the consumers’ household income is a bigger factor in spending in this segment than any other. Years of relatively strong inflation did not retard growth. In 2017 increasing competition from a growing number of outlets offering pet services had an impact, as the inflation rate fell to 1.1% in 2017 – a near record low. In 2018 the inflation rate doubled to a more normal 2.4% but this time the consumer noticed. A drop in visit frequency produced the segment’s first decline in spending. It certainly demonstrates that even the Services segment is not immune to the consumers’ focus on price.

Here’s how the sales look on a graph:

2019 sales are projected to bounce back, increasing 3.3% to $6.1B. This is 47% below the growth rate since 2009 and except for 2018, the lowest ever. Prices through February of 2019 are 3.9% higher than the same period in 2018 so it appears that the inflation rate is growing. If this segment has developed more price sensitivity, this does not bode well for spending in 2019. However, if the many outlets offering services start to see a continued drop in visit frequency, this could cause another price war, but this time with increased spending.

Now, let’s take a closer look at the Veterinary Service Segment, which accounts for 25.0% of Pet Industry Sales.

Observations

  • Retail Growth
    • Sales are Up 50.4% since 2009
    • Annual growth rate 4.64%
  • Inflation is the problem
    • Annual avg CPI increase is 3.32% since 2009. 2017 had a record low, 2.2%. 2018 was up but still below average.
  • Adjusted Growth rate since 2009 is only 1.28%. However, it has been up sharply the last 2 years.
    • Price increases account for 72.5% of the total sales increase from 2009 to 2018.
  • “Real Sales”
    • Consumers actually bought less in the amount of Veterinary Services in 4 of the last 9 years. They just paid more.
    • Sales were basically stagnant from 2009 to 2016 – average annual growth rate 0.49%
    • Inflation fell to a record low in 2017 and stayed low in 2018. This produced a $2.1B increase, with 61% “real”.

Regular Veterinary visits are generally viewed as a “need” not a “want”. However, the high inflation rate over the years finally reached a point where Pet Parents, especially those with income pressure, started delaying or foregoing regular procedures entirely. They looked for substitutes in OTC medicines, supplements and treatments whenever possible. They also turned to “no appointment” clinic days offered by some non-pet retailers to get vaccinations and other procedures at radically discounted prices. Then the Veterinary Services inflation rate turned sharply downward in the 2nd quarter of 2016. It set a record low rate in 2017 and stayed low in 2018. Pet Parents responded. They increased the frequency of visits and sales in the Veterinary segment rose $2.1B over 2 years.

Here’s what it looks like:

Veterinary Sales are projected to increase 4.8% in 2019 to $18.98B. This percentage is down from the past 2 years. One key factor in the continued strong growth in this segment appears to be maintaining an inflation rate of 2.5% or less. Inflation turned up in the 4th quarter of 2018 to 2.8%. In 2019, the prices through February are 3.1% higher than the same period in 2018. This is definitely concerning, but the first quarter often has the highest inflation rate in this segment. We will just have to monitor the CPI and see what happens.

Now we’ll wrap it up with Total Pet.

Observations

  • Retail Sales in 2018 were ↑59.4% since 2009. Annual growth rate is 5.31%
  • Inflation: Only 12.4% since 2009; 1.31% annual CPI increase. 2018 returned to “normal” after a record low 0.4%
  • “Real” Sales are 74.5% of the Total increase since 2009 with an annual growth rate of 3.96%

Total Pet Retail numbers are a big reason why so many people are attracted to the industry. The retail numbers had been good across all segments, until 2018 when Services $ fell. As our analysis has shown, to get the “real” story you need to look a little deeper into “petflation” and the actual amount of goods and services being sold. In recent years the industry has been struggling with deflation in Food and Supplies and inflation in the Veterinary Segment. In 2018, Food prices were flat and the other segments turned up. As a result, the Total Pet inflation rate rose to a more “normal” level.

  • Supplies prices have deflated 5 times in 9 years. Commoditization and a lack of innovation have created extreme competitive pressure which deflates prices. 2018 brought strong inflation for this segment +1%. In the past, even a small increase in CPI slowed sales. In 2018 this was not the case.
  • After record -1.1% deflation, in 2018 Food prices essentially paused at that low level. Food has deflated 5 of the last 9 years. However, unlike Supplies, the Pet Food segment has been fueling growth with premium upgrades.
  • After years of strong inflation and flat “real” sales the Veterinary segment finally got the word. A record low 2.2% inflation rate in 2017 followed by 2.6% in 2018 produced $2.1B in increases and 61% was real. Keep it up!
  • Pet Services has had consistent growth and the number of outlets has radically increased. In 2017, due to this competitive pressure, the inflation rate fell to 1.1%. In 2018 inflation more than doubled and sales fell.

Here’s the graph of Total Pet Sales since 2009.

In 2019 Total Pet Sales are projected to increase 3.9% to $75.38B. Although 3.9% would be the lowest increase since 2009, it could be challenging to achieve. One of the key factors in achieving these numbers is reasonable inflation. Strong inflation began in all segments at the end of 2018 and continues into 2019. The CPI for Total Pet through February is 2.8% higher than the same period in 2018. That’s a tie for the highest rate since 2009. If this continues or grows, it could definitely depress sales.  A new premium food trend would be very welcome.

Remember: It’s up to industry participants to make it happen!