Spending, CPI, demographics of overall market

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]

 

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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

 

 

 

U.S. PET SUPPLIES SPENDING $17.43B (↑$2.59B): MID-YR 2017 UPDATE

In our mid-year analysis of Pet Food spending, we saw a slightly negative number but discovered that this was primarily due to a carryover from the second half of 2016 and was masking a very positive start for 2017. Pet Supplies spending tells a totally different story, and it is all positive. Mid-Year 2017 Pet Supplies spending was $17.43B, up an incredible $2.6B. Pet Supplies Spending last reached this level in Mid-Year 2013 and is higher than any annual number since 2010. The following chart should put the recent spending history into perspective.

Here are this year’s specifics:

  • Mid Yr 2017 ($17.43B) vs Mid Yr 2016 ($14.84B)
    • ↑ $2.59B (+17.5%)
      • Jul > Dec 2016: ↑$1.0B
      • Jan > Jun 2017: ↑$1.6B

Like Pet Food, Pet Supplies spending is also on a roller coaster ride. However, the driving force is much different. Pet Food is “need” spending and is powered by a succession of “must have” trends. Pet Supplies spending is largely discretionary so it is impacted by 2 primary factors. The first is spending in other major segments. When consumers ramp up their spending in Pet Food, like upgrading to Super Premium, they cut back on Supplies. However, it can go both ways. When they value shop for Premium Pet Food, they take some of the saved money and spend it on Supplies. The other factor is price. Price inflation tends to retard sales, usually by reducing the frequency of purchase. On the other hand, price deflation generally drives Supplies spending up. There is also another factor that can “trump” both of these influencers – innovation. If a new “must have” product is created, something that significantly improves the pet parenting experience, then consumers will spend their money. Unfortunately, we haven’t seen much of that in this segment recently.

In 2015, consumers spent $5.4B more on Pet Food. At the same time, Pet Supplies prices went up 0.5%. This was a “killer” combination as Supplies spending fell $2.1B. In 2016 consumers value shopped for Food, saving $2.99B. Supplies spending stabilized by mid-year then increased by $1B in the second half, despite price inflation of 0.6%. Consumers spent some of their “saved” money on Supplies. In December 2016 Supplies Prices turned downward and stayed below 2016 levels all year. Food spending increased $1.94B in the first half of 2017 but this came from a limited group. The result was that Supplies Spending had explosive growth, up $1.6B. Let’s look a look a little deeper at the “who” behind the big Supplies Spending increase.

First, 2017 Mid-year Supplies Spending versus previous year by Income Group

  • The Supplies spending was flat in the financially pressured <$30K group. Everyone else had an increase.
  • With the exception of the lower middle income $50>$70K group, all of the increases exceeded $0.5B.
  • The increases grew larger for groups with income over $100K. This is to be expected in discretionary spending.

Now, let’s take a look at another key demographic – Spending by Age Group

  • Once again, the increase is very consistent across age groups, with the exception of the 25>34 year old Millennials.
  • Although the spending fell in the 25>34 group, we should remember that last year they were the only group from 25>75 to have an increase in Supplies Spending. On average their Supplies Spending has been consistent over 3 yrs.
  • The biggest $ increase (+$.73B) came from the 35>44 group. (Gen Xers…again). The biggest % (+48%) came from 75>

The Supplies Spending increase is remarkably well spread across both income and age groups. Mid-year sales numbers include data from parts of two calendar years. One of the priorities of this analysis is to determine how the latest year is starting out. Supplies’ Spending in the first half of 2017 was up $1.6B versus the same period in 2016. Our final chart will show the segments driving that big increase in key demographic categories.

You can see that there were very strong increases across the whole spectrum of demographic categories. In fact, only 6 of 80 separate demographic segments had a decrease in Supplies spending in the first half of 2017 and those were all minor. The leaders in our chart may all seem very familiar. They should be familiar. They are the traditional leaders in Pet Spending. The fact that they are leading the surge in 2017 Pet Supplies Spending may indicate that this segment is finally “returning to normal”. We’ll see what the second half of 2017 brings, but this is a great start

 

U.S. PET FOOD SPENDING $28.44B (↓$0.18B): MID-YEAR 2017 UPDATE

The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2016 to 6/30/2017. The report shows Pet Food Annual Spending at $28.44B (Food & Treats). The following charts and observations were prepared from calculations based upon data from that report and earlier ones. The first chart will help put the $28.44B into perspective with recent history.

Here are the current numbers:

  • Mid 2017: $28.44B; ↓$0.18B (-0.6%) from 2016

The net $0.18B in Mid 2017 came from:

  • Jul>Dec 2016: Down $2.12B from 2015.
  • Jan>Jun 2017: Up $1.94B from 2016

Spending turned sharply upward in the first half of 2017. This probably should have been expected. We have noted in previous reports that Pet Food spending has been on a roller coaster since 2000, with 2 years up, followed by a flat or even declining year. This chart perfectly reflects this pattern. This up and down “ride” has been driven by a succession of Food trends. 2013 was a down year. It was followed by 2 up years as an increasing number of consumers opted to upgrade to Super Premium Foods. Spending peaked in 2015 then fell sharply as consumers began value shopping for food, at retail outlets and on the internet. With the big lift in the first half of 2017, it looks like we’re right “on track” for a spending increase in 2017. In fact, in the second half of 2017, if we recover only half of the $2.12B drop that we had in the second half of 2016, 2017 will set a new record high for pet food spending.

There is another factor at work in the market. From 2014 to 2017, the Pet Food segment experienced a period of record deflation. Normally, in a need based category, this would drive spending down. That has not been the case. In fact prices edged up 0.2% in 2016 when sales were plummeting. What it does indicate is that we are in an incredibly competitive market. This is great for today’s value driven shoppers but it is tough on manufacturers, distributors and retailers.

Now, let’s see where the $26.44B came from – First by Income Group (Increases highlighted in green)

  • When you look at the over/under $70K groups it looks normal. Higher incomes: ↑$1.29B; Lower incomes: ↓$1.47B.
  • However, increases are not directly tied to income. The upper middle class bought more. The big earners spent less.
  • The <$30K group also had a small increase. This group is made up of those just getting started and older Americans.

That brings up a good question. Let’s look at Pet Food Spending by Age Group. (Increases highlighted in green.)

  • This demographic measure certainly tells a different story than household income. All but 2 groups are up.
  • The <25 group is down slightly so that probably answers our income question. Older, low income H/H’s spent more.
  • The 55>64 yr olds are dragging down the entire food segment. They had the biggest increase in 2015 but they also had a huge spending drop in the second half of 2016. That is reflected in these numbers.
  • Besides the widespread increase there is also some other “hidden” good news. The 35>54 age group led the way with a $2B increase. Why lump them together? Because 80% of them are Gen Xers. In this case, they are the heroes.

One of the primary purposes of the Mid Yr Update is to see how the latest year is starting. Considering the differences between the income and age reports, it makes sense to compare the most recent Jul>Dec and Jan>Jun numbers to the previous period. Spending is flat but seems to be turning up in 2017. These charts will show us when the change started.

  • In terms of Income groups, virtually everyone had a bad second half of 2016. The 2017 “bounce back” is coming from 2 sources – the over $100K and the under $50K groups. The $50>$100K middleclass is left out – so far.
  • The $70>$100K group started out 2017 “flat” but they were the only group with a positive 2016 second half. Hmm?
  • In terms of age groups, the second half of 2016 was basically neutral, with the exception of the big drop by 55>64.
  • In regard to our earlier “Hmm” remark, look at the 25>34 group. Their spending pattern correlates with the $70>$100K income group. In fact these 2 groups were the only ones to significantly increase food spending in their categories in 2016. Perhaps, the Millennials started a trend in 2016 that was picked up on by “others” in 2017.
  • The “others” that radically increased Food spending in the first half of 2017 were Gen Xers and the oldest Boomers.

If the newest trend is focused on high nutrition, with clean labels and transparency, it may have “struck a chord” with Gen Xers. Here are some more demographic segments with a strong start to 2017, which support the assertions above.

  • Homeowners, No Mtge: +$1.23B
  • Suburban: +$1.15B
  • College Grads: +$1.13B
  • Mgrs & Professionals: +$.92B
  • 2+ Singles H/H’s: +$.84B
  • 1 Person H/H’s: +$.75B
  • 5+ Person H/H’s: +$.72B
  • Center City: +$.50B
  • Retired: +$.44

These groups suggest that the new trend could have an even broader appeal. We’ll see what happens in the second half.

