2016 Total Pet Spending was $67.29B – Where did it come from…?

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According to data from the Consumer Expenditure Survey conducted by the US BLS, 2016 Total Pet Spending in the U.S. was $67.29B, a $0.46B (-0.7%) decrease from 2015. It was an interesting year. In 2015 we saw a $5.4B increase in Pet Food spending, which came as a result a large number Pet Parents upgrading to super premium brands. To help “pay for” this increase in outlay, households cut back on their spending on Supplies and Veterinary Services. In 2016 the consumers’ focus turned to shopping for value, especially in Foods. The result was a drop of $2.99B in Pet Food Spending. However, they didn’t just pocket all of the savings. They “gave” most of it back by spending an additional $2.53B on Supplies, Services and Veterinary. In 2016, we also saw the Millennials and Gen Xers step up their spending by $2.8B. As I said, it was an interesting year and it raises some interesting questions. It definitely deserves a closer look.

The first question is, “Who is spending most of the $67+ billion dollars?” There are multiple answers. We will look at Total Pet Spending in terms of 10 demographic categories. In each category we will identify which group is responsible for most of the overall spending. Our target number was to find demographic segments in each category that account for 60% or more of the total. In some cases this was easy – Homeowners. In other situations, we had to logically bundle individual segments together to reach our 60% “minimum”. Ex: Occupation – All Wage & Salary earners.

Knowing the specific group within each demographic category that was responsible for generating the bulk of Total Pet $ is the first step in our analysis. Next we will drill even deeper to show the best and worst performing demographic segments and finally, the segments that generated the biggest dollar gains or losses in 2016.

In the chart that follows, the demographic groups appear in ranked order by Total Pet market share from highest to lowest. Also included are their share of total CU’s (Financially Independent Consumer Units) and their performance rating. Performance is their share of market vs their share of CU’s. This is a critically important number, not just for measuring the impact of a particular demographic group, but also in measuring the importance of the whole demographic category in Spending. These are all large groups with a high market share. Any group which produces a performance score over 120% means that this particular demographic measure is extremely important in generating increased Pet Spending. I have highlighted 5 performance ratings which should be noted.

  1. Race/Ethnic – White, not Hispanic (87.4%) This is the largest group and accounts for the vast majority of Pet Spending. With a 125.2% performance rating, this category ranks #5 in terms of importance in Pet Spending demographic characteristics. However, it is important to note that this demographic, along with age, are the 2 areas in which the consumers have no control. The disparity is enhanced by differences in income, education and homeownership. Although, apparently there are also cultural differences as Asian Americans rank first in income, education and total spending but their pet spending performance only exceeds that of African Americans. In fact, their pet spending as a percentage of total spending is 0.31%, the lowest rate of any group.
  2. # in CU – 2+ people (80.5%) It just takes two. More singles are adding Pets to their household. However, if you put 2 people together pets very likely will follow. Their overall performance of 114.5% is lower because performance decreases as the number of people in the CU increases, falling to 77.5% for CU’s with 5 or more people.
  3. Housing – Homeowners (79.8%) Controlling your “own space” has long been the key to larger pet families and more pet spending. At 127.9% performance, homeownership ranks 2nd in terms of importance for increased pet spending. The homeownership rate for Millennials is substantially lower than previous generations when they were the same age. This could have an impact on the future of the industry.
  4. Income – Over $50K (70.1%) Although Pet Parenting is common in all income groups, money does matter. With a performance rating of 140.1%, CU income is the single most important factor in increased Pet Spending. However, it is not the only factor. Remember that Asian Americans have the highest income but spend a relatively low amount on their pets. There is also the situation where pet spending by the $30>39K income group is higher than expected. The average income of retired persons happens to be in this range. It is difficult to change the habits of a lifetime.
  5. # Earners – “Everyone Works” (66.3%) This is a composite of CU’s, regardless of size, where all adults are employed. This group’s high share of overall pet spending is another indication of the growing importance of income in pet spending. However the performance of 115.2% is radically lower than that of the income category. This shows that retired folks and CU’s with 2+ people and only one earner are still a significant share of Pet spending.
  6. Education – Associates Degree or Higher (65.9%) All education levels certainly have pets but spending is another matter. Income generally increases with education level and so does Pet spending. Education is also a key factor in recognizing the value in product improvements, like super premium foods, even though they may come with a higher price tag. Their performance of 127.5% ranks third overall and definitely shows the importance of education in Pet Spending.
  7. Age – 35>64 (64.2%) This is a big change. In recent years, the 45>74 year age group dominated the spending. This was largely due to the Baby Boomers. In 2016, the younger groups stepped up their spending and it became more balanced across all industry segments. The result was that the 35>64 group edged out the 45>74 group for the top spot. Their overall performance was 118.6%, which is substantially lower than the 127.6% generated by the older group in 2015. This is an indication that Pet Spending is becoming more evenly distributed across all age groups.
  8. Occupation – All Wage & Salary Earners (63.7%) – Pet ownership is widespread across all segments in this group. However spending is more skewed towards white collar workers. The low performance, 104.4% shows this disparity but it also reflects the substantial contributions being made by the Self-employed and retired groups.
  9. CU Composition – Married Couples (61.7%) With or without children, two people, committed to each other, is an ideal situation for Pet Parenting. With a big increase in spending by unmarried 2+ adult CU’s, the performance of married CU’s fell slightly from 130.2% in 2015 to 126.9% in 2016. However, it still ranks fourth in importance.
  10. Area – Suburban (60.2%) Homeownership is high. Plus, this group also has the “space” for pets. The Suburbs have the largest share of spending by area for all industry segments. The relatively low performance of 109.7% indicates that Pets are “residents” of all areas. It also reflects the spending differences between different industry segments. Food spending goes up in more rural areas and pet services increases in more urban environments.

Total Pet Spending is a sum of the spending in all four industry segments. The “big demographic spenders” listed above are determined by the total pet numbers. Although the share of spending and performance of these groups may vary between segments, every one of them generates a minimum of 58.1% of the spending in every segment. As we analyze individual segments, some of the groups will change to better reflect where most of the business is coming from.

The group performance is a very important measure. Any group that exceeds 120% indicates an increased concentration of the business which makes it easier for marketing to target the big spenders. Although Income over $50K is the clear winner, Homeowners, those with at least an Assoc Degree and Married couples are essentially tied for second place. The exceptionally high performance by these groups also indicates the presence of segments within these categories that are seriously underperforming. These can be targeted for improvement.

Now, let’s drill deeper and look at 2016’s best and worst performing segments in each category.

Most of the best and worst performers are just who we would expect and there are only 3 that are different from 2015. Changes from 2015 are “boxed”. We should note:

  • Income is becoming even more important as the 259% performance is up 16.7% from last year. This increase is magnified as it comes in a year in which the performance for both the average winner and average loser fell 2%.
  • Occupation – The Self-employed have now occupied the top spot for two years in a row, surpassing the Managers & Professionals in 2015. At the low end, the Service Workers fell into last place. They had a huge 9% increase in the number of CU’s and with the lowest average income of any occupation, their pet spending didn’t keep pace.
  • CU Composition – Last year the winner was married couples with a child over 18. This year it is the married couple only. This reflects the impact of the older groups but also the increased pet spending by the Millennials who are just getting started.
  • # in CU – It just takes 2 and 2 is by far the best performing CU number, regardless if they are married or unmarried.
  • Region – The West is perennially on top. Last year the South was at the bottom. This year it is the Midwest, driven down by their performance in Supplies and Services. Although 94.5% is pretty good for a lowest performance.

Now let’s truly “Show you the money”. In the next chart, we’ll look at the biggest $ changes in spending from 2015.

In this section we will truly see the difference between 2016 and 2015. There are 22 Winners and Losers. Only 4 are repeats. In 4 cases the segments actually switched from the biggest increase to the biggest decrease or vice versa.

  • Area Type – Only the Central City showed a spending increase. It was substantial and in every industry segment.
    • Winner – Central City – Pet Spending: $20.15B; Up $4.71B (+30.5%)
      • 2015: Rural
    • Loser – Suburbs >2500 – Pet Spending: $30.32B; Down $2.51B (-7.6%)
      • 2015: All Suburbs
    • Comment – The largest Suburbs (over 2500 pop.) was the only group with a spending decrease in every segment.
  • # Earners – More earners generally means a higher income and more Spending.
    • Winner – 2 Earners – Pet Spending: $28.55B; Up $2.68B (+10.3%)
      • 2015: 2 Earners
    • Loser – 2+ in CU with 1 Earner – Pet Spending: $12.61B; Down $1.58B (-11.1%)  
      • 2015: 2+ in CU with 1 Earner
    • Comment – We have had the same winning and losing groups for 2 consecutive years. CU income is growing in importance. The 2+ CU with 1 earner has a lot of financial pressure. 2 Earner CUs generally make more money.
  • Income – The value shopping trend caused extreme volatility across the full range of incomes.
    • Winner – Over $200K – Pet Spending: $9.27B; Up $2.13B (+29.8%)       
      • 2015: $100 to $149K
    • Loser – $100 to $149K – Pet Spending: $11.7B; Down $1.46B (-11.1%)
      • 2015: $50 to $99K
    • Comment – Even the over $200K value shopped for Food but they registered big increases in the other segments.
  • Education – All of the increases came from those with an Associates’ degree or less. College grads spent less.
    • Winner – Associates Degree – Pet Spending: $8.20B; Up $2.06B (+33.5%)      
      • 2015: College Grads
    • Loser – Advanced College Degree – Pet Spending: $17.11B; Down $1.45B (-7.8%)
      • 2015: HS Grad or less
    • Comment – No clear correlation as 2016 spending by industry segment was a mixed bag for each education level.
  • Housing – Talk about a turnaround. Renters never win. In 2016, they had increases in every segment but Services.
    • Winner – Renter – Spending: $13.6B; Up $1.78B (+15.0%)
      • 2015: Homeowner w/o Mtge
    • Loser – Homeowner w/Mtge – Pet Spending: $36.15B; Down $1.38B (-3.7%)   
      • 2015: Renter
    • Comment – All groups had a lift in Supplies. In the other industry segments, the results varied widely.
  • # in CU – Recently, increased pet spending has been moving towards smaller CU’s. In 2016, that turned around.
    • Winner – 4 People – Pet Spending: $9.38B; Up $1.73B (+22.6%)
      • 2015: 2 People
    • Loser – 3 People – Pet Spending: $11.39B; Down $0.88B (-7.2%)      
      • 2015: 4+ People
    • Comment: In 2015, only CU’s with 3 or fewer people had an increase. In 2016 there was only one magic number – 4 people. Every other size showed a decrease. This probably correlates with the strong performance by the 35>44 age group since they are the only age group to average between 3 and 4 people per household.
  • Occupation – Pet Parents are widespread across occupations but income has become an increasingly bigger factor.
    • Winner – Managers & Professionals– Pet Spending: $22.15B; Up $1.44B (+7.0%)   
      • 2015: Retired
    • Loser – Retired – Pet Spending: $11.51B; Down $1.63B (-12.4%)
      • 2015: Operators and Laborers
    • Comment – The Retired group won 2 years in a row with big lifts in Food and Veterinary. Now they have cut back sharply on both. In 2016, getting a salary or wages became a priority. Although managers and white collar workers showed the biggest increases, only construction workers and laborers spent less on their Pets in 2016.
  • CU Composition – Up or down, the big changes usually come from some sub-segment of married couples, until now.
    • Winner – 2+ Unmarried Adults – $10.82; Up $1.32B (+13.9%)
      • 2015: Married Couple Only
    • Loser – Married, oldest child >18 – $6.55B; Down $1.24B (-15.9%)
      • 2015: Married All Children <18
    • Comment – This is another category where we see evidence of the spending increase by the younger groups. While 2+ unmarried adults come in all ages, the Millennials are markedly slower to make the marriage commitment. Additionally, the CU Composition sub-segments with all children under the age of 18 showed a pet spending increase of $1.2B. The average age of this group was just over 35.
  • Age – There is a change “in the air” as the younger groups step up.
    • Winner – 35>44 yrs – Pet Spending: $10.95B; Up $1.03B (+10.4%)
      • 2015: 55>64 yrs
    • Loser – 55>64 yrs – Pet Spending: $17.37B; Down $1.23B (-6.6%)
      • 2015: 25>34 yrs
    • Comment: This invariably comes down to a battle of the young versus the old. The older group, largely under the influence of the Baby Boomers, usually comes out on top, but not in 2016. Not only did the 35>44 year old group “win” overall, but every age group under 44 registered an increase. Every group 45 and older spent less.
  • Race/Ethnic – The vast majority of Spending comes from the White, Not Hispanic group so any change is major.
    • Winner – Hispanic – Pet Spending: $4.92B; Up $0.76B (+18.4%)
      • 2015: White. Not Hispanic
    • Loser – White, Not Hispanic – Pet Spending: $58.78B; Down $1.03B (-1.7%)
      • 2015: African American
    • Comment – Hispanic spending was flat in supplies but up significantly in all the other segments.
  • Region – Regions vary in size and demographics like race/ethnicity and income. The South is also growing rapidly.
    • Winner – South – Pet Spending: $24.98B; Up $0.7B (+2.9%)                  
      • 2015: South
    • Loser – Midwest – Pet Spending: $13.51B; Down $1.33B (-9.0%)  
      • 2015: Midwest
    • Comment – The South has won two years in a row, largely due to growth in CU’s. The Northeast would have won in 2016, except for a big drop in Vet $. The Midwest’s problems continue with big drops in products & Services.

