Archive for year: 2016

The U.S. Retail market reached $5.3 Trillion in 2015 from all sources – Supercenters, Restaurants, Online retailers, even Pet Stores. This year’s increase of $118B was less than 2014’s $196B and was driven down by a 19% drop in total Gas Station revenue. (Data courtesy of the Census Bureau’s Monthly Retail Trade report)

In this post we will try to narrow the focus to the top 100 Retailers in the U.S. Market – the headliners. These 100 companies account for 38% of the total retail market! How did they perform in 2015 vs 2014…and of course, which ones sell Pet Products? Remember, according to the 2012 Economic Census, over 2/3 of the Pet Products in the U.S. are sold outside of Pet Stores. The Top 100 group accounts for a huge share of these sales. This report is crammed with data, but we’ll try to break it into smaller pieces with regular observations. All of the base data on the Top 100 comes from Kantar Research and was published by the National Retail Federation (NRF).

Let’s start with an overview:

Observations

• The Total Market grew $118.5B in 2014 – Up 2.3%
  • The Top 100 grew $94.6B and the growth rate of 4.9% far exceeded the overall market.
  • The Top 100 accounts for 37.6% of the total market.
• Let’s pare it down a bit. If you take out Auto, Restaurant and Gas Station sales, the “target” retail market for our industry is $3.2 Trillion. – about 60% of the total market.
  • Removing the Restaurant & Gas Station sales from the Top 100 numbers – at $1.84T they are still 34.5% of the Total U.S. Market and…
  • 57.8% of the $3.2 Trillion target market.

The Top 100 is obviously critically important, and as expected it’s outperforming the overall market. We need to remember that this “Top 100 club” is in fact a contest. Every year companies drop out and new ones replace them. This can be the result of mergers, acquisitions or simply slumping sales. Changes of note in 2015:

• 6 companies on the 2014 list were “combined” into 3 in 2015 – Albertsons + Safeway = Albertsons; Dollar Tree acquired Family Dollar Stores; Aldi & Trader Joe’s are now combined under Aldi.
• We also lost 2 old friends from the list – Dell sales continued to decline, but A&P shut down after 156 years.
• 3 Major Gas Stations made the list. Fuel sales are only counted in their numbers when they are less than 50% of Total Revenue. Obviously, the gas price drop had a far reaching impact.

Now let’s start “drilling down” on the Top 100. Here’s a summary of Regular and Online Retailers versus the bundled total for Restaurants & Gas Stations

Observations

• Biggest note may be that the Regular Retailers have 58% of the stores but account for 92% of the business.
• 90% of the $ growth is coming from Regular & Online Retailers, but their percentage growth is lagging behind restaurants at 6.4% (a big turnaround from 2014 when restaurants were only up 2%)
  • +4.8% increase in $ales – $84.7B (Last year it was +$81.5B)
  • +2.8% in stores – Slowed markedly from 2014 (+6.9%) but better performance in store.

Now that we have an overview of the Top 100, let’s take a look at the “targeted” retailer segment. There are 82 total companies. How many are buying and selling Pet Products? This will reinforce how Pets have become an integral part of the American Household and how fierce that the competition for the Pet Parents’ $ has become.

• Of 82 possible companies, 67 are selling some mixture of Pet Products in stores and/or online.
  • Their Total Retail Sales of all products is $1.7 Trillion which is…
    • 93% of the total business for Regular & Online Retailers in the Top 100
    • 32% of the Entire $5.3 Trillion U.S. Retail market – from 67 Companies who are in tune with America and all sell pet products – amazing!
  • 134,802 Stores (75%) are stocking and selling pet products on the retail shelf – 6300 more than 2014
  • Online only is another Story –
    • Amazon & QVC account for $13.9B of the $14.7B “online only” increase.
    • Many Traditional Retailers who only sell Pet Products online are closing stores and losing ground in the total Retail “race”. Perhaps, they are slightly “out of tune” with America.

The Business for retailers selling pet products remains strong. We also should remember that these store count totals are only for the Top 100 and include only 1 Pet Chain and 1 Farm Store Chain, as they were the only companies to make the list. Pet Products are sold in thousands of other retail outlets – 20,000 more grocery stores, 10,000 more pet stores, 16,000 Vet Clinics plus…. A reasonable estimate would be 200,000 outlets selling pet products.

