Spending, CPI, demographics of overall market

2017 U.S. TOTAL PET SPENDING $77.13B…UP ↑$9.84B

In 2017 Total Pet Spending in the U.S. was $77.13B, a $9.84B (14.6%) increase from 2016. There was almost universal good news. The movement to Super Premium Foods made a deeper penetration across demographics. Deflating prices in the Supplies Segment spurred spending. Veterinary prices had record low inflation which increased spending AND visit frequency. The only “bad” news came from a minor decrease in Services spending. Increased competition saw consumers shopping for value. Their purchase frequency on Services was up a bit. They just paid a little less. Trading $ between segments was not a big factor in 2017. Food had a big turnaround. Supplies and Veterinary built upon a spending increase that began in 2016. Only Services was down, for the first time since 2010. Here are the $ changes:

  • A big $4.61B (+17.4%) turnaround in Food
  • A $74B (+17.3%) lift in Supplies
  • A $2.56B (+14.1%) increase in Veterinary
  • A very unusual$0.07B (-1.0%) drop in Services

Let’s see how these numbers blend together at the household level. In any given week, 28.4 Million U.S. Households (1/5) spent money on their Pets – food, supplies, services, veterinary or any combination – up from 27.1M in 2016.

In 2017, the average U.S. Household (pet & non-pet) spent a total of $593.63 on their Pets. This was a 14.3% increase from the $519.57 spent in 2016. However, this doesn’t “add up” to a 14.6% increase in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

  • 0.3% more H/H’s
  • Spent 9.5% more $
  • 4.3% more often

If 68% of U.S. H/H’s are pet parents, then their annual H/H Total Pet Spending was $872.99.

Now, let’s look at the recent history of Total Pet Spending. The rolling chart below provides a good overview. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys – The 2016 & 2017 Totals include Veterinary Numbers from the Interview survey, rather than the Diary survey due to high variation)

  • In 2015, the Food upgrade began, but early in the year consumers were trading $ in other segments to pay for it.
  • In 2016, they were intensely value shopping for super premium foods. They started spending some of this saved money on Supplies and Veterinary Services, but not quite enough as spending fell slightly for the year.
  • In 2017, the Industry showed its true strength. Spending took off in all but Services, especially in the second half, when it was up $6.57B from the same period in 2016. Consumers found the money and spent it on their Pets.

Now we’ll look at some Demographics. First, 2017 Total Pet Spending by Income Group

All Income Groups increased Total Pet Spending!

  • < $70K(61.6% of U.S. H/Hs); H/H Pet Spending: $393.93, +13.6%; Total $: $31.37B, ↑$2.98B (+10.5%)..
    • Food ↑$1.88B
    • Supplies ↑$0.90B
    • Services ↓$0.33B
    • Veterinary ↑$0.53B
    • The move to Super Premium Food became more widespread across all incomes. You also see the positive impact of price deflation in Supplies and record low inflation in Veterinary Services. Money matters a lot to this group. Value Shopping is a necessity and they also “traded” some Services $ to pay for other increases.
  • >$70K – (38.4% of U.S. H/Hs); H/H Pet Spending: $911.26, +11.7%; Total $: $45.76B, $6.86B (+17.6%) from…
    • Food $2.73B
    • Supplies ↑$1.84B
    • Services ↑$0.26B
    • Veterinary $2.03B
    • This group continues to grow, up 4.2% in 2017. This magnifies the impact of increased household spending. They also show that income remains the single biggest factor in Pet Spending. 38% of households spent 59% of Total Pet $. They spent significantly more in all segments and accounted for 70% of the Total Pet increase.
  • < $30K(30.2% of U.S. H/Hs); H/H Pet Spending: $286.42, +10.1%; Total $: $10.91B, ↑$0.63B (+6.1%) from…
    • Food $0.42B
    • Supplies ↑$0.09B
    • Services ↑$0.004B
    • Veterinary $0.12B
    • This lowest income group truly shows just how great 2017 was for the Pet Industry as they registered increases in every segment, even Services.
  • $30>$70K – (31.4% of H/Hs); H/H Pet Spending: $492.83, +15.2%; Total $: $20.46B, $2.35B (+13.0%) from…
    • Food $1.46B
    • Supplies ↑$0.81B
    • Services ↓$0.33B
    • Veterinary $0.41B
    • This low to middle income group is by necessity price sensitive, but is also committed to their pets. The drop in Services spending came from a combination of trading $ and value shopping in a competitive market.
  • $70>$99K – (14.9% of H/Hs); H/H Pet Spending: $697.80, +13.0%; Tot $: $13.41B, ↑$1.89B (+16.4%) from…
    • Food $0.99B
    • Supplies ↑$0.25B
    • Services ↑$0.05B
    • Veterinary $0.60B
    • This upper middle income group also had across the board increases but their primary focus was on the more “necessary” segments. They upgraded their food and increased their Veterinary visits.
  • $100K>$149K– (12.7% of H/Hs); H/H Pet Spend: $900.95, +22.3%; Tot $: $15.02B, $3.32B (+28.4%) from…
    • Food $1.59B
    • Supplies ↑$0.44B
    • Services ↑ $0.37B
    • Veterinary $0.93B
    • We should probably start calling them the “swing” group. In 2015 they were the Star of the income groups. In 2016, they had the worst performance with decreased spending in every segment. In 2017 they are back on top again. This probably indicates that they are the most responsive to industry trends. They have the money to do what is needed or what they want, but are still very “value” conscious.
  • $150K> – (10.9% of H/Hs); H/H Pet Spending: $1214.05, +2.5%; Total $: $17.33B, $1.65B (+10.5%) from…
    • Food $0.16B
    • Supplies ↑$1.15B
    • Services ↓$0.16B
    • Veterinary $0.50B
    • Money Matters ! They are the proof. They are the best performing income group in Total Pet Spending with 10.9% of U.S. Households generating 22.5% of all Pet $. They are also the only income group to increase annual Pet Spending every year since 2014. The slight dip in Services spending actually makes sense. They spend 35% of all Pet Services $ so they are the most likely to be aware of “deals” in the highly competitive market. They didn’t reduce their purchase frequency. They just paid less. Actually, it even gets worse/better as income goes even higher. The over $200K segment of this group is the runaway best performer in every industry segment and generates 13.2% of all Pet $ from only 5.5% of the households.

Income Recap –  The #1 driver in consumer spending behavior is value. VALUE = QUALITY + PRICE. 2017 was a year of great Value in the Pet Industry. All four industry segments matter to Pet Parents and income is the most impactful demographic in spending so it often comes down to “price”. In 2015 we saw a strong move to high priced Super Premium Pet Foods. By 2017, the price had come down so the movement spread. 2017 also saw deflating Supplies prices, a record low inflation rate in Veterinary Services and extraordinary retail competitive pressure in Services. All of this “price” pressure served to substantially increase the “value” in every segment. U.S. consumers recognize and respond to Value. In  2017, they did…in a big way in Pet Spending…across all income groups!

Next let’s look at the 2017 Total Pet Spending by Age Group

All groups spent more but the groups over 35 led the way with double digit increases.

  • <25 – (5.8% of U.S. H/Hs); H/H Pet Spending: $258.82, +9.1%; Total $: $1.99B, ↑$0.12B (+6.6%) from…
    • Food ↓$0.20B
    • Supplies ↑$0.14B
    • Services ↑$0.04B
    • Veterinary $0.14B
    • This youngest group is just getting started in life and as Pet Parents. In 2017 they value shopped for food but increased spending in all other segments. They are the only group to increase Pet $ every year since 2014.
  • 25-34 – (16.4% of U.S. H/Hs); H/H Pet Spending: $446.83, +6.4%; Total $: $9.56B, ↑$0.67B (+7.5%) from…
    • Food ↓$0.08B
    • Supplies ↑$0.41B
    • Services ↓$0.002B
    • Veterinary $0.34B
    • These oldest Millennials are just starting their families and careers so they are prone to trading $ between segments. However, they have shown slow, but steady spending growth since 2015.
  • 35-44 – (16.2% of H/Hs); H/H Pet Spending: $579.89, +12.9%; Total $: $12.155B, ↑$1.20B (+11.0%) from…
    • Food ↑$0.80B
    • Supplies ↑$0.36B
    • Services ↑$0.13B
    • Veterinary ↓$0.10B
    • This group has the largest families and is in the middle of building their careers. This makes them very sensitive to value. They responded to the opportunity in 2017. The decline in Veterinary comes after a 38% increase in 2016 and is the result of just paying less. Their spending frequency actually increased.
  • 45-54 – (18.1% of U.S. H/Hs); H/H Pet Spending: $729.90, +17.7%; Total $: $17.17B, ↑$2.29B (+15.4%) from…
    • Food $0.74B
    • Supplies ↑$0.56B
    • Services ↓$0.17B
    • Veterinary $1.15B
    • This group has the highest income but still appreciates value. They responded strongly to the values in 2017, especially Veterinary.  They also increased their frequency in Services but got good deals so they spent less.
  • 55-64 – (19.0% of U.S. H/Hs); H/H Pet Spending: $866.44, +21.3%; Total $: $21.44B, ↑$4.07B (+23.5%) from…
    • Food ↑$2.83B
    • Supplies ↑$0.82B
    • Services ↓$0.28B
    • Veterinary ↑$0.71B
    • These Baby Boomers learned about value shopping in 2016 from Super Premium Pet Foods. They have applied that knowledge across the board. The drop in Services comes after a 54% increase in 2016. Plus, 90% of the decrease just comes from paying less. They have had a long standing commitment to all aspects of pet parenting, which is once again demonstrated with a $4B (23.5%) increase in what was already the highest level of pet spending.
  • 65-74 – (14.3% of U.S. H/Hs); H/H Pet Spending: $585.83, +6.0%; Total $: $10.87B, ↑$0.99B (+10.0%) from…
    • Food $0.26B
    • Supplies ↑$0.20B
    • Services ↑$0.07B
    • Veterinary ↑$0.46B
    • Many in this group are retired and now over half are Baby Boomers. Their commitment to their pets along with their new found skill in value shopping really shows. They don’t have as much money as the younger Boomers but they were the only age group to increase spending in every industry segment.
  • 75> – (10.2% of U.S. H/Hs); H/H Pet Spending: $303.60, +13.9%; Total $: $3.96B, ↑$0.50B (+14.5%) from…
    • Food ↑$0.25B
    • Supplies ↑$0.25B
    • Services ↑$0.15B
    • Veterinary ↓$0.15B
    • Pet Parenting is more difficult and money is tight for these oldest Pet Parents but their commitment is still there. They increased spending in 3 of the 4 industry segments. In Veterinary, their frequency was virtually unchanged. They just spent less. This could be a combination of lower prices and a cut back on some services.

Age Group Recap: 2017 was a great year for the Pet Industry and the good news was widespread. Although the groups over 35 had the biggest increase, all age groups spent more on their Pets. There are two lower profile groups that deserve some special recognition and they are years apart. The 65>74 year olds were the only age group to have an increase in every industry segment. Plus, we can’t forget the youngsters. The under 25 households are the only age group to increase Total Pet Spending every year since 2014.

Even the few decreases in spending for individual segments were not primarily due to less frequent purchases. Consumers just spent less in a market “ripe” with great values.

Finally, let’s take a look at some Key Demographic “Movers” for 2017.

Summary

2017 was a spectacular year for the Pet Industry and the good news was widespread. This is immediately apparent from the chart. 7 of 10 demographic categories had no segments that spent less on their Pets in 2017. It gets even better. 87 of 92 individual segments (94.6%) increased their Total Pet Spending.

Many of the winners, like high income, managers, 2 people H/H’s, married couples only, 55>64 year olds and white, not Hispanics are familiar names in the winners’ circle. The same is true on the losing side for under $30K income, renters, center city, singles and married couples with an oldest child under 6.