We’ve now seen the best overall performers and the “winners” and “losers” in terms of increase/decrease in Total Pet Spending $ for 11 Demographic Categories. Not every good performer can be a winner but some of these “hidden” segments should be recognized for their outstanding performance. They don’t win an award but they deserve….

Honorable Mention

The 2016 performance of these groups doesn’t require a lot of detailed explanation. They just demonstrate that positive spending contributions were made by more than just the “bosses” and ultra-high income groups. Pets are an integral part of the household in a wide range of demographic segments. They don’t get an award but they are all winners. The 25>34 age group and married couples with an oldest child under six also provide more evidence of the significant contribution to Pet Spending made by the younger generations in 2016.

Summary

2016 saw a significant change in spending behavior which has strong implications for the future. In 2015 a large number of households opted to upgrade to Super Premium foods. This resulted in a huge increase in Food spending but reduced spending in Supplies and Veterinary Services. In 2016, consumers stuck with their food choices but began seriously looking for the best price in other outlets, including the internet. They found it and spent a lot less money on Food. This freed up funds for increased spending in the other segments. In today’s world with the internet and smart phones, value shopping is easier and it works. Pay less for the products and services that you want! This will impact the whole industry.

In 2016, on the surface, big changes weren’t as apparent. For example, the demographic groups responsible for most of Total Pet Spending were the same as those in 2015…with one exception. The 35>64 age group replaced the 45>64 group as the biggest spenders. This reflects another significant change in 2016. While the older groups were cutting back, the younger generations were stepping up their Pet Spending.

We also discovered a very important fact regarding four demographic categories with high performing large groups.

  • Income
  • Homeownership
  • Education
  • CU Composition

Increased income, homeownership, more education and being married all generate increased pet spending. These are all demographic characteristics in which the consumer has some control. The demographic segments in these categories allow industry participants to more effectively target their best customers and… those most in need of improvement.

Speaking of performance, there was also very little change in the best and worst performing individual demographic segments. The most noticeable changes occurred in $. There were some surprising winners – Central City, renters and Hispanics to name a few. As always, to get to the heart of the matter and to more actionable data you have to “drill down”. This will become even more apparent as we turn our analytical focus to the individual industry segments.

But before we go…The “Ultimate” Pet Spending Consumer Unit is down to 2 – a married couple, alone – their last child finally moved out. They are still in the 55 to 64 age range. They are White, but not of Hispanic origin. At least one of the Parents has an advanced College Degree. They both still work in their own business and it’s doing great – their income is over $200K. They’re still hoping to pay off the same house located in the lovely small suburb adjacent to a big city in the West.

Here are the “fun” facts that led to their selection.

 

 

 

2016 U.S. Pet Spending by Generation – The Younger Groups Step Up!

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U.S. Consumers spent $7.4 Trillion dollars in 2016, up 235B (+3.3%) from 2015. Of this huge sum, $67.29B (0.91%) was spent on our companion animals. Despite increases in three industry segments, overall Pet Spending fell $0.46B (-0.7%) in 2016. Our initial analysis indicated that much of the decrease can be attributed to Pet Parents value shopping for Premium Pet Food. This shopping behavior which is so heavily driven by price has implications for all industry segments and retail channels. We will continue to monitor the situation and dig deeper into the pet spending demographics.

In this report we will look at Pet Spending for perhaps today’s most “in demand” demographic measurement – by Generation. Are the Baby Boomers starting to fade? Are Millennials stepping up? What about Generation X? These are very valid questions. Using data from the US BLS Consumer Expenditure Survey we will look for the answers.

We’ll start by defining the generations and looking at their share of all U.S Consumer Units (CUs are basically Households)

GENERATIONS DEFINED

  • Millennials: Born 1981 to 1999; In 2016, age 17 to 35
  • Gen X: Born 1965 to 1980; In 2016; age 36 to 51
  • Baby Boomers: Born 1946 to 1964; In 2016, age 52 to 70
  • Silent Generation: Born 1928 to 1945; In 2016, age 71 to 88
  • Greatest Generation: Born before 1928; In 2016, age 89+

  • Baby Boomers are still the largest number of CU’s at 45+M and 34.8% of the total. Two factors in the Boomer CU increase are an “over 50” divorce rate that is double that of the previous generation and the fact that 1/6 of all legal U.S. immigrants are Boomers.
  • Although Millennials have the largest number of individuals, they rank only third in the number of CU’s. However, this number is growing as they gain financial independence. On the other hand, more Gen Xers are coming together.
  • The 2 Oldest Generations will continue to lose CUs primarily due to death or movement to permanent care facilities.

Now let’s look at some key CU Characteristics.

The only changes from 2015 are that the homeownership for the Silent Generation and The Greatest Generation both fell 1 percentage point as more of the older Americans moved to rental properties and alternative living facilities.

  • CU Size – CU’s with 2+ people account for 70.5% of all U.S. CU’s and 80.5% of total pet spending. Millennials are already at the National Average. However, CU size, with the resulting family responsibilities and financial pressures, peaks with the Gen Xers and then starts dropping. The Baby Boomers are last to average over 2 people per CU.
  • # Children < 18 – Children are obviously a big factor in increased CU size. 28.3% of U.S. CU’s have children and they generate 29.8% of Pet Spending. However, the story is more complex. Single parents only spend about half of the national average on their pets. Married couples with children spend 16% more than the average CU. Plus, spending increases significantly as the children get older, which often correlates with the increasing income of the parents.
  • # Earners – Pet spending is also tied to the number of earners in a CU. 2 Earner CUs annually spend 51.7% more on their pets than 1 Earner CUs. As you can see in the chart, the “earning” is being done in America by Gen Xers, Millennials and Boomers, with Gen Xers on top.
  • Homeownership – Owning and controlling your own space has always been a major factor in increased Pet Ownership and spending. Currently, Homeowners account for 79.8% of Total Pet Spending. However, 2016 was a bit different in that pet spending fell for Homeowners while increasing by $1.8B for Renters.
    • Millennials are the most common renters in society as their level of Homeownership is basically half of the national average and only 2/3 of the rate of Gen Xers and Boomers when they were the same age.
    • Gen Xers have reached the national average and the rate of Homeownership continues to grow until we reach the 89+ year old Greatest Generation who have begun to move to rental properties and other alternative living facilities which have fewer or no upkeep requirements.

Next we’ll compare the Generations to the National Avg.: In Income, Spending, Total Pet Spending and Total Pet Share of Total $pending

CU National Avg: Income – $74,664; Total Spending – $57,247; Total Pet Spending – $519.57; Pet Share – 0.91%

  • Income – The 36>51 year old Gen Xers are the leaders and will soon occupy all the slots in the peak earning years – 45 to 54. The Boomers earn about 16% less and this difference will increase as they age. The income of the Silent Generation is almost exactly half of the Boomers as retirement becomes almost universal in this 71+ year old group. The Millennials’ income is growing but it is still 18% less than the Boomers and only 70% of the Gen Xers.
  • Total Spending – The Gen Xers make the most and spend the most but it’s not out of line with their income. Boomers also spend more than the average but currently their income can support it. Spending doesn’t fall as fast as income with the older generations. In fact, they are actually deficit spending in relation to their after tax income. The Millennials’ spending is also in line with income. Their income is rising but this also reflects the trend for more Millennials to remain a part of their parents’ household until they are financially secure enough to start their own.
  • Pet Spending – The Boomers are still by far the Pet Spending leaders, but the Gen Xers also exceed the National average per CU. Millennials’ Pet Spending is increasing but they are still in 4th place.
  • Pet Spending Share of Total Spending – The chart shows that the Pet Spending share of total spending fell for the 3 oldest generations while it increased for Millennials and Gen Xers. The Boomers are now the only generation spending more than 1% of their total expenditures on their pets. The percentage increase by the younger groups is more impressive because their total expenditures also increased by over 2% – Pet took a larger piece of a bigger pie.

It’s time to look at actual Total Pet Spending by Generation in terms of market share as well as the actual annual $ spent for 2014 through 2016. The 2016 spending numbers are highlighted in this and following charts:

  • If outlined in green, spending up from 2015
  • If outlined in red, spending down from 2015
  • If highlighted in green, spending up from 2014
  • If highlighted in pink, spending down from 2014

  • Boomers continue to dominate Pet Spending but their share has fallen from 47.5% in 2015 to 44.0% in 2016.
  • The 3 oldest generations lost 4.4% in market share that was picked up by the Millennials, +2.6% and Gen Xers, +1.8%
  • In terms of 2016 Performance, it was all about the younger crowd. Millennials and Gen Xers were up $2.79B. The older groups spent $3.25B less. Also, although Boomer spending is up minimally, $0.14B since 2014, it was the $3.32B increase by Millennials and Gen Xers that has fueled the Industry’s growth over that period.
  • Boomers – Ave CU spent $667.12 (-$65.96); 2016 Total Pet spending = $29.61B, Down $2.54B (-7.9%)
    • 2014>2016: Up $0.14B; Tremendous lift in Food in 2015. Then the big drop in 2016. Now, basically equal to 2014.
  • Gen X – Ave CU spent $541.95 (+$29.63); 2016 Total Pet Spending = $19.34B, Up $1.08B (+5.9%)
    • 2014>2016: Up $1.68B; Their annual Pet spending growth since 2014 has been consistent and significant.
  • Millennials – Ave CU spent $376.60 (+$39.30); 2016 Total Pet Spending = $11.44B, Up $1.71B (+17.6%)
    • 2014>2016: Up $1.75B; The Millennials had a big lift in spending in 2014. Spending was flat in 2015. 2016 brought another big spending lift. In certain segments they have spending patterns similar to the Boomers, but occurring a year earlier. It’s possible that Millennial spending trends, could predict the Boomers’ future spending.
  • Silent Gen. – Ave CU spent $397.07 (-$36.53); 2016 Total Pet Spending = $6.67B, Down $0.70B (-9.5%)
    • 2014>2016: Down $0.2B; A lift in 2015, then a substantial drop in 2016. A similar pattern to the Boomers.
  • Greatest Gen.– Ave CU spent $105.64 (-$1.40); 2016 Total Pet Spending= $0.23B, Down $0.01B (-3.8%)
    • 2014>2016: Down $0.3B; They are fading as Pet Parents but you will see evidence of their lifelong commitment.

The youngest generations saved the industry from a big decrease. Let’s look at individual segments. First, Pet Food..

  • After their 2015 Upgrade, Boomers and to certain extent Gen Xers, began value shopping for premium Food/Treats.
  • The Millennials had a big lift in 2014, then spending fell in 2015. Now it’s significantly up again in 2016. Could Millennials be pioneering food trends that are later embraced by the Boomers and other generations?
  • Boomers – Ave CU spent $274.66 (-$81.32); 2016 Pet Food spending = $11.92B, Down $3.65B (-23.4%)
    • 2014>2016: Up $2.18B – Even after value shopping, they have a substantial increase in spending since 2014.
  • Gen X – Ave CU spent $191.35 (-13.09); 2016 Pet Food spending = $6.86B, Down $0.40B (-5.5%)
    • 2014>2016: Down $0.13B A little savings in 2016, but CU food spending has stayed at or near $200 since 2014.
  • Millennials – Ave CU spent $153.01 (+$26.44); 2016 Pet Food Spending $4.81B, Up $1.17B (+32.2%)
    • 2014>2016: Up $0.53B Age 25>34 upgraded Food in late 2014, then value shopped in 2015. Now they’re into the next trend, with a 32% increase. They are growing in CU’s & commitment to their pets. Quality food is a big issue.
  • Silent Generation – Ave CU spent $167.01 (-$4.56); 2016 Pet Food spending = $2.78B, Down $0.124B (-4.3%)
    • 2014>2016: Down $0.10B; The pattern is very similar to Gen Xers. Less fluctuation, essentially stable since 2014.
  • Greatest Gen. – Ave CU spent $61.26 (+$6.90); 2016 Pet Food spending= $0.13B, Up $0.01B (+6.0%)
    • 2014>2016: Down $0.05; A lift in 2016 Food spending? These oldest Americans are still committed to their Pets.

