2015 Millennial Pet $pending – A Closer Look!

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Generations have become a very “high profile” subject in our society and Millennials are by far the “lead” story. One thing that I have noticed is that we tend to “lump” them into one homogenous group. The Millennials are the largest, best educated and most technologically savvy group in the history of the world. They share many behavioral traits but in 2015 they ranged in age from 18 to 34, which can lead to some distinct differences.

For example: Two 24 year old “buddies” sharing an apartment, a newly married 28 year old couple looking to buy their first home and a 33 year old couple who own a nice 4 bedroom home in the suburbs and are expecting their second child…are all Millennials. Believe me, there are differences in their spending behavior.

While Generations share the same “world”, my research has shown that over a lifetime consumers reach key waypoints and go through “stages” which strongly affect their behavior. This is very noticeable in the developing years, as they are “setting the stage” and in the declining years as they approach and enter into retirement.

In 2015 the Millennials were definitely in various stages of development. With perfect timing, our friends at the US BLS produced a special, supplemental report to their Consumer Expenditure Survey. The report has a different division of age groups from their regular Age report. By melding the two reports together, I was able to generate base data and calculations for 3 distinct groups under age 35, covering all the Millennials. Specifically:

  • Under age 25
  • Age 25 to 29
  • Age 30 to 34

In some data you may note a slight difference from my earlier Generations report. This is primarily due to the fact that when you ask someone their current age, it depends on what time of the year you ask. Ex: Last week I was 67. This week I am 68. The difference in data between the 2 reports is 1.4% or less so it is not significant for our purposes. Let’s get started with each group’s share of the under 35 financially independent Consumer Units.

under-35-1

  • The two older groups are the largest, are about equal in size and account for 73.5% of all the CU’s in the under 35 (Millennial) age group.
  • The under 25 yrs group is exceptionally small and has the lowest share of total U.S. CU’s for this group in 31 years of record keeping. This mirrors recent years and may reflect the frequently mentioned Millennial trend….They have large numbers but are slow to gain financial independence from their parents. Now, let’s look at some demographic characteristics of these 3 groups which have been shown to impact pet spending.

First: Size of the CU, # of Earners, # of Children under 18…and of course Homeownership

under-35-2

  • CU Size – Overall the CU size of the total under age 35 group reflects the National average. However, it increases 50% in size by the time they reach their early 30’s due to…children. CU’s with 2+ members are more likely to have pets and spend more.
  • # Children under 18 – The number of children peaks in the 35-44 age group at 1.4 but by the time they reach their early 30’s the average CU has more than 1 child. Their 1.2 avg is triple the 0.4 in the <25 group. Families with children under 18 have traditionally spent the most on Pet Products. Although the 2015 surge to upgrade their pet food by the 51+ year old Baby Boomers changed that, at least temporarily.
  • # Earners – Most adults work in the under 35 age group. It’s simple. CU’s with 2 or more earners spend more on their Pets, both in Total Pet and in Pet Products (Food & Supplies Only).
  • Homeownership – Homeowners have consistently accounted for more than 80% of Pet Spending. As you can see, the homeownership rate of the 25>29 age group was double that of the <25 group and the 30>34 group was 3 ½ times as high. However, please note that the homeownership rate of the 30>34 group was still 20% below the national average and more than 50% of them still rent.

Now we’ll show you the money with income and spending.

under-35-3

  • Gross Income – The Under 25’s are making less than half of the National Average. Income moves up rapidly in the older groups but the 30>34 group still just barely exceeds the national average.
  • Net Income – Most of the whole group is paying taxes but even the older members are only paying about 11% because of growing mortgage and dependent deductions.
  • Spending – The under 25 group is “deficit spending”, even compared to their gross income. Although Income more than doubles by the early 30’s, spending does not quite keep pace. However, it is also important to note that over 90% of the net income for the whole 25>34 age group is already committed to regular expenditures. Therefore, additional, discretionary spending becomes less likely.
  • Pet Spending as a percentage of Total Expenditures – In 1984 Pet Spending was 0.48% of total expenditures. It grew through the years and has been near or even above 1.0% since 2007. Why? Three primary reasons.
    • Our companion animals have moved from being “pets” to integrated members of our family.
    • The sheer number and variety of pet products and services has grown exponentially…and beyond.
    • Pet Products and services are available in over 200,000 outlets and the internet. It’s easy to buy.

In 2015 the <25 group spent 0.64% of their total spending on their pets. This is 67% of the national average of 0.94% and is in line with the numbers over the last 30 years. That is not the case with the 25>34 group. There is good news with the 25>29 year olds. They appear to be adding pets to their households and spending in line with at least the Gen X group when they were this age. The 30>34 group is extraordinarily low and pulls the numbers down for the 25>34 group to 0.74%. This is 78% of the of the national pet share average. Gen X occupied all of the 25>34 age group for 10 years and averaged between 80>90% of the National average. Boomers actually exceeded the national average when they were in this group. Admittedly, this was the Millennials’ first year to occupy all slots in the 25>34 age group. We’ll have to see how they progress.

Now we’ll get Pet Specific with spending by industry segment.

under-35-4

  • The 30>34 age group has the highest income and spends the most on their pets even though it’s a smaller % of their total spending..
  • The 25>29 age group value shops for food but is committed to their pet family. They actually spent more on pets & supplies and pet services than the wealthier 30>34 group.
  • The <25 group prioritized their resources behind food, including upgrading the quality in 2015.
  • Vet spending grows with age and income but is still a lower priority.

Finally, here’s a look at the Performance of the 3 age groups in relation to each Industry Segment.

under-35-5

  • Under 25 – This group is short on money as their overall spending exceeds even their before tax income so it is not surprising that they under-perform in spending in every segment. However, pets are still a growing part of their lives. They focus their spending on Food & Supplies. In a somewhat surprising move, in 2015 they opted to upgrade their food, which reflects the importance that they place on quality and natural products.
  • 25 to 29 – This group is beginning their careers and establishing a base as homeownership doubles. They don’t have a lot of extra money but are no longer deficit spending. This is the time to think about a family and a new Pet family member is often a prelude to their people family. They value shop for Food so it is less than 1/3 of their Total Pet Spending. They are acquiring pets and “splurge” on the Supplies and Services to make sure they have all the “necessary” things to make their Pet Children happy and make Pet Parenting easier and more convenient. They spend more on Pets & Supplies than on Food and actually “over-perform” on spending in this segment . This is the only instance of this by any under 35 age group on any industry segment. They also begin to recognize the necessity of Veterinary Care.
  • 30 to 34 – Their income has gone up but is still just above the national average and is not necessarily keeping up with their rapidly growing responsibilities – a career, homeownership and now…2 young children. Subsequently, the Pet share of their total spending has fallen. Their Pet Spending priorities have become more uniform across most industry segments, about 75% of what it should be considering their number of CU’s. Supplies is a notable exception as their market share is on par. Pressed for money and time this group’s priorities are supplies and services. (Overall, Millennials are more focused on Pets & Supplies…And Services after age 25)

Millennials are defined by birth years and a shared “world experience”. However, their spending behavior, including pet, evolves as their life unfolds. A significant share have become Pet Parents. Their <25 group has been spending on par with earlier generations. Their first year of “controlling” the 25<34 group was not equal in performance to past generations. We’ll see if they improve. Age 35>44 has been a true “turning point” in Pet Spending. Prior to 2011, this age group always spent more than their “share” on Pets. With the youngest Gen Xers, it has fallen to 90+%. Millennials begin to enter this age group in 2016…

2015 U.S. PET SPENDING by GENERATION – BOOMERS STILL DOMINATE!

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U.S. Consumers spent $7.2 Trillion dollars in 2015, up 400B (+5.9%) from 2014.  Of this huge sum 0.944%, $67.75B was spent on our companion animals. Although overall the industry had a good year, the Pet Share of Total Spending actually fell very slightly from 0.948% in 2014.

In our recent posts, we have started to look at the key demographics behind “who” is spending the money. By looking deeper, all of the industry participants can better target their products and marketing efforts to maintain and gain retail sales…to keep the industry strong and growing.

In terms of demographics, nothing has a higher profile in the media and in our minds than comparing the actions between generations. How do the Millennials compare to the Baby Boomers? What about Generation X? These are valid questions and the Generation Demographic is the one measure that defines a very specific group of individuals for a lifetime. Emigration, immigration or death can change the mix and of course, marriage and divorce will affect the # of households. However, we can still track how aging, technological changes, economic events, in fact any change in society, affects the behavior of a specific set of individuals.

In this report we will compare the Pet Spending in 2015 vs 2014 by Generation. The “numbers” come from or are calculated from data in the US BLS Consumer Expenditure Survey. The Census Bureau handles the field work, gathering info from over 50,000 interviews and diaries. The US BLS then compiles the data into the final reports.

NOTE #1: In this report we use the term Consumer Unit (CU). This is often used interchangeably with Household. They are “close” in meaning. However, a CU indicates independent decision making on living expenditures. You can have more than one CU in a household – boarders, roommates…As a result, there are a few more CUs than H/Hs.

NOTE #2: In March of 2016, Millennials surpassed Baby Boomers in the number of individuals. However, this report deals with Financially Independent Consumer Units. The Millennials still have a lot of ground to make up!

Let’s get started by defining the generations….

  • Millennials: Born 1981 to 1997; In 2015, age 18 to 34
  • Gen X: Born 1965 to 1980; In 2015; age 35 to 50
  • Baby Boomers: Born 1946 to 1964; In 2015, age 51 to 69
  • Silent Generation: Born 1929 to 1945; In 2015, age 70 to 86
  • Greatest Generation: Born before 1928; In 2015, age 87+

…and then looking at their share of the Total U.S. CU’s:

gen2015-1

  • Baby Boomers are still the largest number of CU’s at 44+M and 34.4% of the total.
  • 3 Oldest Generations are losing CUs primarily due to death or movement to permanent care facilities.
  • Millennials and even some Gen Xers, are establishing New CU’s as they gain financial independence.
  • Immigration and unfortunately, divorce are also factors in the growing number of Gen X and Millennial CU’s.