There are two surprise winners, which further emphasizes the wide ranging impact of the spending lift. Specifically, 2+ person households with only one earner are usually under financial pressure. By the same token, high school graduates with some college are also not usually in the highest income tier. Both of these segments usually don’t have an excess of disposable income, but in 2017 they found some and generated the biggest Pet spending increase in their category.

On the “down” side, there is only one unexpected losing segment – self-employed. This high income segment had a bad year. In fact, they had the biggest spending decrease in 3 of the 4 industry segments. However, they had 8.9% fewer households, which was a big factor. Center City also came in last in 3 segments, but their only decrease was in Services.

6 of the 10 Total Pet winners had the biggest increase in 3 categories. Only 2 person households owned the top spot in all industry segments. With no human children, their focus and spending naturally turns to their pet children.

On the other side, Asians had small decreases in Food and Services but didn’t finish last in any individual segment. However, when you add up all their numbers, they had the lowest increase in Total Pet Spending.

As we noticed early on in our analysis, the key to the Pet Spending lift was “Value”, in every segment. Super Premium Pet Food was available at attractive prices. Pet Supplies Prices deflated, which always spurs consumers to spend more and more often. Veterinary prices, which have been strongly inflating for years fell to a record low rate. People not only spent more Veterinary $ but their frequency was significantly up. Services had a minor spending decrease. This came from the retail competitive pressure as the number of outlets offering services increased. Consumers maintained their frequency of visits but many got a “deal”.

What about 2018? If much of the big lift was driven by lower or “more acceptable” prices in every segment then the CPI could be a major factor. Through September of 2018, Pet Food prices have remained essentially stable. Veterinary prices have moved up to a more “normal” inflation rate. However, prices in both Services and Supplies turned sharply up in the second quarter. In general, this does not bode well for spending. However, it’s the pet industry. We’ll just have to wait and see.

 

 

 

 

2017 U.S. VETERINARY SERVICES SPENDING $20.67B…UP ↑$2.56B

Veterinary Services is the second largest segment in the Pet Industry. In recent years, a high inflation rate, over 3.5%, has caused a reduction in Veterinary visits and put spending on a rollercoaster ride. In 2016 spending increased 5.6%. However, in 2017 inflation slowed markedly and consumers responded. Spending reached $20.67B – Up -$2.56B (+14.1%) from 2016. In this report, we’ll take a closer look at the demographic drivers of the 2017 increase. (Note: Like 2016, all 2017 numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Interview Survey, rather than their Diary report. The low frequency of Veterinary Visits is still generating an exceptionally high variation on the data collected by the Diary method. Interview seems to be a more logical and accurate way to track Veterinary Service Expenditures.)

Let’s get started. Veterinary Spending per H/H in 2017 was $159.01, up from $139.84 in 2017. (Note: A 2017 Pet H/H (68%) Spent $233.84) More specifically, the increase in Veterinary spending came as a result of:

  • 0.3% more H/H’s
  • Spending 6.1% more $
  • …7.2% more often

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

There was a big spending drop in the first half of 2015, which coincided with the upgrade to Super Premium Foods – Trading $. Then consumers began value shopping for Premium Foods. The subsequent savings freed up $ for Veterinary Services. Spending began to climb until it flattened out at the beginning of 2017. In 2017, inflation in the Veterinary Segment slowed markedly, especially in the second half. The result was that spending literally “took off”.

Now, let’s look at Veterinary spending by some specific demographics. First, here is a chart by Income Group

Observations

Although not as pronounced as Pet Services, Veterinary Spending is driven by income. This makes it very significant that every income level increased spending in 2017. The biggest lift came from the $70 >$150K group – up $1.53B (24.6%)

  • Over $150K (10.9% of H/H’s) – $5.68B, Up $0.50B (+9.6%) This highest income group is definitely the biggest driver in Veterinary Spending as 10.9% of H/H’s generated 51.4% of the $3.56B increase since 2015.
  • $100>150K (12.7% of H/H’s) – $4.32B, Up $0.93B (+27.4%) This middle/upper income group responded strongly to the slowed inflation rate.
  • $70K>100K (14.9% of H/H’s) – $3.43B, Up $0.60B (+21.2%) Their spending pattern almost exactly matches the $100>150K group which indicates very similar motivations.
  • $30K>70K (31.4% of H/H’s) – $4.68B, Up $0.41B (+9.6%) After bottoming out during the Food upgrade, the spending by this group has grown steadily. The pattern is remarkably similar to the $150K+ group, just not quite as strong.
  • Under $30K (30.2% of H/H’s) – $2.56B, Up $0.12B (+4.8%) This group is price sensitive and includes many older retirees who spent heavily in 2015 then dialed it back. The slowed inflation in 2017 brought a minor increase.

Now, here is Veterinary Spending by Age Group

Observations

The 35>44 young GenXers and those over 75 spent slightly less. Everyone else spent more. In the detailed data below, be sure to note the changes in frequency. A reduction in visit frequency has been an ongoing problem…but not in 2017.

  • <25 (5.8% of H/Hs) – $73.00 per H/H – $0.55B – Up $0.14B (+33.6%) This youngest group is getting serious about the responsibilities of Pet Parenting. Their Veterinary spending has almost doubled in just 2 years.
  • 25>34 (16.4% of H/Hs) – $119.58 per H/H – $2.54B -Up $0.33B (+15.4%) The commitment of these Millennials to the welfare of their pets is growing. They are the only group to increase Veterinary spending every year since 2014.
    • 2.0% more H/Hs
    • Spent 10.8% more $
    • …2.1% more often
  • 35>44 (16.2% of H/H’s) – $141.43 per H/H – $2.98B – Down $0.10B (-3.1%) This group is under tremendous financial pressure as their human family responsibilities are peaking. In 2017, they had double digit increases in 3 Pet Industry segments. The Veterinary segment paid a small price for these big gains. They spent a little less…but more often.
    • 1.7% fewer H/Hs
    • Spent 9.5% less $
    • …8.9% more often
  • 45>54 (18.1% of H/Hs) – $221.73 per H/H – $5.23B – Up $1.15B (+28.3%) This group has the highest income but value is still a big driver. Their response to the radically slowed inflation was to spend significantly more money and more often. They accounted for 44.9% of the total Veterinary Spending increase.
    • 2.0% fewer H/Hs
    • Spent 21.3% more $
    • …7.8% more often
  • 55>64 (19.0% of H/Hs) – $219.50 per H/H – $5.42B – Up $0.70B (+15.0%) This group is all Baby Boomers and until 2015 was the leader in Veterinary Spending. In 2015 they spent an extra $5B to upgrade their Pet Food and Veterinary Spending was severely reduced. In 2016, they regained the lead in Veterinary spending and it has continued strong growth, with the same pattern – Spend slightly more money much more often.
    • 0.3% more H/Hs
    • Spent 2.4% more $
    • …12.0% more often
  • 65>74 (14.3% of H/Hs) – $169.15 per H/H – $3.14B – Up $0.47B (+17.2%) This group is very price sensitive. Strong inflation has caused reduced spending. The pricing “slow down” in 2017 changed all that, especially the frequency.
    • 1.8% more H/Hs
    • Spent 4.2% more $
    • …10.5% more often
  • 75> (10.2% of H/Hs) – $60.63 per H/H – $0.80B – Down -$0.15B (-15.7%) This group of oldest Pet Parents has a strong commitment to their pets – in 2015 a $1B increase in Veterinary Spending. In 2016, they upgraded their food. In 2017 they increased spending in Food, Supplies and Services. They just don’t have quite enough money.
    • 1.4% more H/Hs
    • Spent 16.2% less $
    • …0.9% less often

Now, let’s take a look at some other key demographic “movers” behind the 2017 Veterinary Spending increase.

Summary

2017 was definitely a great year for the Veterinary segment. As you look at the chart above you will see that 4 demographic categories – Income, Housing, Area Type and Race/Ethnic had no segments that spent less on Veterinary Services in 2017. The increase was truly widespread as 77 of 92 (83.7%) demographic segments spent more in 2017 than they did in 2016. The chart is basically loaded with the “usual” winners and losers.

However, there are 2 segments that are in an unusual position. Self-employed have a high average income so they are not normally a “loser”. However, in 2017 they dialed down their spending in every category but supplies. The level of the decrease was magnified by the fact that the number of “self-employed” households also fell 8.7%. Apparently, owning your own business became less popular in 2017. On the winning side, Homeowners w/o Mortgages is unusual. In 2017, they just edged out Homeowners with a mortgage by $0.2B. Their victory was fueled by a $1.0B spending increase from retired folks. This must have been “younger” retirees as the over 75 group spent less.

The continued high inflation rate in Veterinary Services has had a major impact on Veterinary spending since the great recession. The “new” value conscious consumer has rebelled against ever increasing prices. They have delayed or eliminated many routine procedures or sought alternative solutions. The spending in this “necessary” segment has become much more dependent on household income. People were visiting the Veterinarian less often, just paying more. This makes the 7% increase in frequency incredibly important as it indicates a definite change in spending behavior.

The why behind this change is a significant decrease in inflation. The CPI for Veterinary Services only increased 2.2% in 2017. This is the lowest rate since they began keeping records back in 1997. In fact, prices in the second half of 2017 only increased 0.7% – incredible. You saw the consumer response – a huge spending lift. But what comes next? In the first half of 2018, prices are up 1.7%. This seems high but it is actually the same as 2017. We’ll just have to wait and see.

 

 

2017 U.S. PET SERVICES SPENDING $6.77B…Down ↓$0.07B

Non-Vet Pet Services has shown consistent growth in recent years. In 2017, spending fell -$0.07B to $6.77B, a (-1.0%) decrease from 2016. This was the first drop since 2010 – the great recession.  It is a minor decrease but as we drill deeper we will once again find that consumer pet spending behavior is becoming increasingly more complex. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Services’ Spending per H/H in 2017 was $52.06, down from $52.77 in 2016. (Note: A 2017 Pet H/H (68%) Spent $76.55)

More specifically, the decrease in Pet Services spending came as a result of:

  • 0.3% more households
  • Spending 1.6% less $
  • 0.3% more often

The chart below gives an overview of recent spending on Pet Services

The growth was consistent until Mid-year 2016. In the second half of 2016, spending flattened out and then fell sharply in the first half of 2017. The second half of 2017 saw a spending rebound, but it was not quite enough. The pattern over the last 18 months coincides with a radically lower inflation rate. It appears that the price sensitivity in this segment is growing. Now, let’s look at some specific spending demographics. First, by Income Group.

In 2017, the upper middle income groups spent more but it wasn’t enough to overcome the spending decrease by 2 disparate groups – H/H’s just below the average income and the upper tier, over $150K. Since 2014, the spending by the $30>100K group is down while the high and low end groups are both up. However, 92% of the increase came from the $100+K group. Services spending is still driven by income as the $100+K group, 23.6% of H/H’s, spends 42.2% of the $.

  • <30K (30.2% of H/H’s) – $19.38 per H/H – $0.76B, Up $0.004B (+0.5%) – This segment usually doesn’t have the money to spare for Services. However, they were one of only two segments to increase H/H spending – +3.2%.
  • $30>70K (31.4% of H/H’s) – $29.11 per H/H – $1.19B, Down $0.33B (-21.9%)This group dialed back their discretionary spending on Supplies to help offset a big spending increase in all other segments.
  • $70>100K (14.9% of H/H’s) – $49.99 per H/H – $0.97B, Up $0.5B (+5.7%) – They actually spent slightly less per H/H on Services. The small spending lift in total $ came from a 6.2% increase in the number of H/H’s.
  • $100>150K (12.7% of H/H’s) – $90.67 per H/H – $1.5B, Up $0.37B (+32.3%) – There was a 29% lift in H/H spending on Services by this group which indicates both new users and an increase in frequency by existing users.
  • $150K> (10.9% of H/H’s) – $166.79 per H/H – $2.36B, Down -$0.16B (-6.2%)Their H/H Pet Services spending fell 9.7% which shows that even the wealthiest Americans appreciate a value.