We have seen the trendy nature of Food Spending over the years. It is possible that the young, connected Millennials are now the first to react and “buy into” each new “advance” in Pet Food.  Let’s look at the Supplies Segment.

  • Boomers still have the largest share but unlike all other segments, the Younger Groups – Gen Xers and Millennials account for over half of the spending – 50.9%.
  • Baby Boomers – Ave CU spent $141.35 (+$6.79); 2016 Pet Supplies spending = $6.37B, Up $0.43B (+7.2%)
    • 2014>2016: Down $0.3B; Spending bounced back but not all the way – only regained 60% of the 2015 loss.
  • Gen X – Ave CU spent $147.64 (+$20.17); 2016 Pet Supplies spending = $5.25B, Up $0.68B (+14.9%)
    • 2014>2016: Down $0.23B; Supplies are important to Gen X. They had the biggest gain – got back 3/4 of the loss.
  • Millennials – Ave CU spent $94.67 (-$16.52); 2016 Pet Supplies spending = $2.81B, Down $0.42B (-12.9%)
    • 2014>2016: Down $0.22B; Supplies are Millennials’ #2 Pet spending priority but they cut back a little in 2016 to help “pay for” increased spending in Food and Veterinary.
  • Silent Generation – Ave CU spent $80.35 (+17.65); 2016 Pet Supplies spending = $1.36B, Up $0.283B (+26.4%)
    • 2014>2016: Down $0.34B; Pattern similar to Boomers but as a rule, Supplies are their lowest Pet Spending priority.
  • Greatest Gen. – Ave CU spent $19.91 (-$16.05); 2016 Pet Supplies spending = $0.05B, Down $0.036B (-43.4%)
    • 2014>2016: Down $0.07B; A significant drop, but Supplies have a lower priority for these oldest Pet Parents.

Most groups cut back on Supplies spending in 2015. This was due to a combination of rising prices and an attempt to compensate for the cost of upgrading their pet food. Although prices moved slightly higher in late 2016, they were down for most of the year. Consumers strongly value shopped for food and spent some of the “saved” money on Supplies.

Next, we’ll turn our attention to the Service Segments. First, Non-Veterinary Pet Services

  • Boomers have the largest share – 46.9%, up significantly from 39.5% in 2015.
  • Baby Boomers – Ave CU spent $71.17 (+$15.19); 2016 Pet Services spending = $3.21B, Up $0.74B (+29.8%)
    • 2014>2016: Up $0.53B; As they age, pet services become more appealing and they still have high income.
  • Gen X – Ave CU spent $48.52 (-$10.71); 2016 Pet Services spending = $1.73B, Down $0.40B (-18.7%)
    • 2014>2016: Up $0.14B; Significantly cut back spending. They have the money. Maybe they found a better price?
  • Millennials – Ave CU spent $37.96 (+$2.94); 2016 Pet Services spending = $1.13B, Up $0.11B (+10.9%)
    • 2014>2016: Up $0.42B; As their income increases, the convenience of Pet Services becomes more accessible.
  • Silent Generation – Ave CU spent $44.41 (+$8.48); 2016 Pet Services spending = $0.75B, Up $0.13B (+21.9%)
    • 2014>2016: Up $0.09B; They definitely have a growing need. In 2016 they allocated the money.
  • Greatest Gen. – Ave CU spent $10.64 (-$1.51); 2016 Pet Services spending = $0.02B, Down $0.003B (-10.5%)
    • 2014>2016: Down $0.02B; Like Supplies, their spending in this discretionary segment is falling.

This segment finds a way to grow every year. In 2015, the older groups dialed back their services’ spending while they were upgrading their food. The younger groups more than made up the difference by spending $0.84B more. In 2016, Gen Xers cut back to help pay for their Vet Bills. Everyone else, especially Boomers, stepped up with a $0.97 increase.

Now, Veterinary Services

  • Boomers are still the dominant group in this industry segment – their share is 50% more than the #2, Gen Xers.
  • The big news is that the younger groups have committed more strongly to this Pet Parenting responsibility. The combined veterinary spending of Millennials and Gen Xers increased $2B in 2016 and is up $2.8B since 2014.
  • Boomers – Ave CU spent $179.94 (-$6.62); 2016 Veterinary spending= $8.11B, Down $0.053B (-0.6%)
    • 2014>2016: Down $2.27B; Their spending has essentially stabilized after the big cut back in 2015.
  • Gen X – Ave CU spent $154.44 (+$33.25); 2016 Veterinary spending= $5.49B, Up $1.19B (+27.6%)
    • 2014>2016: Up $1.79B; In 2016, Veterinary exceeded the CU spending average and they moved up to the #2 spot.
  • Millennials – Ave CU spent $90.96 (+$26.45); 2016 Veterinary Spending $2.70B, Up $0.84B (+45.6%)
    • 2014>2016: Up $1.03B; With a 40+% increase in CU spending, Veterinary became a much bigger priority.
  • Silent Generation – Ave CU spent $105.30 (-$58.10); 2016 Veterinary spending $1.78B, Down $0.99B (-35.9%)
    • 2014>2016: Up $0.15B; Money and price are always factors. They cut back in 2016 after the huge lift in 2015.
  • Greatest Generation– Ave CU spent $13.83 (+$9.26); 2016 Veterinary spending= $0.03B, Up $0.02B (+202%)
    • 2014>2016: Down $0.17B; Food and Veterinary are the two biggest priorities to these oldest Pet Parents.

Gen Xers and Millennials have markedly increased their commitment to Veterinary Services. In 2014, their share of Veterinary Spending was 30%. In 2016, it reached 45% – a 50% increase. This is a big, fundamental change in behavior.

One last chart to compare the share of spending to the share of total CU’s for the 4 largest generations.

  • Silent Generation Performance – Total: 76.0%; Food: 80.6%; Supplies: 65.7%; Services: 84.2%; Veterinary: 75.3%
    • This group ranges in age from 71 to 88. Pet ownership is more challenging after age 75. However, the desire and the commitment are still there. This is evident in the 80% performance on Pet Food and the fact that 0.95% of their total CU spending is on Pets. They don’t “earn their share” but they perform better than the Millennials.
  • Baby Boomers Performance–Total: 126.4%; Food: 129.2%; Supplies: 115.6 %; Services: 134.9%; Veterinary: 128.7%
    • Boomers led the way in building the industry and are still the “top dogs”. They earn their share and in fact, are the spending leader in every segment. Ultimately, this will begin to fade with age. However, they will continue to lead for many years to come. Their big lift in Services Spending indicates that they will do whatever is necessary.
  • Gen X Performance – Total: 104.6%; Food: 94.3%; Supplies: 120.8%; Services: 91.9%; Veterinary: 110.4%
    • The Gen Xers are next in line to Boomers in age and performance. In 2016, they “earned their share” as their Pet Spending performance exceeded 100%. They have always spent a lot on Supplies, but in 2016 they radically increased their Veterinary spending. With their performance now exceeding 90% in every industry segment, it is evident that they are committed to all aspects of Pet Parenting. They now range in age from 36 to 51 so they are just entering the peak earning years. Expect their commitment and their pet spending to continue to grow.
  • Millennials Performance – Total: 74.2%; Food: 79.2%; Supplies: 77.4%; Services: 71.9%; Veterinary: 65.0%
    • Millennials are inevitably the future of the industry, but the future is still a ways off. They have pets, a lot of them, but also growing responsibilities. Money is tight and they are twenty years away from their peak earning years. Although their spending performance is low at 74%, it is radically up from 2015 – 64%. They are the industry leaders in some ways. In 2014, they led the way in the super premium food upgrade. They also led the value shopping trend which followed, especially on the internet. The other groups, especially Boomers, followed in their footsteps. In 2016 they showed that they can also learn from the older folks as they ramped up their Veterinary spending. They now have more balanced spending across all segments and are poised for growth.

 

 

 

 

 

 

 

 

 

U.S. E-Commerce $ales: Taking A Closer Look

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The internet has become a huge part of our lives, affecting all aspects of our behavior, including retail spending. The convenience, selection and value offered by e-commerce is accelerating the evolution of the retail market as increasing numbers of consumers, across a wide range of demographics, migrate to internet retailers. The brick ‘n mortar retailers are not oblivious to this movement and are ramping up their commitment to the .com divisions of their businesses.

In this report we will take a closer look at the total e-commerce business in the U.S. This will include sales from non-store retailers as well as the internet sales from the .com divisions of companies who derive most of their business from brick ‘n mortar outlets. We are able to do this by combining data from 3 separate reports published by the U.S. Census Bureau.

Let’s get started. In 2000, the Total Retail economy (less restaurants) was $3.0 Trillion. By 2016 it had increased 63.0% to $4.9 Trillion. As you will see in the chart below, e-commerce did a little better than that – increasing sales by over 1300%. This whole report is very “chart intensive”. This makes the data easier to digest but in most cases, it also reduces the need for commentary as the conclusions are visually very obvious.

The increase is very consistent since the millennium. The only slow down came from 2008 to 2009 as a result of the Great Recession. However, while e-commerce growth notably slowed, we should remember that the total retail economy actually decreased in 2009 for the first time since 1956. 2010 and the years since the recession have shown strong increases in e-commerce as the new “value conscious” consumers looked to the internet for savings. Perhaps even more significant than the spectacular growth in dollars, is the growth in overall market share. E-commerce went from insignificance – less than 1%, to an 8% “force” in the retail market.

We see the annual dollars but are they consistent year round? Is there a pattern to e-commerce sales? Here is what the sales looked like by calendar year quarter in 2016.

As you can see there is the expected lift in the 4th quarter, about 33%, due to holiday sales. Then sales drop off in the 1st quarter as consumers recover from the holiday binge. Consumer holiday spending is being pushed earlier every year as the retailers intensify the competition for the consumers’ $, but so far it is still limited to the 4th quarter. This chart reflects the spending for 2016. However, this same pattern has been remarkably consistent, within 1%, for every year since 2000, with one exception. The 4th quarter of 2008 was only 28% of the year’s total. Anxiety over the impending economic crisis depressed consumers’ holiday spending in 2008. However, it returned to the normal pattern in 2009.

Now let’s take a more detailed look at e-commerce spending. One of the newest reports from the Census Bureau breaks the e-commerce $ down by retail channel so we can see how the brick ‘n mortar companies are doing in their online battle with non-store retailers. This is a new report and the latest data is for 2015.

Obviously, the non-store online retailers are way ahead. The biggest surprise may be that the leading retail channel is auto/parts dealers. Overall this is a $1 Trillion dollar category so it shouldn’t be unexpected. However, it is generally not in direct competition with the other channels.

The performance of Clothing, General Merchandise and Electronics stores is pretty much expected. However, it’s interesting that Miscellaneous Stores rounds out the top 5. Office stores and florists are increasingly turning to online business as traffic drops in their retail outlets. Regarding Pet Stores, our recent spending reports for the Pet Industry have shown that value is major factor in consumer buying decisions across all segments. With the demonstrated savings and convenience of internet shopping, more pet retailers are increasing their internet footprint.

Drug/Health outlets and Grocery stores are at the bottom of the list. I am somewhat surprised by their low ranking but I believe that we have seen steps taken to address this situation. Amazon recently purchased Whole Foods and all of the major supermarket chains are increasingly developing their online ordering and delivery capabilities. Supermarkets are the single largest retail channel in the U.S. so this is a huge opportunity.

In 2015, Non-store retailers won the online “battle for the bucks” with their brick ‘n mortar rivals by a margin of 56.7% to 43.3%. Let’s look at recent history to see if the brick ‘n mortar folks are gaining any ground.

The e-commerce sales for primarily brick ‘n mortar businesses increased $50B (+51.9%) between 2011 and 2015 but their share of total e-commerce sales fell from 48.6% to 43.3% – a 10.9% decrease. Brick ‘n mortar stores, from major chains down to independent retailers are increasing their emphasis in online sales. However, so far, they are not keeping pace with their non-store competition. In addition to not being as experienced in this market, another handicap that they often face is that consumers are required to pay local sales taxes on purchases in any state in which the seller has a physical facility. This includes retail outlets, offices or a warehouse/distribution center.

Business success is usually dependent upon commitment. Just how important are e-commerce sales to any given retail channel. This final chart shows the e-commerce share of the 2015 total sales for each relevant retail channel.

This chart shows that traditional mail order and TV are not dead. Although they are losing ground, they still make up about 1/3 of the total sales for all non-store retailers.