In the next segment we will look at the detailed list of the top 100. We’ll sort it by retail channel with subtotals in key columns. We’ll then break it into smaller sections for comments. At the end of the post there will be a download link for an Excel file with the data. This will allow you to sort it as you choose…by rank, alpha, pet/nonpet…it’s your call.

I have not done a lot of highlighting however:

• Pet Columns ’15 & ‘14 – a “1” with an orange highlight indicates that products are only sold online
• Rank Columns – Change in rank from 2014: (Remember 6 from 2014’s list were consolidated into 3 in 2015)
  • Up 5-6 spots = Lt Blue; Up 7 or more = Dk Green
  • Down 5-6 Spots = Yellow; Down 7 or more = Dk Pink

Let’s get started. Remember online sales are included in the sales of all companies.

Observations

• Drug is still strong. However, acquisitions are a big factor. Awaiting approval is a Walgreens and Rite Aid merger, which would create a $100B company and move Walgreens to #3 on the Top 100 list.
• The Traditional Department store segment overall continues its decline. There are a few exceptions in some “high end” stores. However for most, the trend is down.
  • Sears (includes Kmart) and Macy’s are the 2 big “red flags” and more store closings are planned.
  • Although many carry a few pet items, generally online, they have never embraced Pet – strange.
• Convenience is still a key “driver” for Americans so convenience stores are doing well. However, much of the growth in the Top 100 is coming from acquisitions.
• Military Commissary sales are falling despite additional locations.
• The Auto Parts Stores are a mixed bag, with all chains opening new stores. Only Advance is underperforming in sales. With the ever increasing focus on the Pet Travel product category, it is somewhat surprising that everyone’s offering of Pet items is so sparse – A possible opportunity?
• The Apparel retailers are showing surprising strength, especially from value outlets. The three chains that carry pet products are contributing more than half of both the total sales…and the total increase.

Observations

• Headline: Amazon sales are only up 94.7% in 3 years!
  • The Phone People – especially Verizon and Apple, continue their extraordinary growth.
  • QVC also made a big move – jumping up 15 places to #55 on the list.
  • Barnes & Noble and Toys R Us continue to decline. Barnes & Noble may drop off the list in 2016.
• Signet Jewelry got on the list in 2014 by acquiring Zales. This year…sales are down 5.5%
• Mass Merchants’ growth percentage is subpar, but all companies are up and a $14.8B increase is impressive.
  • Wal-Mart is the “big dog” and their 2.8% increase in 2015 is slightly above recent years. Sales in SuperCenters continue to grow but “regular” Discount Department Stores are losing market share. This impacts the overall business in both Wal-Mart and Target.
  • Target sales are up – barely. Their annual growth rate since 2012 is only 0.6%.
  • Clubs continue to have the highest growth rate. Both Costco and BJ’s are up 17% since 2012.
  • This is a huge Market segment for Pet Products and we’re seeing growth from all the “players”.
• Home Improvement/Hardware is showing continued strong growth – especially Home Depot and Lowe’s.
• Home Goods sales growth slowed in 2015 but all companies had increases.
• Tractor Supply’s growth slowed in 2015, +7%, down from +12.7% in 2014. Annual growth rate is still 10.1%.

Observations

• Supermarkets – $376B in Sales; 18 Companies; Over 16,000 stores; All Selling Pet Products. This is another important group for the Pet Industry. With the highest frequency of consumer visits of any channel, the competition is fierce. We have seen a series of mergers and acquisitions as companies try to strengthen themselves for the daily battle. We saw A & P cease operations after 156 years in business. From 1915 to 1965 they were the largest retailer of any kind in the United States. In a changing environment, you must adapt to survive.
  • Although the total increase is below average, all but one are showing increases. Last year, 5 were down.
  • Mergers and the loss of A&P dropped the companies from 21 to 18, but store count is only down 280.
• Small Format Value Stores: Overall this segment does more business than Traditional Department Stores.
  • Dollar Tree’s acquisition of Family Dollar Stores seems to be working.
  • Dollar General is performing best, up 7.7% with an average annual increase rate of 8.3% since 2012.
  • Only Big Lots performance is subpar. However, they are up slightly after 2 years of declining numbers.
  • This segment is growing in numbers and popularity. They are committed to Pet Products and their focus on value appeals to today’s ever more price conscious consumers.
• PetSmart – Although PetSmart’s growth is only 3.2%, it is better than last year’s 2.4%
• Office Supply Stores – Mergers, store closings – a lot of turmoil. The increase is a bit of a surprise.
• Sporting Goods – Some turmoil in this category as Sports Authority faded in 2015. (Closing in 2016) However:
  • Dick’s continued to expand both in store count and sales – up 6.5%
  • Academy is a newcomer to the Top 100 list, entering strongly at #88, after a 16.9% sales increase.