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

The Age demographic also reflects a truly “mixed bag” in spending. Perhaps, the key observation is that the 65+ group, the fastest growing segment, is spending significantly more on Services. Here are the specifics:

  • 75> (10.2% of H/H’s) – $29.71 per H/H – $0.39B – Up $0.15B (+63.5%) This group has the greatest need for pet services but money is always an issue. The competitive values available made a huge difference in 2017. Up 63.5% can’t be ignored. 4% more H/H’s spent 60.4% more $, 0.5% more often.
  • 65>74 (14.3% of H/H’s) – $66.72 per H/H – $1.24B – Up $0.07B (+5.6%). This group is also very value conscious but 2017 was certainly their year for “pets” as they were the only age group to increase spending in every pet industry segment. In Services, the lift was small but 8% more H/H’s spent 13.8% more $, 8.8% less often.
  • 55>64 (19.0% of H/H’s) $65.12 per H/H – $1.61B – Down -$0.28B (-14.8%) In 2016 they had a huge lift in Services spending, taking over the #1 spot. In 2017 they turned their attention to the other segments. They cut back on services spending primarily by value shopping as 3% more H/H’s spent 13.3% less $, 2.1% less often.
  • 45>54 (18.1% of H/H’s) – $63.00 per H/H – $1.49B – Down -$0.17B (-10.4%) This group has the highest income and until 2016 was the leader in Pet Services spending. In 2017, these regular users took advantage of the available values in the competitive market, which is obvious as 2.0% fewer H/H’s spent 12.6% less $, 4.6% more often.
  • 35>44 (16.2% of H/H’s) – $48.98 per H/H – $1.03B – Up $0.13B (+14.7%) While they haven’t fully recovered from the huge drop in 2016, the competitive situation in 2017 at least got them back in the game. The group size was smaller, -1.7%, but they spent 3.6% more money. However, it was most significant that they spent it 12.5% more often.
  • 25>34 (16.4% of H/H’s) – $41.06 per H/H – $0.87B – Down – $0.002B (-0.2%) This group of Millennials is also value conscious. In 2016 they upgraded their Food. In 2017 they spent more on Supplies and Veterinary. Throughout this time Services spending has been essentially flat. In 2017, 2.0% more H/H’s spent 4.3% more $ but 6.2% less often
  • <25 (5.8% of H/H’s) – $18.08 per H/H – $0.14B – Up $0.04B – (+37.2%) Pet Services is low priority to these youngest Pet Parents, but the 2017 market got their attention. 3.9% more H/H’s spent 12.9% more $, 17.5% more often.

Finally, let’s take a look some other key demographic “movers” behind the 2017 Pet Services Spending decrease.

SUMMARY

The overall spending decrease was minor but the graph above gives some idea of the tumult that was going on within demographic categories. 53% of individual demographic segments spent less on Pet Services in 2017, while 47% spent more, so the ups and downs were relatively evenly divided.

In the graph above, about half of the winners are expected groups, like High Income and…

  • Managers and professionals
  • 2 people H/H’s
  • College grads.
  • Homeowners w/mtge

However, there are some definite surprise winners, especially…

  • 65+ years – This growing group definitely has a need for services, but usually not the money. This is very significant.
  • African Americans – have only 4.5% of the Services business. White, Non-Hispanics account for 88%. An Amazing Win!
  • 1 Earner, 2+ H/H’s – Many H/H’s in this group have strong financial pressures – an unusual win.
  • Rural Suburban (<2500 Pop) – Services $ are skewed towards more urban areas but this group increased spending by 39%.

There are some surprises in the “losers” column too.

  • Self-employed and 3+ earner households have higher income which usually means more Services Spending, not less.
  • Center City – Pet Services got their start in this area. A big drop is unusual to say the least.
  • Advanced Degrees – The biggest surprise. This is the second best performer in Services of ALL demographic segments.

So what caused all this turmoil? In a word – Competition. In 2017 there was a significant increase in the number of retail outlets offering Pet Services. For Pet Stores, the addition of Pet Services was one way to counteract the impact of the internet and the Mass Market. “You can’t get your dog groomed online…or in a SuperCenter!” More and more outlets began offering “one stop shopping” for all your pet needs. Convenience is a big consumer driver. However, the #1 driver remains price/value. The increased competition encouraged retailers to offer deals as they fought to gain new customers and keep existing ones. We saw this in the Services CPI. While it was not deflating, it had the second lowest increase since they began keeping records. Only 2010 had a smaller increase, which was due to the great recession.

So how can this affect Services spending? Lower prices and “deals” can attract new users or encourage existing customers to buy more or more often. Both of these increase revenue. However, it can also result in regular users spending less for the same services. There is another factor at work in Services Spending. It is the most discretionary of all the segments. This can result in consumers trading out Service $ to use in another segment, like a food upgrade. In 2017, we saw “all of the above” which created the turmoil.

Spending fell slightly in 2017, but we should remember… There were more users and they bought more often. They just spent a little less for their Services. This is not all bad news. What will happen next? In May of 2018 the Services CPI rose 2.5%, the biggest increase ever. We’ll have to wait and see…

 

 

 

 

2017 U.S. PET SUPPLIES SPENDING: $18.58B…UP ↑$2.74B

2017 was a record setting year for the Pet Industry as spending soared to $77.13B, a $9.4B (14.6%) increase from 2016. The Supplies segment even exceeded this pace as spending reached $18.58B, a $2.74B (17.3%) increase. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

2017 continued and in fact, built on an upturn in Supplies spending which began in the second half of 2016. In this report we’ll “drill down” into the data to try to determine what and who are “behind” the huge spending lift in Supplies.

In 2017, the average household spent $142.90 on Supplies, up 16.9% from $122.25 in 2016. (Note: A 2017 Pet H/H (68%) Spent $210.00) This doesn’t exactly match the 17.3% total $ increase. Here are the specific details:

  • 0.3% more H/H’s
  • Spent 11.6% more $
  • 4.7% more often

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

Since the great recession, you can’t talk about spending trends in the Supplies segment without talking about price – the CPI. Although many supplies are needed by Pet Parents, when they are bought and how much you spend is often discretionary. Additionally, many of the product categories in this segment are now considered commodities, so price is the main driver behind consumer purchasing behavior. When prices fall, consumers are more likely to buy more. When they go up, consumers spend less and/or buy less frequently.

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

In 2015 we saw how the discretionary aspect of the Supplies segment can impact spending in another way. When consumers spend a lot more $ in another segment, like for a food upgrade, they are likely to cut back on Supplies – swapping $. This is what happened in 2015. Many consumers upgraded their food, spending +$5.4B more. This gave them less to spend on other aspects of Pet Parenting. This, in conjunction with inflation, caused supplies to suffer as consumers spent 4.1% less, but they bought 10% less often. That seemingly small drop in purchase frequency (ex: Buy every 33 days instead of buying every 30 days) drove $1.6B (78%) of the $2.1B decrease in Supplies spending.

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

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

In 2017 Supplies spending increased in every income segment. Here are the specifics.

  • <$30K (30.2% of H/H’s) – $133.37 per H/H – $2.69B – Up $0.09B (+3.4%). This group obviously must closely watch their discretionary spending. They are also the only group to spend less in 2017 than in 2014. However, this somewhat deceptive as their H/H supplies spending actually increased 4%, but the number of H/H’s fell 8%.
  • $30K>$70K (31.4% of H/H’s)- $126.35 per H/H – $5.15B Up  $0.81B (+12.6%). This lower income group had a big drop in 2015. In 2016 they started to bounce back and in 2017 this accelerated with the 2nd biggest $ increase.
  • $70>$100K (14.9% of H/H’s) – $157.21 per H/H – $3.04B Up $0.25B (+8.9%). This middle income group spends more than the national average on supplies and closely matches the national pattern but with smaller “swings”.
  • $100K>$150K (12.5% of H/H’s) – $195.40 per H/H – $3.22B Up $0.43B (+15.4%) Except for a dip in 2016, the Supplies Spending in this group has been essentially flat. The drop in 2016 actually coincided with a drop in their total H/H expenditures. Value shopping is not limited to the lower income groups.
  • $150K> (10.9% of H/H’s) – $316.35 per H/H – $4.47B Up $1.15B (+34.6%) With by far the biggest lift in both $ and in percentage, this group reinforces the importance of income in Supplies spending.

Please note that while the $150K+ group had the biggest increase, the 2nd spot belonged to the lower income $30>70K.

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

It’s the same story as the Income demographic. Every age group spent more on Supplies in 2017. Here are the specifics.

  • 45>54 (18.1% of H/H’s) $179.90 per H/H – $4.24BUp $0.56B (+15.3%) This highest income age group has been the leader in Supplies spending since 2007. Fewer H/H’s (-2.0%) spent 9.4% more on supplies, 7.5% more often.
  • 55>64 (19.0% of H/H’s) $168.56 per H/H – $4.17B – Up $0.82B (+24.3%) A portion of this “Boomer” group dialed back their supplies spending while upgrading their food. In 2017 they came back strong as 0.3% more H/H’s spent 21.6% more on Supplies, 2.0% more often. The lowest Supplies prices (CPI) since 2007 were very alluring.
  • 35>44 (16.2% of H/H’s) $165.53 per H/H – $3.49B – Up $0.36B (+11.5%) This group is second in income and overall expenditures. In 2016 these Gen Xers led the way with a big lift in Supplies spending which continued into 2017 when 1.7% fewer H/H’s spent 6.5% more $, 6.5% more often.
  • 65>74 (14.3% of H/H’s) $132.12 per H/H – $2.45B – Up $0.20B (+8.7%) In 2016 they saved money on food and spent it on supplies. In 2017 growth continued as 1.8% more H/H’s spent 6.8% more, with the same frequency.
  • 25<34 (16.4% of H/H’s) $118.54 per H/H – $2.52BUp $0.41B (+19.4%) These Millennials are the only group spending less on Supplies in 2017 than in 2014. Their priorities have changed. They upgraded food and doubled veterinary spending. However, in 2017 2.0% more H/H’s spent 13.2% more on supplies, 3.4% more often.
  • <25 (5.8% of H/H’s) $87.63 per H/H – $0.67B- Up $0.14B (+27.4%) This small group had 3.9% more H/H’s, spent 23% more $, but 0.4% less often. I think the big $ increase earns them a “pass” on the slightly lower frequency.
  • 75> (10.2% of H/H’s) $78.79 per H/H – $1.04B, Up $0.14B (+31.9%) This group spends 15% more than they earn. The deflated supplies prices were very appealing as 1.4% more H/H’s spent 5.6% more, 23.1% more often.

Finally, let’s take a look some other key demographic “movers” behind the 2017 Pet Supplies Spending increase.

Summary

The big drop in spending in 2015 highlighted the vulnerability of a discretionary segment like supplies, especially through a small reduction in purchase frequency. However, the supplies segment provides many products which make the lives of pets and their “parents” easier and better, so we knew that a spending recovery was inevitable. The recovery began in the second half of 2016, as consumers “freed up” money by value shopping for their new upgraded food. Deflation in 2017 accelerated the process and spending passed the $17B level of 2014 by mid-year. By year end, spending had reached 18.58B. This was $1.58B more than 2014, $2.74B more than 2016 and $3.74B more than the spending low point in mid-2016. Purchase size was up significantly and spending frequency was 95% of 2014 – a more normal market.