Now let’s get to know the Generations a little better by looking at some key CU Characteristics.

gen2015-2

  • CU Size – CU’s with 2+ people spend more on their pets. The Millennials are already at the national average of 2.5, driven more by their older members. CU size peaks with the 35 to 50 year old Gen Xers and starts a general decline with the Boomers – who still are at 2+ people.
  • # Children under 18 – Children are the primary reason for an increased number of people in CU’s. Millennials are just getting started with a family. The presence of young children (and the associated responsibilities and expenses) peaks with the Gen Xers who average 1+ per CU. The number of children drops precipitously starting with the Boomers. However, remember Children over 18 and grandchildren can be a part of the older CU’s.
  • # Earners per CU – 2 earner CU’s also generally spend more on their pets. Gen X has the highest average at 1.7 per CU. However, both Millennials and Boomers average about 1.3 per CU. Retired people have also recently been a big pet spending factor so don’t count out the Silents and the older Boomers.
  • Homeownership – 80+% of Pet Spending comes from homeowners. A mortgage is also a substantial financial responsibility. Once again the Millennials are just getting started and the bulk of their homeowners are from the 25 to 34 age group. Homeownership doubles for the Gen Xers and they reach the national average. The percentage of Home Owners continues to grow with the Boomers and peaks with the Silent Generation. The oldest Americans, for convenience or necessity, make a substantial move to renting.
    • No Mortgage – A mortgage is a substantial financial responsibility over a long period. This weighs the heaviest on Gen Xers and Millennials. Boomers are the first to make a major dent in the Mortgage expense. However, the “real” reduction in this expense doesn’t occur until the 2 oldest generations.

Next we’ll compare them to the National Ave in Income, Spending, Pet Spending and Pet Share of Total $pending

CU National Averages: Income – $69,627; Total Spending – $55,978; Pet Spending – $528.17; Pet Share of Total Spending – 0.944%

gen2015-3

  • Income peaks with the Gen Xers then starts to decline, although the Boomers are still above average. The big decline starts with the Silents and continues with the Greatest. Both of these groups are 70+ and mostly retired.
  • Total Spending also peaks with the Gen Xers and is 50% more than the Millennials. Boomer spending declines about 10% but is again above the average. For the oldest groups, the decline in spending is slower than the drop in income. The Millennial Spending is relatively high considering their income level.
  • CU Pet Spending for the Gen Xers is 50% higher than the Millennials but this is not the peak and in fact, doesn’t quite meet the National Average (97%). The top award belongs to the Boomers, with a 43% increase over the Gen Xers and 39% above the National Average. Boomers are the only group spending more than the National average on their Pets. Once again, the spending drops off sharply with the Silents. However, they still spend 28% more than the Millennials. Pet Spending and ownership plummets with the Greatest Gen. (age 87+)
  • Pet Share of Total Spending….
    • Exceeds 1% with the Silent Generation and Peaks with the Boomers at 1.23%. The income of the Silent has dropped significantly, but so have their responsibilities in terms of children and mortgages. The Boomers have a similar story but their income is still high. Both are now more focused on their Pet “children”.
    • Is lowest with the Greatest Generation. However, some have a lifetime commitment to their pet family.
    • Is under 0.8% for both Millennials and Gen Xers. The Millennials are buying houses, starting families and careers while they are waiting for their income to “catch up”. There is definite “price pressure” in their decisions. The Gen Xers make and spend the most money. They are reaching the high point in responsibilities to their family and their career. Time and convenience are big issues. Also, even though the percentage of Pet Spending to their total expenditures is only 0.76%, their average CU spending is still the second highest and essentially equal to the national average.

It’s time to look at actual Dollars Spent. We’ll review the Generational spending on Total Pet and each industry segment in terms of share of sales as well as the 2015 performance compared to 2014 starting with Total Pet…

gen2015-4

Ave CU Total Pet Spending: $528.17

  • The most significant thing regarding “share” is the Boomers’ dominance. Not only do they have the biggest piece of the Pet Industry “pie”, it is 15% larger than #2, Gen X and #3, Millennials combined.
  • It is also obvious that at 0.4%, the Greatest Generation is a welcome part of the industry but no longer a factor.
  • In terms of 2015 Performance, the Boomers generated 78.1% of the total $3.43B increase. However, every generation, except the Greatest showed an increase so it looks pretty “good” overall. Let’s get specific.
  • Boomers – Ave CU spent $733.08 (+$76.58);
    • 2015 Pet spending = $32.15B, Up $2.68B (+9.1%)
    • 2015 started off badly – Down $0.9B in the first half.
    • Then came a huge $3.58B “comeback” in the 2nd half.
  • Gen X – Ave CU spent $512.32 (-$9.02);
    • 2015 Pet Spending = $18.26B, Up $0.5B (+2.8%)
    • The 2015 $ increase came as a result of a 4.9% increase in CU’s.
    • 1st half Down $0.11B; 2nd half Up $0.61B
  • Silent Generation – Ave CU spent $433.60 (+$49.88);
    • 2015 Pet Spending = $7.37B, Up $0.5B (+7.3%)
    • Overcame a 9% drop in CU’s.
    • Basically, equal increases in both halves.
      • +$0.27B (1st) and +$0.23B (2nd)
  • Millennials – Ave CU spent $337.30 (-$22.75);
    • 2015 Pet Spending = $9.73B, Up $0.04B (+0.4%)
    • Without a 7.3% increase in CU’s, spending is down!
    • Sales in 1st half Up $0.21B; Down $0.17B in the 2nd 
  • Greatest Generation – Ave CU spent $107.04 (-$103.31);
    • 2015 Pet Spending= $0.24B, Down $0.29B (-54.3%)

The Total Spending increase came from Boomers, Gen X and the Silent Generation (ages 35 to 70) Now Pet Food..

gen2015-5

Ave CU Pet Food Spending: $230.06

  • Baby Boomers spend more on Pet Food (and treats) than all other Generations combined.
  • Gen X has 24% more CU’s than the Millennials but spent twice as much on Pet Food.
  • Millennials spent over $0.6B less on Food in 2015.
  • Boomers – Ave CU spent $355.98 (+$139.08);
    • 2015 Food spending= $15.57B, Up $5.83B (+59.9%)
    • Decision to upgrade Food drove both the Food and Industry increases.
    • 1st half (+$2.39B); 2nd half (+$3.44B)
  • Gen X – Ave CU spent $204.44 (-$0.44);
    • 2015 Food spending= $7.26B, Up $0.27B (+3.8%)
    • 2015 $ increase came solely from an 4.9% increase in CU’s.
    • 1st half ( -$0.13B); 2nd half (+0.4B)
  • Silent Generation – Ave CU spent $171.57 (+$11.30);
    • 2015 Food spending $2.91B, Up $0.03B (+1.0%)
    • 7% Increase in CU spending impacted by 4.9% drop in CU’s.
    • 1st half (+0.25B); 2nd half (-0.22B)
  • Millennials – Ave CU spent $126.57 (-$31.95);
    • 2015 Food Spending $3.64B, Down $0.64B (-15.0%)
    • Older members upgraded Food in late 2014, then pulled back in 2015.
    • 1st half (+0.27B); 2nd half (-$0.91B)
  • Greatest Generation – Ave CU spent $54.36 (-$16.60);
    • 2015 Food spending= $0.12B, Down $0.06B (-31.8%)

2015 Increase driven by Baby Boomers with a little help from Gen X and Silents (Ages 35-70) Now on to Supplies..

gen2015-6

Ave CU Pet Supplies Spending: $115.97

  • Boomers still have the largest share but the “race” with Gen X is much closer – only a 30% lead.
  • Millennials – Ave CU spent $111.19 (-$1.00);
    • 2015 Supplies spending= $3.23B, Up $0.2B (+6.3%)
    • Increase is from 7.9% more CU’s, but a rare bright spot for Supplies.
    • 1st half (-0.18B); 2nd half (+0.38B)
  • Baby Boomers – Ave CU spent $134.56 (-$13.70);
    • 2015 Supplies spending= $5.94B, Down $0.73B (-10.9%)
  • Gen X – Ave CU spent $127.47 (-$32.82);
    • 2015 Supplies spending= $4.57B, Down $0.91B (-16.6%)
  • Silent Generation – Ave CU spent $62.70 (-$31.51);
    • 2015 Supplies spending= $1.07B, Down $0.63B (-36.7%)
  • Greatest Generation – Ave CU spent $35.96 (-$5.68);
    • 2015 Supplies spending= $0.08B, Down $0.04B (-28.9%)

Comment: CU spending was down in every group. The only “lift” was due to more Millennial CU’s.  The trend was so pervasive that we can’t blame the increase in Food spending. We’ll see what happens in 2016. Next, Services…

gen2015-7

Ave CU Pet Services Spending: $48.70

  • Boomers have the largest share but the spending is evenly split between – age 50 and under /over 50.
  • Gen X – Ave CU spent $59.23 (+$12.79);
    • 2015 Services spending= $2.12B, Up $0.53B (+33.7%)
    • The biggest $ increase of any group.
    • 1st half ( +$0.29B); 2nd half (+$0.24B)
  • Millennials – Ave CU spent $35.02 (+$8.64);
    • 2015 Services spending $1.02B, Up $0.31B (+42.4%)
    • A 42% increase – Millennials got “on board” with Services in 2015.
    • 1st half (+0.08B); 2nd half (+$0.23B)
  • Boomers – Ave CU spent $55.98 (-$3.49);
    • 2015 Services spending= $2.47B, Down $0.21B (-7.6%)
    • A small decrease, primarily in the first half of 2015.
    • 1st half (-$0.17B); 2nd half (-$0.04B)
  • Silent Generation – Ave CU spent $35.93 (-$0.79);
    • 2015 Services spending $0.61B, Down $0.05B (-7.0%)
    • Most of the decrease came from 4.9% fewer CU’s.
    • 1st half (No Change); 2nd half (-0.05B)
  • Greatest Generation – Ave CU spent $12.15 (-$0.82);
    • 2015 Services spending= $0.03B, Down $0.01B (-22.9%)

The increase was completely driven by the Gen Xers and Millennials as they opted for the convenience that Pet Services brought to their hectic lives. The Over 50 crowd was down…slightly. The final segment is Veterinary…

gen2015-8

Ave CU Veterinary Services Spending: $133.44

  • Although they lost share, Boomers are still very dominant in this industry segment
  • Veterinary spending somewhat “mirrors” human medical spending. As we age, we become more conscious of the need for regular medical visits and usually require more services. We transfer this feeling to our companion animals. One result is that 64% of all Veterinary spending is done by the over 50 age group.
  • Boomers – Ave CU spent $186.56 (-$45.32);
    • 2015 Veterinary spending= $8.17B, Down $2.21B (-21.3%)
    • Decision to upgrade Food undoubtedly contributed to the $3B first half drop in spending. A big comeback in the second half may indicate that many services were just delayed.
    • 1st half (-$2.98B); 2nd half (+$0.77B)
  • Silent Generation – Ave CU spent $163.40 (+$70.88);
    • 2015 Veterinary spending $2.77B, Up $1.14B (+70.0%)
    • A $1.1B increase shows a lifetime commitment by these 70+ yr olds.
    • 1st half (+0.38B); 2nd half (+$0.76B)
  • Gen X – Ave CU spent $121.19 (+$11.45);
    • 2015 Veterinary spending= $4.31B, Up $0.61B (+16.4%)
    • Consistent, strong increase – a good sign for Gen Xers as Pet Parents.
    • 1st half ( +$0.19B); 2nd half (+0.42B)
  • Millennials – Ave CU spent $64.51 (+$1.55);
    • 2015 Veterinary Spending $1.85B, Up $0.18B (+11.0%)
    • An indication of a growing commitment to their Pet family.
    • 1st half (+0.04B); 2nd half (+$0.14B)
  • Greatest Generation– Ave CU spent $4.57 (-$80.22);
    • 2015 Veterinary spending= $0.01B, Down $0.19B (-94.8%)

Gen X, Millennials and the Silents all had strong increases, but they couldn’t overcome the $2.2B drop in Boomers’ spending. It appears that the Veterinary segment paid a price for the Boomers’ decision to upgrade their Pet Food.