The commitment to e-commerce certainly makes sense for the electronics outlets. Book, music, toy and clothing also reflect the patterns that we are seeing every day. Miscellaneous, which includes pet stores, was 5th in total e-commerce sales $ but moved up to 2nd place for brick ‘n mortar channels in terms of the e-commerce share of its total business. The commitment to e-commerce is strong and growing in this channel. The internet share of total sales for both General Merchandise and Grocery stores is rather small. However, we need to remember that these 2 channels are huge – totaling over $1.3 Trillion in annual sales. Their e-commerce is growing and every gain of 1% in share equals $13B.

The internet and e-commerce are here to stay and they are changing the retail marketplace. As we have said on many occasions, a participant either adapts to an evolving environment or goes extinct. It’s up to each company to decide.

2016 U.S. TOTAL PET SPENDING $67.29B…DOWN ↓$0.46B

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In 2016 Total Pet Spending in the U.S. was $67.29B, a $0.46B (0.7%) decrease from 2015. This was a marked contrast from the Total “Relevant” Retail Market (+3.6%) and the Top 100 U.S. retailers (+4.2%). However, the story gets a bit complex. In 2015, a $5.4B increase in Pet Food Spending, which came from a significant share of H/H’s upgrading to more premium products, drove a 5.3% total industry increase. However, to help pay for the increase, consumers cut back on Pet Supplies and Veterinary spending, -$2.6B. In 2016, consumers began value shopping for their expensive food and reduced Food spending by $2.99B. They spent most, but not all, of this “saved” money in other Industry segments.

  • A big $2.99B (-10.1%) cut back on Food
  • A 0.94B (+6.3%) comeback in Supplies
  • A $1.01B (+5.9%) turnaround in Veterinary
  • A business as usual $0.58 (+9.3%) gain in Services

Let’s see how these numbers blend together starting at the household level. In any given week, 27.1 Million U.S. Households (1/5) spend money on their Pets – food, supplies, services, veterinary or any combination.

In 2016, the average U.S. Household (pet & non-pet) spent a total of $519.57 on their Pets. This was a 1.6% decrease from the $528.17 spent in 2015. However, this doesn’t “add up” to a 0.7% decrease in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

  • 0.9% more H/H’s
  • Spent 5.6% less $
  • 3.6% more often

If 65% of U.S. H/H’s are pet parents, then their annual H/H Total Pet Spending is $799.34. 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 – The 2016 Total includes Veterinary Numbers from the Interview survey, rather than the Diary survey due to high variation)

  • In 2015, the Food upgrade began early and continued all year. The cut backs on Vet & Supplies spending happened immediately and were most noticeable in the first half while Food Spending was still building.
  • In 2016, we have almost the opposite scenario. The consumers began value shopping for food and this behavior became widespread by yearend. Veterinary spending saw the biggest spending lift in the first half while the more discretionary Supplies Segment didn’t “catch on” until later in the Year.
    • 2016: 1st Half ↑$0.55B;
    • 2016: 2nd Half ↓$1.01B

Let’s look at some Demographics. First, 2016 Total Pet Spending by Income Group. The chart has these highlights:

  • If outlined in green, sales were up in 2016
  • If outlined in red, sales were down in 2016
  • If highlighted in green, sales were up from 2014
  • If highlighted in pink, sales were down from 2014

  • < $70K – (63.0% of U.S. H/Hs); H/H Pet Spending: $346.68, (-3.7%);
    • Total Pet $ : $28.39B, ↓$1.45B (-4.8%) from…
      • Food ↓$2.05B
      • Supplies ↑$0.49B
      • Services ↑$0.40B
      • Veterinary ↓$0.29B 
    • A significant portion of this price sensitive group chose to upgrade their Pet Food in 2015. In 2016 they value shopped for food and some may even have backed away from the upgrade. Strong inflation is always an issue in their Veterinary spending. However, they did use a  portion of their food savings on Supplies & Services.
  • >$70K – (37.0% of U.S. H/Hs); H/H Pet Spending: $816.00, (–2.3%);
    • Total Pet $: $38.9B, ↑$0.99B (+2.6%) from…
      • Food ↓$0.94B
      • Supplies ↑$0.46B
      • Services ↑$0.18B
      • Veterinary ↑$1.29B
    • This group is growing, up 4.8% in 2016. This is significant because although they spent less per H/H, their total Pet Spending $ went up. They do have higher incomes, but they still value shopped for Pet Food. They also spent the savings and more on other industry products and services. This group is obviously very important as it represents 37% of U.S. H/H’s but accounts for 57.8% of the Pet Industry’s total revenue.
  • < $30K – (31.1% of U.S. H/Hs); H/H Pet Spending: $260.12, (-5.5%);
    • Total Pet $: $10.3B, ↓$1.02B (-9.0%) from…
      • Food ↓$0.45B
      • Supplies ↑$0.18B
      • Services ↓$0.01B
      • Veterinary ↓$0.73B
    • Two significant subsets in this group are H/Hs just getting started along with retirees. They saved money on food and spent it on Supplies. Service spending was unchanged. However, there was a huge drop in Veterinary Spending, largely from the older group. The strong inflation in this category affects lower incomes.
  • $30>$70K – (31.9% of U.S. H/Hs); H/H Pet Spending: $427.85, (-3.4%);
    • Total Pet $: $18.1B, ↓$0.43B (-2.3%) from…
      • Food ↓$1.60B
      • Supplies ↑$0.31B
      • Services ↑$0.41B
      • Veterinary ↑$0.44B
    • This low to middle income group is by necessity price sensitive but is also committed to their pets. They saved a lot of $ on Food but spent most of this money in the other segments.
  • $70>$99K – (14.0% of U.S. H/Hs); H/H Pet Spending: $617.43, (+3.0%);
    • Total Pet $: $11.5B, ↑$0.73B (+6.7%) from…
      • Food ↑$0.35B
      • Supplies ↑$0.48B
      • Services ↓$0.08B
      • Veterinary ↓$0.03B
    • This upper middle income group upgraded their Food and spent even more on Supplies. Spending in both of the Service Segments was basically unchanged. Their focus in 2016 was Pet Products.
  • $100K>$149K– (12.5% of U.S. H/Hs); H/H Pet Spend: $736.62, (-14.4%);
    • Total Pet $: $11.7B, ↓$1.46B (-11.1%) from…
      • Food ↓$1.08B
      • Supplies ↓$0.30B
      • Services ↓$0.08B
      • Veterinary ↓$0.01B
    • In 2015, this group was the Star of the income groups. In 2016, they had the worst performance with decreased spending in every segment. It is another indication that price/value matters to virtually everyone.
  • $150K> – (10.5% of U.S. H/Hs); H/H Pet Spending: $1184.71, (+2.4%);
    • Total Pet $: $15.7B, ↑$1.72B (+12.3%) from…
      • Food ↓$0.22B
      • Supplies ↑$0.28B
      • Services ↑$0.34B
      • Veterinary ↑$1.33B
    • Even these wealthiest Americans saved money on Food but they spent significantly more in all the other segments. Without the spending increase in 2016 from this group…
      • Veterinary spending would have been down -$0.32B, not up $1.01B
      • Total Pet Industry spending would have been down -$2.18B (-3.2%), not just -$0.46B (-0.7%)

Income Recap – There is a growing price sensitivity across America. In 2016, this was demonstrated by consumers across almost all income groups value shopping for Pet Food. This had a huge impact on Total Pet Spending.

Only 2 income groups increased their Pet Spending in 2016. The $70>99K group upgraded their Pet Food and increased their spending on Supplies. No other income group did that – a strong commitment. The Over $150K group saved money on Food but had a huge increase in the other segments – especially Veterinary!

Since 2014, the $30>99K income group – middle America, spent less, especially on Vet Services. The <$30K group, often the youngest and oldest H/Hs, increased their spending in all but Supplies. The $100K> group also had increases in all segments but Supplies. However, the big “heroes” are the $150K> group. In fact, without the $3.1B increase in spending by this highest income group, the Total Spending for the whole Pet Industry would have been down -$0.13B from 2014.

Next let’s look at the 2016 Total Pet Spending by Age Group

  • <25 – (5.6% of U.S. H/Hs); H/H Pet Spending: $237.28, (+13.7%);
    • Total Pet $: $1.86B, ↑$0.18B (+10.5%) from…
      • Food ↓$0.005B
      • Supplies ↑$0.04B
      • Services ↑$0.02B
      • Veterinary ↑$0.13B
    • These young Millennials upgraded their Food in 2015. Now they are expanding their commitment.
  • 25-34 – (16.1% of U.S. H/Hs); H/H Pet Spending: $420.02, (+9.5%);
    • Total Pet $: $8.89B, ↑$0.66B (+8.0%) from…
      • Food ↑$0.71B
      • Supplies ↓$0.56B
      • Services ↓$0.03B
      • Veterinary ↑$0.55B
    • These oldest Millennials are back on board with upgraded Food. Spending on Supplies suffered. However, they also demonstrated their commitment to their pets’ health with a big increase in Veterinary spending.
  • 35-44 – (16.6% of U.S. H/Hs); H/H Pet Spending: $512.67, (+9.7%);
    • Total Pet $: $10.95B, ↑$1.03B (+10.4%) from…
      • Food ↓$0.22B
      • Supplies ↑$0.69B
      • Services ↓$0.29B
      • Veterinary ↑$0.86B
    • This group has the largest families and is in the middle of building their careers. This makes them very sensitive to value. Pet spending had been declining. In 2016, they value shopped for food but markedly increased their spending on Veterinary and Supplies. This lifted them to the biggest increase of any group.
  • 45-54 – (18.6% of U.S. H/Hs); H/H Pet Spending: $620.10, (-3.9%);
    • Total Pet $: $14.88B, ↓$0.43B (-2.8%) from…
      • Food ↓$0.41B
      • Supplies ↑$0.19B
      • Services ↑$0.03B
      • Veterinary ↓$0.24
    • This age group has the highest income and a $1B spending increase in 2015.  In 2016, they value shopped for food and cut back on Vet spending. They spent more on Supplies but not enough to make up the difference.
  • 55-64 – (19.0% of U.S. H/Hs); H/H Pet Spending: $714.51, (-6.4%);
    • Total Pet $: $17.37B, ↓$1.23B (-6.6%) from…
      • Food ↓$2.61B
      • Supplies ↓$0.01B
      • Services ↑$0.66B
      • Veterinary ↑$0.72B
    • These Baby Boomers spent an extra $5B to upgrade their Food in 2015. Spending in the other segments paid a big part of the price – down $2.5B. In 2016, they looked for and got the best price on Food and that Spending fell by 26%. They then used about half of this saved Food money to get back on track with Veterinary Services and to radically increase their use of Pet Services.
  • 65-74 – (14.0% of U.S. H/Hs); H/H Pet Spending: $552.89, (-9.7%);
    • Total Pet $: $9.88B, ↓$0.41B (-3.9%) from…
      • Food ↓$0.80B
      • Supplies ↑$0.36B
      • Services ↑$0.29B
      • Veterinary ↓$0.25B
    • Many in this group are retired and about half are Baby Boomers. Like many other groups, they upgraded their Pet Food in 2015 but radically reduced this spending in 2016. They spent most of this saved money on Supplies and needed Pet Services. However, they are very price sensitive so they cut back on the rapidly inflating Veterinary Services.
  • 75> – (10.0% of U.S. H/Hs); H/H Pet Spending: $266.61, (-10.4%);
    • Total Pet $: $3.46B, ↓$0.27B (-7.2%) from…
      • Food ↑$0.34B
      • Supplies ↑$0.23B
      • Services ↓$0.09B
      • Veterinary ↓$0.75B
    • These committed oldest Pet Parents upgraded their Food and increased their Supplies spending. They paid for this by radically reducing their Veterinary spending. There was little change in frequency. They just spent less.

Age Group Recap: In 2016, the <45 groups increased their spending by $1.87B. Most of this lift came from a $1.54B increase in Vet Spending. These younger H/H’s got onboard with the healthcare aspect of Pet Parenting. The 45> H/H’s spent $2.33B less overall. There were ups and downs by segment for each older age subgroup. However, the totals for 45> were: Food, Down -$3.51B; Veterinary, Down -$0.52B; Services had a big lift +$0.89B and Supplies went Up +$0.57B.

Since 2014, only the Service Segment had an increase in all groups. Veterinary spending fell in the older groups while it gained in importance with the younger Households. In terms of products – Food and Supplies, value shopping came to the forefront. Consumers looked for higher quality at the best price. The 25>34 year olds were the only group with decreased spending from 2014. Their drop came only in Food & Supplies. They are the best “connected” of any group. It’s possible that the decrease came because they were ahead of the curve in value shopping, especially on the internet.

Take a look at some Key Demographic “Movers” for 2016. It should give you a better picture of the situation.