If you would like more proof of “normalcy”, just look at the winners in the chart above. College Grads, Managers, Homeowners w/Mtge, $150K+ income and small Suburbs are all the “usual suspects” behind a lift in Supplies spending. However, the 2017 spending lift was almost universal. All income and age groups spent more and in fact, 89 of 94 demographic segments (94.6%) bought more supplies.

The $2.74B increase in Supplies spending was obviously great news, especially following the $0.94B increase in 2016. This gives the Supplies segment an average annual increase rate of 3% since 2014, which is not great, but is a return to more normal levels. How it happened does cause some concern as supplies prices deflated 0.4% in 2017. This may not sound like much but it did push them down to the level of 2007 and to a record 5.3% below their all-time high in 2009.

Deflation increases profit pressure on retailers and especially manufacturers. In Supplies, it appears that the only way to increase spending is to reduce prices. What happens if they go up? We’ll soon find out as prices rose sharply in the second quarter of 2018. In June of 2018 they were 1.85% higher than in December of 2017.

 

2017 U.S. PET FOOD SPENDING $31.11B…UP↑ $4.61B

In 2017 The U.S. Pet Industry had a year that can best be described as Spectacular. Spending skyrocketed to $77.13B, up $9.84B (+14.6%). The good news was widespread as the 3 largest industry segments registered double digit increases. The only sour note was a slight decrease in Pet Services spending. Here are the specifics:

  • Pet Food – $31.11B; Up $4.61B (+17.4%)
  • Pets & Supplies – $18.58B; Up $2.74B (+17.3%)
  • Veterinary – $20.67B; Up $2.56B (+14.1%)
  • Pet Services – $6.77B; Down $0.07B (-1.0%)

However, as we have learned, the industry truly is a “sum” of its integral segments. Each segment has very specific and often very different buying behavior from the many consumer demographic segments. For this reason, we’re going to analyze each of the industry segments first. This will put the final analysis of Total Pet Spending into better perspective. Note: The numbers in this report come from or are calculated by using data from the current and past US BLS Consumer Expenditure Surveys. In 2017, this was gathered by the U.S. Census Bureau from over 42,000 interviews and spending diaries. The final data was then compiled and published by the US BLS.

We will start with the largest Segment, Pet Food (and Treats). In 2017 Pet Food Spending totaled $31.11B in the U.S., a $4.61B (17.4%) increase from 2016. This was the second largest increase in history, trailing only the +$5.4B lift in 2015. While the size was somewhat of a surprise, the increase was expected after the drop in 2016. As you recall, in a detailed historical analysis conducted last year we discovered a distinct pattern in Pet Food Spending. The following chart documents annual Pet Food Spending since 1997 in full Retail Dollars and adjusted for inflation.

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

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

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

The internet also contributed to the 2017 lift in Pet Food spending by making the higher priced, upgraded foods more affordable to a wide swath of households. Super Premium was the obvious name for the last trend, which is continuing and expanding to include options like customizable, micro-targeted, ancestral and even DIY.

Pet Owners became Pet Parents in the 90’s. We took it a step further after the turn of the century and began truly humanizing our pets, especially our canine children. This trend is very accurately reflected in the evolution of Pet Food. We became increasingly more conscious of fulfilling the health needs of our pets, beginning with the first move to premium foods in 2004. This ramped up considerably after the Melamine scare in 2007. Now consumers read pet food labels, research ingredients and expect their pet foods to meet the same quality standards as the best human foods.

Just like the spending drop in 2016, the big lift in spending 2017 fits the pattern. Now, let’s look at some specifics. In 2017, the average U.S. Household (pet & non-pet) spent a total of $239.66 on Pet Food. This was a 17.1% increase from the $204.71 spent in 2016. This doesn’t exactly “add up” to the 17.4% increase in total Food Spending. With additional data provided from the US BLS, here is what happened.

  • 0.3% More U.S. households
  • Spent 15.1% more $
  • 1.8% more often

By the way, if 68% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $352.44. Let’s look at a rolling history of Pet Food Spending over the course of the “Super Premium Cycle”.

Pet Food Spending dipped in the first half of 2014. This corresponds to the beginning of a 3 year deflationary period in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. The spectacular lift in Pet Food Spending beginning in the second half of 2014 came from a fundamental change in spending behavior. Consumers began to buy more Super Premium Food and Med/Supplements in Treat form, all of which cost more.

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

The Pet Food market had become incredibly competitive between manufacturers

  • Of course, initially the manufacturers of “regular” pet foods were trying to keep consumers from upgrading or to “buy back” those that switched. That is still an ongoing battle, but things quickly got more heated.
  • The spending lift due to the move to Super Premium foods and supplements caused an explosion in the number of companies competing in this segment. To best illustrate this situation, let’s take a look at GPE and SZ exhibitors.

This chart shows the number of GPE and SZ exhibitors offering food or treats for dogs and/or cats from 2014>2018.

  • The % increase is from 2014 to 2018. Ranging from +33% to +58%, the competition has obviously gotten fierce.
  • The Treat companies began their growth in 2015 (especially at GPE) and it has continued right through 2018.
  • The lift in the number of food manufacturers did not start until after the big consumer spending increase in 2015. Obviously, more companies wanted a piece of the action. Most of the growth in the numbers of Pet Food came from 2015 to 2017 which created the highly competitive market and helped fuel the -1.1% deflation in 2017. This radically increased “profit pressure”. In 2018 the growth in numbers slowed markedly and we have also seen a large number of mergers and acquisitions. This may help to stabilize both the number of companies and prices in this segment.

The competition starts between manufacturers, but the actual battle for the Consumers’ Pet Food $ is fought between retailers and now, even whole retail channels.

According to the Economic Census, most Pet Products (67%) are sold in non-pet store outlets. However, Pet Stores have traditionally been the primary purveyors of specialty foods and treats. This exclusivity protected them from battles with Mass Market outlets. The recent consumer movement to super premium and the resulting huge lift in spending has changed all that.

  • Super Premium Pet Foods are significantly higher priced products which Pet Parents need every day without fail. With lower prices due to lower overhead, the internet offers big savings in $ and the convenience of regular, free home delivery. Is it any wonder why the internet has become a big player in this category?
  • Some Premium brands are also moving to the mass market in an effort to reach more consumers.
  • Large Mass Market retailers are developing their own private label premium brands.
  • Pet Stores still have the advantage of being more flexible in their merchandising so they can respond more quickly to new trends and new products. Consumers also currently prefer to make major buying decisions on pet products in store, rather than online. This protects pet stores, at least initially, during the trial period of the food buying cycle.

I think that it is pretty safe to say that there were bargains readily available in Pet Food last year. In fact, 2017 was just a continuation of the most price competitive Pet Food market in history – across all of its segments.

Now let’s look at some specific 2017 Pet Food Spending Demographics. First, we’ll look at income. This is the most influential demographic in Total Pet Spending. In the past, it was less dominant in Food. However, the move to Super Premium has brought it more to the forefront. We will show the annual spending from 2013 through 2017. This will put the 2017 numbers into better perspective and allow you to see the cyclical nature of Pet Food Spending.

The 2017 National Numbers were – $31.11B (a new record); Up – $4.61B (+17.4%); 2013>2017 – Up $8.15B (+35.5%)

  • All of these large Income Groups increased their Pet Food spending in 2017. This didn’t even happen in the big 2015 lift. However, only two individual groups – $70>$100K and $100>$150K, set new, all-time pet food spending highs. The other 3 were slightly below 2015.
  • Under $70K: In 2017 (61.6% of H/Hs) – $181.18 per H/H – $14.34B; Up – $1.88B (15.1%). As incomes rise, the number of H/H’s in this segment has been shrinking. The move to significantly higher priced Super Premium foods also had a major impact. In 2015, for the first time, the under $70K group spent less than 50% of Pet Food $.
  • Over $70K: In 2017 (38.4% of H/Hs) – $331.06 per H/H – $16.77B; Up – $2.73B (19.5%). The spending pattern of this higher income group is remarkably similar to the under $70K group. However, in today’s “premium” food environment, the higher incomes continue to gain share of total pet food $.
  • Under $30K: In 2017 (30.2% of H/H’s) – $133.37 per H/H – $4.9B – Up $0.42B (+9.4%). Obviously this group is very price sensitive. It is also getting smaller. The number of H/H’s was down 2.6% in 2017 and 8.9% since 2013. This decrease masks the true food situation. Their Total Food $ are up 9.1% since 2013, but their average H/H food spending is up 25.2%. This group still has an ongoing commitment to their pets.
  • $30K>$70K: In 2017 (31.4% of H/H’s) – $222.57 per H/H – $9.44B – Up $1.46B (+18.3%). The spending for this group is actually the closest match to the national pattern. Their income is triple that of the under $30K group. However, they still spend more than they make. This ends when incomes reach $50>$70K. For Pet Food Spending in 2017, the key was reaching $40+K in income. The $40>70K group spent $2.1B more on Pet Food, 45% of the national increase.
  • $70K>$99K: In 2017 (14.9% of H/H’s) – $312.95 per H/H – $5.97B – Up $0.99B (+19.8%). The Pet Food Spending for this group has been very stable and in 2016 was even contrary to the national trend. They were the only group to increase spending on Pet Food in 2016. This middle income group is still value conscious. In 2017, it appears that the ongoing price war finally reached the “right” retail and they got fully “on board” with the Pet Food upgrade.
  • $100K>$149K: In 2017 (12.7% of H/H’s) – $353.24 per H/H – $5.98B – Up $1.59B (+36.2%) They have a high income but also large families, with the resulting responsibilities. They look for deals too. Except for the dip in 2014, their spending matches the national pattern. In 2017, they had the largest increase in Pet Food spending. It appears that in today’s competitive market the pet food upgrade trend has reached a high level of penetration with this group.
  • $150K> (10.9% of H/H’s) – $329.02 per H/H – $4.66B – Up $0.16B (+3.4%). 92% are college grads so they certainly know how to recognize value and how to save. Despite the higher price, they saw the value of Super Premium food very early in the cycle. In 2017, the $150>$200K part of the group finally focused on price. They reduced their H/H pet food spending by 27%. The increased $ in this group comes from the $200+K section and an increase in H/H’s.

In 2017, the increase in Pet Food spending was widespread across incomes. In fact, groups totaling 84.7% of all U.S. households spent more on Pet Food. However, there were 2 groups, $30>$40K and $150>200K, who spent less. These groups are far apart in income, but they both bought into the super-premium upgrade in 2015. It appears that the intensively price competitive market finally motivated both to “get a deal”. In terms of the income demographic, the food upgrade has made a deep penetration of the market.

Now let’s take a look at another Key Demographic Category – Age

Again, the 2017 National Numbers were – $31.11B; Up – $4.61B (+17.4%); 2013>2017 – Up $8.15B (+35.5%)

For this demographic, 2017 Pet Food Spending was simple. Over 35, spending was up. Under 35, spending was down.