One last chart to compare the share of spending to the share of total CU’s. How did the generations perform?

gen2015-9

  • The Boomers “earned their space” in every Industry segment. Gen X was close in all but only made it in Supplies & Services. The Silents performed well in Vet. Millennials…close in Supplies, but are still getting “up to speed”.
  • Note: The older 2 generations’ best performance was in the “need” segments – Food and Veterinary. The 2 younger groups were at their best in the more “discretionary” segments – Supplies and Services. Curious…???

Comments

The Greatest Generation – They aren’t called the “Greatest” for no reason. They literally helped change the world. However, with their youngest member now 87 years old, their time as Pet Parents is inexorably coming to an end.

The Silent Generation – At 70+ years old, their lifetime commitment to their companion animals remains strong. This is immediately apparent when one sees their $1 billion dollar increase in Veterinary spending and the fact that they spend over 1% of their total expenditures on their pets – second only to the Baby Boomers.

Baby Boomers – They have been the consumer group most responsible for the spectacular growth of the Pet Industry. They were the first “Pet Parents” and that commitment remains as strong today as it was over 30 years ago. They are the leading spenders in every segment, especially those most associated with the wellbeing of our companion animals – Food and Veterinary. Even today, they are still making the informed, expensive decisions to do what is best for their pet family. In 2015 they made the choice to “upgrade” their Pet Food. The cost…over $5B. Admittedly, their spending in other segments suffered somewhat, but may already be bouncing back. Amazing!

Gen X – They currently make and spend the most money overall and their Pet Spending per CU is close to or above the national average in all segments. The next five years will be critical. Their children will begin to “leave the nest”, which usually results in additional focus and spending on their pet family, which is still at home. We’ll see.

Millennials – Their every move is subject to speculation. Everyone is concerned about the future and there is no doubt that they are the future. We tend to lump all Millennials together. However, life, including spending behavior, progresses in stages. A large percentage of this group is still in the earliest stages of “building” their lives. We need to provide them with the information, support and products to fulfill their wants and needs. Then…be patient. Count on the extraordinary appeal and allure of companion animals. In a phrase, “Bet on Pets!”

I welcome your questions and comments!

 

Top 3 U.S. Retail Channels…Where did they come from?

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In our report earlier this week we updated the race for the “Gold” by the Top 3 Retail Channels – Supermarkets, Internet/Mailorder and SuperCenters/Clubs. Over the past 20 years these Retail Channels have become increasingly important both to U.S. Retail and to the Pet Industry. In 2015 their combined sales were $1.46 Trillion, 45.8% of the total “Relevant” Retail U.S. Market (Less Restaurants, Auto and Gas Stations). In 2012 they accounted for 47.4% of all Pet Products sales in the U.S.

The retail marketplace is constantly evolving to better fulfill the wants and needs of the consumer. These key retail channels did not just magically appear fully formed in their current embodiment. They developed over the years, sometimes over decades or even over centuries. It is important to know their history to put their current standing into perspective and to speculate on the future. First, Supermarkets

grocery1

Supermarkets – A larger form of the traditional grocery store with a significantly wider variety of food and general merchandise items organized into aisles. They are generally located in residential areas with easy parking and extended shopping hours. They are also usually part of a chain of stores and feature relatively low prices due to volume purchasing.

In the U.S., Grocery Stores developed in the mid to late 1800’s, including A&P which was founded in 1859, but they all required a clerk to retrieve the consumers’ purchases. The first self-service grocery store was Piggly Wiggly, which opened in 1916. However, these early grocery stores did not sell fresh meats or produce. Combo stores were developed in the 1920’s. According to a study by the Food Marketing Institute in conjunction with the Smithsonian, the first Supermarket was King Kullens, opened on 8/4/1930 in Jamaica, Queens in New York City. A key feature was a separate parking lot, which made shopping more convenient. Other grocery store chains like Safeway and Kroger initially resisted the move to the supermarket format. However, the depression era consumers were looking for value and convenience so the supermarket format became the norm.

After World War II, automobile ownership proliferated and the “suburbs” were developed. Supermarkets followed their customers and rapidly expanded, usually as regional chains and generally located as the anchor store in “strip malls”.

In the late 70’s and early 80’s Supermarkets began broadening their appeal even more with the development of generic foods, which ultimately morphed into private label. They also radically expanded their selection of general merchandise items. This influx of higher margin items significantly helped their bottom line. Ultimately, they added food service, coffee shops, pharmacies and even bank branches to help fulfill the consumers’ desire for value, convenience and selection. Obviously, the store size also grew to accommodate these new features. Next SuperCenters…

supermkt

SuperCenters or Hypermarkets – These huge, high volume retail stores are basically a Supermarket combined with a Discount Department Store. The forerunner of this channel was Fred Meyer’s “one-stop shopping center” opened in Portland Oregon in 1931. Through the 30’s, 40’s and 50’s they kept adding departments and expanding the store size up to 70K square feet. The first modern sized Hypermarts, up to 160,000 square feet, opened in the 1960’s. Meijer, a Midwest chain opened the first “supercenter” in Grand Rapids, Michigan in June 1962 under the name Meijer’s Thrifty Acres.

In the late 1980s and early 1990’s the three major Discount Store Chains, Walmart, Target and Kmart “got on board”. Walmart opened Hypermart USA in 1987 which became Wal-Mart Supercenters in 1988. Target opened Greatland stores in 1990 which became the larger Super Targets in 1995. Kmart opened its first Super Center in 1991 which became Super Kmarts. By the mid 1990’s these Chains had firmly prioritized their efforts behind the SuperCenter one stop shopping format. Now Club Stores…

clubs

Warehouse Club Stores – These huge, no frills outlets offer a wide variety of grocery and general merchandise items at exceptionally low prices due to reduced margins. They appealed to both consumers and small business owners. Products are often packaged and sold in a larger quantity than in other outlets and all customers are required to pay an annual membership fee. The first Warehouse Club was Price Club, founded in 1976 in San Diego. 1983-84 was the true beginning for today’s major players in this channel with the 1983 founding of Costco, Kmart’s Pace (later sold to Sam’s Club) and Sam’s Club (Walmart). BJ’s Wholesale Club opened their doors in 1984.

Internet/Mailorder Defined – This segment really encompasses retail sales done over the phone, by mail or through the internet. They all have common elements. Every sale takes place without an in person, face to face interaction and is not “rung out” through a cash register in a brick ‘n mortar store. One other common element is a visual presentation of the product in a catalog, on TV or on the internet. It all started with…

mailorder

Mail Order – Amazingly enough this “channel” traces its beginnings to 1498 in Italy with the first known catalog – selling books. 1667 saw the first seed catalog in England. Even Benjamin Franklin got into the fray in 1744 with the first catalog in Colonial America – selling scientific and academic books. However, the world’s first “true” modern mail order service was begun by Pryce-Jones in 1861 in England, selling flannel and rugs. By 1880 he had over 100,000 customers and was rewarded with a knighthood in 1887.

In the U.S., Hammacher Schlemmer  (1848) is the earliest still surviving mail order business. However, they didn’t publish their first catalog until 1881. Montgomery Wards produced its first mail order catalog in August of 1872 and became the leading player. Richard Sears began selling watches by catalog in 1888 but by 1894 he had expanded his catalog to 322 pages and began to dominate the industry. In 1933 Sears produced its first annual “Sears Christmas Wishbook”, perhaps the most famous catalog of all time. We generally champion the internet for its huge variety of products. However, we should remember that from 1908 to 1940 you could buy an entire pre-cut house from Sears by mail order. They sold 75,000 of them which were shipped by rail then delivered in truckloads to your lot to be assembled by your friends and family – amazing. Mail order continued to flourish as a small but integral part of the U.S. Retail market until technological changes altered the retail landscape –TV and then, the internet.

tv-1

Sales primarily through TV is a subset of Mail Order Sales and became a part of the retail marketplace with the development and proliferation of cable/satellite TV. As the number of channels grew, the need for funding/advertisers grew. Many companies looked upon this as an opportunity to directly “reach” their consumers, bypassing traditional distribution channels. Ultimately, it has expanded to dedicated time slots on many networks and even whole networks whose sole function is direct retail sales. Finally, the Internet…

internet1

Internet /E-Commerce – Perhaps the single biggest change in the U.S. and in fact, the world in the last 20 years has been the rise of the internet. It has altered virtually all aspects of our life and most certainly our spending behavior. There are many aspects of business which are now handled through the internet but in our report our primary focus was consumer online shopping.

The precursor to the internet was ARPANET which allowed networking between academic entities. In 1984 CompuServe launched the Electronic Mall, the first comprehensive e-commerce service. The first web browser, WorldWideWeb was developed in 1990. Netscape 1 was created and released in late 1994 which included the first secure encryption of transactions. In 1995 both Amazon and eBay were founded and the race truly began. 2000 was a down year as the dot-com bubble burst. However, in 2003 Amazon posted its first yearly profit and the segment began to grow. Continued developments in both software and hardware, along with intense competitive pressure have made this channel easier, more affordable and much more accessible to a greater number of Americans. This trend continues as every year both internet coverage and online shopping increase.

I hope this expanded narrative helps put the Retail Revenue numbers into better perspective.

Click here to view the earlier post with all the “numbers”.