U.S. Total Pet Spending – By Age AND Income Group

Using data from the annual Consumer Expenditure Survey conducted by the US BLS, we have done an in depth analysis of U.S. Pet Spending in over a dozen different individual demographic categories. This has given us a better understanding of “who” is behind the strength and continued growth of the Pet Industry. As always, the focus of the US BLS is on accuracy but at the same time they are never satisfied with the status quo. They are continually experimenting with new reports. This commitment to “make it better” is what led to the very timely and wildly popular demographic spending report by generation.

They’re at it again, producing a report that combines the two most popular and impactful spending demographic measures – income and age group. To get the required sample size, they combined the data from 2015 and 2016. As you recall, the Total Pet Spending for each of these years exceeded $68B. Unfortunately, because of the complexity of this test report we only have the numbers for Total Pet, not for individual industry segments…yet.

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

Age Groups

25 to 34 – All older Millennials

35 to 44 – All younger Gen Xers

45 to 54 – ½ Gen Xers & ½ Boomers

55 to 64 – All Boomers

65 & Over – 5 yrs of Boomers + older groups

Income Groups

Under $30K

$30K to $49K

$50K to $69K

$70K to $99K

$100K & over

This produces 25 subgroups, accounting for 98% of Total Pet Spending. The under 25 group is not included due to a very low share of Pet Spending and an extremely small sample size in the highest income levels. It is still very complex, especially in building graphs. Normally, a pie chart would be used to show the share of total CUs for each group. However, 25 slices of a pie, with 15 having a share less than 3%, make the chart unreadable. Therefore, we will focus on the largest, most impactful groups. Our first chart shows the market share for the 10 largest age/income segments.

  • The economic division in the U.S. is very apparent as all the largest groups are either under $50K or over $100K.
  • However, the division is strongly weighted towards lower incomes as 7 of 10 are under $50K – 5 of these are <$30K.
  • The 2 largest segments of each of the 3 groups in the 35>64 age range are over $100K and under $30K.
  • The oldest and youngest Americans have 4 of the 10 largest groups, all under $50K. (1/6 of all CUs are 65>, <$50K)
  • There are no groups in the $70>99K range. Middle income America is obviously very fractionalized in terms of age.

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

# of children under 18 – The financial pressure is high on lower and middle income Parents trying to fulfill the needs and wants of their human children and still be good Pet Parents. As expected, the vast majority of children are found in CU’s in the 25 to 44 year age range, especially the 35 to 44 yr old Gen Xers. Also, the number of children generally increases with CU income, except for Millennials. Their path is a bit of a roller coaster with the lowest number of children being in households with the highest income. We have all heard that Millennials are a little different. They are slow to leave their parents’ home, get married later, delay having children and are more likely to live in households with 2+ unmarried adults. These are all factors affecting the number of children in their households.

% Homeownership – About 83% of Total Pet Spending comes from Homeowners. Having more space that you control has always been a key to increased pet spending. Perhaps more than any other demographic, Homeownership regularly increases by age and income. For every age group, higher income means a higher percentage of homeownership. This is also true by income group as increased age shows increased homeownership, with one slight variation. There is a virtual tie for first at 94% by both over 55 groups, making $100K or more. The national homeownership average is 62%. You can see that the younger the group, the higher the required income to meet the average. It has been noted that Millennials are more likely to live in central cities and less likely to own a home than previous generations. This is reflected in the fact that they don’t reach the national homeownership average until their income exceeds $100K.

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

  • <$30K – This group represents almost 1/3 of all U.S. households and obviously has a financial struggle. The 45>64 year age group, which is ¾ Boomers spends noticeably more than the other groups.
  • $30K>49K – With less family pressure the 45 and older groups increasingly focus on their Pet Children. Of note, the over 65 group takes the lead in household pet spending in this income range. The average retirees’ income is $40K. Once they reach this level, the financial pressure is reduced and they can increase their focus on their pets.
  • $50>69K – Every group increases their Pet Spending but there is a big lift in the over 55 groups. Apparently this is a significant income threshold for them in terms of Pet Spending. We also see an incredible lift in the spending by the 25 to 34 year old Millennials. This could relate to that dip in the number of children that we saw earlier as well as the differences in the Millennial lifestyle.
  • $70>99K – We have reached middle income. The over 55 groups show a big increase and in fact the spending of the 55 to 64 year olds takes off like a rocket. They become the overall #1 Pet Spending age/income group. The 35 to 44 group is still feeling strong financial pressure and remains in last place. The spending by the Millennials dips slightly but they are still 10% ahead of the 35 to 44 Gen Xers.
  • $100K+ – Pet Spending explodes when income reaches $100K. The 55>64 year old group dips slightly but they still lead the pack. Perhaps the most significant increase (150%) comes from the 35>44 group. With some relief from financial pressure they can focus more on their pets. The only group under $1000 is the 25>34 year olds. However, their average over $100K income is 20% below the others so the $800 is on a relative par with the other groups.

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

  • Each age group seems to regularly increase Pet Spending as their income grows. Then, at some point they reach a significant threshold income and their Pet Spending doubles.
  • For the 55 to 64 year old Boomers and the 25 to 34 year old Millennials, the critical point is $50 to 69K.
  • For the oldest group, it comes at the lower $30>49K level. As we stated earlier, this is the average income for retirees and indicates a significant reduction in financial pressures.
  • The 35 to 44 year olds have a different story. With the pressure from the largest families and in a critical phase of career building they don’t get any relief until their income passes $100K. When it does, they have a truly amazing response – a 150% increase in Pet Spending, moving up from last place to 3rd, trailing only the over 55 groups.
  • Although the Boomers peak at a lower level, you can certainly see that an income of $100K+ is a universal magic number in Total Pet spending

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

  • These 10 age/income groups account for 50% of all U.S. CU’s and 65% of Total Pet Spending.
  • Money Matters Most as all age groups making $100K or more are included.
  • Age is also a huge factor as 7 of the 10 groups are over 55 years old. (55>64 Boomers win with 4 groups)
  • The 3 groups under 55 all make more than $100K

Finally, let’s look at the top performers which we will define as having the highest Share of Pet $/Share of CU’s. 7 are repeats from the chart above and have matching colors in the chart below. New additions are outlined in green.

  • Once again age matters as only the same two under 45, over $100K income groups made the list.
  • Although it seems impossible, money matters even more in Pet Spending performance than in Pet Spending $. There are no groups making under $50K. The 2 under $50K, over 65 age groups were replaced by 2 other over 65 age groups making from $50 to $99K. Even the 55>64 Boomers lost their <$30K group to a 45>54 middle income group.

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

 

 

 

 

U.S. PET INDUSTRY $ALES IN 2017: $69.51B – TAKING A CLOSER LOOK

According to the numbers from the American Pet Products Association (APPA), the total U.S. Pet Industry increased $2.76B (4.1%) in 2017 to $69.51B. This is less than half of last year’s increase. However, remember that the 2016 numbers were driven significantly upward by an adjustment to Pet Food $ which research had showed to be too conservative. The increase in 2017 is more reflective of the consistent growth in the 4+% range since 2011.

However, 2017 was not without excitement as the overall inflation for the industry hit a record low of 0.4%. This had a definite impact on many industry segments and meant that overall, 90.2% of the Total Pet Sales Increase was a real increase in the amount of Pet products and services sold. Less than 10% came from price increases – also a new record.

In this report we’ll take a closer look at the performance of the total market and importantly, the individual segments. The report will cover 2017, but also put this year’s numbers into perspective for the period from 2009 to 2017.

Here are the specifics from 2017.

OBSERVATIONS

  • The Food segment set a record with a deflation rate of -1.1%. It is a very price competitive market which contributed to the Food segment not making the projected retail $. Although the value of Food sold increased 4.12%.
  • After 3 years of declining sales, the sale of Pets essentially leveled out, when a drop had been projected.
  • Prices in the Supplies segment deflated in 2017, spurring sales and producing a larger than anticipated increase.
  • The inflation rate in the Service segment also slowed significantly. This contributed to them beating their projection and generating a markedly higher real growth rate – 83.8% of the 6.9% retail increase was real.
  • The Veterinary Segment also had a record low inflation rate and Pet Parents responded with a $1.1B increase in spending, which was 67% greater than anticipated.
  • The Total Pet Market was up 4.13% as every segment but Food beat their projected numbers. The record low inflation rate of 0.4% was a positive factor in increased spending on Supplies and both Service Segments. In Food, absent a new major trend, the deflation retarded retail spending $. The low inflation also produced another record, as 90.2% of the industry’s growth was a “real” increase in products and services.