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 down -$0.46B (-0.7%), but only one of the 80+ individual demographic segments had a decrease in all Industry segments – the $100>149K income group. (last year’s best performer) There were 3 segments that had across the board spending increases: H/H’s that lived in Central Cities, H/H’s with 2 or more unmarried adults and no children and H/H’s where the highest education level was an Associates’ Degree. These are certainly not the demographic stereotypes of the “ideal” U.S. Pet H/H’s. However, their increases along with the increased spending by Renters, 4 people H/H’s, 2 earner H/H’s and in fact, the whole Under 45 group, reinforced the “youthful” nature of the best pet spending performances in 2016.

On the downside, the biggest decreases came from groups that are the usual Pet Spending Winners – suburban & rural H/H’s, College Grads, Married couples only or those with a child over 18 and even the 55>64 year old “Boomers”.

2016 was definitely “different” in Pet Spending Behavior. The Key factor was the huge drop in Pet Food Spending – a $2.99B decrease after a record shattering $5.4B increase in 2015. The 2015 increase came from a big share of H/H’s opting to upgrade the quality of their Pet Food. However, the 2016 spending drop didn’t primarily come from these consumers reneging on this commitment. It came from them seriously shopping for the best price – in a store or on the internet. This value shopping phenomenon appears to have caught on across virtually all income groups and will undoubtedly affect the future spending behavior across all industry segments, not just products. The Service Segments, especially Veterinary, have been strongly inflating. Price matters and it can and will affect which services are purchased and/or the frequency.

There is also no doubt that strong spending trends, up or down, in one segment affect the spending in others. Whether or not this is a conscious decision by Pet Parents is not known. However, the correlation is there – time after time.

I will wrap this up by saying that there appears to be only one “sure” demographic bet in Total Pet spending. The households with incomes over $200K (5.6%) will continue to increase their spending on their Pet Children.


 

2016 U.S. VETERINARY SERVICES SPENDING $18.12B…UP ↑$1.01B

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Veterinary Services is the second largest segment in the Pet Industry. A high inflation rate, over 3.5%, has put spending on a rollercoaster ride with today’s more price sensitive consumers. In 2016, spending was $18.12B – Up -$1.01B (+5.9%) from 2015. In this report, we’ll take a closer look at the demographic drivers of the increase. (Note: All 2016 numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Interview Survey, rather than their Diary report. The low frequency of Consumers’ Veterinary Visits generated an exceptionally high variation on the data collected by the Diary method so I chose to use the data from their Interview survey. This seems to be a more logical and accurate way to track Veterinary Service Expenditures.)

Let’s get started. Veterinary Spending per H/H in 2016 was $139.84, up from $133.4 in 2015. (Note: A 2016 Pet H/H (65%) Spent $215.14) More specifically, the increase in total spending came as a result of:

  • 0.9% more H/H’s
  • Spending 1.2% more $
  • …3.8% more often

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

After the precipitous drop in the first half of 2015, spending began to climb until it flattened out in the second half of 2016. The 2015 Food spending upgrade and then the subsequent savings accrued by value shopping both affected the availability of funds for spending on Veterinary Services. Now, let’s look at Veterinary spending by some specific demographics. First, here is a chart by Income Group with these highlights:

  • If outlined in green, sales were up in 2016
  • If outlined in red, sales were down in 2016
  • If highlighted in green, sales were up from 2014
  • If highlighted in pink, sales were down from 2014

Observations

At first glance, the increases from 2015 and even from 2014 seem to be driven solely by the higher incomes, over $70K, which is not unexpected with the high inflation rate. Although when you look closer, the story becomes more complex.

  • Over $150K (10.5% of H/H’s) – $5.18B, Up $1.33B (+34.6%) This highest income group is definitely the biggest driver as Veterinary Prices continue to inflate at a high rate.
  • $70K>150K (26.5% of H/H’s) – $6.22B, Down -$0.04B (-0.6%) The spending is essentially flat in this mid to upper income group, although it is trending downward.
  • $30K>70K (31.9% of H/H’s) – $4.27B, Up $0.45B (+11.6%) This is one bright spot in the below average income group. Among other demographics, it includes a number of younger H/H’s.
  • Under $30K (31.1% of H/H’s) – $2.44B, Down -$0.73B (-23.0%) Obviously, this group is price sensitive and includes many retirees who spent heavily in 2015, then pulled back in 2016.

Now, here is Veterinary Spending by Age Group

Observations

It is immediately obvious that in 2016 the younger generations stepped up in terms of Veterinary Spending.

  • <25 (5.6% of H/Hs) – $56.77 per H/H – $0.41B – Up $0.12B (+45.1%) This youngest group is beginning to recognize that being a Pet Parent is more than just buying Food and toys.
  • 25>34 (16.1% of H/Hs) – $105.67 per H/H – $2.21B -Up $0.55B (+33.1%) These Millennials committed both to upgrading their Pet Food and spending more on regular Veterinary care. They have a long way to go but they are on the right track.
    • 0.7% fewer H/Hs
    • Spent 31.3% more $
    • …2.0% more often
  • 35>44 (16.6% of H/H’s) – $143.51 per H/H – $3.08B – Up $0.86B (+38.5%) This group is under tremendous financial pressure as their human family responsibilities are peaking. They valued shopped for premium food but used the saved money and more to get the products and Veterinary care that their pet children needed. In fact, they exceeded the National Average on Veterinary spending per household for the first time since 2010.
    • 0.3% fewer H/Hs
    • Spent 24.1% more $
    • …11.9% more often
  • 45>54 (18.6% of H/Hs) – $169.48 per H/H – $4.08B – Down -$0.24B (-5.6%) This group has the highest income but they too value shopped for premium Pet Food. In Veterinary Services, they did not cut back on frequency. They just spent slightly less.
    • 0.8% fewer H/Hs
    • Spent 5.3% less $
    • …0.5% more often
  • 55>64 (19.0% of H/Hs) – $191.38 per H/H – $4.72B – Up $0.72B (+18.0%) This group is all Baby Boomers and until 2015 was the leader in Veterinary Spending. In 2015 they spent an extra $5B to upgrade their Pet Food and Veterinary Spending was severely reduced. In 2016, they didn’t get back to 2014 levels, but they regained the lead in Veterinary spending by sharply increasing the frequency of their clinic visits.
    • 2.3% more H/Hs
    • Spent 0.4% more $
    • …14.9% more often
  • 65>74 (14.0% of H/Hs) – $146.93 per H/H – $2.67B – Down -$0.26B (-8.6%) This group is very price sensitive. As Veterinary prices continue to inflate, they continue to cut back on both the amount spent and frequency of visits.
    • 5.0% more H/Hs
    • Spent 4.7% less $
    • …8.6% less often
  • 75> (10.0% of H/Hs) – $72.97 per H/H – $0.95B – Down -$0.75B (-44.1%) In 2015 this group of oldest Pet Parents made a commitment to their pets with a $1B increase in Veterinary Spending. Spending on Food was radically reduced. In 2016, they chose to upgrade their Pet Food and Veterinary Spending suffered. They have a strong commitment to their pets but not enough money to “go around”
    • 3.1% more H/Hs
    • Spent 44.0% less $
    • …3.3% less often

Now, let’s take a look at some other key demographic “movers” behind the 2016 Veterinary Spending increase.

Summary

With a high inflation rate, there is no doubt that higher income will always be a driver in this industry segment. However, we have seen many instances when a particular demographic group’s commitment to their Pets’ welfare overcomes financial pressures and they just spend the money. In 2015 it was the oldest consumers, the 75+ group. In 2016 it was the younger groups. Millennials and Gen Xers made the commitment to their Pet children and sharply increased their frequency of visits to Vet Clinics and the amount that they spent.

Because age is a major factor in this year’s lift in spending, you will see the impact across a variety of demographic measures. The younger crew is more likely to have a large number of  households living in the central city, renting their homes, with 4+ people and all their kids being under 18. All these demographics showed a significant increase in Veterinary Spending in 2016.

The over $200K group again made a significant contribution to the increase but it was even more important that all the adults in the household worked. All wage and salary earners and 2 earner households both made a greater positive impact on Veterinary spending than even the highest income group.

On the downside, the over 65, retired group cut back on Veterinary spending as they moved to upgrade their food. It was not all down for the older Americans in 2016 as the 55>64 yrs old households staged a significant comeback after the big drop in 2015, which came as a result of their Food upgrade.

It becomes increasingly obvious that the spending in all the Pet Industry segments is interrelated. A major spending trend in any one segment can and does, affect the others. In 2016 the most important spending behavior trend in the Veterinary Segment was the younger groups’ demonstration of a significant increase in commitment to Veterinary Services. This bodes well for the future.

2016 U.S. PET SERVICES SPENDING $6.84B…UP ↑$0.58B

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Non-Vet Pet Services is the smallest industry segment but it continues to grow and 2016 was another good year. Spending reached $6.84B, a 0.58B (9.3%) increase over 2015. However, you will see that, like the other Segments, consumer spending behavior is becoming increasingly more complex. (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 2016 was $52.77, up from $48.70 in 2015. (Note: A 2016 Pet H/H (65%) Spent $81.18) More specifically, the increase in total spending came as a result of:

  • 0.9% more households
  • Spending 6.8% more $
  • 1.5% more often

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

The growth has been consistent since 2013 but the pattern changed in 2016. In 2014 & 2015, the strongest lift in spending occurred in the second half. In 2016, virtually all the growth came in the first 6 months as the second half was essentially “flat”. While prices didn’t drop, the inflation rate slowed markedly at mid-yr 2016. Price may be becoming more of a factor in this segment. Now let’s look at some specific spending demographics. First, by income group.

  • If outlined in green, sales were up in 2016
  • If outlined in red, sales were down in 2016
  • If highlighted in green, sales were up from 2014
  • If highlighted in pink, sales were down from 2014

As you can see, the 2016 increase is being driven by 2 disparate groups – H/H’s just below the average income of $74K and the upper tier, those making over $150K per year. All incomes, except the $70>100K group, have increased spending on Services since 2014.

  • $30>70K (31.9% of H/H’s) – $36.92 per H/H – $1.52B, Up $0.41B (+37.5%) – This group reduced food spending by $1.6B. It appears that they spent some of that savings on “needed” pet services and generated 70% of the total segment’s increase.
  • $150K> (10.5% of H/H’s) – $184.62 per H/H – $2.51B, Up $0.33B (+15.4%) – Income has always been important because convenience is a big driver in this the segment and convenience costs money. In fact, the 23% of U.S. H/H’s that have an income of $100K> account for 53% of total Services’ spending. It gets even more pronounced as the over $200K group (5.6% of H/H’s) spend 24% of Services $.
  • $70>100K (14.0% of H/H’s) – $50.22 per H/H – $0.91B, Down -$0.08B (-8.0%) – This group spent significantly more on Pet Products in 2016 and the spending on both of the Service segments suffered. They also have the only decrease in Services spending from 2014 which reflects the overall Pet spending behavior of these value shoppers.
  • <30K (31.1% of H/H’s) – $18.78 per H/H – $0.76B, Down $0.01B (-1.3%) – The Services spending by this segment has grown since 2014 so the need is there. However, they generally don’t have the money to spare.

Now, let’s look at spending by Age Group.

The Age demographic reflects a more definite spending pattern than Income. Older Americans, especially those from 55>74, strongly increased spending on Services. The younger groups, particularly the 35>44 Gen Xers cut back. It should be noted that as the Baby Boomers age, the number of H/H’s over age 55 is growing. While the number under age 54 is currently shrinking. There are fewer Gen Xers. The Millennials have greater numbers but they are slower in establishing independent financial households than any group since 1880.

  • 55>64 (19.0% of H/H’s) $76.69 per H/H – $1.89B – Up $0.66B (+54.0%) They spent $2.6B less on food in 2016 but used some of those savings to spend significantly more on Services. In fact, this group, which is all Baby Boomers, moved into the #1 spot in Services’ spending. They did it with 3% more H/H’s spending 35.7% more on Pet Services 11.0% more often.
  • 65>74 (14.0% of H/H’s) – $65.35 per H/H – $1.17B – Up $0.28B (+32.2%). The need for Pet services by this group is growing as they age but they are just entering retirement, which impacts their ability to pay. In 2016 they also reduced their spending on Pet Food which freed up money to spend more on both Services and Supplies.
  • 45>54 (18.6% of H/H’s) – $68.91 per H/H – $1.66B – Up $0.03B (+1.9%) This group has the highest income and for years has been the leader in Pet Services spending. Like many demographics, they spent less on Food in 2016. However, they did not use the savings to spend significantly more on Services.
  • 35>44 (16.6% of H/H’s) – $42.00 per H/H – $0.9B – Down -$0.3B (-24.6%) The most significant drop in Services spending came from this group. In 2015 they were in a battle for 2nd place in Pet Services Spending. After 2016, they were just barely holding on to 4th place. Their Services’ spending behavior really showed an “across the board” decrease in spending and frequency. The group is slightly smaller -0.3%. They spent 14.7% less money and did it 11.4% less often.
  • 25>34 (16.1% of H/H’s) – $41.97 per H/H – $0.88B – Down – $0.03B (-3.8%) Interestingly enough, the Pet Services Spending of these Millennials almost exactly matched that of the older 35>44 Gen Xers – In 2016, this group upgraded their Pet Food however the negative impact on Services spending was relatively small.
  • <25 (5.6% of H/H’s) – $13.69 per H/H – $0.1B – Up $0.02B – (+19.1%) Pet Services is of minimal importance to these youngest Pet Parents but their spending has remained relatively consistent.
  • 75> (10.0% of H/H’s) – $18.43 per H/H – $0.24B – Down -$0.09B (-16.5%) Taking care of our pets as we reach an advanced age is more difficult so Services can be important. However, money also becomes an issue. In 2016 this group chose to spend more on Food and Supplies

Finally, let’s take a look some other key demographic “movers” behind the 2016 Pet Services Spending increase.