2016 U.S. Retail Channel Update – Internet/Mail Order Makes a Move!

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Earlier this year we updated our ongoing study of the consumer “migration” between retail channels. When we eliminate Restaurants, Auto and Gas Stations, 3 “relevant” channels stood above the “pack”. In homage to the Olympics, for their 2015 performance we “awarded” the following medals:

  • Gold: Supermarkets – $588B
  • Silver: SuperCenters/Clubs – $440B
  • Bronze: Internet/Mailorder – $433B

Unlike the Olympics, this race is run every day and effectively has no finish line. In this report we will update the standings since the end of 2015. But first, we will put these “key” channels into perspective in terms of their historical sales growth and key waypoints. As we have said on numerous occasions, the retail marketplace is constantly evolving to better fulfill the wants and needs of the consumer. These three retail channels are currently at the top but it hasn’t always been that way. Plus, who knows what changes the future will bring?

The following chart tracks $ales for these channels from 1992 to 2015. The Data in this report comes from the U.S. Census Bureau – Specifically: Their Retail Trade Reports and The Economic Census.

channelct16-01

Observations

The 90’s – The foundation is laid for retail change.

  • Supermarkets show steady, if unspectacular growth over the period. This has been the general “rule” for this channel. The biggest share of their revenue comes from food, which is “need” driven.
  • SuperCtrs/Clubs – The major Club store chains – Costco, Sam’s & BJ’s were established in 1983-84. By 1994, the big three discount chains – Walmart, Target and Kmart – were fully committed to the SuperCenter format. By the last years of the century, 97-99, the consumer had begun to “buy into” both of these concepts and there were enough outlets to make a difference.
  • Internet/Mailorder – Remember that this group also includes sales through TV – from individual commercials to dedicated “sales only” channels. In the beginning there was no internet. However, by 1995, secure encryption had been developed for online transactions and Amazon was founded. The stage was being set but growth would require increased consumer technological coverage.

2000-2004 – An economic “slow down”

  • Spending slowed during this period. It began when the dotcom bubble burst in 2000 along with a slowed GDP in the second half of the year. While Consumer Spending didn’t decline, the increases were significantly smaller in 2001 and 2002. The recovery was then spread over 2003-2004.
  • Internet/Mailorder – The dotcom bust had an immediate impact in 2001 with flat sales. Full recovery happened in 2003, which incidentally is the first year that Amazon posted a profit.
  • Supermarkets – With “need” driven spending, consumers in this channel are both slower to react to a downturn and to recover. They had flat sales in 2002 and didn’t recover their momentum until 2004.
  • SuperCenters/Clubs – They didn’t miss a beat. With a growing store count, consumers turned their attention and their $pending to these “value” store formats.

2004 – 2008 – Good times until….

  • A period of strong growth until “the fall” in late 2008.
  • Supermarkets, SuperCenters and Clubs all registered strong growth through 2008.
  • Internet/Mailorder – From 2004 to 2007, the growth of the internet makes a major impact on this segment. Sales slowed markedly in 2008, a year earlier than other channels. With a high percentage of discretionary purchases, it appears that a slowdown in this channel may possibly provide “early warning” of impending drops in overall retail spending.

2009 – 2010...the recession and rebound.

  • U.S. Retail Spending fell 8.2% from 2008 to 2009, affecting most channels.
  • Supermarket Sales were flat in 2009 but SuperCenters/Clubs and Internet/Mailorder still posted small increases.
  • Once again, it took the Supermarkets an extra year to fully recover (2011). However, the recession firmly established “price” as the primary factor in buying decisions. As a result the sales in SuperCenters/Clubs and Internet/Mailorder responded immediately and strongly.

2011 – 2015 – the Recovery and aftermath.

  • Since 2010 Supermarkets have reverted to their previous pattern of slow growth – 3.3% per year. However, they are losing market share as this rate is lower than the growth rate of the overall market.
  • SuperCenters/Clubs rate of growth since 2009 is 3.6% which is lower than their pre-recession rate and they too have begun to lose overall market share.
  • Internet/Mailorder Sales have literally taken off since the recession – a 10.6% average annual growth.

Here’s what has happened since the end of 2015!

channeloct16-02

  • The Internet/Mailorder Channel passed the SuperCenters/Clubs in sales in March of 2016 (about the time of the GPE) and has continued to widen their lead. With the current Holiday forecast, expect the gap to grow even larger.

Supermarkets, Internet/Mailorder and SuperCenter/Clubs are the 3 largest “Pet relevant” channels in the U.S. Retail Marketplace. Just how important are they to the Pet Industry? The following chart shows their share of total retail Pet Products (Food & Supplies) sales from the last 5 Economic Census Reports. I took the liberty of including Pet Stores in this elite Pet Products Sales group.

channeloct16-03

Observations

  • In 1992 Supermarkets sold the most pet products. Consumers bought Pet where they did their grocery shopping. After falling precipitously for 15 years, Supermarkets rebounded after the recession. However, in 2012 they have basically 1/3 of the Pet Products market share that they enjoyed in 1992.
  • The rapid growth of Pet Chains in the early 90’s helped push Pet Stores to a peak 40% market share in 1997. They maintained this level until the Recession, when consumers started shopping for lower prices.
  • The SuperCenters & Clubs share of Pet Products went up sharply as these outlets grew both in number and popularity. Although their Pet Product growth has slowed somewhat in recent years, they are still a strong number 2 behind Pet Stores.
  • The first measurable Internet Pet Products sales showed up in 2002 – $70M. By 2012 that had grown to over $1B and the combined Internet/Mailorder channel accounted for 8.5% of all Pet Products sales.
  • These 4 Channels account for 80.9% of all Pet Products sales. 66.5% of all Pet Products sales come from outside the Pet Store Channel. These 3 Mass Market channels account for 47.4% of all Pet Products $.
  • In 2012 Supermarkets and SuperCenters/Clubs accounted for 38.9% of all Pet Products Sales. In 20 years the market has come “full circle”. In 2012, just like in 1992, Consumers bought the most pet products where they did their regular grocery shopping.

So these Retail Channels are obviously very important to the Pet Industry. What about the reverse? How important are Pet Products Sales to Supermarkets, SuperCenters/Clubs and Internet/Mailorder Retailers? In the next chart, we’ll look at the share of Pet Products Sales of the Total Revenue for each channel.

The percentages may seem low, but they represent Billions of dollars. Let’s put them into perspective. In 2015 Consumer spending on all four Pet Industry segments was about 0.94% of an average household’s total expenditures. Pet Products (Food & Supplies) spending accounted for 0.62%. In 2012 (the latest year on the chart) the numbers were 1.01% for Total Pet spending and 0.64% for Pet Products.

With these lower percentages in mind, now take a look!

channeloct16-04

Observations

  • Supermarkets – From 1992 to 2002 Pet products held at about 1% of total revenue, but their market share of Pet was radically falling as Pet Products’ distribution exploded across retail. They reached a low point in 2007 but have engineered a strong comeback through the recession and recovery.
  • Internet/Mailorder – Pet Products were relatively insignificant through 2002. Then the Internet started to take off in 2003 and the importance of Pet Products to the channel began to grow. It’s also important to note that unlike the other 2 channels, the bulk of the purchases were coming from the Supplies Segment, not food. When they turn their efforts to food…
  • SuperCenters/Clubs – When this Channel began to grow in the 90’s, Pet Products were an integral part of their plan and grew as their revenue increased. Since the recession, Pet Products have reached an incredible 2.4% of this huge channel’s total revenue. If overall sales flatten out in these stores, it could affect the overall revenue of the Pet Industry…unless the Internet picks up the slack.

We have reviewed the history and growth of the 3 largest Relevant Retail Channels, including a month by month look at 2016 YTD. We documented Internet/Mailorder passing the SuperCenters/Clubs to firmly take over the “silver” spot in the retail marathon. We validated the importance of these channels and Supermarkets to the Pet Industry. We have also confirmed that Pet Products are important in these retailers’ current and future Plans.

What’s next?

Let’s take a stab at predicting the future. In a final chart, we apply the annual growth rate of Supermarkets and Internet/Mailorder since the recession to project the outcome of the race for the “Gold” that has developed.

channeloct16-6

Too conservative? Mid 2020 for Internet/Mailorder to “grab the Gold” doesn’t take into consideration that for the first time, the Internet is specifically targeting Grocery products’ revenue.

Too optimistic?  Possible restrictive changes in trade agreements could drive up prices and reduce spending on many GM products (like Pet Supplies). This would slow sales in many retail channels, even the internet.

We’ll have to wait and see…

2015 U.S. TOTAL PET SPENDING $67.75B…UP $3.43B

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In 2015 Total Pet Spending in the U.S. reached $67.75B, a $3.43B (5.3%) increase over 2014. It was another good year as the percentage increase exceeded that of the Total “Relevant” Retail Market (+3.5%) and even the Top 100 U.S. retailers (+4.9%). However, the story was a bit more complex. The Total increase came from…

  • A spectacular $5.4B (22.5%) increase in Food $
  • A concerning -$2.1B (-12.5%) drop in Supplies $
  • A business as usual $0.6B (11.1%) gain in Services $
  • A less than expected -$0.5B (-3.9%) drop in Veterinary $

Let’s see how these numbers blend together starting at the household level. In any given week, 25.9 Million U.S. Households (1/5) spend money on their Pets – food, supplies, services, veterinary or any combination.

In 2015, the average U.S. Household (pet & non-pet) spent a total of $528.17 on their Pets. This was a 4.1% increase over the $507.14 spent in 2014. However, this doesn’t “add up” to a 5.3% increase in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

  • 1.2% more H/Hs
  • Spent 1.6% more $
  • 2.5% more often

By the way, if 65% of U.S. H/H’s are pet parents, then their annual Total Pet Spending is $812.57. Let’s look at the recent history of Total Pet Spending. The rolling chart below provides a good overview. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

2015-totpet-1

  • For an exact comparison you must compare like time frames. For example at midyear 2015 Total Pet was up $2.58B from the same period a year ago. Food was up sharply but the total increase was pulled down by drops in Veterinary & Supplies spending in the first half of 2015.
  • In the second half of 2015, Supplies spending continued to fall, while Food Spending grew even faster and Veterinary staged a $2B comeback. The result was a $3.43B (5.3%) increase in 2015 Total Pet $ over 2014

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

2015-totpet-2

As we drill further down into the demographics of 2015 Total Pet Spending, you will see that it can become complex and also generate some surprises, with the increases and drops sometimes coming from unexpected sources.