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

Now let’s take a look at the performance of the individual segments from 2009 through 2017 starting with Food.

OBSERVATIONS

  • The last 3 years have had a huge impact in the overall numbers since 2009:
    • 6.5% Annual Growth Rate (Driven up markedly by the 2016 adjustment in Food $)
    • Low average inflation – 0.58% (Pushed down to an unhealthy level by two -1+% pricing drops)
    • 5.89% CPI adjusted Growth Rate: Over 90% of the growth since 2009 has been “real” – Truly amazing!
  • In the 8 years since 2009…
    • 4 were deflationary (-0.7%) Average
    • 4 were inflationary (1.9%) Average

Since 2013, deflation has been the norm in Pet Food. In a need category, this usually slows retail sales. However, at the same time, we have seen a strong trend to upgrade to ever more expensive premium foods. This has produced the unusual situation of growing retail sales despite extraordinarily strong deflation.

What these “dueling” factors indicate is that the Pet Food Market is the most competitive in history. Manufacturers, Retailers and whole Retail channels are now actively engaged in a furious battle for the consumers’ pet food $. While this price war is initially great for consumers, it could have a negative impact on the supply and distribution channels and ultimately on the consumer… thru reduced choices. In the future, a positive inflation rate for Food that stays at or near 1% should produce the best results…for everyone.

Here’s what 2009 to 2017 looks like on a graph:

Except for the adjustment in 2016, the annual retail growth rate has generally been slowing. At the same time, the deflation has caused the “real” growth rate to increase since 2012. What will happen in 2018? It’s too early to predict the CPI for 2018. However, through February, the rate of deflation is -1.3%. Last year prices were up 0.17% through February and we still got a record -1.1% annual price drop. This is not a good sign. To counter this continuing deflationary environment we need yet another new, “must have” upgrade in Food to drive consumer spending up.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

  • Deflation
    • Prices are 5.3% below 2009 (and about equal to what they were in July 2007)
    • Falling at an annual rate of -0.67%
    • After a brief respite in 2015 & 2016, prices deflated in 2017 for the 5th time in 8 years.
  • Retail Sales – This category has become very price sensitive as increased growth rate seems tied to deflation.
  • Over the whole period, the Consumer bought more…and paid less!
    • Retail Sales annual growth rate is 4.01%
    • Price Adjusted annual growth rate is 4.71% – 18% higher than the retail rate

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

In 2017, deflation returned but was not as impactful as in the past. While Supplies sales exceeded expectations, the increase in retail sales was the lowest since 2009 and “real” sales were up less than 3%. Deflation causes strong profit pressure throughout the production and distribution channels. For the good of all we need to get to about a +0.5% rate.

Here is the graph:

In 2018 Pets & Pet Supplies are projected to increase only 1.9% to $17.53B. This reflects an expected $100M decrease in Live Animal Purchases and a 2.7% increase in Supplies. We have noted that the Supplies segment has become very price sensitive. Through February 2018 prices are down -0.5% from a year ago. If this continues or even grows, it could spur increased spending. However, innovation is the only real cure for this condition. The Pet Food segment has shown that consumers will pay more for a truly better product. We need this in Supplies.

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

OBSERVATIONS

  • Growth
    • Annual Retail Growth rate 7.9% – The highest in the industry
    • Annual Inflation rate – still a little high at 2.25% but has been slowing and dropped markedly in 2017.
    • Years of inflation may have caught up to this segment as the spending increases in 2016 & 2017 were about half of the increase in 2015.
    • 69.9% “real” growth since 2009. In 2017, this reached 84%. 75+% is a realistic target.

There are no big negatives regarding this segment. However, it is largely driven by discretionary spending so the consumers’ household income is a bigger factor in spending in this segment than any other. Years of relatively strong inflation and increasing competition from a growing number of outlets offering pet services have finally had an impact, as the inflation rate fell to 1.1% in 2017 – a near record low. The segment has shown strong, consistent growth since the recession, even reaching double digits in 2015. While the 2017 increase was only 6.9%, 84% of the growth was real – a record high. The impact of Services on the industry is limited as it is by far the smallest segment, only accounting for 8.9% of total Pet Industry Sales…but that’s up 20% from its 7.4% share back in 2009.

Here’s how the sales look on a graph:

2018 sales are projected to increase 5% to $6.47B. This is 35% below the growth rate since 2009 and even 25% below the growth rate since 2015, so this estimate may be a little low. The keys to a bigger increase are continued growth in the number of outlets offering Services and maintaining a relatively low inflation rate. Through February 2018 prices are 1.1% above the same period in 2017. If this rate can be maintained throughout the year, it is likely that Services Sales will increase more than the 5% projection.

Now, let’s take a closer look at the Veterinary Service Segment, which accounts for 24.8% of Pet Industry Sales.

OBSERVATIONS

  • Retail Growth
    • Sales are Up 41.8% since 2009
    • Annual growth rate 4.46%
  • Inflation is the problem
    • Annual average CPI increase is 3.42% since 2009, but 2017 saw a record low CPI increase of 2.2%
  • Adjusted Growth rate since 2009 is only 1.01%. However, this has doubled since 2016 as 2017 was up 4.7%
    • Price increases account for 77.4% of the sales increase from 2009 to 2017.
  • “Real Sales”
    • Consumers actually bought less in vet services in 4 of the last 8 years. They just paid more.
    • Sales were basically stagnant from 2009 to 2016 – average annual growth rate 0.49%
    • Then inflation fell to a record low in 2017 and sales took off – Up $1.12B (7%) and 68.6% were real!

Regular veterinary visits are generally viewed as a “need” not a “want”. However, the high inflation rate over the years finally reached a point where Pet Parents, especially those with income pressure, started delaying or foregoing regular procedures entirely. They looked for substitutes in OTC medicines, supplements and treatments whenever possible. They also turned to “no appointment” clinic days offered by some non-pet retailers to get vaccinations and other procedures at radically discounted prices. Then the Veterinary Services inflation rate turned sharply downward in the 2nd quarter of 2016. It stayed at a record low rate through 2017 and Pet Parents responded. They increased the frequency of visits and sales in the Veterinary segment rose $1.1B, the biggest increase of any segment.

Here’s what it looks like:

Veterinary Sales are projected to increase 7% in 2018 to $18.3B. This is basically a replication of 2017. From what we have seen over the past 8 years, this is possible but only if the segment maintains an inflation rate of 2.5% or less. Through February of 2018 prices are 2.6% higher than 2017. This seems concerning, but the first quarter invariably has the highest inflation rate in this segment. In fact, this is EXACTLY the same rate as YTD in 2017, the year with the record low rate. Ultimately, we will just have to monitor the CPI and see what happens.

Now we’ll wrap it up with Total Pet.

OBSERVATIONS

  • Retail Sales in 2017 were ↑52.7% since 2009; Annual growth rate is 5.43%
  • Inflation: Only 11.0% since 2009; 1.31% annual CPI increase. (2017 saw a record low rate: 0.4%)
  • “Real” Sales are 74.8% of the Total increase; Annual growth rate of 4.06% (In 2017, 90.2% of increase was real)

The consistently strong Total Pet Retail numbers are a big reason why so many people are attracted to the industry. The retail numbers have been good across all segments. However, to get the “real” story you need to look a little deeper into “petflation” and the actual amount of goods and services being sold. In recent years we have been struggling with deflation in Food and Supplies and inflation in the Veterinary Segment. In 2017 the Total Pet inflation rate fell to 0.4%

  • After a 2 year pause, deflation returned to the Supplies Segment for the 5th time in 8 years. Commoditization and a lack of innovation have created extreme competitive pressure which deflates prices. Even a small increase in CPI slows sales, usually through reduced purchase frequency. Innovation is desperately needed!
  • After a 1 year pause, Pet Food prices fell a record -1.1%. However, unlike Supplies, the Pet Food segment has been countering the incredibly competitive market with periodic premium upgrade trends. Another is needed.
  • After years of strong inflation and “flat” real sales the Veterinary segment finally got the word. A record low 2.2% inflation rate in 2017 resulted in a $1.1B increase and 69% was real. Keep it up!
  • The Services segment has been growing in sales and number outlets. In 2017, this competitive pressure was finally visible as the inflation rate fell to 1.1%. Consumers responded as sales grew 6.9% and 84% were real.

