Archive for month: September, 2016

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

September 19, 2016/in Pet Market/by John Gibbons

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.

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.

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

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.

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!

September 7, 2016/in Pet Market, Pet Market Distribution Channels/by John Gibbons

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:

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

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.

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”.

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!

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%!

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.

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.