  • < $70K – (64.4% of U.S. Households); H/H Pet Spending: $359.90, +4.0%; Total $: $29.8B, ↑$1.01B (+3.5%) from…
    • Food ↑$2.21B
    • Supplies ↓$1.08B
    • Services ↓$0.04B
    • Vet ↓$0.08B

This low to middle income group represents 2/3 of U.S. H/Hs. A significant proportion of this price sensitive group chose to upgrade their Pet Food. There was a minimal impact on Veterinary and Services spending but the increase in money allocated to Food undoubtedly contributed to the $1B decrease in Supplies spending.

  • >$70K – (35.6% of U.S. Households); H/H Pet Spending: $835.18, +2.1%; Total $: $37.9B, ↑$2.42B (+6.8%) from…
    • Food ↑$3.22B
    • Supplies ↓$1.02B
    • Services ↑$0.62B
    • Vet ↓$0.39B

This group represents about 1/3 of U.S. H/Hs. Their lowest income is above the U.S. average and $15K above the Median so they have money to spend on their pets. In fact, they are responsible for 56% of the industry’s revenue. They also upgraded their Food Purchases plus spent more on Services. However, there must be some significant price sensitivity in some subgroups as both Supplies & Veterinary Spending fell sharply.

  • < $30K – (32% of U.S. Households); H/H Pet Spending: $275.31, +15.8%; Total $: $11.3B, ↑$1.67B (+17.3%) from…
    • Food ↑$0.49B
    • Supplies ↓$0.37B
    • Services ↑$0.12B
    • Vet ↑$1.42B

Two significant subsets in this group are H/Hs just getting started along with retirees. There is obviously a commitment to their companion animals by this lowest income group. The lift in food is very significant – new pet parents along with upgrades. However, the increase in Veterinary spending is amazing. Without this group, Vet Spending would be down almost $2B.

  • $30>$70K – (32.4% of U.S. Households); H/H Pet Spending: $442.85, -1.1%; Total $: $18.5B, ↓$0.66B (-3.5%) from…
    • Food ↑$1.71B
    • Supplies ↓$0.71B
    • Services ↓$0.16B
    • Vet ↓$1.51B

This low to middle income group is by necessity price sensitive. Many of them  committed to upgrading their Pet Food. However, the other segments “paid the price”, especially Veterinary and Supplies.

  • $70>$99K – (14.1% of U.S. Households); H/H Pet Spending: $599.19, -8.7%; Total $: $10.8B, ↓$1.13B (-9.4%) from…
    • Food ↓$0.06B
    • Supplies ↓$0.62B
    • Services ↓$0.15B
    • Vet ↓$0.29B

This upper middle income group demonstrates that price has become a priority in purchase decisions across the U.S. No upgrade in Food. They just spent less in every industry segment.

  • $100K>$149K– (12.2% of U.S. Households); H/H Pet Spend: $860.31, +13.9%; Total $: $13.2B, ↑$2.17B (+19.8%) from..
    • Food ↑$1.84
    • Supplies ↓$0.01B
    • Services ↑$0.18B
    • Vet ↑$0.17B

This group was the Star of the income groups. They upgraded their Pet Food but still had enough money available to spend more on Veterinary & Services. Only a small drop in Supplies prevented a sweep!

  • $150K> – (9.3% of U.S. Households); H/H Pet Spending: $1157.04, -1.4%; Total $14.0B, ↑$1.40B (+11.1%) from…
    • Food ↑$1.45B
    • Supplies ↓$0.38B
    • Services ↑$0.59B
    • Vet ↓$0.27B

These wealthiest Americans opted for upgrading their Food and more convenience in Services. However, the drop in Veterinary showed that they are not immune to inflation and the decrease in Supplies is a good indicator that there are definite problems in this industry segment.

Income Recap – 2015 showed that money matters but that a commitment to your companion animals is also a major factor. The Income Group “Team” that produced the $3.4B increase in Total Pet Spending was made up of the opposite ends of the spectrum – those making $100K+, along with those making less than $30K.

The opposite side was “manned” by those making $30K to $99K. This middle income group represents 46.5% of U.S. H/H’s and they are definitely price driven. Although the $30>$70K group “bought into” to upgrading their Pet Food, the Veterinary & Supply segments had to “pay for it”. The $70>$99K group has the money, but spending still dropped in all segments, including Food. A major overall concern revealed by this analysis  is the fact that Supplies’ Spending decreased in every income group.

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

2015-totpet-3

  • Under 25 – (5.9% of U.S. Households); H/H Pet Spending: $208.62, +32.4%; Total $: $1.7B, ↑$0.34B (+25.8%) from…
    • Food ↑$0.41B
    • Supplies ↓$0.02B
    • Services ↓$0.003B
    • Vet ↓$0.04B

These young Millennials bought into the Food upgrade but paid for it – in part with small drops in other areas.

  • 25-34 – (16.4% of U.S. Households); H/H Pet Spending: $383.65, -13.0%; Total $: $8.2B, ↓$1.02B (-11.1%) from…
    • Food ↓$1.23B
    • Supplies ↓$0.18B
    • Services ↑$0.15B
    • Vet ↑$0.24B

These oldest Millennials had a huge drop in Food. This follows a huge increase in the second half of 2014. It’s possible that they opted to upgrade their Pet Food early in the cycle, but decided that the price was too high. Their increases in Veterinary and Services spending show their commitment to their Pets and to convenience.

  • 35-44 – (16.8% of U.S. Households); H/H Pet Spending: $467.33, -7.4%; Total $: $9.9B, ↓$0.97B (-8.9%) from…
    • Food ↓$0.45B
    • Supplies ↓$0.59B
    • Services ↑$0.34B
    • Vet ↓$0.27B

This group has the largest families and is in the middle of building their careers. This makes them both price and time sensitive. Price and Convenience are their “Watchwords”. The result of this is that their spending declined in all segments but Services.

  • 45-54 – (18.9% of U.S. Households); H/H Pet Spending: $645.43, +7.6%; Total $: $15.3B, ↑$1.09B (+7.7%) from…
    • Food ↑$0.82B
    • Supplies ↓$0.64B
    • Services ↑$0.26B
    • Vet ↑$0.66

This age group has the highest income and the second largest Total Pet increase – +$1.1B. However, even they did not spend more across the board. In fact, they had the biggest drop in Supplies spending which is seriously concerning for this segment.

  • 55-64 – (18.8% of U.S. Households); H/H Pet Spending: $762.98, +14.1%; Total $: $18.6B, ↑$2.94B (+18.8%) from…
    • Food ↑$5.02B
    • Supplies ↓$0.20B
    • Services ↓$0.08B
    • Vet ↓$1.80B

These Baby Boomers committed to upgrading their Pet Food. Their Spending drove the big increase in the Food segment as well as much of the overall Industry increase, but the other segments were impacted. In fact, their cut back in Veterinary spending was the single biggest factor in the spending decline in this segment.

  • 65-74 – (13.5% of U.S. Households); H/H Pet Spending: $612.54, +2.7%; Total $: $10.3B, ↑$0.56B (+5.8%) from…
    • Food ↑$1.13B
    • Supplies ↓$0.35B
    • Services ↓$0.07B
    • Vet ↓$0.15B

Many in this group are retired and about half are Baby Boomers. They also upgraded their Pet Food and spending declined in other segments. However,  the drop in Veterinary was not as great as the 55-64 group.

  • 75> – (9.8% of U.S. Households); H/H Pet Spending: $297.57, +12.6%; Total $: $3.7B, ↑$0.48B (+14.8%) from…
    • Food ↓$0.27B
    • Supplies ↓$0.11B
    • Services ↓$0.02B
    • Vet ↑$0.88B

It definitely becomes both physically and monetarily more difficult to care for a companion animal once you reach an advanced age. The huge increase in Veterinary spending shows that their commitment is still strong.

Age Group Recap: Once again, the team that produced the $3.4B spending increase is made up of the opposite ends of this Demographic -the over 45 age group and the under 25 households. However, the “Starting Lineup” was clearly the over 45 crowd while the under 25 was on “Special teams”. The all-purpose “Running Back” wore #45-54, but the quarterback was #55-64, chosen because of his ability to make the “big play”.

On the downside, the other team is truly “family America” – the age group from 25 to 44. They are the 2nd and 4th highest income groups but they also have the largest families. Extra spending money and time are often in short supply. They search for bargains and anything that makes life’s tasks a little more convenient. Finally, just like the situation with the income groups, Supplies Spending fell in every age segment.

Take a look at some Key Demographic “Movers”. It should give you a better picture of the situation.

2015-totpet-4

Summary

In building my research database, I gathered Pet Spending information for 12 demographic categories with over 80 specific segments. Nothing, including the Pet Industry, is simple anymore. Total Pet Spending was up $3.4B (+5.3%), a strong increase but not one of the 80+ individual demographic segments had an across the board increase in all Industry segments. However, there were 2 segments that had across the board spending decreases: H/H’s with an Income from $70K>$99K were down $1.1B and Married Couples whose oldest child was from 6 to 17 years old spent over $2.1B less on their Pets. These are usually big winners in Pet Spending.

On the upside, it appears that “opposites attract”: 2 earner H/H’s and Retired people; Income Over $100K and Income Under $30K; Over 45 years old & under 25. Other “positive” groups were just “stand alone” unusual: 1 or 2 person H/Hs; No kids H/Hs – whether single, married or unmarried; Homeowners without a Mortgage.

On the downside, there were “losers” in 2015, who usually are winners: Self-employed; 4+ people; Married couples with kids under 18; the 25 to 44 yr age group. Also, the difference between the spending by College Grads and those without a degree was very extreme.

2015 was a “mixed bag”. 80 of the 82 demographic segments had a mixture of up and down spending on the various industry segments. There is no doubt that the big increase in Food spending was primarily responsible for the overall increase in Total Spending. However, it also left less “available” resources for spending in the other segments. This big lift in Food was largely driven by the Baby Boomers, especially the 55 to 64 age group. Their spending in all other segments declined and their big drop in Vet spending turned the whole segment negative.

Regardless of income level, there is definitely increased consumer pricing sensitivity across the entire U.S. retail market. However, product quality and a commitment to the well-being of our companion animals still rank high in the decision making process as was evidenced by the upgrading of Food by the under $30K group and the big increase in Veterinary spending by those over 75. In 2016, we’ll see if the increase in food spending holds on or even expands to more demographics and…if the Supplies segment can make a comeback.