  • 55>64 (19.0% of H/H’s) – $413.26 per H/H – $10.24B – Up $2.83B (+38.2%). This group (all Baby Boomers) has been the key to recent major spending swings. In 2015, a large portion of them changed their Pet Food spending behavior and opted to upgrade to Super Premium. In 2016 this group looked for and found a better price. In 2017 they are back again. However, rather than a whole new trend, the huge lift seems more likely to be the result of a deeper penetration of the upgrade movement in this age group as a result of increased availability and better prices.
  • 65>74 (14.3% of H/H’s) – $217.84 per H/H – $4.05B – Up $0.26B (+7.0%). Much of this group is retired, with lower income, so price is always a concern. However the number of Baby Boomers in this group is growing, now 70%, so their spending pattern resembles that of 55>64 year olds. They also have a strong commitment to their pets which is evidenced by the fact that 1.1% of their Total H/H spending is on their pets.
  • 75> (10.2% of H/H’s) – $134.47 per H/H – $1.73B – Up $0.25B (+16.8%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. However, it appears that the discounted prices in 2016 and 2017 moved an increasing number of this group to upgrade their pet food.
  • 45>54 (18.1% of H/H’s) – $265.27 per H/H – $6.21B – Up $0.74B (+13.6%) This group is #1 in income and total H/H expenditures. Up until 2015 they were #1 in Pet Food spending. They buy premium food but didn’t fully participate in the 2015 upgrade. They did take advantage of the 2016 discounts and spent less. In 2017, it appears that they became more committed to super premium as their Pet Food Spending reached a record high.
  • 35<44 (16.2% of H/H’s) – $222.95 per H/H – $4.64B – Up $0.8B (+20.9%) They are 2nd in income and expenditures, but have the biggest families. Searching for Value is a way of life and their spending pattern tends to be less volatile. Apparently they found value in the 2017 prices as they spent 20.9% more and also set a new record.
  • <25 (5.8% of H/H’s) – $80.11 per H/H – $0.62B – Down -$0.2B (-23.9%) This group has a very small share of pet food spending (2.0%) as they are just getting started as Pet Parents. Their Pet Food spending was flat in 2015>2016. In the past it has been prone to big swings, which was the case again in 2017, as it dropped -23.9%.
  • 25>34 (16.4% of H/H’s) – $167.65 per H/H – $3.62B – Down -$0.08B (-2.2%) Their spending was down slightly in 2017 while all the older groups were up. I saved this group of older Millennials for last for a specific reason. They have a unique spending pattern, which is interesting and could be important. Let’s review the time since 2013:
    • Their spending was up sharply in 2014 while other groups were showing only small increases or even declining numbers.
    • In 2015, the movement to Super Premium caused a big spending lift for every group under 75 except the 25>34 group, which fell -29%.
    • In 2016, every other group under 75 was “value shopping” so their spending fell sharply. However, the 25>34 year olds spent 23.7% more.
    • In 2017, the spending of every group 35 and over increased as the food upgrade penetrated the market more deeply. For the 25>34 group, spending was down slightly, but essentially flat.
    • Is it possible that the spending behavior of the 25>34 group provides a preview of next year’s national trend? Let’s hope not. If it does, then food spending in 2018 will be down, flat or at best have a minimal increase.

Finally, let’s take a look at other key demographic “movers” behind the $4.6B increase. Some are quite surprising.

Summary

The current “deflated”, price competitive market had a big impact on 2017 Pet Food spending. Super Premium foods have made sense from the beginning. The 25>34 yr old age group first bought into this in the second half of 2014. In 2015, many others followed their lead, especially the 55>64 yr old Boomers. Most of the initial upgrade group had a college degree, worked as a manager or professional and made a lot of money. There were some exceptions, like the first wave of retirees to convert. Then in 2016 the market changed, it became more price competitive and the internet came strongly into play. Many of the 2015 upgraders value shopped the category to a $3.4B dollar decrease. However, the price war didn’t end there. In 2017, it actually intensified with more competition, record deflation and increased availability of super premium foods.

The net result of this was very positive, with increased penetration of Super Premium foods across a wide range of demographics. In fact, of 94 demographic segments 78 (83%) had increased Pet Food spending, including 6 of 8 income groups and all age groups over 35. The wide range of the trend is also shown in where and how people live. Both renters and homeowners – with and without a mortgage had increases as did every area type, from rural to center city.

You see additional very specific evidence of the deep penetration of the upgrade in the winners listed in the chart above.

  • Education: HS Grad w/some college
  • Occupation: Workers, not Mgrs.
  • Area: Under 2500 population
  • # Earners: 1 Earner, 2+ people

2017 was a great year for pet food spending – up $4.61B due to increased “upgrade” penetration. What’s next? I don’t know that we can use the performance of the 25>34 year olds to predict 2018. I think we have to just wait and see.

 

 

 

 

 

 

Price Matters: Petflation Update – Mid-Year 2018

Does price matter in Pet Spending? Currently, it is the primary factor in 75% of all consumer buying decisions and household income is the most influential demographic in Pet Spending so I think that we can safely say that price matters. However, petflation can have a distinctly different impact on different industry segments. For example, the cumulative effect of years of strong price inflation in Vet Services has caused a reduction in frequency of Vet visits and 74% of the revenue increase since 2009 is from price increases. Also, the Pet Supplies segment has become increasingly commoditized and sales are driven up or down from even minor changes in the CPI.

Needless to say the retail marketplace has become a competitive battleground, unlike any time in our history. The ongoing fight for the consumers’ $ is between manufacturers, brick ‘n mortar retailers and retail channels, which now includes the internet. It is literally a “free for all” to fulfill the consumers’ need for Price, Convenience and Selection.

In this report we will update both our long range view of petflation and take a closer look at what has happened in the most recent 24 months as of June 2018. We will look at individual industry segments but we will also compare their performance to the overall market and some other relevant industries.

We will try to make this number intensive report more palatable by presenting the data in graph form, followed by brief commentaries. In our first graph we’ll look at the path of petflation since 2007. Certain numbers have been included to better illustrate key trends in specific industry segments. The numbers that are “boxed” in red indicate deflation from the previous period.

  • Overall – The period from 2007 to 2009 was a very economically “flush” time. Prices in the industry were increasing at a record rate. Then came the “Recession”. Only the Great Depression in the 1930’s had a bigger impact on the U.S. retail marketplace. For most industries, the effect on prices and revenue was felt in 2009. In the Pet Industry the impact was delayed until 2010. Only the Veterinary segment continued with no apparent effect on their high inflation rate. However, the Supplies segment saw a lasting change. In fact the current Supplies prices are equal to those in September of 2007. While the paths of the two Service segments are similar, the food and supplies segments are definitely different.
  • Pet Food – The 20+% price increase from 2007>2009 was a direct result of the melamine recall. Consumers began insisting on products made in America with all U.S. ingredients. This radically increased production costs and retails. Prices dropped slightly in 2010 in reaction to the “crash” but from 2011 to 2013 inflation rates moved back to a normal range. In 2014 prices dropped. This began a continuing trend of flat to falling prices. The primary cause was and is…the incredible competition in this segment between manufacturers, retailers and whole retail channels. In the old days, deflating prices in a “need” category would mean reduced sales. However, this is not the situation today in Food as we also began a trend of high priced upgrade options. This became very evident with a $5B spending lift in 2015 driven by the move to Super Premium Foods while prices dropped a record -1.0%. Prices have generally continued this deflationary trend including setting a new record of -1.1% in 2017. Despite a number of mergers and acquisitions, competition is still fierce creating more pressure to find the next “must have” upgrade.
  • Pet Supplies – No other industry segment was more impacted by the great recession. The consumers’ number 1 focus is price. This brings to the forefront the current weaknesses in the Supplies category. Most of the products are discretionary and many categories have become commoditized. This makes them sensitive to even short term price increases and susceptible to “trade out” spending from other categories. In 2015 supplies prices went up 0.5% at the same time that pet parents were upgrading to super premium foods. Supplies spending fell -$2.1B. This recent price sensitivity is also highlighted by the fact that in 5 of the last 8 years prices have deflated and supplies reached their all-time pricing peak 9 years ago in 2009.
  • Veterinary – This segment has by far the highest inflation rate and was seemingly unaffected by the recession. However, the effects are there. They are just not as visible. The cumulative inflation for Veterinary since 2007 passed Pet Food in 2013 for the industry lead but in 2018 it is almost double. The unseen impact of Veterinary inflation is that 74% of the segment’s growth since 2007 is solely due to price increases. Clinic visits have decreased in frequency and are more driven by higher income groups. In effect pet parents are visiting less often but paying more. The inflation rate did slow slightly in 2017 but appears to be moving back close to “normal”
  • Services – Spending on services is even more discretionary than supplies but it is also more driven by higher income groups so it is less sensitive to price increases. The inflation pattern is very similar to Veterinary, but at a lower rate. There was a dip in the inflation rate in 2017 due to increased competitive pressure as a result of services being offered and promoted in more retail outlets. However, prices appear to have bounced back in the 1st half of 2018.
  • Total Pet – The smooth pathway is the sum of 4 different roads and once again shows that we must always look beneath the topline numbers to find out what is truly happening in the industry.

Now let’s look at the most recent 24 months in much greater detail – month to month!

  • Overview – The 4 segments were closely bunched for the first 8 months then began divergent paths. In a highly unusual circumstance, prices in all segments have gone up in the first half of 2018, especially the 2nd quarter. This could depress the spending in the more sensitive segments.
  • Pet Food – For the first 18 months, Pet Food prices continued to deflate, reaching the low point in November of 2017. Then they turned upward and maintained a slow, but steady increase in pricing. In June they are slightly above what they were 1 year ago. As we have seen, sales are not directly tied to pricing in this segment. They are more of an indication of competitive pressure, which could be easing due to mergers and acquisitions.
  • Pet Supplies – This segment was up and down over the first 12 months but for much of the time remained at or near 0% inflation. After a strong increase in July of 2017, prices began another deflationary trend reaching (-1%) in February of 2018. Prices then turned sharply upward – an amazing (+2.1%) in the second quarter. If sales in this segment remain as price sensitive as they have been in the past, this data suggests that the second half of 2017 will be strong but the first half of 2018 could bring a significant drop. (The US BLS data for 2017 will be out in a week so we’ll have an answer shortly to the 2017 question.)
  • Veterinary – For the first 6 months, prices were flat, an unheard of situation. This ended and prices began moving up again in 2017 at a 2.8% rate. However, this is still below the 3.5% rate of recent years.
  • Pet Services – The competitive environment really showed in the first 12 months as the inflation rate was 0.67% compared to their usual rate of 2.5%. In the second half of 2017 prices inflated at a 2.8% annual rate then flattened out for the first 4 months of 2018. In May 2018 Pet Services prices increased 2.55%. This is the single biggest one month change in prices that I have noted in any segment in all my research. I don’t have a specific explanation for it. Prices continued to rise in June so apparently it is not an anomaly. Perhaps, Services are just returning to “normal” after a brief foray into intense competition.
  • Total Pet – For the first 18 months Total Pet showed record low inflation rates, ranging from 0.05% to 0.13% at the 6 month waypoints. This low rate came basically as a result of products vs services. However, the situation changed in 2018 as all segments registered increased prices which produced 92% of the overall 24 month 1.7% increase. In fact, the second quarter alone generated 57% of the increase. 2018 is setting itself up to be very different from the past 2 years, at least in terms of petflation.

Thus far, we have focused solely on the CPIs for the Pet Industry. Let’s see how they compare over time to the National CPI and other relevant industries. The next chart compares the CPI change from 2009, a pivotal year, to June of 2017.

  • The annual inflation rate of Total Pet is only 1.33% – 30% lower than the overall national CPI. This looks great but we know that the story behind the Total Pet number is a complex mixture of inflation and deflation.
  • The inflation rate for Pet Food is only 30% of the rate for Food & Beverages. Pet Food entered a deflationary spiral in 2014 which resulted in this big disparity.
  • Pet Supplies entered a different, deflationary world after the great recession. This is of great concern because of the extreme pressure that it puts on both manufacturers and retailers.
  • Even with the recent slowing of inflation in the Veterinary segment, prices have increased 13.6% faster than Human Medical care. This has an even greater impact on consumers because Pet Insurance is not as effective as Human healthcare policies in lowering out of pocket expenses. Plus, the participation percentage is far lower.
  • Except for a recent brief slowing due to competitive pressure, the inflation rate for the Service Segment has remained relatively constant over this time frame with little to no impact on revenue – so far.

