October 2016 – Pet Business Professor

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

October 18, 2016/in Pet Market/by John Gibbons

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.

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.

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

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.

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

October 10, 2016/in Pet Market, Pet Market Segments/by John Gibbons

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.

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…

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.

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 1^st, 2^nd and 4^th 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.

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

October 2, 2016/in Pet Market/by John Gibbons

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.

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.

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.

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:

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?