2015 U.S. VETERINARY SPENDING $17.1B…DOWN ↓$0.5B

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Veterinary Services is the second largest Pet Industry segment. A high inflation rate has put spending on a rollercoaster ride with today’s more price sensitive consumers. In 2015, spending was $17.11B – down -$0.47B (-2.7%) from 2014. In this report, we’ll try to determine the demographic drivers of the decrease. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Veterinary Spending per H/H in 2015 was $133.44, down from $138.72 in 2014. (Note: A 2015 Pet H/H (65%) Spent $205.29) More specifically, the decrease in total spending came as a result of:

  • 2% more H/H’s
  • Spending 0.9% less $
  • …2.9% less often

We’ll need to take a closer look. But first, the chart below gives an overview of recent Veterinary Spending.2015-vet-1

You can see the rollercoaster. The $2.1B “lift” in the second half was not enough to overcome the precipitous $2.6B drop in spending that occurred in the first half of 2015. Let’s look at spending by Income group.

2015-vet-2

Observations

  • <$70K & >$70K – Both were negative. However, the drop was larger in the higher income group.
  • <$30K (32% of H/H’s) – Up $1.42B (+81.3%). This was a huge increase and a great comeback from a -$1.0B drop from 2013 to 2014. This group is a “mixed bag” with a lot of people just getting started and retirees.
  • $30K to $100K – (46.5% of H/H’s) – Down -$1.8B (-21.2%). As we have seen, this is a price sensitive group. The $30K to $70K group had a $1.7B increase in Food and the $70K>$100K group spent less in all segments.
  • >$100K (21.5% of H/Hs) Down -$0.1B (-1.3%) Bought $2.3B more food, but only $150K> spent less on Vet.

Next, Veterinary Spending by Age Group

2015-vet-3

Observations

  • <25 (5.9% of H/Hs) –Down $0.04B (-12.8%) They bought a lot more food but less in all other segments.
  • 25>34 (16.4% of H/Hs) -Up $0.24B (+16.9%) Spent much less on products but more on services.
    • 7% more H/Hs
    • Spent 2.1% more $
    • …11.6% more often
  • 35>44 (16.8% of H/H’s) –Down $0.27B (-10.7%) Price vs convenience – only increased on Non-Vet services
    • 8% fewer H/Hs
    • Spent 1.7% more $
    • …10.5% less often
  • 45>54 (18.9% of H/Hs) -Up $0.67B (+18.2%) Here’s how the wealthiest group spent their Veterinary $$..
    • 4% fewer H/Hs
    • Spent 18.3% more $
    • …1.1% more often
  • 55>74 (32.3% of H/Hs) –Down $1.94B (-28.1%) Spent $6B more Food. The key is the 55-64 group with…
    • 6% more H/Hs
    • Spent 21.7% less $
    • …15.9% less often
  • 75> (9.8% of H/Hs) -Up $0.88B (106.3%) Any doubts about their commitment to pets? Look right here!

Here are some key Demographic “Movers” in Veterinary Spending. Take a look then we’ll wrap it up.

2015-vet-4

Summary

The H/Hs that bought more are in 2 groups – the oldest Americans, many are retired and have paid off their home, but make less than $30K and the $100>$150K income group – Both with only 1 or 2 in their H/H.

The drop in Veterinary Spending comes largely from “Middle America” – H/Hs with incomes from $50>$100K, married couples, 2 earners who work as managers or professionals, homeowners with a mortgage, living in a city or suburb . These are the some of the biggest spending demographic groups in the entire Pet industry. However, these consumers who have bought the most in the past, cut their Veterinary spending in 2015.

The single demographic segment most responsible for the overall decline in Veterinary Spending was the 55-64 age group, with a $1.8B decrease. The $5B increase in Pet Food Spending by these “Boomers” had to be a big factor in this decision to cut back. Without such a huge drop in this one segment, Veterinary sales would be up. However, you can’t ignore the fact that a continuing high inflation rate affects the spending of today’s value (price) conscious consumers across a wide spectrum of demographics.

2015 U.S. PET SERVICES SPENDING $6.3B…UP ↑$0.6B

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Although Non-Vet Pet Services is the smallest industry segment, it continues to grow and 2015 was another good year. Spending reached $6.26B, a 0.58B (10.2%) increase over 2014. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Pet Services Spending per H/H in 2015 was $48.70, up from $44.68 in 2014. (Note: A 2015 Pet H/H (65%) Spent $74.92) More specifically, the increase in total spending came as a result of:

  • 1.2% more H/H’s
  • Spending 11.1% more $
  • …1.9% less often

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

2015-services-1

The increase has been consistent since 2013 with a definite spending “lift” in the second half of both years. Now we’ll start “drilling down” to look at spending by demographic categories. First, by Income…

2015-services-2

Observations

  • <$70K; >$70K – Although it looks like the entire increase comes from the >$70K group, it is not that simple.
  • $100K – This group is 21.5% of H/H’s and generated an increase of $0.78B – 132% of the total increase for the segment. If they were up this much, somebody had to be down…
  • $30K to <$100K – They had a $0.31B (-13%) decrease in spending. This mid-income group is 46.5% of U.S. H/H’s and was responsible for 42% of the Services Spending in 2014. They can be very price sensitive and Services are often considered discretionary spending. The $30>$70K group also spent $1.7B more on Food.
  • <$30K – It’s not all about $. This group (32% of H/H’s) had a $0.12B (18%) increase. This increase is not coming from the retired people in this group. It was generated by low income wage earners.

Now let’s look at spending by Age Group.

2015-services-3

Observations

  • 25>54 – (52.1% of H/H’s) – Service Spending is generally more discretionary in this group and they spent $0.75B more. They have the money to spend as they are the 1st, 2nd and 4th highest income groups. Also remember, the 25>45 group spent $1.7B less on Food.
  • 55>74 – (32.3% of H/H’s) – As consumers age, Pet Services often become more of a “need”. However, they spent slightly less -$0.14B. These are primarily Baby Boomers and they just spent $6.1B more on Pet Food.
  • <25 & >75 – (15.7% of H/H’s) Spending by these Age “Bookends” was basically flat. Each was down $0.01B.

Take a look at some Key Demographic “Movers” then we’ll wrap it up.

2015-services-4

Summary

Overall, the increase in Services Spending was about convenience, rather than physical need, as it was driven by the younger crowd – Gen X and the older Millennials. The Boomers spent so much in upgrading their Pet Food that a small decline was not unexpected. Income was also important in order to afford the rising service prices. Whether the household consists of 1 or 2+ members, all the adults worked. College educated, managers or professionals accounted for the vast majority of the increase. Retired people had a big decrease.

It really didn’t matter in what region of the country that you lived, as long as it was in a city or the suburbs. Homeowner ship also wasn’t a big factor as both homeowners and renters had increases. The spending increase by Hispanics was good news. Singles had the biggest growth while the “traditional” married couple with one earner and 2 children was almost certain to spend less. Basically, the increase was driven by busy “younger” (25>54) groups who needed help with Pet Parenting and could afford to pay for it.

2015 U.S. PET SUPPLIES SPENDING $14.9B…DOWN ↓$2.1B

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Total Pet Spending increased $3.4B in 2015 to $67.75B. It was fueled by a $5.4B increase in Pet Food. In this report, we will discuss the biggest “downside” of 2015. Spending on Pets and Pet Supplies went from $17.0B in 2014 to $14.9B in 2015 – a -$2.1B drop (-12.4%). (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Although the decrease makes for a much less pleasant investigation than our analysis of Pet Food, it is necessary. We’ll “drill down” into the data to try to determine what and who are “behind” this big change.

First, Supplies’ Spending per H/H in 2015 was $115.97, down from $133.83 in 2014. (Note: A 2015 Pet H/H (65%) Spent $178.42) However, reduced H/H Spending is not the whole story. It turns out that the $2.1B drop in spending came as a result of:

  • 1.2% more H/H’s
  • Spending 4.1% less
  • …9.7% less often

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

2015-supplies-1

As you can see, Supplies showed strong growth in 2014. Then in 2015 they started to decline. It began early in the year and was pretty steady – a drop of $1.15B in the first half and $0.95B in the second half vs 2014.

Let’s consider some relevant happenings in the overall Pet Market in 2015.

  • This segment has many categories which have become “commoditized”. A high percentage of the purchases are “discretionary”, rather than “need” based, like food. These products can be sensitive to price changes. The Consumer Price Index for Pet Supplies rose steadily for the first 9 months of 2015 then “plummeted” in October-November (a record drop). The drop may have been a result of retailers trying to make up for months of depressed sales. It may have helped …but wasn’t nearly enough.
  • Pet Food Spending was taking off like a rocket in 2015. Virtually all U.S. households have a spending “limit”. A radical increase in Food Spending may have caused Pet Parents, consciously or unconsciously, to cut back in spending in other segments – especially discretionary $ in Supplies.
  • Another factor in the Food Increase was the growth of Meds/Supplements in the form of Treats. If a Pet Parent switched from pills/powders to treats, this would move their dollars from Supplies to Food.
  • Innovation – One sure way to get consumers to spend more money is to produce new products that “make a difference” in their role as Pet Parents. If it is definitely better or easier, they will spend more. Based upon the spending, It doesn’t appear that there were many new “must haves” in the Segment.

These are some possible reasons behind the decline. Now let’s look at “who” spent less. First, by Income  level.

2015-supplies-2

Observations: Spending is down in all groups. It’s just a matter of how much. There is not a distinct pattern.

  • $30K>$99K (46.5% of H/H’s)- $6.33B, Down -$1.33B (-17.4%). This middle income, value conscious group seems to have been impacted the most as they were responsible for 63% of the spending drop.
  • No group was immune, as even the >$150K group was down $0.38B (-11.1%)
  • $100K>$149K (12.2% of H/H’s) – $3.09B, Down -$0.01B (-0.04%). This group has the only “almost positive” story in the income group demographic category, as their spending was essentially flat.

Let’s take a look at the spending by Age Group.

