May 2016 – Pet Business Professor

U.S. TOTAL PET SERVICES SPENDING (Vet & Pet) – $20.85B

May 17, 2016/in Pet Market/by John Gibbons

The spending on Total Pet Services in the U.S. is $20.85B. This is down -$1.15B (-5.2%) from a year ago. These figures are based upon data published in the USBLS Mid-year Update of their Consumer Expenditure Survey. As we saw in the Pet Products update, the story is complex. We will take a closer look at each of the two Service Segments – Veterinary and Pet (Non-Veterinary). Let’s start with the good news.

Pet Services Spending $5.86B – Up $0.54B (10.1%)

This chart should put that number in perspective with recent history:

Flat…then trending up. This chart gives a good overview. Let’s do some direct comparisons of like time periods.

2014 vs 2013: Sales up $0.39B (+7.4%)
- By Half Year vs previous year: Jan>Jun 14 up $0.04B; July>Dec 14 up $0.35B
Mid Yr 2015 vs Mid Yr 2014: Sales up $0.54B (+10.1%)
- By Half Year vs previous year: July>Dec 14 up $0.35B; Jan>Jun 15 up $0.19B
We have seen extreme price sensitivity in the Supply segment but thus far Services have been relatively immune. However, it should be noted that the CPI in Jan>Jun 2014 was up over 3.2% from 2013 and sales flattened out. The CPI increase from July 2014 through June 2015 dropped below 2.5% and sales increased. Perhaps 2.5% is the limit?

Let’s take a look at the Services spending numbers by Age Group:

Age Group Observations

There is no clear pattern here. The “Boomers” and the “Millennials are contributing to the growth. The younger Gen X group shows the only decline. The number of 35>44 year old households was essentially equal. Their annual H/H spending on Pet services fell 3.6%…but only $1.80 per H/H. Let’s look at Income.

Income Observations

With the $30>$70K group showing the only decrease, and the under $30K showing an increase, it appears that income is a factor, but it’s not “clear cut”. Time to pull out the “master database” and look deeper.
Driving the increase, we find the “usual suspects” – college educated, managers or professionals, who live in an “urban” setting, own their own home (with a mortgage) and make over $100K per year. We also need to include the over 65 crew, who make less money but have an increased need for pet services.
Now let’s look at who makes $30>$70K. On the decrease side we find a whole group of occupations – technical & clerical workers, operators & laborers, construction workers & mechanics. The drop is actually by far the greatest in households of 2 or more people with one earner (-0.34B). It’s also focused on incomes ranging from $50K>$80K, not the low end. There is not a hypersensitivity to price but these groups are definitely watching their budgets.

Non-Vet Pet Services Comment

Pet Service Spending can be a convenience or as in the case of aging Pet Parents, a growing need. The bulk of the spending in this segment is discretionary. Therefore Income is a big factor. In fact 34.9% of the H/H’s, those over $70K in income, account for 68.1% of the spending. Moreover, the over $120K income group, 14.4% of H/H’s spend 37.4% of Total Pet Services $.

Although prices have increased in this segment considerably above the national CPI average for years, thus far the consumer demand has been largely unaffected. This could be because the bulk of the business is coming from high income groups and the increases were relatively insignificant in terms of their overall spending. However, we saw a significantly smaller increase in spending in the first half of 2015, when prices increased by more than 3% for the first time in 3 years. We also saw a decrease in spending from $50K>$80K income group in the Mid-year numbers. These could be anomalies or it could be that the increasingly price conscious U.S. consumers were sending a first message. “There are limits.”

NOW ON TO THE VETERINARY SEGMENT!

U.S. VETERINARY SERVICES SPENDING $14.98B – Down $-1.69B (-10.1%)

Veterinary Spending turned sharply downward in the first half of 2015, after a huge increase in 2014. This chart should help put these trends into perspective.

A rapid climb that slowed, then a steep drop. Let’s compare like time periods.

2014 vs 2013: Sales up $3.03B (+20.8%) Incredible!
- By Half Year vs previous year: Jan>Jun 14 up $2.12B; July>Dec 14 up $0.91B
Mid Yr 2015 vs Mid Yr 2014: Sales down –$1.69B (-10.1%)
- By Half Year vs previous year: July>Dec 14 up $0.91B; Jan>Jun 15 down –$2.60B

The prices of Veterinary Services have been increasing at an extraordinary annual rate – 5% since 1997. This has recently slowed, but is still 3.5% since the recession. Inflation has affected the spending of most lower income groups. The big spending increase in 2014 came primarily from two demographics – over $120K H/H income and the 55>74 age group. The Jan>Jun 2015 drop was huge -$2.6B. Let’s look a little deeper. First, by Age Group

Age Group Observations

It is apparent that the mid-year spending decrease was widespread across U.S. H/H’s. Every age group from 25 to 64 spent less – a Total of -$3.58B. This group includes over 90M H/H’s, 70.6% of the U.S. total.
The over 65 group had a substantial increase, $1.51B, with more than half, $0.8B coming from Retirees.
There is also good news from under 25 group. Their spending was up $0.38B. Remember, they had a 30% increase in Food spending. These numbers indicate that more in this group are becoming pet parents.