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

In 2018 Total Pet Sales are projected to increase 3.8% to $72.14B. This would be the smallest percentage increase since 2009. The key factors in meeting or beating this forecast are both of the Service segments continuing lower inflation rates, Supplies staying at or slightly below zero in CPI and whether a new Food Trend starts. Quite frankly, Food is probably the key. If a new Food trend takes off, this could radically increase overall sales. We’ll have to wait and watch.

Remember: In analyzing your own data, always look beneath the surface numbers!

 

 

 

Petflation 2017: The Industry sets a record!

We’re just coming off another exciting and record setting Global Pet Expo so it seems like the right time to slow things down a bit. Usually the perfect subject to do that is the Consumer Price Index. The annual small fluctuations can have an impact on spending but they don’t generate headline news…usually. However, we are in the Pet Industry so we have learned to expect the unexpected and in terms of Petlation, the 2017 results were definitely unexpected.

The inflation rate for Total Pet in 2017 was only 0.4%. This is the lowest rate recorded since they began keeping records back in 1997. It even beat out the 0.6% rate in 2010 which was driven by the Great Recession. Every segment contributed and deserves a headline:

  • Pet Food Prices fell -1.1%, the biggest drop ever and the 4th annual decrease in the last 8 years.
  • Veterinary Prices went up 2.1%. This was the smallest increase in history.
  • Pet Services Prices increased 1.1%. This is half of the 2016 rate and only 2010 (0.9%) had a smaller increase.
  • Pet Supplies prices fell -0.4% to register the 5th annual decrease in 8 years. They’re now -5.3% below the 2009 peak.

Let’s put these changes in perspective. As we look back over the years since 1997, there seems to be 3 distinct periods in which the inflation rate for each segment had a similar trend. The periods are of varying lengths and some segments took the trend to a far greater extreme.  We’ll look first at the overall inflation from 1997 to 2017 then these periods:

  • 1997 to 2007
  • 2007 to 2009
  • 2009 to 2017

Overall 1997 to 2017 – As usual, the service segments and the product segments seem to almost be in a different industry. This produces a Total Pet that seems perhaps a little high, but not unreasonable. Supplies and Veterinary are at the extreme ends of the spectrum. Pet Food looks like the most rational of the group. Let’s do a direct comparison with some categories outside of the pet industry over the same period to put these numbers in perspective:

  • Pet Food: 2.1%; Human Food: 2.3% – The inflation rate of Pet Food is right on target!
  • Veterinary: 4.7%; Human Medical Care: 3.6% – 30% greater than Human Medical. That’s amazing and too high!
  • Total Pet: 2.7%; Overall U.S. CPI: 2.1% – It’s in the “ballpark” even after being driven up by the service segments.

1997 to 2007 – Pet Owners became Pet Parents during this time and towards the end of the period took this a step further to more humanize their Pets. The CPI for the product segments had a reasonable rate of increase which worked for Consumers, Retailers and Manufacturers. The inflation in the service segments was abnormally high, especially in Veterinary. However, Pet Services has always been more dependent on higher income so these households were less impacted by the rising prices. Veterinary Services were viewed as a need so Pet Parents continued to spend their money.

2007 to 2009 – This is a 2 year period in time where a combination of circumstances created the highest Petflation rate in history. First and foremost was the Melamine recall in the Pet Food Segment. Consumers feared for the safety of their pets and demanded that Pet Food be made in the USA to insure safety. They later upped this demand to all ingredients must be made in the USA. This resulted in a radical increase in production cost and retail price – over 20% in just 2 years. However, Pet Parents just spent the money. It was a matter of the safety of their Pet Children.

This was also a very flush time in the U.S. economy as well as in the Pet Industry. We can do no wrong was the attitude. The price increase rate for services increased by 33% to 4.8%. Even the already astronomical Veterinary price increase rate moved up to almost 6%. However, the Supplies segment saw the average annual CPI increase almost triple, from 1.2% to 3.1%. There is no true explanation for this one, except, perhaps. Raise the price. They will pay it. Then came the great recession and the aftermath/recovery.

2009 to 2017 – Total U.S. Consumer spending fell in 2009. The last time that this had happened was in 1956. Prices in the overall market also dropped in 2009 as Retailers scrambled to recover lost $. The impact in both Pet Spending and pet pricing didn’t occur until 2010 but it has been ongoing. The Product section has seen the most turmoil in pricing. Food prices have deflated in 4 of the past 8 years giving Pet Food an annual CPI rate of 0.6%, about 1/3 the rate of the “normal” years from 1997 to 2007. Pet Supplies pricing is actually down 5.3% since 2009 as 5 of 8 years have had deflating prices. For the record, Pet Supplies prices officially peaked in September of 2009. Even the Service segments are feeling the effect. The CPI increase of both service segments is down significantly from past years. Let’s take a look at our outside comparison for this period.

  • Pet Food: 0.6%; Human Food: 1.7% – Obviously, the Pet Food market has become incredibly competitive.
  • Veterinary: 3.4%; Human Medical Care: 3.0% – Vet Prices still increasing 13.3% faster than Human Medical.
  • Total Pet: 1.3%; Overall U.S. CPI: 1.7% – A Big switch. The Petflation rate is now lower than the overall U.S. CPI.

The period from 2009 to 2017 has been a time of change and in some cases, a time of turmoil regarding pricing in the Pet Industry. The next chart shows the annual change in CPI for all segments and Total Pet. It should help put this pricing “evolution” into better perspective.

  • The first thing of note is that the recession had a big impact. In 2010 the inflation rate slowed markedly, especially in the Non-Vet Services. However, the prices in the product segments actually deflated, especially Supplies.
  • Apparently 2010 was looked upon as an anomaly as all but the Supplies Segment tried to increase prices at a more usual rate in 2011. In general this was not successful. Let’s look at the path of each segment.
  • Veterinary – After bumping prices by 5% in 2011, they immediately dialed back their rate of increase to under 3% for the next 2 years. Prior to this they had never had 2 years in a row even under 4%. They bumped the increase to 3.5% in 2014 and it remained above 3.5% but under 4% through 2016. Even this was apparently too high. They experienced fluctuating revenue and dropping frequency in visits from the post-recession price sensitive consumers. In 2017, the inflation rate dropped to a record low 2.2% as pricing pressure intensifies in this segment,
  • Services – The pattern starts out like Veterinary with a dip in 2010 and a “back to normal”, 3.8% increase in 2011. However, this didn’t work as the annual increases fell to 2+% and stayed there for 5 years. Services spending is more driven by higher income households than any other segment so they are less impacted by moderate price increases. They appeared to have found a sweet spot as sales continued to outpace inflation. Then in 2017 the inflation rate fell to 1.1%, the 2nd lowest ever. It may be that this segment is starting to feel the impact of increased competition.
  • Pet Food – In 2009 Pet Food was still feeling the pricing impact due to the switch to “all made in the USA”. Food prices actually deflated in 2010. However, they returned to a more normal pattern of a 2+% increase for the next 3 years. Then we began a wave of increasingly more premium food trends. Although consumer spending increased, the overall prices decreased as “regular” brands tried to “buy back” lost consumers. There is also is another factor. Once a trend takes off, this increases the competitive pressure between those brands, retailers and even between retail channels. This has continued through 2017 and even intensified as the internet is increasingly becoming a player in the Pet Food game. Pet Food prices have deflated in 3 of the last 4 years.
  • Pet Supplies – No segment has been impacted more by the recession than Supplies. They are largely discretionary spending and many categories have become commoditized. That makes them extremely price sensitive. If prices go up, spending almost always drops. This usually comes from decreased purchase frequency. A seemingly small drop can make a big difference. If average purchase frequency is 60 days and it falls to every 66 days, that 10% drop can mean $1.5B less spending. The Food segment has got around this competitive pressure by introducing innovative, ever more premium foods. The Supplies segment has not seen many premium, “must have” innovations.
  • Total Pet – In 2017 the Total Pet inflation rate set an all-time record low of 0.4%. This average is determined by the individual segments. All segments were lower than 2016. However, this Total Pet number can be deceptive. High inflation in the Service segments plus deflation in Products can produce a nice industry average but it comes from 2 negative situations. For healthy, long term growth we need the products segments to go positive and the service segments to have moderate inflation. If we could get these annual rates:
    • Supplies: 0.5%  · Food: 1%       · Services: 1.5%      · Veterinary: 2.5%
    • Every segment would be better off and the Total Pet rate would be 1.5% which is still lower than the overall U.S. CPI.