2015-supplies-3

Observations: All groups spent less on Supplies. Here are some specifics starting with the biggest spenders:

  • 45>54 (18.9% of H/H’s) $143.69 per H/H – $3.48B – Down -$0.65B (-15.6%) This group has the highest income and overall expenditures and…spends the most on Pet Supplies. They had a $1.73B increase in spending in the other Pet Segments which could be a factor in the drop in discretionary Supply spending. They bought supplies 13% less often.
  • 35>45 (16.4% of H/H’s) $113.70 per H/H – $2.45B – Down -$0.59B (-19.4%) This group is second in income and overall expenditures. They also have the biggest families. Pet Spending is only 0.72% of their total expenditures, while the national average is 0.94%. It is a recipe for price sensitivity in their pet supplies buying decisions. They bought Supplies 15% less often.
  • 25<34 (16.4% of H/H’s) $127.31per H/H – $2.68B – Down -$0.18B (-6.4%) They have price pressure – starting families and careers. They actually bought Supplies 8% more often but spent 16% less.
  • <25 (5.9% of H/H’s) $64.00 per H/H – $0.49B – Down -$0.02B (-4.1%) They are acquiring pets. They actually increased their H/H spending on Supplies. However, there were 9% fewer H/H’s.
  • 55>64 (18.8% of H/H’s) $139.31 per H/H – $3.36B – Down -$0.2B (-5.7%) This group spent $5B more on Food so it’s not surprising that Supplies are down. However, these are “Boomers”. They actually spent 7% more…just 16% less often.
  • 65>74 (13.5% of H/H’s) $109.05 per H/H – $1.89B – Down -$0.35B (15.7%). This group also spent a lot more on Food but with a bigger impact on Supplies. They spent 9% less on Supplies…10% less often.
  • 75> (9.8% of H/H’s) $44.01 per H/H – $0.56B – Down -0.11B (-16.6%) They spent 10.8% less and 9% less often. They are still trying to hang on as Pet Parents. They actually doubled Veterinary Spending.

All groups spent less on Supplies in the Age and Income Categories. Take a look at other Key Segments:

2015-supplies-4

Summary: The drop in Supply Spending is so pervasive across the U.S. that it is difficult to point to a specific “who” behind the behavior. Home owners, 2+ People H/H’s, Married Couples with children – these are the core of the Pet Industry and they are all down – big time. About the only H/H likely to be up in Supply spending was a single person, working as a Manager or Professional, renting an apartment in the Center City in the Western U.S. – not exactly what we have come to recognize as the “ideal” Pet Parent Spending Household.

Basically, this puts the “onus” on “what” to explain the decline. When you do that, you have to come back to money. While some demographic segments have greater “economic” pressure than others, price has become the #1 factor (75%) in the buying decisions in America. Also, almost everyone, at every income level, lives on a budget. If you spend more in one area, then less money is available for other spending.

The Supply Segment is different from Food. While some Supplies are necessities, a lot are discretionary and impulse can also be a big factor. The CPI on Supplies rose for the first 9 months of 2015. This invariably depresses sales for “commoditized”, discretionary items. At the same time, Pet Food Spending took off and Veterinary Spending went up $2B in the Second Half of 2015. These are both “need” expenditures and can depress spending on discretionary items. A truly key fact that came out in the investigation was the drop in frequency of Supplies Spending. Pet Parents spent 4% less but…they bought 10% less often –that’s a big deal.

So what can be done? The surest “fix” is innovation. Consumers will spend more if a product is demonstrably better or makes Pet Parenting easier. However, this takes a lot of thought and effort. Are you ready to get started? What about the “Boomers”? They are 34.4% of the H/H’s. They spent 48.5% of the total Food & Supply $…and they’ll pay for better! How can you make life easier for this huge group of aging Pet Parents?

 

 

2015 U.S. PET FOOD SPENDING $29.5B…UP $5.4B

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The U.S. Pet Industry had a good year in 2015. Spending reached $67.75B, up $3.43B (5.3%). However, as we have learned, the industry truly is a “sum” of its integral segments. Each segment has very specific and often very different buying behavior from the many consumer demographic groups. For this reason, we’re going to analyze each of the segments first. This will put the final analysis of Total Pet Spending into better perspective. Note: The numbers in this report come from or are calculated by using data from the current and past US BLS Consumer Expenditure Surveys. In 2015, this was gathered by the U.S. Census Bureau from over 40,000 interviews and spending diaries. The final data was then compiled and published by the US BLS.

We will begin with the largest Segment, Pet Food (and Treats). In 2015 Pet Food Spending reached $29.49B in the U.S. This is a $5.43B (22.5%) increase over 2014. Quite frankly, this is amazing. How amazing? In 2015 Pet Food accounted for 43.5% of the Pet Industry’s revenue. In 2014 it was only 37.4%. This is the highest level since 1998 – 44.9%. Something is definitely “happening” in this segment. Let’s see if we can determine what and who are behind this increase.

We’ll start at the household level. In any given week, 22,000,000 U.S. Households (1/6) buy Pet Food.

In 2015, the average U.S. Household (pet & non-pet) spent a total of $230.06 on Pet Food. This was a 21.1% increase over the $189.91 spent in 2014. However, this doesn’t “add up” to a 22.5% increase in total Food Spending. With additional data provided from the US BLS, here is what happened.

  • 1.1% More U.S. households
  • Spent 17.2% more $
  • 3.4% more often

By the way, if 65% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $353.94. Let’s look at the recent history of Pet Food Spending. This “rolling” chart provides a good overview.

2015-Food-1

Pet Food Spending dipped in the first half of 2014. This corresponds to the final days of a yearlong deflationary period in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. When prices increased slightly in Mid-2014, Spending turned upward. However, stable or slightly increasing prices are not enough to explain the spectacular growth in 2015.

An initial clue is provided in the H/H spending numbers provided by the US BLS. The increase in H/H’s is pretty normal. The increased frequency of purchases seems relatively small but the increase in spending is huge. There is no getting around it. You also need to remember that these are national numbers. There was no huge gain in the number of Pets or Pet Owning Households, so these changes in frequency and spending numbers are likely to be the result of significant changes in the Pet Food purchasing behavior by specific demographic segments. First, let’s consider what might generate this radical increase in spending.

As an industry participant and observer for 27+ years and an adult consumer for 50 years, I can’t help but notice the “Pet” happenings around me – in the retail marketplace – in the media – in friend’s homes. Another venue to view what is happening in “Pet” is at an industry trade show – GPE & SuperZoo. The exhibitors and their product offerings generally reflect the current retail marketplace and in fact, can be harbingers of the future.

Between 2015 and 2014, the combined exhibitors at GPE & SuperZoo increased 5.9%. Here are some changes in the product category “numbers” during that time frame which are relevant to the Food Segment:

  • The total number of exhibitors in the “Natural” Section increased 30.7%. This parallels the strong “Natural” trend in the overall U.S. consumer market.
  • Exhibitors selling dog and/or cat treats were the most numerous category at all the shows – 1 in every 4 booths – and there were 9.1% more in 2015.
  • The number of Food booths was up only slightly 0.5%.
  • However, 16% of First Time Exhibitors were selling dog and/or cat food or treats.
  • Meds/Supplements – The Exhibitor count was up 16.8% and this continues to be the fastest growing product category. Remember, many of these items are sold in the form of “easy to dose” treats.

It appears that the increase in H/H spending on Pet Food came mainly as a result of:

  • Pet Parents upgrading their Pet Food: SuperPremium, Natural, raw, organic…all have distinct nutritional benefits for our companion animals…and they all cost more.
  • Buying more and higher quality treats. Although treats have always been popular, much of this behavior can be traced to the radical increase in the Meds/Supplement category. This has been driven by strong inflation in the Veterinary Segment. Since many of these supplements are produced in treat form, this would increase Pet Food spending.

The “What” behind the spending increase would seem to require

  • an educated group to fully appreciate the benefits of the upgraded or medicinal products…
  • with enough extra money to spend…
  • or an unwavering “spend whatever is needed” attitude towards their Pet “children.”

Let’s look at some Food Spending Demographics to see if we can locate the “Who” behind the big increase.

First, here is the Pet Food Spending by Income Group.

2015-Food-2

Observations

Actually, there was an increase in per H/H Food spending in every income group. The only Total Food spending decrease came as a result of reduced number of H/H’s in the $70>$99K group.

  • Under $30K (32.0% of H/H’s) – $120.30 per H/H – $4.93B – Up $0.49B (+11.0%). Significant shares of this group are <25, >75, Retired or African American. The group is -3.3% smaller in size, so some are definitely spending much more on Food.
  • $30K>$70K (32.4% of H/H’s) – $228.34 per H/H – $9.58B – Up $1.71B (+21.7%). Income triples. Expenditures increase 63%. Home ownership doubles. A more diverse group which closely matches the national average.
  • $70K>$99K (14.1% of H/H’s) – $257.97 per H/H – $4.63B – Down $60M (-1.3%). This group is near the top of the “middle income”. They had a small 4.8% increase in H/H spending but the number of H/H’s fell by 5+%.
  • >$100K (21.5% of H/H’s) – $379.50 per H/H – $10.35B – Up $3.29B (+46.6%). Obviously, income does matter in this situation as 21.5% of U.S. H/H’s generated 60% of the $5.4B increase.

While income is a major factor in the increase, it is not the only one. The $30>$70K group also had a strong year. Also note: For the first time, the >$70K group accounted for more than 50% of total Food Spending (50.8%).

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

2015-Food-3

Observations

There is obviously a lot more disparity in the spending by age groups than in the income groups.

  • 55>64 (18.8% of H/H’s) – $409.47 per H/H – $10.02B – Up $5.02B (+100.5%). This group is perhaps the key to the huge increase in Food Spending. They are 100% Baby Boomers. Their income is well above the mean but not in the highest tier. 1.3% of their total spending is on their pets. They have small H/H’s – 2.2 people. 76% own their own home – 35% w/o mortgage. Drilling deeper, here is where the increase comes from:
    • 4.6% More households
    • Who Spent 65.8% more $
    • 15.6% more often
  • 65>74 (13.5% of H/H’s) – $276.18 per H/H – $4.59B – Up $1.13B (+32.7%). – A big increase. Much of this group is retired. Their income is reduced but they still spend a lot on their pets – 1.24% of total expenditures. They have only 1.8 people per H/H. 80% are homeowners – 51% w/no mtge. – A Growing number of Baby Boomers
  • 75> (9.8% of H/H’s) – $91.75 per H/H – $1.15B – Down -$0.27B (-19.0%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. As a result, pet ownership begins to decline. This was a sharp drop. The huge “Boomer” group will start turning 75 in 2021. We should be looking for solutions.
  • 45>54 (18.9% of H/H’s) – $250.49 per H/H – $5.87B – Up $0.81B (+16.2%) This group has the highest income and the most in Total H/H expenditures. Last year they were #1 in Pet Food spending. Their H/H spending went up about 17% but they fell to number 2 in Total Food $…by $4B. – The percentage of Baby Boomers is declining.
  • 35<44 (16.8% of H/H’s) – $192.48 per H/H – $4.05B – Down -$0.45B (-10.1%) They are second in income and expenditures. However, they have the biggest families – averaging 1.4 children under 18 per H/H. Both their H/H spending and number of households declined slightly in 2015 resulting in the $0.45B drop total Food $.
  • 25>34 (16.4% of H/H’s) – $137.01 per H/H – $2.99B – Down -$1.23B (-29.2%) Their income is growing but so is spending – acquiring their first home (39%), starting a family – an average of 1 child per H/H. With over 91% of their after tax income committed, they have financial pressures. In the second half of 2014 this group had a huge increase in Food Spending. With their “Millennial view” of “natural,” they likely “opted in” early for “upgraded” pet foods. In the second half of 2015 financial pressures and bargain prices on “regular” food may have convinced them to “cut back” to more normal fare.
  • <25 (5.9% of H/H’s) – $99.17 per H/H – $0.82B – Up $0.42B (+99.2%) These youngest Millennials are getting started as Pet Parents. It looks like they are acquiring pets and choosing the “high quality” food segment.