Let’s take a look at Veterinary Spending by Income Group

Income Observations

The drop is evident in every income level over $30K…even the $120K> group. This includes 86M H/H’s – 67.2% of the U.S. total.
The < $30K group is surprisingly showing an increase of $0.83B. This is primarily driven by Retirees and the under 25 age group, who together had a $1.1B increase.

Veterinary Services Comment

We generally consider most Veterinary expenditures as “need” rather than discretionary spending. Regular Veterinary care for their companion animals is a responsibility of Pet Parents. However, non-emergency services may be becoming more discretionary to the consumer. The extraordinarily increases in Veterinary prices over a number of years has caused many of the lower income groups to delay or even forgo services. This was evident in 2014 when an overall $3B increase included a $1B drop from H/H’s with income less than $50K.

Households with incomes over $70K (34.9%) account for 57.8% of Veterinary Spending. However, there are other patterns in Veterinary Spending. The over 65 and under 25 age groups have generally lower incomes but are both showing significant increases in Veterinary Spending. The older group is generally more aware of the importance of their own medical care and this translates into increased awareness of the importance of Veterinary Care for their companion animals. In the Under 25 group the increased spending comes from new “pet parents”

Overall Pet Services Comment

It appears that we have 2 opposite trends in the overall Services group. Pet Services spending, which has generally been considered discretionary and very dependent on income, is showing increased spending based upon “need” with the aging of the huge group of Baby Boomer Pet parents. Veterinary Services, at least the non-emergency portion, which has been considered “need” spending is moving to a more discretionary nature due to years of extraordinarily high inflation and the increasing price consciousness of U.S. consumers.

U.S. PET SUPPLIES SPENDING $15.85B: MID-YEAR UPDATE

May 10, 2016/in Pet Market/by John Gibbons

The USBLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2014 to 6/30/2015. As you remember from an earlier post, Pet Food had a great year $26.7B…up $3.8B, but what about the other “Pet Products Partner”…Pet Supplies? Pet Products account for 67.1% of Total Pet $. What happened in the Supplies segment?

This most recent report shows Pet Supplies Annual spending at $15.85 B, down slightly from a year ago (-$80M). The first chart will help put this decline into perspective with recent history.

The rolling 12 month totals gives a good overview of the recent up and down trend in Pet Supplies Spending. However, for the best comparison, we should look at like time frames:

2014 vs 2013: Sales up $2.04B (+13.6%)
- By Half Year vs previous year: Jan>Jun 14 up $.97B; July>Dec 14 up $1.07B
Mid Yr 2015 vs Mid Yr 2014: Sales down -$0.08B (-0.5%) – basically flat.
- H/H’s increased by 1.4M (1.1%), but Supplies Spending per H/H actually decreased -1.5%
- By Half Year vs previous year: July>Dec 14 up $1.07B; Jan>Jun 15 down -$1.14B
Prices in the both halves of 2014 were down 1% from 2013. This drove the spending increase in 2014.
Prices rose 0.4% in the first half of 2015 vs the same period in 2014…and spending dropped -$1.14B. This pattern of spending hypersensitivity to price may indicate Supplies is truly becoming commoditized.
Prices fell -0.3% in Jul>Dec 2015. However, prices were up 1% until the record -2+% drop in November. We’ll have to wait until September to find out if the big price drop in the peak season was enough to pull out an increase or at least a flat year.

Let’s take a closer look at the latest numbers. Here’s what they look like by age group:

Age Group Observations

Supplies’spending is down slightly in every age group from 25 to 54, 52% of U.S. H/H’s. The $.7B increase in the spending of the 55>74 group (primarily Boomers) is the only thing keeping supplies’ $ close to even.
The H/H Supplies spending for the 75> decreased -5% but the number of H/H’s increased by 600,000, +5% so spending was flat. This is a lot better than their 58% drop in Food spending.
The <25 group increased slightly, which is better than a drop but nothing like their 30% increase in Food $.

Does money matter? Here’s a look at Pet Supplies Spending by Major Income Groups:

Income Group Observations

The over $70K group now accounts for more than 55% of Pet Supplies spending. Last year it was 53%. Remember they are only 34.8% of U.S. Households.
It’s pretty simple. Only the over $120K income group is showing an increase (13.9%). The <25 & >75 age groups are helping to keep the low income <$30K close to even

The look at Supplies Spending by Income Group seems to validate our observation of extreme price sensitivity in this segment. Let’s take a look at this on these two correlating charts.