Summary

Although some consumers definitely “need” the assistance of Pet Services, the spending in this segment is generally viewed as more discretionary than in any other. Convenience is often the key driver. Since convenience usually costs more money, income can make a significant difference in spending behavior. In 2016, households with incomes above $100k (20.5%) accounted for 53.3% of all Pet Services spending. This is up from 43.6% back in 2013 so the trend is actually becoming more pronounced. Not only current spending, but also the growth in the Services segment, is being driven by the over $100K households. Spending on Pet Services has increased $1.56B since 2013 and 86% of this gain came from the over $100K households.

With that being said, in 2016 there was also a window of growth in the lower middle income group, $30>69K. The effect of this can be seen in the small growth by a whole variety of demographic segments – married couples only, married couples with children of any age – as long as there were 4 or less in the total household, center city dwellers and those with an associates’ degree.

Age is also a big factor. The age groups from 45>74 are the only ones that spent more than the national average on Pet Services in 2016. They make up 51.6% of H/Hs and spent 69% of the total Services $, up from 63% in 2013. They also accounted for an incredible 90% of the Services’ spending increase since 2013. It should be noted that age and income go hand in hand with most of this group. The 45>54 group has the highest income and 55>64 ranks third. However, there is also an increasing need for Services in the 65>74 group, but with significantly reduced income. The 55>64 year old Baby Boomers saved some money in 2016 by value shopping for premium Pet Food. They spent some of this savings on additional services. The 65>74 group, with a growing number of boomers, did the same. You can see the impact of this older group in the increased spending by retirees, Homeowners with no mortgage and the 30>69K income group.

Service spending is driven both by convenience and need. The prices have been inflating at a 2.5% annual rate. With much of the spending coming from higher incomes, there has been little impact on spending. However, we have seen that price has become a major factor in the buying decisions made by virtually all Americans. In 2016 this could have finally impacted Services. While spending for those making over $200K went up $0.31B in 2016, the spending fell for the mid to upper income group making $70>149K per year. Also, the inflation rate fell to 1.5% in the second half of 2016 and has dropped even further to 1% in 2017. This is generally an indication of competitive pressure. Pet Services is the only Industry segment that has shown increased spending every year since 2011, with an average annual growth rate of 9.4%. We’ll see what 2017 brings.

2016 U.S. PET SUPPLIES SPENDING $15.84B…UP ↑$0.94B

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Driven by consumers value shopping for Pet Food, Total Pet Spending dropped by -$0.46B in 2016. Most of the $3B that consumers saved on food was applied to other segments, like Supplies, which recorded a $0.94B (+6.3%) increase to $15.84B. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Although the increase only gets back about half of the $2.1B drop in Supplies Spending in 2015, it is certainly a turn in the right direction. We’ll “drill down” into the data to try to determine what and who are “behind” the beginning of this comeback for Supplies.

First, Supplies’ Spending per H/H in 2016 was $122.25, up 5.4% from $115.97 in 2015. (Note: A 2016 Pet H/H (65%) Spent $188.08) Slightly Increased H/H Spending is the main story in 2016. Other factors remain relatively unchanged. The $0.94B increase in spending came as a result of:

  • 0.9% more H/H’s
  • Spending 4.9% more $
  • 0.5% more often

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

You can’t discuss spending trends in the Supplies segment without talking about price – the CPI. Although many supplies are needed by Pet Parents, when they are bought and how much you spend is often discretionary. Many of the product categories in this segment have become commoditized so price is the main driver behind consumer purchasing behavior. When prices fall, consumers are more likely to buy more. When they go up, consumers spend less and/or buy less frequently. The big $2B drop in Supplies Spending in 2015 was driven by money. Many consumers upgraded their food, spending +$5.4B more. This gave them less to spend on other aspects of Pet Parenting. The Supply Segment suffered as consumers spent 4.1% less, but more importantly, they bought 10% less often. That seemingly small drop in purchase frequency (ex: Buy every 33 days instead of buying every 30 days) was the biggest reason behind the $2.1B drop in spending.

2014 was a deflationary year. As prices dropped, consumers bought more, +$2B more by year’s end. Then prices stabilized and began to move up in 2015. The consumers reacted immediately by spending less. Prices dropped like a rock in October to levels last seen in the spring of 2007. It undoubtedly helped, but was not enough to stave off the impact of the first 9 months of the year so spending fell -$2.1B in 2015.

In 2016 Prices initially stayed below 2015 levels. Spending stabilized and began to increase in the second half. Then prices jumped up in October and November. Although there was a big price drop in December, this autumn increase may have slightly reduced the overall gain for the year. By the way, prices in 2017 were down vs the same period in 2016, but they turned up sharply in July. We’ll see what happens.

That gives us an overview of the situation. Now let’s look at the “who” behind the spending increase. First, by income level. The 2016 numbers in this chart and the one on Age Groups are highlighted to give you a better visual “read”.

  • If outlined in green, sales were up in 2016
  • If outlined in red, sales were down in 2016
  • If highlighted in green, sales were up from 2014
  • If highlighted in pink, sales were down from 2014

Observations: Although Spending is down from 2014 across the board, it did increase in 2016 for all but one group.

  • $30K>$70K (45.9% of H/H’s)- $7.13B Up  $0.8B (+12.6%). This lower middle income, value conscious group accounted for most of the drop in 2015. In 2016 they produced 80% of the spending increase.
  • $100K>$150K (12.5% of H/H’s) – $2.79B Down -$0.3B (-9.7%). This group had the best performance in 2015 as their spending was “flat”. In 2016, they were the only group that spent less. This goes beyond Pet Supplies. They actually spent less on their total H/H expenditures. Yet another indication that value shopping is widespread.
  • Higher Incomes – These groups are growing in H/H’s so in 2015 the US BLS began to define more groups – $150>199K and $200K>. This could be interesting. For example, in 2016 the combined $100>199K income group spent -$0.61B less on supplies while every income group above and below that level spent $1.55B more.

Now, we’ll look at spending by Age Group.

Observations: There is much more variation by Age Group. Spending for some groups is actually above the 2014 level.

  • 45>54 (18.6% of H/H’s) $152.93 per H/H – $3.68B – Up $0.2B (+5.6%) This group has the highest income and overall expenditures and…spends the most on Pet Supplies. They spent less on food and their supplies’ spending rebounded, but not to 2014 levels.  Fewer H/H’s (-0.8%) spent 3.7% more on supplies, 2.6% more often.
  • 55>64 (19.0% of H/H’s) $135.96 per H/H – $3.35B – Down -$0.01B (-0.3%) This “Boomer” group spent $2.6B less on Food in 2016 but they didn’t use the savings to spend more on Supplies. Actually, 2.3% more H/H’s spent -2.7% less on Supplies, 0.3% more often. Without the increase in H/H’s, the drop would have been larger.
  • 35>44 (16.6% of H/H’s) $146.01 per H/H – $3.13B – Up $0.68B (+28.1%) This group is second in income and overall expenditures. In 2016 these Gen Xers took over 2nd place in H/H spending on Pets & Supplies which bodes well for the future and makes them a prime marketing target. Their 2016 spending increase even put them 3% ahead of 2014. They got there by spending 26.4% more, 1.6% more often.
  • 65> (24.1% of H/H’s) $97.42 per H/H – $1.89B – Up $0.59B (+24.3%) This group is growing rapidly. In 2016 they saved money on food and spent more on supplies. 4.2% more H/H’s spent 20.4% more, -0.9% less often.
  • 25<34 (16.1% of H/H’s) $101.22per H/H – $2.68B – Down -$0.57B (-21.0%) In 2016, these older Millennials upgraded their Pet Food. They have strong price pressure – starting families and careers. They spent 18.0% less on Supplies and bought -3.0% less often.
  • <25 (5.6% of H/H’s) $71.48 per H/H – $0.52B – Up $0.03B (+7.3%) This small group is getting smaller, down -3.9%. They spent 1.1% more on supplies, but importantly, 10.5% more often.  They continue to acquire pets.

Finally, let’s take a look some other key demographic “movers” behind the 2016 Pet Supplies Spending increase.

Summary

The big drop in spending in 2015 was primarily driven by a 10% reduction in the frequency of purchase. In 2016, the frequency remained essentially unchanged. This puts a greater emphasis on the retail price at the time the buying decision is being made. The CPI remained down for much of 2016, turned up slightly in the fall, then fell sharply in the prime buying month of December. The CPI inflated ever so slightly, 0.1% for the year but the consumer still spent more. This could be a future model for increased spending on Supplies without the need for deflating prices, which puts strong margin pressure on manufacturers and retailers.

The increase in Supplies’ spending was not universal across all demographics. However, in some categories spending differences were less noticeable. Homeowners and Renters, as well as consumers with or without a college degree, showed positive numbers. There was also no decrease in spending by any racial or ethnic group.

The 35>44 year old Gen Xers showed a big increase and they were joined by the over 65 group, which also spent significantly more. We see these numbers reinforced by strong performances by married couples whose oldest child is between 6 and 17 and by retired and no earner households. Although it should be noted, that as a whole, all wage and salary earners spent more on Supplies. The only occupation with a decrease was the self-employed.

There were a couple of surprises. The Central City dwelling Consumers drove 98% of the increase while the Suburbs and Rural H/H’s were basically flat. Also, the $100>$199K income group had reduced supplies spending. In fact, their spending was down in all industry segments. This demonstrates that price matters to virtually everyone in the U.S.

The $0.94B increase in Supplies spending was obviously great news. How it happened is also very important. It occurred without pressure from overall deflated prices. It also came as a result of increased spending from a wide range of demographic groups. Both of these factors make the increased spending more likely to “stick” and the performance more “repeatable”. The CPI price pattern for 2017 so far looks very similar to 2016. We’ll see what happens.

2016 U.S. PET FOOD SPENDING $26.5B…Down↓ $2.99B (-10.1%)

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The U.S. Pet Industry had basically a “flat” year in 2016. Spending fell slightly to $67.29B, down $0.46B (-0.7%). 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 segments. 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 2016, 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 start with the largest Segment, Pet Food (and Treats). In 2016 Pet Food Spending totaled $26.5B in the U.S. This is a $2.99B (-10.1%) decrease from 2015. For most of us, this is quite a shock coming after the spectacular $5B increase in 2015 which was attributed to consumers upgrading to Super Premium Foods. Doesn’t Pet Food Spending just increase every year? Isn’t that a sure bet? Well, as it turns out, the story is a little more complex than that. The following chart documents annual Pet Food Spending since 1997 in full Retail Dollars and adjusted for inflation.

An interesting pattern is immediately apparent. Retail Pet Food Spending increases for 2 consecutive years then reaches a plateau year or even drops. The pattern is repeated with one notable exception – the time from 2006 to 2010. As you recall, this was a tumultuous period for the entire retail marketplace. In 2009 the Great Recession caused the first drop in U.S. Retail Spending since 1956. The situation in Pet Food was even more complex with the Melamine recall in 2007. Pet Food Prices skyrocketed in 2008 and 2009 as consumers insisted on made in USA products …with USA ingredients. The CPI adjusted sales show that the first Recession related impact on Pet Food purchases occurred in 2009 but the full retail impact wasn’t felt until 2010.

Pet Food seems to be driven by short term trends. A new food trend “catches the consumers’ attention” and grows…for 2 years. Then sales plateau or even drop…and we’re on to the next “must have”. It is obviously more complicated than this simplistic explanation. However, it does appear that the big drop in Pet Food Spending in 2016 shouldn’t have been totally unexpected considering the spending history of this huge Industry segment

I’m not an expert on the Pet Food segment but I included my view of the more recognizable trends. Sales seem to have really taken off after 2003. That was the year that Iams went into the Mass Market and may have signaled the first phase of the premiumization of Pet Food. Then came “Made in USA” because of the melamine recall which was followed by “Natural”. Then in 2014, we got “Super Premium”. What is next? The indication is ever-increasing “humanization”.