The chart below has some other key demographic “movers” in 2015 Pet Food Spending. Take a look! These should help to paint a much clearer picture of the “who” behind the $5.4B increase.

2015-Food-4

Summary

There is no doubt that older Americans drove this big increase, especially 55>74 year olds. They are married couples alone or with one child over 18 still at home. They live in a suburban environment in their own home, which they just paid off. Either both of them work as managers, professionals or in their own business….or no one works…the joy of retirement. It is really the same educated group, just in 2 different life stages.

On the flip side, the drop in spending affects 1/3 of U.S. Households. Much of the decline is coming from what used to be considered the “traditional” American Family – A Married Couple, 25 to 44 years of age. Only one of them works because the other needs to stay home to take care of their 2 young kids. This makes spending pretty tight so they always look for a good price.

While the “journey” has been complicated, the conclusion seems to be rather simple. The big increase in Food Spending was driven by the “Baby Boomers.” They upgraded the quality of their Pet Food and treats and began using the new medicinal supplements available in Treat form. Note: They have been the leaders in Veterinary Spending so they would recognize the “value” in these decisions. This still leaves us with an unanswered question…

How much will the huge increase in food spending affect the spending in other segments?

U.S. Retail Trade – 2015 $ales Update by Channel – Going for the Gold!

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The Total U.S. Retail Market in 2015 reached $5.3 Trillion dollars – up $119B (+2.3%). The Market was significantly slowed by a precipitous drop in Gasoline prices resulting in a -$103B decline in revenue. For this report we will concentrate on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations. This still leaves us with $3.2 Trillion to “divvy up”.

In a recent report we reviewed the 2015 sales performance of the Top 100 U.S. Retailers. That covered the “Headliners” but everyone can’t be a headliner. How are specific Retail Channels performing? We’ll start with a market overview and then work our way down.    (Base Data is from the U.S. Census Bureau Retail Trade Report)

First, Please Take Note: As you are reviewing this detailed data and wondering exactly how does all this relate to Pet Products sales, consider these 2 facts from the 2012 U.S. Economic Census:

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

ChannelUpdate-15-1

  • Restaurants (Food Service) – 12% of Total Retail – had an exceptional year, up↑8.1%.
  • Automobile Sales – 20% of the Total – also did well, up↑6.5%.
  • Gas Stations – 8% of the Total – ↓Down 19.2% from a year ago. Motor Fuels account for over 80% of the total revenue of gas stations. Gas prices are down 27% from 2014. (CPI from USBLS)
  • Retail, Less Food, Auto and Gas – Up 3.5% to $3.2 Trillion. This is 59.8% of the total U.S. Retail market and it is growing 50% faster than the Total but at only half the rate of Restaurants and Auto.

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

ChannelUpdate-15-2

Gas prices had a huge impact on the overall market. The Auto and Restaurant segments have maintained strong growth rates. In fact restaurant sales growth is accelerating. In our “Relevant Retail” Segment, growth has slowed by 19% to 3.5%. This is also significantly below the 4.8% growth rate of the Top 100 Retailers. As we look at the individual channels, the 3.5% growth rate will serve as a benchmark. – Above 3.5%, a channel is gaining market share; Below 3.5%, they are losing share.

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

ChannelUpdate-15-3

These are large slices of the U.S. Relevant Retail pie. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 58.6% of the total. If you look back at our post on the channel migration of Pet Products Sales, you will see that in the 2012 these three divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores but Pet Products are also “on their shopping list” in the outlets where they spend most of their money.

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

Here is the Market Share change “Rule” for 2015: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 3.5% sales increase PLUS an additional $3.2B. Example: If a channel did $100B in 2014, they need to do $100 +$3.5 + $3.2 = $106.7B to gain just 0.1% in 2015 share. It’s not easy!

Enough “overview”! Let’s look at the 2015 performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. Eleven of the twelve made the list by generating at least 1% of the Total Pet Products (food & supplies) spending in the last Economic Census. Traditional Department Stores are also included although they have never embraced Pet Products. They have long been a fixture in the U.S. Retail Marketplace. Their slow fade, as the consumers migrated to outlets which better fit their needs, has profoundly affected U.S. shopping as generally they were the “anchor” stores for the Shopping Malls across America.

We will use 2 separate graphs to illustrate the situation in these Pet Relevant Channels. The first will show the % change in sales in 2015 vs 2014. The next will “show us the money” by translating the % into $ gained or lost.

Remember, you must be up at least 3.5% or you’re losing market share!

RetailChannelUpdate-15-4

The leader comes as no surprise. However, there are some huge channels that are losing ground. Now, I’ll “show you the money!” For your reference, the Total increase for the “Relevant Retail” Market was $108B and you must be up 3.5% PLUS $3.2B to gain just 0.1%!

RetailChannelUpdate-15-5

The growth in the Internet/Mail Order is even more pronounced when you look at the change in $ spent!

OBSERVATIONS BY CHANNEL

Look for: (% of Total Business from Pet Products for stores that stock Pet – 2012 Economic Census)

  • Internet/Mailorder – $432B, Up $46.6B (+12.1%) – 43% of the total increase for the $3.2T Retail Market came from Internet/Mailorder. The Consumer Migration to this channel is accelerating – gaining 1.1% in Market Share in just a year. (1.2% Pet)
  • Super Markets – $588.3B, Up $14.4B (+2.5%) This largest subsegment is barely holding its ground as it lost over 0.1% in Market Share. Right now the major competition is from SuperCenters/Clubs. However, the Internet is positioning itself to also become a factor. (1.6% Pet)
  • Department Stores – $58.4B, Down $2.2B (-3.6%). As stated, this segment is not particularly relevant to Pet but they are part of the best “visual” example of the channel migration of the U.S. consumer. 50 years ago they “ruled” the GM category. Then they started to slide as they failed to adapt to the changing wants and needs of the consumer. One small example of this is their failure to address America’s growing relationship with our companion animals. (N/A Pet)
  • Discount Department Stores – $106.3B, Down $1.2B (-1.1%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top of GM was relatively brief as the SuperCenters/Clubs offered true 1 stop shopping. (2.3% Pet)
  • SuperCenter/Club Stores – $440.1B, Up $6.8B, (+1.6%). These outlets with their broad mixture of grocery and general merchandise…at great prices quickly became a dominant force in the retail market. They are second only to Supermarkets in Market Share. However, they “needed” to be up $15B in 2015. A Sales increase of $7B and they lost -0.3% in Market Share. (2.4% Pet)
  • $ & Value Stores – $68.8B, Up $3.3B, (+5.0%). – A Great Value and easy to shop. The recent steady growth in this segment is proof that American consumers want Value AND Convenience. (4.3% Pet)
  • Drug Stores – $263.3B, Up $11.5B, (+4.6%). 60+% of the revenue comes from Rx Drugs. The growth in this segment mirrors a 4.6% Increase in Rx Prices over 2014. (0.3% Pet)
  • Sporting Goods – $47.1B, Up $2.4B, (+5.4%). Minor player in Pet, had a strong first ½ in 2015.(N/A Pet)
  • Home Centers – $254.0B, Up $13.4B, (+5.6%). These “project driven” outlets have never done a significant Pet Business for their size. Two Top 10 U.S. Retailers are driving the growth. (0.6% Pet)
  • Hardware – $23.4B, Up $0.8B, (+3.5%). A strong first half – up 7.1%, then flat in the second half – the result – no gain…or loss in market share. (2.6% Pet)
  • Farm and Garden Stores – $44.6B, Up 0.4B, (+0.8%). This segment has been growing in recent years in both overall sales and in Pet. However, in 2015 it appears that 100% of the segment’s small sales growth came from Tractor Supply who reported a $0.4B increase in our Top 100 Post. (8.9% Pet)
  • A/O Miscellaneous Stores $70.4B, Up $3.6B, (+5.4%). Florists, Pet Stores, Art Dealers…are segments bundled into this group. Based upon the 2012 Economic Census data, Pet Stores probably account for almost 25% of this segment. In 2015, they held their ground against the big segments. (Pet Stores: 91% of Total revenue is from the sale of Pets & Pet Products)

The chart below puts the Market Share of each of these segments for 2015 & 2014 in a visual format so that it is easier to appreciate the relative sizes. Growth in share is indicated by a green box, a decline is boxed in red.

RetailChannelUpdate-15-6

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

SUMMARY 

Pet Stores are still #1 for Pet Products. In the Overall Market, there are 3 Olympic Medalists. There is no change for the Gold. Supermarkets remain the largest Retail Channel. However, the race for the Silver is heating up. SuperCenters & Club Stores are growing….but losing Market Share. The Internet/Mailorder segment is growing even faster than anticipated. Gaining 1.1% in Market Share in a $3T annual market in 1 year is definitely fast. In an upcoming report we’ll revisit and update this race between these three…which right now is focused on the Silver. However, you have to wonder what will happen when the internet turns its attention to grocery items.

Overall, 2015 was somewhat disappointing. The $ales increase was 19% less than in 2014 and without the incredible increase by the Internet/Mail Order Channel, there was little excitement or growth. There were a couple of good small points that relate to the Pet Industry – the continued growth of the $/Value Stores and the better than average increase in the A/O Miscellaneous Channel. (Pet Stores included).

Bottom Line: The U.S. Retail Market is growing and evolving as the consumer migrates to the channels which best fulfill their current wants and needs. Today, the “Channel of Choice” seems to be Internet/Mail Order and the movement is accelerating. As always, to survive and prosper, you must identify consumer needs and adapt.

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

RetailChannelUpdate-15-7