We have tracked the annual changes in inflation from 2009 to 2017. In 2016-17 the CPI dropped sharply. To determine when this trend started, we noted the CPI changes by quarter vs the previous year. Suggestion: Follow 1 color at a time.

 

The annual Petflation rate for every industry segment dropped in 2017 versus 2016. The Service Segments’ CPI rate was reduced by almost 50%. However, The Product segments turned a minimal CPI increase in 2016 to Price deflation in 2017 as both went negative.

There are some similarities in the pattern for the two Service Segments as they both reached the low point in the second quarter of 2017 and then turned up slightly. By the final quarter in 2017, their inflation rate had been cut in half from the first quarter of 2016.

The Product segments also had some similarities. They both had a major quarterly pricing lift, although the Supplies segment was delayed by three months. Both spent almost every quarter below the pricing of the previous year and the biggest dip occurred in the final quarter of 2017. Let’s review each segment.

  • Veterinary – CPI 2016: 3.7%; CPI 2017: 2.2% – Down 1.5%. The inflation rate was stable in the first 2 quarters of 2016 at about 4%. It then steadily fell for the next 12 months, bottoming out at 1.8% in the second quarter of 2017. It then moved up slightly but remained basically stable at the 2.2% annual rate. Since high prices have resulted in a reduced frequency in Vet Clinic visits. This significant price slowing could increase spending.
  • Services – CPI 2016: 2.0%; CPI 2017: 1.1% – Down 0.9%. The inflation rate in Services has generally been in the 2.5% range. Since spending in this segment is more driven by higher income households than any other segment, the steady growth has basically been unaffected. This substantial drop in the CPI rate probably reflects the increased competition in the segment. This includes more separate service companies as well as an increasing number of pet stores and Vet clinics offering services.
  • Pet Food – CPI 2016: 0.2%; CPI 2017: -1.1% – Down -1.3%. Pet Food had a sudden spike in prices in the 3rd quarter of 2016 then began deflating, especially after the first quarter in 2017. The Food segment is basically operating with new rules. In the “old” days, deflation would result in reduced spending as consumers didn’t buy more food because prices were cheaper, they just spent less. Today the Pet Food segment is being driven by a succession of trends to ever more expensive premium foods. The deflation and the up and down CPI reflects the incredible competition in the segment as manufacturers and retailers, including the internet, vie for the Consumers Pet Food $.
  • Pet Supplies – CPI 2016: 0.1%; CPI 2017: -0.4% – Down -0.5%. Pet Supplies pricing was down in 7 of the 8 quarters. The big anomaly was the huge spike in prices in the 4th quarter of 2016. Coming in the peak buying season, this was unusual, to say the least. This spike had a major impact on the CPI of both 2016 and 2017. It turned 2016 positive and mitigated the across the board pricing drops in 2017. The great recession had a big impact on the Supplies segment. Although many products are “needed”, much of the spending in this category is discretionary. Also, more and more categories have become commoditized. This makes them very price sensitive. When prices edge up, spending usually falls. If prices fall, spending edges up. When consumers spend more upgrading their Pet Food, they cut back on Supplies. Most of the spending fluctuation comes from a reduction or increase in the frequency of purchases. All of these factors have created a spending roller coaster for Supplies.
  • Total Pet – CPI 2016: 1.4%; CPI 2017: 0.4% – Down 1.0%. The Total is definitely a sum of the parts. The CPI rate in 2016 was very steady at or near 1.4% all year. However, when the CPI rate in the Service Segments began to drop the Total Pet CPI was buoyed up by big lifts in the Food and Supplies segment. In 2017, Service Segments slowed their decline and flattened out. However, the Products segments deflated in every quarter. The CPI for every segment was lower in 2017 than in 2016 and resulted in a record low for Total Pet.

So why track the CPI change? Because changes in prices can and do impact Consumer Spending behavior. In our analysis of the demographics of Pet Spending, household income was the single biggest factor affecting the results. Money Matters Most. This price sensitivity has grown since the Great Recession. High inflation in Veterinary Services has resulted in spending cut backs by the more price sensitive groups. The Services segment has so far been unaffected but perhaps that time has come. The Food segment has gotten around this issue through a succession of upgrades in quality and price. The Supplies segment is incredibly price sensitive and desperately needs some “must have” innovations. Hopefully we will come to a middle ground in Petflation that works both for consumers and industry participants.

 

 

Comparing the Spending Demographics of the Industry Segments – SIDE BY SIDE

The first six chapters of this Pet Spending Demographics report have been very detailed data driven and intense. We looked at the industry as a whole and each of the individual Industry segments separately. In 2015 and again in 2016, we have noted how shifts in spending behavior in one major category, Pet Food, can negatively (2015) or positively (2016) impact the spending in others. The effect of this is seen in large groups but is evident right down to individual demographic segments.

In the individual sections of the report we have often referenced the similarities and differences in spending between Total Pet and the individual industry segments. Total Pet Spending is a sum of the parts and not all parts are equal. In this final chapter we are going to put the segments side by side with Total Pet to make the parallels and differences more readily apparent. We will address:

  • “The big spenders” – those groups which account for the bulk of pet spending
  • The best and worst performing segments in each of eleven demographic categories
  • The segments with the biggest changes in spending $ – both positive and negative
  • And yes, even the “Ultimate Spending CUs”

The emphasis is on “visual”, side by side comparisons to allow you to quickly compare the industry segments. We’ll try to minimalize our comments. You can always reference one of the specific chapters for more details. We’ll also break the charts up into smaller pieces that are demographically related to make the comparison more focused and easier.

Before we get started, let’s address an important issue that we haven’t discussed – the market share of each segment.

Food is of course the dominant segment at 39.4% followed by the mid-range segments – Veterinary at 26.9% and Supplies at 23.5%. Pet Services is last as expected at 9.3%. The $2.99B drop in food spending resulted in a major share loss from 43.5% in 2015, which was the highest market share since 1998. In 2016 all the other segments had increased spending and picked up the 4.1% lost by Food. The 2016 “pie” is still divided pretty much the way that we have come to expect in recent years with Pet Products controlling 62.9% of total spending.  However, was it always this way?

Let’s take a look back, way back to 1992. Why 1992? Because that was the last year that Pet Food “owned” at least a 50% share of Total Pet Spending. As you can see, Veterinary and Services have market shares very close to 2016. The big difference is in Food and Supplies. Food dropped into the 40% range after 1992 and stayed there basically until the great recession. Since then it has been in the mid to upper 30s. Supplies sales have exploded since 1992. There were many factors – including innovative new products, the rise of Pet Chains & SuperStores, the distribution explosion, especially in the mass market  – from 86K total outlets in 1992 to 200K today. However, it was also the time when Americans evolved from Pet Owners to Pet Parents, with an urge to spoil their children. We see both short term and long term changes in the Pet Industry.

That trip back was quite a diversion from our stated purpose but it illustrated a very important point in data analysis. Change is constant. We focus on the short term as it is what is happening right now. We drill deeper into the data to better understand what and why it is happening and the impact on different consumer demographic segments. However, it is also important to take a step back to see if any long term trends are in progress. Both of these approaches are necessary and provide information vital to making better business decisions.

Now let’s get started with a look at the “Big Spenders”. The following 2 charts will compare the market share and performance in all Pet Industry segments by the groups responsible for the bulk of the spending in 10 demographic categories. These are the groups that we identified in our Total Pet analysis to generate at least a 60% market share of spending. As you recall, in the Service segments, we had to alter some groups slightly to better target the spending. However, to have a true side by side comparison we need to use the same groups for all. Since the lowest market share in any situation is 58.1% and 90% of all measurements meet or exceed the 60% goal, the comparison is very valid.