Now, let’s look at some specifics. In 2016, the average U.S. Household (pet & non-pet) spent a total of $204.71 on Pet Food. This was an 11.0% decrease from the $230.06 spent in 2015. This doesn’t “add up” to a 10.1% decrease in total Food Spending. With additional data provided from the US BLS, here is what happened.

  • 1.0% More U.S. households
  • Spent 12.6% less $
  • 1.8% more often

By the way, if 65% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $314.94. Let’s look at a rolling history of Pet Food Spending over the course of the “Super Premium Cycle”.

Pet Food Spending dipped in the first half of 2014. This corresponds to the beginning of a 2 year deflationary period in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. The spectacular lift in Pet Food Spending beginning in the second half of 2014 came from a fundamental change in spending behavior. Consumers began to buy more Super Premium Food and Med/Supplements in Treat form, all of which cost more.

Then spending began to fall in the first half of 2016 and the decline intensified in the second half. Does that mean that Pet Parents were giving up on Super Premium and going back to their “old ways”? In some cases…maybe. However, consider this fact about current U.S. Consumers…price is the biggest driver (75%) of their behavior.

Once a consumer has decided on a specific type of product or brand, there is only 1 priority. Where and how can I buy it cheaper? Consumers spent 12.6% less on their Pet Food purchases in 2016. Were discounts available?

  1. Competition between manufacturers invariably generates lower prices. Let’s look at the number of exhibitors offering either Dog and/or Cat Food or treats at recent SuperZoos:
    • In 2014 there were 105 Companies offering Dog/Cat Food and 230 selling Dog/Cat Treats
    • In 2015 there were 107 with Food and 239 with treats – Not much change
    • In 2015 we had the huge lift in Food/Treat spending. By the time we reached SZ 2016 there were 134 companies offering Food – (up 27.6% from 2014) and 304 with Treats – (up 32.2%)
    • By 2017 there were 147 Food companies offering Pet Food (+40.0%) and 313 with Treats (+36.1%)

These new companies created and felt intense competitive pressure for the “upgrading” consumers. However, there was also intense pressure from “regular” food companies as they were actually losing consumers to the “upgrade”.

  1. Competition between retailers and retail channels also is a price battleground.
    • There has always been a price war between Independent Pet Shops, Pet Chains and Mass Market Retailers. With the consumer price falling as a brand moves to Chain Pet, then Mass, the only way to protect the indies and pet chains is through strict channel product segregation. This lasts for a while but as brands grow they want to “reach” even more consumers, so….
    • The Internet is a new player in this Pet Food Game. With no brick ‘n mortar overhead, they can offer discounts of 10>15% or more and deliver it to the consumers doorstep.
      1. In fact Non-refrigerated, Premium Pet Food may be an ideal internet product
        • While consumers have a lot of choices for their own dinner – cook, sit down at a restaurant, grab fast food or have it delivered, their pet needs the same thing every day at the same time – without fail.
        • Pet Products (primarily food) ranks #3 on the consumers’ list of reasons they “need” to go shopping. Only milk and bread drive more trips to the store.
        • If you need the same amount of pet food every day, without fail, you can make a very strong case for auto delivery to your door. You save 15% or more. You save a lot of trips to the store and…your pet is always “covered” with the pet food quality/brand of your choice. This begins to look a lot like a “no brainer”, especially as people opt for higher quality food.
        • The big question for the future is, “Can you effectively introduce a new pet food product/trend solely through the internet?” Consumers can certainly read about the benefits on the internet but they can’t see it, touch it, try it out or have a personal conversation about it unless they are in a store. This personal “contact” has always been a key factor for consumers in their decisions about Pet Products.

I think that it is pretty safe to say that there were discounts available. In fact 2016 may have been one of the most price competitive Pet Food markets in history – across all of its segments. U.S. consumers were seeking and finding “deals”.

Now let’s look at some specific Pet Food Spending Demographics. First, we’ll look at income. We will do it a little differently as we will show the annual spending from 2013 through 2016 so you can see the trend for the whole cycle.

The 2016 numbers in this chart and the one on Age Groups are highlighted to give you a better visual “read”.

  • If outlined in green, sales were up in 2016
  • If outlined in red, sales were down in 2016
  • If highlighted in green, sales were up since 2013
  • If highlighted in pink, sales were down since 2013

The National Numbers were: 2015>16 – Down – $2.99B (-10.1%); 2013>2016 – Up $3.54B (+15.6%)

  • Under $30K: In 2016 (31.1% of H/H’s) – $116.18 per H/H – $4.48B – down $0.45B (-9.2%). Obviously this group is very price sensitive. The group also continues to shrink in size, down -2.0% in 2016. Since 2013, it is the only income group spending less on Pet Food but it is only down $0.01B. (-0.2%). However, there were 6.5% fewer H/H’s (3M) in 2016 than in 2013 so H/H spending actually increased. This group still has an ongoing commitment to their pets.
  • $30K>$70K: In 2016 (31.9% of H/H’s) – $182.68 per H/H – $7.99B – Down $1.59B (-20.0%). Income triples. Home ownership doubles. It is a more diverse group but the average H/H still spends more than their after tax income. The break-even point doesn’t happen until Gross Income reaches $57K. This group value shops but their decrease is so large that some members may have backed down from the upgrade. Since 2013, spending is up $0.38B (+9.2%)
  • $70K>$99K: In 2016 (14.1% of H/H’s) – $258.40 per H/H – $4.98B – Up $0.35B (+7.7%). This group is near the top of the “middle income” but still value conscious. Perhaps the price “war” finally reached a retail where the higher quality food became appealing. Since 2013 spending is up $0.38B (+8.3%)
  • $100K>$149K: In 2016 (12.5% of H/H’s) – $283.64 per H/H – $4.39B – Down $1.08B (-19.7%) This group has a high income but also has large families with the resulting responsibilities. They look for deals too. Also, since 81% have college degrees, it makes sense that they would excel at buying smart. Since 2013 spending is up $0.61B (+16.1%)
  • $150K> (10.5% of H/H’s) – $375.45 per H/H – $4.66B – Down $0.22B (-4.5%). 92% of this group have college degrees so they certainly know how to save. However, they have reached an income level where price is not as important. Since 2013 spending is up $1.85B (+65.8%) – half of the national increase. Money certainly makes choices easier.

In 2015, every income group except $70K>$99K increased its spending. With the spending drop in 2016, the positions were exactly reversed. This strongly suggests that there was a universal factor at work. It appears to be a competitive price war between manufacturers and retailers over the consumer’s Pet Food $. Since 2013, all segments but the <$30K group have increased total Pet Food Spending, although 52% of the national increase came from the over $150K group.

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

Again, the National Numbers were: 2015>16 – Down – $2.99B (-10.1%); 2013>2016 – Up $3.54B (+15.6%)

In 2016 Pet Food Spending, it was both ends against the middle. Under 34 and over 75 were up while 35>74 was down.

  • 55>64 (19.0% of H/H’s) – $310.48 per H/H – $7.41B – Down $2.61B (-26.0%). This group was the key to the huge 2015 increase in Food Spending and also to last year’s drop. They have the 3rd highest income and they are all Baby Boomers so naturally, 1.1% of their total spending is on their pets. Although some probably “rolled back” the upgrade, many more found deals on the product they wanted and spent less. They doubled their pet food spending in 2015 and 75% of that increase “stayed put.” Since 2013 spending is up $2.64B (+55.3%)
  • 65>74 (14.0% of H/H’s) – $217.86 per H/H – $3.79B – Down $0.8B (-17.5%). Much of this group is retired, with lower income, so searching for “discounts” is the norm. Some “upgraders” probably fell by the wayside but there are a growing number of Baby Boomers in the group and 1.0% of their total expenditures was on their Pets, just slightly behind the 55>64, all Boomer Group. Since 2013 spending is up +0.78B (+25.9%)
  • 75> (10.0% of H/H’s) – $114.62 per H/H – $1.48B – Up $0.33B (+29.3%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. However, it appears that the discounted prices got this group “back on track”. Since 2013 spending is up +0.02B (+1.4%) – essentially flat.
  • 45>54 (18.6% of H/H’s) – $228.78 per H/H – $5.47B – Down $0.4B (-6.9%) This group has the highest income and the most in Total H/H expenditures. Up until 2015 they were #1 in Pet Food spending. They buy premium food but didn’t fully participate in the 2015 upgrade. They did take advantage of the 2016 discounts and spend less. The number of Boomers in this group is declining, replaced by Gen X. Since 2013 spending is down -$0.51B (-8.5%)
  • 35<44 (16.6% of H/H’s) – $181.15 per H/H – $3.84B – Down -$0.21B (-5.3%) They are 2nd in income and expenditures but have the biggest families. Searching for Value is a way of life. Since 2013 spending is down -$0.45B (-10.5%). These Gen Xers just haven’t kept pace with the trends in Pet Food
  • 25>34 (16.1% of H/H’s) – $171.16 per H/H – $3.70B –Up $0.71B (+23.8%) Their income is growing but so is spending. With 90% of their after tax income committed, they have strong financial pressures. In late 2014 they opted to upgrade their food. However, they backed down in 2015. The competitive pricing in 2016 must have “struck the right chord” as these older Millennials came racing back. Since 2013 spending is up +$0.89B (+31.7%).
  • <25 (5.6% of H/H’s) – $95.34 per H/H – $0.82B – Flat $0.0B (+0.0%) These youngest Millennials continue getting started as Pet Parents, maintaining 2015 spending levels. Since 2013 spending is up +$0.18B (+28.1%).

The chart below has some other key demographic “movers” behind the 2016 Pet Food Spending decrease. Take a look.

Summary

In the current “deflated”, highly price competitive market, it is difficult to get to the bottom of the decrease in spending. There certainly was no drop in pet ownership. So, did the decrease in $ come because consumers backed down from their 2015 upgrade to Super Premium foods or are they just taking advantage of the price competition to buy the products that they want for a cheaper price?  The answer is some of both. A certain percentage of lower income and price sensitive groups, like Retirees may very well have switched back to regular food. However, it appears that the bulk of the decrease comes from value shopping across a wide range of households.

Make no mistake. Price matters to U.S. consumers, especially on products that they buy on a regular basis. Consider that 50% of U.S. households spend more than their after tax income – a total deficit of -$550B. In fact, if you start from the lowest income group and work your way up, the total after tax income of the “bottom” 90% of U.S. households is only $2.2B more than their total expenditures (0.04%). Virtually every U.S. household compares products and prices before they buy. This process and for that matter, the actual buying, has gotten significantly easier in our internet world.

The biggest spending drops came from College Educated, Suburban, Homeowners. These are the smart pet parents that first saw the benefit of the upgraded food. It’s a good bet that they figured out how to buy what they want… cheaper.

On the flip side, the demographic groups showing spending increases in today’s market are definitely upgrading their food and/or adding pets to their families. The 25>34 year old Millennials are a prime example. Their $0.7B increase is reflected in and supported by increases for 4 person households, married couples with their oldest child under 6 and Technical workers. There also were increases by renters and Center City residents, which is more good news.

Probably the most concerning data is from the 35>54 age group, which is largely Gen Xers. Overall, they make and spend the most money of any age group. Their Pet Food spending in 2016 was down but they were also the only age group to show decreased spending in this segment from 2013. We’ll take a better look at this situation when we see the generation reports.

One of the key things that we learned in this analysis is that Pet Food spending doesn’t just go up every year. It appears to flow in 3 year cycles, corresponding with market trends. Two years of increases is followed by a plateau year or even a spending drop. Then consumers move on to the next “must buy”. Looking at this history, the 2016 drop fits the pattern. If history continues to repeat itself, we should have a flat first half of 2017. Then spending should turn sharply upward as the consumers respond to the continued “humanization” of our Pet Food. However, we’ll just have to wait and see.

 

U.S. Retail Trade – 2016 $ales Update by Channel – Going for the Gold!

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The Total U.S. Retail Market in 2016 reached $5.5 Trillion dollars – up $172B (+3.2%). This is significantly better than last year’s (+2.3%). In 2016, the decline in Gas prices slowed but still caused a $25B drop in Gas Station revenue. At the same time, the increase in Auto and Restaurant sales also slowed. For this report, we will focus on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations from the data. This still leaves us with $3.3 Trillion to “divvy up”.

In a recent report we reviewed the 2016 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)

Also, 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 1.94% of the total revenue of all non-pet stores that chose to stock them.