Restaurants & Gas Stations and the Grand Total

Restaurant & Gas Station Observations

Although restaurants & gas stations aren’t relevant in terms of Pet Products Sales, they are relevant in our daily lives. Most of these restaurants are fast food…plus coffee shops. Also, remember that when fuel sales at Gas Stations are more than 50% of the total, they are not counted in qualifying for a Top 100 sales

• Last year Restaurants had a 2% increase, pulling the Top 100 down. This year’s 6.4% is just the opposite.
• Kudos to Burger King for a big comeback after a bad 2014 and to Starbucks for continued strong growth

Wrapping it up!

Retailers earn their spot in the Top 100 by producing big numbers so it’s not surprising that their overall performance was strong, +4.9% compared to +2.3% for Total U.S. Retail.

Pet Products are an important part of the success of the Top 100. Sixty-seven companies on the list sell Pet Food and/or Supplies. Their Total sales exceed $1.7T in 134,800 stores and online. Obviously, this is a hugely important group to our industry whether you are a manufacturer trying to capitalize on their consumer appeal or a retailer trying to succeed in a very competitive marketplace. Do the math. If we take out PetSmart’s $6B and the remaining companies generate only 1% of their sales from Pet, we’re looking at $17B in Pet Products sales from only 66 sources…and 1% is low for this group.

The Top 100 is also evolving, just as we are seeing in the Pet Industry. Acquisitions, mergers, everyone is trying to find a formula for success in a highly competitive environment. To survive and prosper you must adapt.

We’ll wrap up this report with a few “Funtastic Facts” about the performance of the 2015 Top 100:

1. The Top 10 Retailers accounted for 51% of all Top 100 Sales and 48% of the increase.
2. The Top 10 Brick ‘n Mortar Retailers plus Amazon accounted for 20% of the sales of the ENTIRE U.S. RETAIL MARKET.
3. The 5 Retailers with the biggest sales gains accounted for 33% of the net increase for TOTAL U.S. RETAIL.

Now, I suggest that you take a closer look at the Top 100 Excel file, find your own “funtastic facts” and see what is relevant to your business.

[button link=”https://pmud8a.a2cdn1.secureserver.net/wp-content/uploads/2016/08/Top100-US-Retlrs15-14-Ranked.xlsx” type=”icon” newwindow=”no”] Download 2015 Top 100 U.S. Retailers List(Excel)[/button]

Since the great recession, price has become perhaps THE critical factor in the buying behavior of U.S. Consumers. In our recent reviews of Consumer Pet Spending we saw that inflation and deflation can affect retail spending. However, there is not a universal rule. Price changes, up or down can have a different impact on the different Pet Industry Segments. Deflation can spur spending in a “discretionary” segment but retard it in a “need” segment. Moderate inflation is normal and expected by consumers. However, when it gets out of hand, it can negatively affect sales.

In this report we’ll update the changes in the CPI (from the USBLS) since December, both for total Pet and the individual segments.  However, before we get to that, let’s do some “pricing” groundwork. We’ll take a look at some relevant facts from a study on The Shopping Habits of American Women done by Blackhawk Engagement Solutions and presented in a webinar by Retailing Today.

First, what matters most in the shopping decision?

Obviously, price matters most in today’s world. However when you consider Price + Quality = Value, then Value is also twice as important as brand – a big change from pre-recession days.

If Price is so important, then how does the shopper compare prices? With 71% of shoppers owning and using a smartphone daily, it’s not surprising that retail websites and other online sources, like Amazon and Google are usually the first choices. However, preference does vary by product category.

Here’s how consumers price shop for pet products. You may be surprised by what is #1.

For Pet Products, the # 1 place for checking prices is…in the retail store.  The study covered a variety of product categories including clothing, furniture, sporting goods, toys and more. Only 2 categories had retail stores as the consumer’s first choice – Pet Products and Grocery. Grocery is certainly not surprising, with fresh food being such an important share of the category’s business.