The chart makes it especially easy to compare performance across categories. Remember performance levels above 120% show a very high level of importance for this category in terms of increased spending. Unfortunately, it also indicates a high spending disparity among the segments within the category. There are 2 charts, each with 5 categories.

  • White, Non-Hispanic – This group has an 85+% market share in every Segment. Hispanics, African Americans and Asian Americans represent 30% of U.S. CU’s but account for only 8 to 15% of Pet Spending in any category. Factors: Lower incomes for Hispanics and African Americans and lower Pet ownership in Asians and African Americans
  • 2+ People in CU – 2 is the magic number in pet ownership. The performance is remarkably even across all segments. It is under 120% because spending tends to go down in larger CU’s, especially 5+ and Singles are almost always last.
  • Homeowners – Homeownership is very important in Pet Ownership and subsequently in all Pet Spending. The dip in Supplies and increase in services is actually also related to age. The younger groups spend more on Supplies but are also much less likely to own a home. Older groups, especially the Boomers, are more likely to be homeowners and they spend more on Veterinary & Services.
  • Over $50K Income INCOME MATTERS MOST IN PET SPENDING! Pet Food has the “lowest” high performance. Pet Ownership is still common across lower incomes, but CU’s in the upper 50% of income spend much more and are more likely to purchase upgraded food. The importance of income just increases as spending in industry segments becomes more discretionary – like Supplies and Services, or higher priced – like Veterinary Services. In our individual segment reports on Veterinary and Services, we switched to the over $70K group to better target big spenders.
  • Everyone Works – This usually generates higher income so it improves performance. However, not all workers are highly paid. This and the significant contribution by one earner, 2+ CU’s and retirees keep the “scores” below 120%.

  • Associates Degree or Higher – More education often correlates with higher income. We see spending performance very similar to Income but even more pronounced. Education can also be important in recognizing the value in Veterinary services and higher priced products. Food performance is noticeably lower showing that Pet ownership is more evenly dispersed across education levels. We “learn” the benefits and value of pets early in life.
  • 35 to 64 yrs – A huge spending drop by the 55 > 74 group in conjunction with a spending lift by all groups under 44 resulted in a shift from the 45 to 74 group in 2015. The spending across all age ranges became a little more balanced due to some big up and down changes. Veterinary was up in the 25>44 age group. Services and Veterinary were up in the 54 > 64 group, even as their Food sales plummeted. The performance is still at or 120% so disparity between category segments still exists in all product & service segments.
  • All Wage & Salary Earners – This group had the lowest performance of any group. There are 2 reasons. Income is important and it varies widely in this group. The other factor is that the Self-employed and Retirees are significant contributors to Pet Spending. The low performance in Veterinary and Services made us select a new big spending group – “I’m the Boss”, which consists of Mgrs & Professionals, Self-employed and Retirees.
  • Married Couples – Being married makes a huge difference in spending in all segments. Singles and Single Parents have a very low spending rate. The Unmarried 2+ Adults CU’s are improving, just over 100% in all but Veterinary.
  • All Suburban – Most Pet $ are spent here but both the share and performance of this group are falling due to the big spending increases by the Central City in all segments. This is especially noticeable in Food and Veterinary.

Now we’ll drill a little deeper to look at the Best and Worst performing segments in each category. Highlighted cells are different from Total Pet. We will divide the categories into related groups. First, those related to Income.

  • Income – Highest Income = Highest Performance. Lowest Income = Lowest performance. Income matters and it matters most in the nonfood segments. The performance and disparity are astronomical in the two service segments.
  • # Earners – More earners = more income. Once again, income is even more important to the nonfood segments.
  • Occupation – The Self-employed and Mgrs. & Professionals have the two highest incomes so they should be at the top. The worst performers are a mixture of lower income occupations which are all outperformed by Retirees.

Next are demographics of which consumers have no control – Age and Racial/Ethnicity

  • Racial/Ethnic – As expected, White Non-Hispanics are the top performer in all segments. African Americans have the lowest average income and the lowest percentage of pet ownership of any group.
  • Age – The Best Performer in all segments but Supplies is the 55>64 year old Boomers. Supplies spending tends to skew a little younger so its best and worst performers are no surprise. By the way, 45>54 have the highest income.

Now we’ll go back to Demographic Categories in which consumers have some control

  • Education – Best and worst performers directly tied to education. Difference most pronounced in nonfood segments
  • CU Composition – Married is the key. Worst performers are as expected. Pet Food and Veterinary reflect the 55>64 age group. Supplies skews a little younger. Services is a surprise. They just edged out married couples only by 0.2%.
  • CU Size– 2 is a magic number. They are Pet focused. Supplies skews younger and CUs are more likely to have a child.

  • Housing – Homeowners w/Mortgage and Renters are the perennial winner and loser.
  • Area– Smaller Suburbs are the biggest spenders, except for Services which performs better in more populated areas.
  • Region – The West usually garners the most wins. Central City helped the Northeast’s performance.

Here are two charts which reinforce the trends that we have seen.

The spending disparity increases in the nonfood segments, especially Services – the importance of Income. This creates more changes, especially at the low end. We also see the impact of the big 2015/2016 $ swing in Food – 6 changes.

Now, let’s look at the Demographic Segments with the Biggest Changes in $. We’ll truly see some differences between the Industry Segments. First, the Income related categories. The differences from Total Pet are highlighted.

  • IncomeWinners: The $200K is no surprise. $30>49K shows the impact of Retirees. $70>99K is due to Millennials.
    • Losers: Literally, a total mixed bag.
  • # Earners – Winners – Reinforces the importance of income and shows that almost everyone spent less on Food.
    • Losers: Once again it is income and the Retirees really cut back on Food.
  • Occupation – Retirees made a lot of spending trade outs. Mgrs. & Professionals also had increases in Food and Supplies so they won Total Pet. Much of the Tech/Sls/Cler. Food spending is coming from 25>34 yr olds.

Now the Age and Racial/Ethnic Categories

  • Racial Ethnic – The Hispanics had a good year except for a small drop in Supplies. The White, Non-Hispanic Group couldn’t overcome the $3.4B drop in Food. Note: Every group was up in Services!
  • Age – It was all about trade outs. 35>44: Up in Veterinary and Supplies; Down in Services. 55>64: Down big time in Food, but up significantly in Services. 25>34: Paid for most of their Food increase with Supplies $.

Now, we’ll go back to Demographic Categories in which consumers have some control.

  • Education – Associates Degree made a major investment in their pets. The Adv. Degree group swapped some $.
  • CU Composition – This largely parallels the age category. The winners, except for Services are mostly in the 25>44 age range. The losers in Total Pet and Pet Products are driven by 55>64. Singles are usually at the bottom.
  • CU Size – Usually 2-3 People CU’s are the winners and either 1 Person or 5+ People CU’s occupy the lowest spot. The 4 People CU’s had a great year. This was once again undoubtedly due to the younger groups.

  • Housing – Not a normal year. We see the impact of youth and Retirees. Also, everyone was up in Supplies.
  • Area – Only one conclusion to draw, Central City “Ruled” in 2016.
  • Region – South & West are usual winners. The Midwest had a bad year. Northeast won Supplies due to Central City.

I hope that this Visual Comparison helped you to get a “satellite view” of the Pet Industry. Refer back to the earlier chapters to get more details. Although there are numerous individual changes. There are 4 major trends of note:

  1. The big swing in Pet Food $ due to Value Shopping.
  2. The 25>44 age group Pet spending was up & $ were more balanced.
  3. Urbanization trend – Central City was up in every segment.
  4. Swapping $ between Industry Segments.

And Finally…..

 

 

 

 

 

 

 

 

2016 Pet Services Spending was $6.84B- Where did it come from…?

Now we will look at the last and smallest segment – Pet Services. We’ll see some similarities to other segments, especially Veterinary. However we’ll also see some big differences from the Product Segments and even from Veterinary. Each of these industry segments is unique. For one thing, Services spending is definitely more discretionary in nature than the other segments. This has resulted in CU income becoming the most dominant factor in spending behavior. We’ll see the impact of this in many demographic categories. We have seen some big spending swings in the other Industry Segments in the last 2 years. Services Prices have also been inflating at a rate that is below Veterinary, but much higher than the product segments. Thus far, at least on the surface, neither of these factors has affected the consistent annual growth in spending $ that Services has enjoyed since 2011. Let’s look a little deeper.