Finally, let’s look at recent history – the last 24 months

  • Total Pet – Like the overall CPI, total pet prices have turned upward in the past 24 months. However the big change for Pet occurred in 2018, which produced 92% of the overall price inflation.
  • Pet Food – The deflation really shows up in this short term look. Now Pet Food, not Pet Supplies is the outlier in the group. Even though Pet Food prices have turned upward in 2018, Pet Food pricing most definitely does not correlate to the situation in the “human” Food & Beverage segment.
  • Pet Supplies – If an outside observer was looking at this, they would probably think that the recent inflation rate for Pet Supplies looks reasonable, perhaps even good. However, taken into the context of a -5.1% CPI since 2009 and demonstrated hyper price sensitivity, alarm bells start going off. The Pet Supplies CPI went from -1.0% to +1.3% with a 2.1% increase in the 2nd quarter of 2018. Even small price increases have decreased sales. This does not bode well for Supplies sales in the first half of 2018.
  • Veterinary – We have noted that inflation in this segment has slowed. This short term look truly puts that statement into context. Take note of this date. You are seeing a true rarity. The inflation rate over the past 24 months for Vet Services is 15% below the rate for Human Medical Services. Indications are that the Vet rate is moving back up to more “normal” levels but for a brief time it was in synch with the overall market.
  • Pet Services – The 2.3% looks pretty normal for this category. However, once again appearances can be deceiving. After a year of radically slowed inflation from competitive pressures, the bulk of the total increase came from a 2.5% lift in prices in May of 2018. We should also note another unusual circumstance. The increase in the CPI for Pet Services over the past 24 months actually exceeds that of Veterinary Services. This is not normal.

A Final thought and a question. We have noted some unusual pricing trends in recent months. However, the most significant one may be what has happened in the first half of 2018. Prices in every segment increased, especially in the second quarter. This included spectacular increases in Supplies and Services. How will this affect consumer spending? Will we see a significant drop as consumers cut back on $ or frequency. We’ll just have to wait and see.

 

 

 

 

U.S. Retail Trade – 2017 $ales Update by Channel – Going for the Gold

The Total U.S. Retail Market in 2017 reached $5.75 Trillion dollars – up $235B (+4.3%). This is significantly better than last year’s (+3.2%). For this report, we will focus on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations from the data. This segment totals $3.4 Trillion. We should also note that in 2017, Gas prices increased. As a result, for the first time since 2012, there was an increase in revenue in all these major segments

In a recent report we reviewed the 2017 sales performance of the Top 100 U.S. Retailers. That covered the “Headliners” but everyone can’t be a headliner. 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) – 11.8% of Total Retail – Up 2.7%, which was less than half of last year’s (+5.9%).
  • Automobile Sales – 20.7% of the Total – Revenue grew +4.3%, about the same as 2016 (+4.1%).
  • Gas Stations – 7.9% of the Total – Up 8.8% from 2016. Gas prices turned up in March of 2016 and in 2017 showed their first annual increase since 2012. The result was a sharp increase in revenue.
  • Retail, Less Food, Auto and Gas – Up 4.0% to $3.4 Trillion, better than last year’s +3.6% but less than the total market. This segment is 59.6% of the Total U.S. Retail market.

To put this year into perspective, let’s look at the overall performance in recent years.

The U.S. retail market has grown each year since 2012 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 the growth rate of the overall market has returned to more normal levels. Restaurant sales growth is an almost perfect pyramid. I wonder what 2018 will bring. Auto sales are still strong but the growth is definitely slowing. Our “Relevant Retail” Segment has been the most consistent. As expected, its 4.0% growth is below the 4.5% increase of the Top 100 Retailers. However, for the first time since 2012 it is lower than the total market. It will still serve as a benchmark as we review the individual channels. Above 4.0%, a channel is gaining market share. Below 4.0%, 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. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 59.3% of the total. This is up slightly from 58.8% in 2016. Once again, 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 60% 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 Bldg Material 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 2017: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 4.0% sales increase PLUS an additional $3.4B. Example: If a channel did $100B in 2016, they need to do $100 +$4.0 + $3.4 = $107.4B to gain just 0.1% in 2017 share. You will see channels with revenue increases that still lose share because the increase was less than 4.0%. 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 2017 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 2017 vs 2016. 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 4.0% or you’re losing market share!

The leader and #3 are big surprises. 9 of these pet relevant channels are showing increased sales. However, regarding market share, they are evenly split – 6 gaining, 6 losing. The market share losers include the traditionally largest channels. In the next chart, we’ll “show you the money!” Remember, the Total increase for the “Relevant Retail” Market was $132B and you must be up 4.0% PLUS $3.4B just to gain just 0.1% in Market Share.

The growth of the Internet is obvious. However, 3 channels are a bit of a surprise. The revenue from Home Centers has been growing in recent years, but Hardware and Garden/Farm Stores have been flat. What happened in 2017 to spur this growth? The answer is… bad weather. In 2017 we set a record for weather related property damage – over $300B. This “smashed” the old record of $200B set back in 2005. Consumers turned their time and resources to repairing their homes. The trend may be continuing into 2018 and even showed up online. Recently, Amazon Prime Day registered a 200% increase in sales of products in the Home Improvement category. We have seen that changes in the retail environment affect businesses. It turns out that changes in the actual environment can also have a major impact.

OBSERVATIONS BY CHANNEL

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

  • Internet/Mail Order – $545.0B, Up $57.3B (+11.7%) – 43.5% of the total increase for the $3.4T Relevant Retail Market came from Internet/Mail Order. The Consumer Migration to this channel continues – gaining 1.1% in Market Share. They passed SuperCtrs/Clubs in 2016. Now, they have set their sights on Supermarkets. (1.2% Pet)
  • Super Markets – $609.6B, Up $11.3B (+1.9%) This largest sub-segment continues to lose ground as it is down 0.4% in Market Share in 2017 and 0.6% since 2015. The Internet/Mail order channel has recently put increased focus on grocery products and is pushing very hard to become the leading retail channel. (1.6% Pet)
  • Department Stores – $54.1B, Down $0.8B (-1.5%). Their decline is slowing but 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 – $96.2B, Down $1.6B (-1.7%). 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 SuperCenters/Clubs offered true 1 stop shopping. Now, they have the Internet to contend with – not a good outlook. (2.3% Pet)
  • SuperCenter/Club Stores – $463.0B, Up $12.7B, (+2.8%). 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 0.15%   (2.4% Pet)
  • $ & Value Stores – $78.6B, Up $5.2B, (+7.1%). – 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 2017. (4.3% Pet)
  • Drug Stores – $276.9B, Up $5.0B, (+1.9%). There is a lot of turmoil in this segment. Intense competition has led to large mergers and acquisitions which have slowed growth. (0.3% Pet)
  • Sporting Goods – $44.7B, Down -$2.8B, (-5.9%). A Minor player in Pet. The turmoil in the category continues with mergers and store closings. (N/A Pet)
  • Home Centers – $287.3B, Up $17.8B, (+6.6%). 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 – $26.1B, Up $2.5B, (+10.7%). Consumers seeking to repair weather damage 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 – $51.0B, Up 6.4B, (+14.2%). This segment has been growing in recent years in both overall sales and in Pet but it was largely driven by Tractor Supply. The landscape weather damage that occurred in 2017 brought Garden Centers to the forefront of the increase in sales. (8.9% Pet)
  • A/O Miscellaneous Stores $78.1B, Up $3.6B, (+4.8%). Florists, Pet Stores, Art Dealers…are typical of the segments bundled into this group. Pet Stores probably 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 ground” against the large format retailers and the internet. (Pet Stores 91%)

The chart below puts the Market Share of each of these segments for 2017, 2016 & 2015 in a visual format so that it is easier to appreciate the relative sizes. Growth in share since 2015 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 Overall Market, there are 3 Olympic Medalists. SuperCenters & Clubs are firmly entrenched with the Bronze medal. The big race is for the Gold. Two years ago in 2015 SuperMarkets led the Internet/Mail Order Channel by 4.83% in market share. In 2017 the lead was down to 1.89%. Barring a major turnaround, Internet/Mail Order should become the #1 retail channel in the U.S. no later than 2019 but perhaps as soon as 2018. One factor that could speed up the Internet/Mail Order victory is that Amazon, the largest retailer in the segment, has firmly set their sights on the fresh grocery business. They demonstrated this commitment very dramatically by their purchase of Whole Foods Market in 2017.

2017 had similarities, but also some distinct differences from 2016. The increase was 4%, up slightly from 3.6%. However, for the first time since 2012 the increase in the “Relevant Retail” market was less than the increase in the Total Retail Market. Once again the Internet/Mail Order Channel provided much of the excitement and 43.5% of the growth, but we also saw the effect of the physical environment, as record weather related property damage drove sales in all the Building Materials channels. Traditional and Discount Department stores continued their decline while sales in the easy to shop and save, $ Stores grew. The small to medium 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 may occur even sooner than expected. Traditional Brick ‘n Mortar stores will not go away but they must adapt to the new “electronic” environment.

Finally, the Chart below contains Detailed 2015 > 2017 Sales Performance Data for over 30 U.S. Retail Channels.

 

2017 Top 100 U.S. Retailers Sales: $2.2 Trillion, Up 4.4%; 142K Stores with Pet Products……plus the Internet!

The U.S. Retail market reached $5.75 Trillion in 2017 from all channels – Auto Dealers, Supermarkets, Restaurants, Online retailers and even Pet Stores. This year’s increase of $235B (+4.3%) topped last year’s increase of $172B and was twice the increase from 2014 to 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 $235B in 2017 (+4.3%). In 2016 it was +3.2% and in 2015 +2.3%. Growth is accelerating.
    • The Top 100 grew $90.9B (+4.4%). This is much better than last year’s +3.5% and slightly better than the market.
    • The Top 100 generates $2.2 Trillion in revenue, 37.7% of the total U.S. retail market.
  • 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 $3.4 Trillion – 60% of the total market. By the way, the slight drop in share is due to the 9% increase in Gas Station revenue.
    • If we also remove Restaurant & Gas Station $ from the Top 100, the remaining $2.0T is 34.7% of the total market.
    • … and 58.2% of the $3.4 Trillion “target” market.

The Top 100 is critically important and generally outperforms the overall market. However, in 2017 the difference was very slight. 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 2017:

  • Supermarkets are still undergoing changes. We had 3 drop off the list and 1 addition. Stater Bros and Save Mart simply didn’t have enough revenue to make the list. Whole Foods is also not on the list because it was acquired by Amazon. In the opposite scenario Save-A-Lot is on the list because it was spun off from SuperValu.
  • There were 3 other companies in various categories that fell off the list because their numbers weren’t high enough.
    • Advanced Auto Parts
    • H & M Stores (apparel)
    • CKE Restaurants (Hardees, Carl ‘s Jr.)
  • Five additions, primarily due to surging sales are: ◦
    • Hobby Lobby
    • Sephora (cosmetics)
    • Discount Tire
    • Chipotle Mexican Grill (made it back after dropping off the list in 2016)
    • Bass Pro (They acquired Cabelas)

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

  • Regular & Online Retailers have 58.7% of the stores but 91.9% of the business, virtually the same as last year.
  • Most of the increase (94.7%) is coming from Regular/online retailers. They are up 4.5% compared to +3.7% in 2016.
  • Restaurant sales were up $4.8B (3.0%) in 2017 but Gas Stations were down slightly, -$31M (-0.2%).
  • The biggest change is the -0.9% drop in store count. This contrasts sharply with a 1.5% increase in 2016. Most of the decrease is in restaurants/gas stations but regular retailers are down too. Could it be an impact of online shopping?