Pet Supplies Comment

This is a small sample. More research is needed and like almost everything we look at, I’m sure that the situation is more complex than it appears on the surface. However, this segment has been deflating since 2009 and this is a strong indication that a growing number of categories in the supply segment are becoming commodities. A recent report by Blackhawk Engagement Solutions of U.S. women’s shopping behavior found price (75%) as the #1 factor in purchase decisions, followed by quality (55%) and brand (31%). It appears that the Pet Supply segment is reflecting these National trends.

Pet Products (Food & Supplies) Observation

Inflation and deflation have the opposite effects on Food & Supplies. Slight inflation generates more Food Spending. If prices fall, people just spend less. On the other hand, Supplies have become so commoditized, that even small price increases seem to depress spending. On Supplies, Consumer’s want a deal! It is definitely a complicated situation!

NOTE : I have consolidated this report with the earlier one on Food into a PET PRODUCTS SPENDING UPDATE. If you would like an electronic copy, just send an e-mail request.

HISPANIC PET SPENDING DOWN -$1.0B : MID-YEAR UPDATE

May 5, 2016/in Pet Market/by John Gibbons

Cinco De Mayo seems like an appropriate time to do a brief update on Pet Spending by U.S. Hispanic Households. I wish there were better news to report but we’ll drill deeper to see what is causing this steep drop. The numbers in this report are computed from data in the Consumer Expenditure Survey conducted by the USBLS.

Hispanic households are growing in number and influence in the U.S. They increased by 1,000,004 (6.3%) over the previous year, far exceeding the overall U.S. growth of 1.1%. As of 6/30/15 they numbered 16,910,000. That is 13.2% of all U.S. H/H’s.

Additionally, while their H/H Income (79%) and Spending (85%) are below the U.S. average, both increased slightly faster than the average household. Financially, they are slowly gaining ground. However, Hispanic H/H’s only spend 0.5% of their total expenditures on Pets, compared to the U.S. average of 0.9%. Now, let’s take a look at their recent history of Pet Spending.

This chart should give an overview of Total Pet Spending since 2013. Remember , when making direct comparisons using a rolling chart, it is best to use similar time frames. Ex: 2014 vs 2013.

Any way you look at it, a change of 1 year brought a big drop in spending. Let’s use the same type of chart to get an overview of the Hispanic spending in the individual industry segments.

Comments by Segment on Rolling Time Periods

Pet Food – The dip in Mid 2014 mirrors what we saw in the overall Food market. However, the Total market made a big comeback in the second half of 2014 to end up 4.8% for the year. The Hispanic Market did not quite make it back to even. The Total Market saw explosive growth in Jan>June ending up 16.6% at mid-year 2015. The Hispanic Market was up, but only 6% and still below 2013 annual numbers.
Veterinary – This is THE reason for the huge drop in Hispanic Pet Spending. Down to less than 1/3 of 2013 spending, the continued strong inflation rate in this segment seems to have had precipitous consequences in the Hispanic demographic.
Services – A very small part of overall Hispanic Pet Spending, annually this segment continues to trend downward. Although Jan>June 2015 was up 30M from the same period in 2014.
Supplies – This segment shows steady growth across all time periods, without the dip that we saw in the Jan>Jun 2015 numbers in the total market. It’s possible that the spectacular drop in veterinary spending has helped fuel this increase as Hispanic Pet Parents turn more to OTC meds and treatments.

Now let’s take a look at the Hispanic Spending in the Mid-Year Report by Industry segment. This chart compares the latest Mid-Year numbers versus the same period a year earlier.

Comments

There may be other factors. However, the Service segments, especially veterinary, certainly appear to reflect the consequences of continued high inflation.
The Supplies Segment is up $200M (17.1%) and is certainly the bright spot in the Hispanic Demographic. H/H spending on Supplies increased 10% and the number of H/H’s increased 6% to generate this increase.
Food is still down from 2013 and 2014 year end numbers, but it is up slightly from the same period a year ago – $100M (6.0%). However, consider this. H/H spending on Pet Food was up 4.4% and the number of H/H’s was up 6.3%. If the percentage of Pet H/H’s remained the same and they spent 4.4% more per H/H then Pet Food Spending would be up 11%. Based upon this, the 6% increase in Pet Spending is basically little or no real progress.
Let’s hope that the Veterinary spending trauma is over and that spending in all the segments turns up again. The Hispanic demographic is an important and growing segment in the overall U.S. market and should be for the Pet Industry too.