The preference for “in store” price checking doesn’t say that you don’t need an effective web presence (with a store pickup option) or that shoppers don’t use their smartphones to price check pet products when they are standing in the retail aisles. Perhaps, it just “speaks to” the personal nature of our relationship with our companion animals.

Retail price and “value” are more important than ever in the consumer products business and the Pet Industry is no exception. Let’s see what has happened with the Pet Consumer Price Indices since last December.

This chart shows the change from December 2015 to May 2016 and how the average for the first five months of 2016 compares to the same period last year.

Observations

• Veterinary – Prices in this segment are up over 4% vs the same period last year. This is exceptionally high but in fact, the inflation may still be accelerating. With a 2.2% increase just since December, it could reach 5% by yearend. One result of the prolonged high inflation rate is a reduction in the amount of Veterinary Services across a broad spectrum of demographic groups. There is a plus side…for the Supply segment, as there has been exceptional consumer demand for OTC treatments, meds and supplements.
• Pet Services – Although not as high as the Veterinary Segment, Pet Services pricing has been inflating over a prolonged period. So far there have been no major consequences in terms of consumer spending. The chart above shows that the inflation rate is starting to slow down, especially since December.
• Pet Supplies – Supply pricing is up 1.9% since December. This is a bit deceptive as the pricing is still recovering from the biggest drop in history last Oct-Nov. YTD prices are slightly below a year ago.
• Pet Food – Food prices have been gradually recovering from their record drop in Jul-Aug and are up slightly since December. However, they are below the same period in 2015. We’ll have to see which of these 2 opposing factors has the most impact on the consumer.
• Total Pet – Both increases are moderate, although somewhat higher than recent history. The 1.4% increase since December is unusual because it reflects increased prices in every segment. The 1.3% increase versus a year ago is more in tune with recent activity because it comes from decreases in both Food & Supplies which were overcome by increases in the Services…especially Veterinary.

To understand and appreciate what is happening, you need to see it. Take a look at the monthly flow.

Veterinary shows an unbroken string of increases and is even accelerating. The increase in the Service segment has clearly moderated beginning in September of last year. The product segments are on rollercoaster(s). Look at those record drops in the second half of 2015…but both Food & Supplies seem to be slowly recovering.

One last chart: This is simply a snapshot in time. May 2016 vs 1, 2 and 3 years ago

Vet Services: Up about 4% per yr & increasing

Pet Services: Increasing about 2.3% per year but moderating.

Food & Supplies: Deflation slowing – Moving towards “Flat”

Total Pet: Being pushed up ”↑” by services while products move to flat “↔”

Pricing in the Summer and Fall of 2015 was very volatile with record CPI drops in Products. We’ll see what 2016 brings.

In a reversal of the normal flow, we first looked at the performance of each of the 4 Pet Industry Segments in the Consumer Spending Survey conducted by the USBLS. We saw a definite disparity between the segments, both in the overall performance and in the demographics of consumer spending behavior. Now let’s put these different parts together to get the Industry Total covering the period 7/1/2014 to 6/30/2015.

Total Pet Spending is now $63.38 B. Let’s put that into perspective with recent history.

After strong growth in 2014, spending in the first half of 2015 was down. Let’s compare like time frames:

• 2014 vs 2013: Sales up $6.6B (+11.4%)
  • By Half Year vs previous year: Jan>Jun 14 up $3.05B; July>Dec 14 up $3.52B
• Mid-Year 2015 vs Mid-Year 2014: Sales up $2.6B (+4.2%)
  • By Half Year vs previous year: July>Dec 14 up $3.52B; Jan>Jun 15 down –$0.94B

Now, let’s look at the numbers by Industry Segment:

Observations

• Food is driving the entire increase…with a little help from Services.
• It’s not a 12 month issue…Total Sales were up $6.6B in 2014 and the Jul>Dec 14 $ are included in both the annual and mid-year reports. Let’s look closer.

In this chart we look at $ change by segment overall and by 6 month time periods.

Observations – Does Price Matter?

• July to December of 2014 was a “dream” half year. All 4 segments were up…3 for about a $ Billion each.
• January to June of 2015 brought a different story. Retail pricing is likely a factor:
  • Supply Prices were up versus a year ago…sales fell $1 Billion.
  • Food Prices were up…slightly for the entire 12 months which countered the recent deflation and contributed to the huge increase. Notice the different behavior in these 2 product segments.
  • Services saw their growth slow in the first half of 2015 as inflation reached 3.2%.
  • Veterinary Services had a precipitous, inflation driven drop in virtually all age and income demographic groups. Only the Over 65 and Under 25 age groups and the Under $30K income group showed increases. Note: 65> and <25 make up a big portion of the Under $30K group.