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, 67 are selling some mixture of Pet Products in stores and/or online. (up from 66 in 2016)
    • Their Total Retail Sales of all products is $1.85 Trillion which is…
      • 93% of the total business for Regular & Online Retailers in the Top 100
      • 32.2% of the Entire $5.75T U.S. Retail market – from 67 Companies who sell Pet Products.
    • 57 Cos., doing $1.75T in sales are selling pet products off the retail shelf in 142,000 stores – 3500 more than 2016.
      • 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 bought Whole Foods, which has stores so the Amazon $ are now in the “Pet In Store” numbers.
      • Many traditional Retailers who only sell Pet Products online are closing stores and losing market share.

Pet products are an integral part of the strongest retailers and are widespread across the entire U.S. marketplace. Of the Top 100, 142,000 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 $1.1 Trillion in Sales
    • 52.3% of the Top 100’s $ales
    • 19.7% of Total U.S. Retail $
  • It’s the same list as 2016 (and 2015) but 4 changed rank
  • Amazon acquired Whole Foods, broke $100B and moved up to 3rd
  • CVS had the only negative performance

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 ’17 & ‘16 – a “1” with an orange highlight indicates that products are only sold online
  • Rank Columns – Change in rank from 2016: (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. Walgreens bought 1900 Rite Aid stores, but closed 600. CVS is in a similar situation. The turmoil may continue into next year as Albertson’s is offering to buy the remaining Rite Aids.
  • The Traditional Department store segment continues its overall decline. There are a couple of exceptions in some “high end” stores. However for most, the trend is down.
    • Sears (includes Kmart) and Macy’s remain the 2 big “red flags” and more store closings are planned.
    • 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 2017 as Circle K acquired CST Brands.
  • Military Exchanges/Commissaries have added locations in recent years, which fueled the growth in sales. In 2017 they radically reduced the number of Army/AF Exchanges and opened no new Commissaries. Sales dropped.
  • Auto Parts Stores have been a mixed bag. In 2016 only Advance was underperforming in sales. In 2017 they dropped out of the Top 100 and were replaced by Discount Tire. Now this category is showing a big increase.
  • 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 is fomenting the evolution of U.S. Retail. They broke the $100B barrier in 2017 and sales have doubled in 4 years. However, their business is also evolving. With the acquisition of Whole Foods they now have a brick ‘n mortar presence in the market place
    • The Phone People – Verizon and Apple, continue to grow, but another bad year for AT&T.
    • QVC acquired HSN which moved them up eighteen spots to #40.
    • 2017 was a bad year for Toys R Us as sales fell over $1 Billion. However, as we all know 2018 is much worse as they officially went out of business.
  • Signet Jewelry’s sales fell 3.9% after an 11% increase in 2016.
  • Mass Merchants have 2 of the 4 largest volume retailers in America – Wal-Mart and Costco. In recent years, these two companies have driven the growth in this channel and 2017 was no exception.
    • Wal-Mart had a 3.3 increase in sales which is slightly above recent years. Their business is mixed as SuperCenters continue to grow but “regular” Discount Department Stores are losing market share. This trend impacts the overall business in both Wal-Mart and Target.
    • Target sales turned around in 2017 after 3 years of flat or declining revenue.
    • Costco continues its strong growth (+8.5%), building new stores and increasing sales – both in store and online.
    • BJ’s has the only negative story in this channel. Their sales have slowly declined since 2013.
  • Home Improvement/Hardware is showing continued strong growth by all “players”. The 2 big guys – Home Depot and Lowe’s are both Top 10 retailers and are doing especially well. Their $9.5 increase in 2017 follows an $8.7B increase in 2016 – up $18.2B in just 2 years.
  • Home Goods Companies’ sales were all up slightly, except for Ikea. They restructured their business in 2016 which produced a $2B increase. However, 2017 saw Ikea’s sales fall almost $1B.
  • Tractor Supply’s strong growth rate slowed a little (+7.1%). Their average annual growth rate is 8.8% since 2013.

Observations

  • Supermarkets – $379B in Sales; 15 Companies; 16,000 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 continue. This year we also saw SuperValu begin its exit from the retail grocery business and Amazon’s acquisition of Whole Foods.
    • Most companies had slight increases in sales. The big drop correlates directly to SuperValu’s sale of Save-a-Lot.
  • Small Format Value Stores: Remember, this retail channel does more business than Traditional Department Stores.
    • Dollar General and Dollar Tree are in a virtual tie for Sales, Sales Increase and Store Count. However, it appears that Dollar General is more committed to store growth.
    • Dollar Tree’s 2015 acquisition of Family Dollar Stores has proven to be totally seamless.
    • Only Big Lots performance is subpar, but they now have 3 consecutive years with 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 – PetSmart’s huge growth is due to their acquisition of Chewy. Petco made big news last year by qualifying for the Top 100 for the first time at #98. This was evidence of the strength of the U.S. Pet Industry. They had a fair year in 2017 (+3.7%) but it’s a very competitive environment. They barely made the 2017 list at #100.
  • Office Supply Stores – This channel is under siege. Consumers are increasingly moving to online ordering.
  • Sporting Goods – Sports Authority closed in 2016 but Bass Pro bought Cabela’s. That again gave us 3 Sporting Goods companies in the Top 100. All of them are showing strong growth in both store count and sales.

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. Also, money spent on rising gas prices and eating out isn’t available to spend on our Pet Children.

  • Last year the revenue for Restaurants in the Top 100 was down -3.5%, but it was driven largely by a business re-structuring of Yum franchisees. That is in the past. In 2017 sales are up 3.0%, but the company results are mixed. The biggest “movers” were Chick-fil-A, up $2.6B and Burger King, down -$2.6B. McDonalds also had a good year and Chipotle increased sales enough to make it back in the Top 100.
  • Despite rising prices, Top 100 Gas Station sales are down slightly, primarily due a reduction in outlets.

Wrapping it up!

The Top 100 became the Top 100 by producing big sales numbers so it’s not surprising that their performance exceeds the overall market. In 2015 it was more than double – 4.9% to 2.3%. In 2016 it was only 10% better and in 2017 it was only 2.3% better. Today’s incredibly competitive retail market is impacting even many of the biggest retailers in America.

Pet Products are an important part of the success of the Top 100. Sixty-seven companies on the list sell Pet Food and/or Supplies in 142,000 stores and/or online. Let’s take a closer look at the fifty-seven companies that stock pet products in their stores. This group generated $1.75T in total sales. How much was from pet? Let’s “Do the math”. If we take out the $12.5B done by PetSmart and Petco and the remaining companies generated only 1.5% of their sales from Pet, we’re looking at $26B 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 $43B in Pet Food and Supplies sales for 2017. That means that 55 mass market retailers accounted for 60% of the Pet Products sold in the U.S. in 2017 and… it gets even more focused.

PetSmart & Petco, plus 15 Mass Market Retailers probably account for 75% of all the Pet Products sold in the U.S.

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. We see the growing influence of the internet and importance of Value. The Intense competition is evident in the turmoil 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 2017 Top 100 Retailer Excel file so you can do your own analysis.

[button link=”https://www.petbusinessprofessor.com/wp-content/uploads/2018/08/Top100-US-Retailers2017Ranked.xlsx” type=”icon” newwindow=”no”] Download 2017 Top 100 U.S. Retailers List(Excel)[/button]

 

.

 

Pet Products Spending by Generation: Mid-Year 2017 Update

Pet Products spending totaled $45.87B for the 12 month period ending 6/30/17. This was an increase of $2.41B (+5.5%). Total U.S. spending for the period totaled $7.58 Trillion, up $320B (+4.4%). Driven by a big increase in Supplies, Pet Products Spending 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? Most of the conversation revolves around Millennials. They are obviously the future but they are still young and a long way from spending “maturity”. This means that we can’t ignore the Gen Xers. They don’t get much publicity but they are next in line to the Boomers. 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.

  • Millennials: Born 1981 and after
    • In 2017, age 18 to 36
  • Gen X: Born 1965 to 1980
    • In 2017, age 37 to 52
  • Boomers: Born 1946 to 1964
    • In 2017, age 53 to 71
  • Silent: Born 1928 to 1945
    • In 2017, age 72 to 89
  • Greatest: Born before 1928
    • In 2017, age 90 and over

  • Boomers are still the largest group with 44.9M CUs (34.8%) and the biggest spenders – $2.8T. Their numbers are flat but their spending continues to grow and is over performing as their share in relation to their share of CUs is 106%.
  • Gen X is the second largest CU group. Their overall numbers are down slightly as more singles “pair up”. They also had a minuscule drop in spending. However, they spent $2.4T and they had the best spending performance 118%.
  • Millennials are the largest generation in sheer numbers, but third in CUs. More are developing financial independence as CUs grew by 2.3M. They also had the biggest increase in spending +$182B. Their total spending was $1.5T – 3rd place. However, their spending performance vs share of CUs is 85%. They still have a ways to go.
  • The Silent generation lost numbers, primarily due to death and movement to assisted living facilities but their overall spending was flat. This means their spending per CU was up slightly. The Greatest Generation will soon be too small to be a measureable, separate spending group.

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. Households with 2 or more people account for 81% of all Pet Products Spending
  • 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-2016 and still peaks with the Gen Xers. However, the Boomer and Silent generations decreased by 0.1 person.
  • Married couples with children under 18 are an important segment, 23% of all CUs. They account for 27% of all Pet Products spending and 29% 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 53% 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.
  • Homeownership – Owning and controlling your own space has always been a key to increased Pet Ownership and spending. Homeowners currently account for 78.8% of all Pet Products Spending, which increased by $1.7B (+5%). However, Renters’ spending was also up $0.7B (+8%), which shows the growing influence of the younger groups.
    • Nationally, Homeownership showed a slight increase from 62% to 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 32% to 34%, which is encouraging. Boomers also moved up from 75 to 77%. For the record, the homeownership rate for the over 25 Millennials 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 – $73,207;
  • Total Spending – $58,460;
  • Pet Products Spending – $353.92;
  • Pet Products Share – 0.61%

  • Income – The 37>52 year old Gen Xers are the leaders. The Boomers earn about 16% less and their income will continue to fall as they age. The big drop occurs with the Silents as retirement becomes almost universal. The Millennials income is still 20% less than the Boomers and only 67% of the Gen Xers.
  • Total Spending – The Gen Xers make the most and spend the most but it’s not out of line with their income. Boomers also spend more than the average but their 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 income. The Millennials under 25 are also in an after tax income deficit spending situation. However, the rising income from the 25>36 group makes up the difference and brings overall generational spending 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. However, their lead began dropping once they began value shopping for food. The Millennials trail the Gen Xers by 37% and the Boomers by 44%. The Gen Xers made the most significant move in Pet Products spending as they broke the national average for the first time since 2014. At that time they were in a tie for the lead with the Boomers. Both were spending at 113% of the national average.
  • Pet Products Share of Total Spending – One measure of the level of commitment to their Pets.
    • Only Boomers exceed the National Average but everyone under 90 years of age is at least 85% of the national average. Pet Parenting is a lifelong commitment.
    • Another key point is that the Gen Xers were the only group to increase their pet products spending in terms of its share of their overall spending. This takes on even more significance when you consider that this group makes and spends the most money.
    • Millennials are in third place in both income and total spending but they fell to 4th place in this measurement. Much of their Pet Products spending growth was due to an increase in CUs.
    • You can see that spending dropped significantly for the very Oldest, “Greatest” Americans but the 72 to 89 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 2017 Mid-Yr Performance, it was all about the younger groups, especially Gen X – Up $2.33B.
  • Boomers still have the largest share but it is down and is now less than the combined share of Millennials and Gen X.
  • Overall – Ave CU spent $353.92 (+16.94); 2017 Mid-Yr Pet Products spending = $45.87B, Up $2.41B (+5.5%)
    • It is all about 2017 – quite a turnaround! July>Dec 16, Down $1.12B; Jan>Jun 2017, Up $3.53B
  • Boomers – Ave CU spent $445.43 (-$18.72); 2017 Mid-Yr Pet Products spending = $19.95B, Down $0.68B (-3.3%)
    • They began a comeback in the first half of 2017. – Jul>Dec 16, Down $2.34B; Jan>Jun 17, Up $1.66B.
  • Gen X – Ave CU spent $397.01 (+$69.67); 2017 Mid-Yr Pet Products Spending = $13.92B, Up $2.33B (+20.1%)
    • Good growth in 2016 but 77% of the increase came in 2017. – Jul>Dec 16, Up $0.53B; Jan>Jun 17, Up $1.80B
  • Millennials – Ave CU spent $251.72 (+$4.68); 2017 Mid-Yr Pet Products Spending = $7.95B, Up $0.91B (+12.9%)
    • Unlike the Gen Xers, 2/3 of the Millennials’ gain came in 2016. – Jul>Dec 16, Up $0.58B; Jan>Jun 17, Up $0.33B.
  • Silent Gen. – Ave CU spent $239.30 (+$11.18); 2017 Mid-Yr Pet Products Spending = $3.94B, Down $0.08B (-2.0%)
    • The overall decrease came from a reduction in CUs. Jul>Dec 16, Up $0.12B; Jan>Jun 17, Down $0.20B.
  • Greatest Gen.– Ave CU spent $90.86 (-$5.47); 2017 Mid-Yr Pet Products Spending= $0.17B, Down $0.06B (-26.1%)

The Pet Products $ increase was primarily due to the Gen Xers. Let’s look at individual segments. First, Pet Food..

