Archive for category: Pet Market

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 2^nd 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.

 

 

 

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.

 

 

 

 

 

 

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 1^st 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 1^st 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 2^nd 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 2^nd half of 2017 and the 1^st 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)
• 2^nd half of 2017: Subtract Mid-17 ($4.53B) from Total 2017 ($4.82B) = Spending was up $0.29B in 2^nd half of 2017.
• 1^st half of 2018: Subtract Total 2017 ($4.82B) from Mid-18 ($5.62B) = Spending was up $0.80B in 1^st 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 2^nd half of 2017 so their overall increase was produced solely by a big lift in the 1^st 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 2^nd 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 1^st 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 2^nd 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 2^nd 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 1^st 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 2^nd 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 1^st 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 1^st 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 1^st half of 2017. The segment started to recover in the 2^nd 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 2^nd 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.

 

 

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 1^st half was up $1.94B and this trend grew stronger with a $2.67B increase in the 2^nd half. However, the increase slowed markedly in the 1^st 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 1^st half of 2013. Then another change took place. The market had become much more competitive. Prices flattened out then began to fall in the 2^nd half of 2013. Consumers began to look for value and they obviously found it as spending fell -$2.34B in the 2^nd 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 2^nd 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 2^nd year of the 3-year cycle. 2018 started off slowly with only a $0.25B increase. It most closely resembles the 1^st half of 2012. If that pattern is true to form, then we can expect a $1+B increase in the 2^nd half of 2018. Two patterns in our timeline graph support this expectation.

1. Whether it is up or down, the 2^nd half change is always greater than the change in the 1^st
2. In the last 3 years, the 2^nd half trend has always mirrored the 1^st 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 2^nd half of 2017 and the 1^st 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)

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

• The over/under $70K groups have the same pattern – biggest lift in 2^nd half of 2017; mini lift in 1^st 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 2^nd half of 2017. However, the $50>100K group was up $1.32B in the 1^st 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 1^st 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 2^nd half of 2017. However, their spending flattened out in the 1^st 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 1^st 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 1^st 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 2^nd 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 2^nd 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 2^nd half of 2018 brings.

 

 

 

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 2^nd 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 4^th 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!