Total Pet Spending increased $2.58B in the 12 months ending June 30, 2015 versus the same period a year earlier. Two segments were up and two were down. In the next chart we’ll “Show you the money”! We’ll identify the specific segments within each demographic category with the biggest gain or loss in Total Pet $pending.

• Income Winner – Over $100K. Money does matter. These high income households, 21% of the total number, generated 137% of the Total Pet Spending increase…so the remaining 79% of U.S. H/H’s were down a total of –$.95B. Although even the over $100K group had a drop in Veterinary Spending, -$0.2B.
  • Income Loser – Middle Income America – The $50>$80K group had a $0.4B increase in Food but spending fell in every other segment, including a -$2.9B drop in Veterinary.
• Age Winner – The 65>74 group, primarily aging “Boomers”, spent 1.29% of their total H/H expenditures on their pets and had increased spending in every segment.
  • Age Loser – The 45>54 age group has the highest income, but their spending still decreased slightly in every segment except Services which was up $0.2B.
• Occupation Winner – Self Employed had a spending increase in every segment but Supplies, which was down –$0.2B. Most of their increase was due to a $1.2B increase in Veterinary spending.
  • Occupation Loser – Managers and Professional increased spending in 3 segments, including a $1B increase in Food. However, this was not enough to overcome a -$3.7B drop in Veterinary spending.
• Race/Ethnic Winner – The White, not Hispanic group generated 192% of the Industry’s total increase but even they were down -$0.3B in Supplies.
  • Race/Ethnic – African-Americans actually had increased spending in Supplies and Services but decreases in Food and especially Veterinary, -$1.3B pushed them negative. Hispanic and Asian Groups were also down in Total Pet Spending by -$1B.
• Education Winner – The group with Less than a College Degree had the largest Total increase, including even a $0.1B increase in Veterinary spending. Although their spending on Supplies was down -$0.2B.
  • Education Loser – The Advanced Degree group was the only education level with a decrease in Total Pet Spending and it was only -$0.05B. Pet Parenting crosses every level of Education.
• H/H Size Winner – 2 People only was the big winner with increases in everything but Services. Although every H/H size of 2 or more people had an increase in Total Pet spending.
  • H/H Size Loser – 1 Person H/H Spending was driven down by decreases in Supplies and Veterinary.
• H/H Composition Winner – With increases in all segments, Married Couple Only H/H’s had the biggest gain.
  • H/H Composition Loser – Single and All/Other Households – No surprise here.
• Region Winner – Midwest: A big increase in Food and Services; Flat in Vet and down -$0.5B in Supplies.
  • Region Loser – West had increases in 3 Segments but a -$2.3B drop in Veterinary made the difference.
• Area Type Winner – Rural areas with <2500 Population and not within a Metropolitan Area are surprisingly the biggest winner with increases in every segment but Supplies, which was down -$0.2B. Never fear, The Urban areas outside the Central City are also up $1B, despite a -$1.1B decrease in Veterinary spending.
  • Area Type Loser – A decrease of –$1.1B in Veterinary Spending made the Central City negative…slightly.
• Housing Tenure Winner – Homeowners without a mortgage is a bit unexpected. They are down slightly in Supplies and Services – a total of only -$0.06B. Food & Veterinary are up an incredible $3.6B.
  • Housing Tenure Loser – Another surprise. Homeowners with Mortgages were up $1.9B in Food and Services but down -$0.1B in Supplies and -$3.1B in Veterinary. Even Renters were up $0.4B overall.

Comments

Without the spectacular performance by Pet Food, this would be a completely different report. Food was the positive “Driver” across almost all demographic segments. Some of the winners and losers were the “usual suspects” – High income and White, not Hispanic were big gainers. Central City and Singles lost ground. However, there were some groups that are new to the chart. Among the winners were the 65>74 age group, 2 person H/H’s, Married Couple Only and Homeowners without a mortgage. Actually these 4 groups all reflect many demographic characteristics of older Baby Boomer H/H’s. The under 25 group also had a good showing and are also more likely to be 2 person households. Unusual losers were Homeowners with mortgages and Mgrs/Professionals. In September, we’ll see how the second half of 2015 matches up against the “dream” second half of 2014.

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.