  • Boomers once again have the largest share but it has dropped significantly from a peak of 52% in 2015.
  • Gen X has 14% more CU’s than the Millennials but spent 70% more on Pet Food. Their spending lift came in 2017.
  • Millennials spent $0.86B more on Food Mid-Yr 2017 versus 2016 but the increase was all in 2016.
  • Overall – Ave Cu spent $219.43 (-$2.58); 2017 Mid-Yr Food spending = $28.44B, Down $0.18B (-0.6%)
    • 2017 brought an about face that stopped the downward slide. Jul>Dec 16 (-$2.12B); Jan>Jun 17 (+$1.94B)
  • Boomers – Ave CU spent $287.34 (-$45.41); 2017 Mid-Yr Food spending= $12.85B, Down $1.88B (-12.8%)
    • July>Dec 16 (-$2.81B) – Value Shopping; Jan>Jun 2017 (+$0.93B) – In 2017 they started a comeback.
  • Gen X – Ave CU spent $233.28 (+$33.62); 2017 Mid-Yr Food spending= $8.14B, Up $1.11B (+15.8%)
    • It appears that upgrading food became more pervasive in 2017. Jul>Dec 16 (-$0.17B); In Jan>Jun 17 (+1.28B)
  • Silent Generation – Ave CU spent $155.78 (-$3.68); 2017 Mid-Yr Food spending $2.56B, Down $0.24B (-8.6%)
    • Spending was Flat in the 2nd half of 2016, then fell in 2017. Jul>Dec 16 (-0.02B); Jan>Jun 16 (-$0.22B)
  • Millennials – Ave CU spent $150.21 (+$11.31); 2017 Mid-Yr Food Spending $4.80B, Up $0.86B (+21.8%)
    • Jul>Dec 16 (+$0.87B); Jan>Jun 17 (-$0.01B). Much of the lift is coming from a big increase in CUs. However, we could be seeing the start of a new food trend. The Millennials pioneered the move to Super Premium.
  • Greatest Gen. – Ave CU spent $57.89 (-$5.84); 2017 Mid-Yr Food spending= $0.09B, ↓ $0.03B (-25%)- fading.

We are still seeing the impact of Pet Food Value Shopping in 2016. However, 2017 started off strong for Gen X and the Boomers. The Millennials are once again spending to a “different beat” as their pattern is the exact opposite. Now, Pet Supplies…

  • Boomers still have the largest share but unlike Food, the Younger Groups – Gen X and Millennials control 51.6%.
  • The lift is consistent and widespread. Plus, there was an exceptionally great start for 2017.
  • Overall – Ave CU spent $134.49 ($19.52); 2017 Mid-Yr Supplies spending = $17.43B, Up $2.59B (+17.5%)
    • A great 12 month long comeback for Supplies. Jul>Dec 16 (+$1.0B); Jan>Jun 17 (+$1.59B)
  • Baby Boomers – Ave CU spent $158.09 (+$26.69); 2017 Mid-Yr Supplies spending= $7.1B, Up $1.2B (+20.3%)
    • A strong 12 month increase, as the Boomers come back to Supplies. Jul>Dec 16 (+$0.47B); Jan>Jun 17 (+$0.73B)
  • Gen X – Ave CU spent $163.73 (+$36.05); 2017 Mid-Yr Supplies spending= $5.78B, Up $1.22B (+26.8%)
    • A Consistent and even stronger increase than the Boomers. Jul>Dec 2016 (+$0.69B); Jan>Jun 17 (+$0.53B)
  • Millennials – Ave CU spent $101.51 (-$6.61); 2017 Mid-Yr Supplies spending= $3.15B, Up $0.04B (+1.3%)
    • Their increase came only from more CUs, which showed up in 2017. Jul>Dec 16 (-$0.30B); Jan>Jun 17 (+$0.34B)
  • Silent Generation – Ave CU spent $83.52 (+14.86); 2017 Mid-Yr Supplies spending= $1.38B, Up $0.16B (+13.1%)
    • Their momentum faded in 2017 but still an increase in both halves. Jul>Dec 16 (+$0.14B); Jan>Jun 17 (+$0.02B).
  • Greatest Gen. – Ave CU spent $14.31 (-$12.82); 2017 Mid-Yr Supplies spending= $0.03B, Down $0.02B (-60%)

There was a steep drop in Supplies spending in 2015 as consumers upgraded to Super Premium Pet Food. By the first half of 2016, Supplies spending flattened out as consumers shopped for price on food and used some of those saved dollars for Supplies. The spending lift which began in the second half of 2016 crossed generational lines, especially from age 37 to 89. However, the biggest drivers were the Gen Xers and the Baby Boomers, who accounted for $2.42B (93.4%) of the total $2.59B increase.

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: 66.7%; Pet Food: 70.9%; Pet Supplies: 62.2%
    • This group ranges in age from 72 to 89. 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. This is evident in the 70.9% performance on Pet Food, which beats the Millennials by a “nose”.
  • Baby Boomers Performance – Pet Products: 125.7%; Pet Food: 130.6%; Pet Supplies: 117.6 %
    • 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. Their performance is down from last year and it will continue 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: 112.2%; Pet Food: 104.8%; Pet Supplies: 121.6%
    • The Gen Xers are next in line and next in performance to the Boomers. They outperform the Boomers on supplies and now their food performance also exceeds 100%. Plus, there is more “good” to come. Gen Xers range in age from 37 to 52. They already make and spend the most money. As they fill up the 50 to 54 age group and move on, their children will start to move away from home. Their focus will then turn to their Pet Children. Expect their performance to continue above the 100% level and to surpass the Boomers, perhaps within the next five years.
  • Millennials Performance – Pet Products: 72.4%; Pet Food: 70.7%; Pet Supplies: 75.7%
    • 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 18 to 36 years old. They have pets, a lot of them, but their responsibilities are growing and money is still in short supply. They have been spending a lot on Supplies as they are establishing Pet households and actively seeking products that make Pet Parenting easier. This year they swapped out some of those Supplies dollars to spend on food. One thing is certain. Value shopping is their golden rule, especially on the internet. They are 18 years away from occupying the highest income age group. Plus, since they are having children later, the spending lift from children leaving will undoubtedly be delayed. We’ll keep a close eye on them, but realistically, they are 20 years away from being the dominant force in Pet Spending.

A Final Word – There’s no getting around it. In terms of Pet Products Spending, the 12 month period from 7/1/16 to 6/30/17 belonged to the Gen Xers. They produced $2.33B of a $2.41B increase with a strong performance in both Food and Supplies. They also “more than earned their share” in both segments. They stand next to the Baby Boomers and it appears that they are ready and able to ultimately take their turn at the top of Pet Products spending pyramid.

 

 

 

 

U.S. Pet Services Spending (Non-Vet) $6.56B (↓$0.26B): 2017 Mid-Year Update

The US BLS recently released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2016 to 6/30/2017. In our analysis of Pet Supplies Spending we saw that everything had turned “gold”. Spending was up across virtually every demographic segment. On the other hand, Pet Food Spending was down slightly. However, a deeper “dive” into the data showed evidence of a strong increase in the first half of 2017. Now we turn our attention to Pet Services. The Mid-year numbers show that spending in this segment was $6.56B, down $0.26B (-3.8%) from the previous year. This segment is known for consistent, albeit small increments of growth. This is the first decline in any 12 month period in 4 years. Let’s look at recent Services spending history:

Here are the Mid-Year 2017 Specifics:

  • Mid-Year 2017: $6.56B vs Mid-Year 2016: $6.82B
    • ↓$0.26B (-3.8%)
      • Jul > Dec 2016: ↑$0.02B
      • Jan > Jun 2017: ↓$0.28B

Pet Services is by far the smallest industry segment. However, except for 2010 and 2011, the period immediately following the Great Recession, it has shown consistent annual growth since 2000. Spending in Food and Supplies have been on a roller coaster ride during that period. Service Spending has more than tripled since 2000 with an average annual growth rate of 7.6%. Spending in the Services Segment is the most discretionary in the industry. Over all these years the inflation rate has averaged over 3.2%, with little or no negative impact on spending. The primary reason is that Service Spending is very strongly skewed towards high income households. After the recession inflation has been slowing, down to the 2+% range. In mid 2016 inflation dropped below 2% and continued down to 1.1% by the end of 2017. This is 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, a big factor in the flat then declining sales during this mid-year report is today’s consumers’ value shopping for the best price.

Let’s take a look at some demographics. First, Pet Services Spending by Income Group.

  • There is no regular income spending pattern. The biggest decreases come at the high and low end of income.
  • There is a miniscule lift in the $30>$70K range but the only significant increase (+$.26B) is in the $100>$150K group.

Now, Services’ Spending by Age Group.

  • Unlike Income, the spending pattern is very clear for age groups. 55>74 spent more. Under 55 & over 75 spent less.
  • The biggest changes came right at the “dividing line”. 55>64 was ↑$.38B but this was negated by 45>54, ↓$.41B.

In Pet Services the big news is the negative downturn in spending in the first half of 2017. The following chart will show the segments with the biggest drops in Services Spending during that time period across key demographic categories.

Once again the group consists of many of the traditionally biggest spending demographic segments in the industry. We know that there is growing competitive pressure in the marketplace in this segment and in today’s world, virtually everyone shops for the best price. This could be a reason behind some of the decline. There is another likely situation. Every one of these groups had a significant increase in Pet Products (Food & Supplies) spending in the first half of 2017. They may be making up for the increased Products spending by cutting back on their spending in other segments. Pet Services is probably the most discretionary spending segment in the industry so it is a prime candidate for trading Pet $. In this situation, consumers may not be foregoing services entirely, just slightly dialing back the frequency.

The odds are that Services spending will rebound in the second half. 2016 was the first year since 2012 in which the increase in the second half was lower than the first half. In 2013 Services overcame a $0.44B spending drop in the first half with a $0.53B increase in the second half and had another annual spending increase. We’ll have to wait and see.

Although 75% of the demographic segments had decreased spending in the first half, there were some positives.

  • $100>149K: +$.19B
  • Mgrs & Profess: +$.15B
  • 2+ Single Adults: +$.10B
  • Married, Oldest Child 6>17: +$.08B