Let’s start by identifying the groups most responsible for the bulk of Services spending in 2016 and the $0.58B increase. The first chart details the biggest Pet Services spenders for each of 10 demographic categories. It shows their share of CU’s, share of pet products spending and their spending performance (Share of spending/share of CU’s). The differences from the other segments are immediately apparent. In order to better target the bulk of the spending we had to alter the groups in four categories – income, education, age and occupation. The performance level should also be noted as 7 of 10 groups have a performance level above 120%. This compares to 8 for Veterinary, 5 for Supplies and only 4 for Food. These big spenders are performing well but it also indicates that there is a large disparity between the best and worst performing segments. Income is absolutely the biggest factor in Services Spending. The categories are presented in the order that reflects their share of Total Pet Spending which highlights the differences of the 6 matching categories.

  1. Race/Ethnic – White, not Hispanic (86.8%) This large group accounts for the vast majority of spending in every segment. With a 124.3% performance rating, this category ranks #7 in terms of importance in Services Spending demographic characteristics. While Hispanics, African Americans and Asian American account for over 30% of U.S. CU’s, they only spend 13.2% of Services $. This is similar to their share of Food and Supplies – about 1% lower, but is 5% higher than their share of Veterinary Spending.
  2. Housing – Homeowners (85.7%) Homeownership is a major factor in pet ownership and spending in all industry segments. The Homeowners’ share of Pet Services spending is 85.7% which is the highest of any industry segment. However, even with 137.3% performance, homeownership is only in 4th place in terms of importance for increased Pet Services spending.
  3. # in CU – 2+ people (79.0%) The share of market for 2+ CU’s is very close for all segments. Their overall Pet Services performance of 112.4% is next to last. Spending is highest in 2>4 people CUs but drops off sharply for 5+ and singles.
  4. Education – College Grads (69.8%) Income generally increases with education. Services spending moves up strongly with each increasing level of education. This is what led us to shift the group up to College Grads. A performance of 171.7% makes a college education the 2nd most important factor in generating greater Services
  5. Occupation – “I’m the Boss” (69.2%) – The “ I’m the Boss” group consists of Mgrs & Professionals, Self-employed and retired CU’s. They have a slightly higher market share and a 30% higher performance than Total Wage & Salary earners. In fact their performance is 138.0% which puts them in 3rd This “bossy” group combines the 2 highest income groups with the strong performing retired group.
  6. Age – 45>74 (69.0%) Services Spending usually correlates with the 35>64 year olds, which includes the 3 highest income groups. However, this changed in 2016. The 35>44 group markedly increased their Veterinary spending and cut back on services. At the same time the 65>74 year olds decided to spend their money on needed services. The result was that the biggest spenders became the 45> 74 group. Their performance is 133.7% and ranks 6th of all the groups. The number is so high because the performances of all groups under 44 and the over 75 group are very low.
  7. # Earners – “Everyone Works” (67.4%) In this group, all adults in the CU are employed. Income is important so the relatively high market share is to be expected. However, their performance is 117.1%, which ranks only 8th in importance. This comes as a result of the strong year by retirees. It also shows that retirees and 1 earner CU’s with 2+ people spend a lot of money on Services – 32.6% of Total $. This similar to the pattern in Supplies.
  8. Income – Over $70K (66.7%) If we went down to the $50K income level, the market share would be 75.5%. However the $50>$69K income group only performs at 67.7%. Performance of CU’s in the $70>99K range goes up to 95.2% but it truly explodes over $100K – 232.2%. To get to the 60% market share goal we chose to group CU’s over $70K in income. This group has a performance rating of 180.2% and absolutely shows that CU income is the single most important factor in increased Pet Services Spending. However, we still have the spending anomalies of the overperforming, retired group and the underperforming, high income Asian Americans.
  9. CU Composition – Married Couples (66.0%) Married couples are a big share of $ and have 120+% performance in all segments. Their performance of 135.8% puts them in 5th place in terms of importance to Services spending.
  10. Area – Suburban (58.7%) Suburban CU’s spend the most $ but spending is balanced across all urban areas, including Central Cities. This is reflected by the low performance of 107.0% Rural areas are the only underperformers.

We changed 4 of the spending groups for Services to better target the biggest spenders. Higher income appears to be even more important to Services spending than it is to Veterinary, where we changed 2 groups. Services has 7 groups with performance over 120%. Veterinary has 8, but the performance levels in Services spending are markedly higher. This indicates an even  bigger spending disparity between the segments in Services than exists in Veterinary.

Now, we’ll look at 2016’s best and worst performing Pet Services spending segments in each category.

Most of the best and worst performers are not a surprise. In Pet Services spending, there are 7 that are different from 2015, the most of any segment. 4 of them are in the worst category. This is similar to the Veterinary Segment which is also very dependent on higher income for increased spending. As we drill deeper into the data, we will see some similarities with other Industry segments but each Segment is unique. Changes from 2015 are “boxed”. We should note:

  • Income is even more important to Pet Services. The 425.8% Performance by the $200K> group is 30.9% better than their performance in Veterinary and 126.1% higher than what they rang up in Food.
  • # Earners – 3+ Earners – Last year they spent money on a food upgrade. This year they saved money on Food and spent more on everything else. They edged out 2 Earner CUs for the top spot. These highest income groups were the only segments with 100+% Services performance in the category.
  • Age – 55>64 – These Baby Boomers made a big turnaround in 2016. They were up 54% in spending and made a major commitment to Pet Services. It makes sense. They are getting older so their need for services is growing but they still have the third highest CU income in this category so they have the money to pay for it.
  • Education – <HS Grad – In the Services segment, this is the expected loser. In 2016, HS Grads occupied this spot.
  • CU Composition Single Parents finished last. In 2016 it was singles. These groups are invariably at the bottom. Married, Oldest Child <6 had a 54.7% increase and replaced Married Couples Only who had a 146.9% performance.
  • # in CU Singles – In 2016 all 2>4 People CUs improved their performance. The 5+ people and Single segments both had a significant decrease. Singles edged out last year’s loser, 5+ people, for the worst performance.
  • Region – In 2015 the Midwest finished second with 122%. In 2016, they were the only Region with a decrease in Services spending, down $0.56B (-34% ) This left the West as the only region with 100+% performance.

It’s time to “Show you the money”. Here are segments with the biggest $ changes in Pet Services Spending.

Pet Services was up $0.58B for the 2nd year in a row. Despite this consistency, there was turmoil. There were only 2 repeat losers and 1 repeat winner from 2015. Also, 8 of the winners in 2015 were losers in 2016, while only 3 losers became winners. In 3 categories they just switched positions. This seems somewhat unusual for a segment with steady growth. Also, like Supplies, there was 1 category where all segments spent more. Here are the specifics:

  • Housing – In 2015, spending increased for all segments. In 2016 only Homeowners without a mortgage spent more.
    • Winner – Homeowner w/o Mtge – Services $: $2.25B; Up $0.78B (+53.5%)
      • 2015: Homeowner w/Mtge
    • Loser – Renter – Services $: $0.98B; Down $0.17B (-14.6%)
      • 2015: Renter
    • Comment – We see the impact of increased spending by the older groups and the decrease by the younger ones.
  • Education – Education above HS does matter as the increase was driven by Associates’ and Advanced Degrees.
    • Winner – Adv. College Degree – Services $: $2.73B; Up $0.68B (+33.1%)
      • 2015: BA/BS Degree
    • Loser – BA/BS Degree – Services $: $2.04B; Down $0.25B (-10.9%)
      • 2015: HS Grad only
    • Comment – In 2015 College Grads, led by BA/BS holders fueled the increase. In 2016 the BA/BS group cut back on $ but the Advanced Degree segment more than made up the difference so College Grads are on top again.
  • Age – In 2015, the 25>54 group drove spending up. In 2016 the increase came from 55>74 year olds.
    • Winner – 55>64 yrs – Services Spending: $1.89B; Up $0.66B (+54.0%)
      • 2015: 35>44yrs
    • Loser – 35>44 yrs – Services Spending: $0.9B; Down $0.29B (-24.6%)
      • 2015: 55>64 yrs
    • Comment: We see the impact of other categories and $. The big winners in 2015, the 25>44 group, changed their focus in 2016. The 25>34 yr olds spent more on Food and Veterinary. The 34>45 group turned to Veterinary and Supplies. Both now have more balanced pet spending. The 55>74 group began value shopping for Food in 2016 and spent a lot of the saved money on Services. Only the high income 45>54 group had an increase in both years.
  • Area Type – Central Cities has two consecutive years of increases totaling $0.99B
    • Winner – Central City – Services Spending: $2.54B; Up $0.66B (+34.8%)
      • 2015: Suburbs 2500>
    • Loser – Suburbs 2500> – Services $: $3.28B; Down $0.16B (-4.5%)
      • 2015: Rural
    • Comment – The Suburbs 2500> didn’t have a good year. They spent less in Services and in fact, all pet segments.
  • Region – All regions but the Midwest showed increases in 2016. In 2015 all regions showed growth.
    • Winner – West – Pet Services Spending: $2.36B; Up $0.55B (+30.5%)
      • 2015: Midwest
    • Loser – Midwest – Services Spending: $1.09B; Down $0.56B (-34.0%)
      • 2015: Northeast
    • Comment – The West is up $0.76B since 2014. Only the Midwest has a decrease from 2014, down $0.25B.
  • Occupation – In 2015 the higher income jobs led the way. In 2016 it was the lower income jobs, plus self-employed.
    • Winner – Retired– Services Spending: $1.39B; Up $0.5B (+56.8%)
      • 2015: Mgrs. & Professionals
    • Loser – Mgrs. & Professionals – Services: $2.39B; Down $0.26B (-9.9%)
      • 2015: Retired
    • Comment – The Retired and Service worker groups had a huge turnaround from down $0.35B in 2015 to up $0.76B in 2016. The Mgrs and Tech worker groups went the other direction from up $0.82B to down $0.37B. All 4 groups are up from 2014. The Self-employed group is the only segment with increases in both 2015 and 2016.
  • Race/Ethnic – The White, Non-Hispanics share of Supplies spending is 86.8% so even a 7.5% increase is a winner.
    • Winner – White, Not Hispanic – Services $: $5.93B; Up $0.41B (+7.5%)
      • 2015: White, Not Hispanic
    • Loser – African American – Services $: $0.24B; Up $0.02B (+11.3%)
      • 2015: African American
    • Comment – In 2016 all racial/ethnic groups spent more on Services. This is somewhat of a surprise in a segment which is so driven by income. The Asians had the biggest percentage increase at 29.1%. The African Americans finished last 2 years in a row but at least in 2016 it was for the lowest increase, not the biggest decrease.
  • Income – 2016 was a year of mixed messages as the $30 to $49K group won – largely driven by the retirees.
    • Winner – $30 to $49K – Services Spending: $0.92B; Up $0.40B (+78.6%)
      • 2015: $150K>
    • Loser – $70 to $99K – Services $: $0.91B; Down $0.08B (-8.0%)
      • 2015: $70 to $99K
    • Comment – The 2 year drop from $70>99K reflects the changing spending behavior of the various demographic category segments which fall into this upper middle income group.
  • # in CU – A big turnaround for the winner which reflects the spending of all Married Couples with children.
    • Winner – 4 People – Services Spending: $1.04B; Up $0.34B (+48.2%)
      • 2015: 1 Person
    • Loser – 1 Person – Services Spending: $1.43B; Down $0.21B (-12.8%)
      • 2015: 4 People
    • Comment: In 2016 2>4 people CU’s spent more. All others spent less. In 2015 the increase came from the 1>3 people CU’s as singles “stepped up”. Only the 5+ group spent less for 2 consecutive years. Financial pressures?
  • # Earners – In 2016 every segment but 1 earner, singles spent more.
    • Winner – 2 Earners – Services Spending: $2.86B; Up $0.34B (+13.6%)
      • 2015: 1 Earner, Single
    • Loser – 1 Earner, Single – Services $: $0.93B; Down $0.29B (-23.9%)
      • 2015: 2+ in CU with 1 Earner
  • Comment – In 2015 only CU’s where all adults worked spent more. In 2016, the retired folks and 2+ CU’s with only 1 earner also got on board the increase “Train”. Only the single workers were left at the station with a decrease.
  • CU Composition – Every CU with 2 or more adults, with or without children spent more on Services in 2016.
    • Winner – Married Couple Only – Services: $2.17B; Up $0.17B (+8.4%)
      • 2015: Single
    • Loser – Single – Services $: $1.43B; Down $0.21B (-12.8%)
      • 2015: Unmarried, 2+ Adults
    • Comment – Increased Pet Services spending was very widespread across this demographic category. Only CU’s with single adults or single parents spent less.

We’ve now seen the winners and losers in terms of increase/decrease in Pet Services Spending $ for 11 Demographic Categories. Overall, 2016 was a year with much stronger and more widespread gains than losses. The winning increase in each category averaged +56% while the biggest decreases averaged -16%. We saw strong contributions from the 55 to 74 age group, the Central City and the West. The $0.58B increase matched 2015 and was the 5th consecutive increase, totaling $2.5B (+56.5%). Like the other Pet Segments, not every good performer can be “the” winner and some of these hidden segments should be recognized for their outstanding performance. They don’t win an award but they deserve…

Honorable Mention

Pet Services spending was up $0.58B in 2016. The increase was in tune with the segment’s performance since 2011. It was relatively demographically widespread as 49 of 82 segments (59.8%) spent more on Services. These “almost” winners reinforce the contributions of the older folks, families and Central Cities. We also see that you don’t have to have a big income or a Master’s Degree to buy Pet Services. These 5 segments aren’t award winners but their combined Services spending increase was significant at $1.31B.

Summary

In 2015 and 2016, significant changes in spending behavior for Pet Food first negatively affected, then positively affected spending in the Supplies and Veterinary segments. Through this turmoil, Services spending seemed unfazed, quietly registering a $0.58B increase in both years. The increase was relatively widespread with 60% of all demographic segments registering an increase. Also, all segments in the Racial/Ethnic category increased spending on Services

Pet Services are definitely needed by some groups. However, for most demographics, Services are a convenience and spending is very discretionary in nature. The result of this is that CU income is of paramount importance to increased Services spending. This impacts many demographic categories and we adjusted the big spender groups in 3 categories specifically to accommodate this difference in behavior and to better target where most of the $ are coming from. Just how important is income? 37% of CU’s have an income over $70K and account for 66.7% of Services Spending. This is a performance rating of 180.7% – the highest rating earned by any group in any category in any industry segment.

Performance is an important measurement. Let’s drill deeper into the performance of the big spenders in Pet Services. We identified 5 demographic categories with high performing large groups. (There were 6 for Veterinary and 3 for Food)

  • Income
  • Occupation
  • Higher Education
  • Homeownership
  • CU Composition

The biggest producers in these groups all generate increased Services $ and all are categories in which the consumer can exercise some degree of control. The Racial/Ethnic and Age Categories also have high performance numbers but the consumer has no control over their inclusion in these groups. All 5 of these groups have a performance above 133%. This is incredibly high and indicates a huge disparity between the best and worst performing segments in the category. This disparity is greater in Services than in any other Industry segment. On the one hand this is good news as it makes it easier for industry participants to more effectively target their best customers. It also allows them to identify those demographic segments most in need of improvement. Unfortunately, these lowest performing groups may need considerable assistance.

There was definite turmoil in this income driven segment. There were 7 changes in the best and worst performing individual segments but the biggest changes showed up in $. 19 of 22 winners and losers in spending $ were different from 2015. In fact 8 2015 winners became losers in 2016, while 3 losers became winners. There were also some surprising winners, like the Retirees, Central City and the $30>49K income group. There were 2 major trends of note:

  1. The “older” movement – The biggest increases came from the 55>74 age groups.
  2. The Urbanization of the U.S. is reflected in Services with strong spending growth by Central City.

Finally – The “Ultimate” Pet Services Spending Consumer Unit consists of 2 people – a married couple, living alone now that their last child finally moved out. They are in the 55 to 64 age range. They are White, but not of Hispanic origin. At least one of them has an advanced College Degree. Both of them work, running their own business. They’re doing well with an income over $200K. They still live in a larger suburb, near a big city in the Western U.S. and are still paying off the mortgage on their home.