  • Restaurants (Food Service) – 12% of Total Retail – up 5.9%, which was about 25% less than last year’s (+8.1%).
  • Automobile Sales – almost 21% of the Total – Revenue also grew +4.1%, but 33% slower than 2015’s (+6.3%)
  • Gas Stations – 7.6% of the Total (In 2014 they were 10.3%) – ↓Down 5.7% from 2015. Gas prices hit bottom in February ‘16 and turned up, passing 2015 prices in November, but still down 11% for the year. (CPI from USBLS)
  • Retail, Less Food, Auto and Gas – Up 3.6% to $3.3 Trillion, about the same as last year’s +3.5%. It is 59.8% of the total U.S. Retail market and is growing 12% faster than the Total but still slower than Restaurants and Auto.

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

The U.S. retail market has grown each year since 2012. It is just a matter of how much. In 2015 the precipitous drop in Gas prices had a huge impact on the overall market. Restaurants have shown accelerating growth but dialed it back in 2016. Auto sales are still strong but the growth is slowing. Our “Relevant Retail” Segment has been the most consistent. As expected, its 3.6% growth is below the 4.2% increase of the Top 100 Retailers. However, it will serve as a benchmark as we review the individual channels. Above 3.6%, a channel is gaining market share; Below 3.6%, 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 58.8% of the total. This is up slightly from 58.6% in 2015. The increase is all from Non-Store Retailers. The other two major segments are losing share. All are very important to the Pet Industry. In our analysis of Pet Products Sales based upon the 2012 U.S. Economic Census, these three major 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 General Merchandise, Non-Store and Food & Beverage are very significant. Each of the major divisions includes a number of sub segments. 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 even 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 shopping migration first becomes apparent.

Here is the Market Share change “Rule” for 2016: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 3.6% sales increase PLUS an additional $3.3B. Example: If a channel did $100B in 2015, they need to do $100 +$3.6 + $3.3 = $106.9B to gain just 0.1% in 2016 share. You will see channels with revenue increases that still lose share because the increase was less than 3.6%. It shows that even small changes in share are significant.

With that overview, we’re ready to drill deeper into the data. Let’s look at the 2016 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 were chosen because they generated at least 1% of the Total Pet Products (food & supplies) spending in the last Economic Census – 2012. I have also included Traditional Department stores on the list even though they have never truly embraced Pet Products. They have long been a fixture in the U.S. Retail Marketplace. Their continued decline, as consumers migrate to outlets which better fit their needs, has profoundly affected U.S. retail 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 2016 vs 2015. The next will “show us the money” by translating the % into $ gained or lost. Then we will have observations on each segment

Remember, you must be up at least 3.6% or you’re losing market share!

The leader comes as no surprise. However, 9 of 12 these pet relevant channels, including some huge ones, are losing market share. In the next chart, we’ll “show you the money!” Remember, the Total increase for the “Relevant Retail” Market was $116B and you must be up 3.6% PLUS $3.3B just to gain just 0.1% in Market Share.

The relative growth in the Internet/Mail Order Channel 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/Mail Order – $490.9B, Up $57.2B (+13.2%) – 49.4% of the total increase for the $3.3T Relevant Retail Market came from Internet/Mail Order. The Consumer Migration to this channel is accelerating – gaining 1.25% in Market Share in just a year and passing SuperCtrs/Clubs for the #2 spot behind Supermarkets. (1.2% Pet)
  • Super Markets – $600.3B, Up $12.4B (+2.1%) This largest sub-segment is no longer holding its ground as it lost 0.3% in Market Share in 2016 and 0.5% since 2014. The Internet/Mail order channel has recently put increased focus on grocery products and is pushing very hard to become the leading retail channel. (1.6% Pet)
  • Department Stores – $56.4B, Down $2.5B (-4.3%). 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 – $98.2B, Down $9.3B (-6.5%). 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. Now, they have begun a precipitous slide as consumers shopping for general merchandise items are clearly opting for either the internet or the one stop shopping in the Clubs/SuperCenters. (2.3% Pet)
  • SuperCenter/Club Stores – $450.6B, Up $8.8B, (+2.0%). These outlets with their broad mixture of grocery and general merchandise…at great prices quickly became a dominant force in the retail market. They were second only to Supermarkets in Market Share for many years. However, in 2016 consumers increasingly chose the value and convenience of the internet. Despite a $8.8B increase in revenue they lost 0.2% in market share and fell to third place in the race for the consumers’ $.  (2.4% Pet)
  • $ & Value Stores – $70.6B, Up $1.4B, (+2.1%). – A Great Value and easy to shop – 2 of U.S. Consumers’ major “wants”. This segment has shown steady growth in recent years but it flattened out in 2016. (4.3% Pet)
  • Drug Stores – $272.4B, Up $9.0B, (+3.4%). 60+% of the revenue comes from Rx Drugs. The growth in this segment is driven primarily by a 4.6% increase in Rx Prices over 2015. (CPI – US BLS) (0.3% Pet)
  • Sporting Goods – $46.3B, Flat +$0.0B, (+0.0%). A Minor player in Pet. There was some turmoil in the category with the closing of Sports Authority. Net for the year was “no gain”.(N/A Pet)
  • Home Centers – $271.7B, Up $17.9B, (+7.0%). Considering their size, these “project driven” outlets have never done a significant Pet Business. Two Top 10 U.S. Retailers – Home Depot and Lowe’s are driving the growth. (0.6% Pet)
  • Hardware – $23.3B, Up $0.2B, (+0.9%). Sales were flat most of the year. An uncharacteristic December sales “lift” produced 70% of the total year’s increase. (2.6% Pet)
  • Farm and Garden Stores – $44.4B, Up 0.3B, (+0.7%). This segment has been growing in recent years in both overall sales and in Pet. However, 2016 looks like a repeat of 2015 in that 100+% of the segment’s small sales growth came from Tractor Supply who reported a $0.55B increase in our Top 100 Post. (8.9% Pet)
  • A/O Miscellaneous Stores $77.9B, Up $7.0B, (+9.9%). Florists, Pet Stores, Art Dealers…are typical of the segments bundled into this group. Based upon the 2012 Economic Census, Pet Stores probably account for over 20% of this segment. These stores, whether chain or independent, tend to be small to medium in size. Their strong increase is evidence of another consumer trend – a move to a more personalized shopping experience. (Pet Stores 91%)

The chart below puts the Market Share of each of these segments for 2016, 2015 & 2014 in a visual format so that it is easier to appreciate the relative sizes. Growth in share since 2014 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 remain #1 for Pet Products. However, in the Overall Market, there are 3 Olympic Medalists. In 2016 the gold still belongs to Supermarkets. As you recall, in 2015 we saw the race for the Silver between SuperCenters & Club Stores and the Internet/Mail Order segment really “heat up”. In 2016 that race was all over. Internet/Mail order took over 2nd place in March and continued to pull away. They have now set their sights on the Gold, which has been held for many years by Supermarkets. Amazon, the largest retailer in the segment, has indicated that they will now actively pursue the fresh grocery business. In fact, they recently purchased the Whole Foods Supermarket Chain to facilitate that effort.

Supermarkets (18.2%) currently lead the Internet/Mail order segment (14.9%) by 3.3%. In 2014, the lead was 6.1%. Supermarket sales are increasing, but not fast enough. Unless something radical happens, Internet/Mail Order will become the #1 U.S. Retail Channel no later than 2019 and perhaps by 2018.

Overall, 2016 was similar to 2015 – with a 3.6% increase, up slightly from 3.5%. Once again the Internet/Mail Order Channel provided most of the excitement and 49.4% of the growth. The big increase by the A/O Miscellaneous Channel, which includes Pet Stores and other smaller format retailers, seemed to reinforce a less publicized consumer trend to more personalized shopping. After years of growth, the $/Value Stores segment may have plateaued but the big negative was the increasingly sharp decline in sales by Discount Department Stores – down -$6.9B in 2016 and  -$9.1B since 2014.

The U.S. Retail Market continues to grow and evolve as the consumer migrates to the channels which best fulfill their current wants and needs. This is not a new phenomenon. It has always been that way. Currently, the “Channel of Choice” is Internet/Mail Order and the movement is accelerating. Traditional Brick ‘n Mortar stores will not go away but they must adapt as “electronic” is on track to become the dominant force in U.S. Retail even sooner than we expected.

Finally, the Chart below contains Detailed 2014 > 2016 Sales Performance Data for over 30 U.S. Retail Channels.

Top 100 U.S. Retailers – Sales ↑3.5% 138,572 Stores with Pet Products……plus the Internet!

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The U.S. Retail market reached $5.5 Trillion in 2016 from all sources – Auto Dealers, Supercenters, Restaurants, Online retailers, even Pet Stores. This year’s increase of $172B was more than 2015’s $118B as the decline in Gas Station revenue slowed. (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 2016 vs 2015…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 Retail Market grew $172.4B in 2016 – Up 3.2%, considerably better than the 2.3% growth in 2015.
    • The Top 100 grew $70.8B (+3.5%), better than the overall market but down from (+4.9%) in 2015.
    • The Top 100 accounts generate $2.1T in revenue, 37.6% of the total U.S. retail 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 $3.3 Trillion. – about 60% of the total market.
    • Removing the Restaurant & Gas Station sales from the Top 100 numbers – at $1.91T, they still account 34.7% of the Total U.S. Market and…
    • 58% of the $3.3 Trillion target retail market.

The Top 100 is obviously critically important, and it’s still outperforming the overall market…barely. We need to remember that the “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 2016:

  • 4 Supermarkets from the 2015 list were “combined” into 2 in 2016 – Kroger acquired Roundys and Ahold bought Delhaize (Food Lion). In these cases, I combined the historical sales to give a better picture of the actual growth.
  • We also lost 2 companies from the list due to declining sales – Barnes & Noble and Chipotle.
  • That left space for 4 new additions:
    • Ulta Salon – a cosmetics and fragrance retailer that is “taking business” from traditional department stores.
    • Petco – We now have 2 Pet Chains in the Top 100 U.S. Retailers!
    • Sprouts – A natural grocery store chain
    • CKE Restaurants ( Carl’s Jr, Hardees)

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.

  • Regular & Online Retailers have 58.6% of the stores but account for over 92% of the business.
  • All of the $ growth is coming from Regular & Online Retailers as restaurants are down -3.5% (a big turnaround from 2015 when restaurants led the way with a 6.4% increase)
    • Reg/Online Rtlrs had a +3.7% increase in $ales – $69B (Much lower than last year’s +4.8%; +84.7B)
    • +1.7% growth in stores – also a significant drop from +2.9% in 2015 and + 6.9% in 2014.

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, 66 are selling some mixture of Pet Products in stores and/or online.
    • Their Total Retail Sales of all products is $1.8 Trillion which is…
      • 93% of the total business for Regular & Online Retailers in the Top 100
      • 32% of the Entire $5.5T U.S. Retail market – from 66 Companies who sell Pet Products.
    • 54 Cos., doing $1.6T in sales are selling pet products off the retail shelf in 138,000 stores – 3800 more than 2015.
    • Online only is another Story –
      • Amazon accounts for $15.4B (97.7%) of the entire online only increase.
      • Many Traditional Retailers who only sell Pet Products online are closing stores and losing ground in the total Retail “race”. Not carrying Pet Products could be another indication that they are “out of tune” with America

Sales for Retailers with pet products remain strong. Also note that the store count totals are only for the Top 100 and include only 2 Pet Chains 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 that there are 200,000 outlets selling pet products in the U.S. plus… the internet.

Before we analyze the whole list in greater detail let’s take a quick look at the Top 10 retailers in the U.S.

  • They do $1 Trillion in Sales
    • 51.5% of the Top 100’s Revenue
    • 19.5% of the Total U.S. Retail Market
  • It’s the same list as 2015 although 6 changed rank
  • Target had the only negative performance
  • 8 Retailers produced 29.2% of the increase for Total U.S. Retail

In the next part of the report we will look at the detailed list of the top 100. First, we’ll sort it by retail channel with subtotals in key columns. Then we’ll 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 ’16 & ‘15 – a “1” with an orange highlight indicates that products are only sold online
  • Rank Columns – Change in rank from 2015: (Remember 4 from 2015’s list were consolidated into 2 in 2016. There were also other acquisitions of companies not in the Top 100 which can cause a big improvement in rank)
    • Up 4-5 spots = Lt Blue; Up 6 or more = Dk Green
    • Down 4-5 Spots = Yellow; Down 6 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. The Walgreens and Rite Aid merger fell apart but CVS acquired Omnicare and the pharmacies in Target Stores.
  • The Traditional Department store segment overall continues its decline. There are a couple of exceptions in some “high end” stores. However for most, the trend is down.
    • Sears (includes Kmart) and Macy’s remain the 2 big “red flags” and more store closings are planned.
    • Although many carry a few pet items, generally online, this channel has never fully embraced Pet Products.
  • Much of the growth in the Convenience Store Chains in the Top 100 in recent years has come through acquisitions. In 2016 there was a reduction in store count so overall sales were basically flat.
  • Military Commissaries have added locations in recent years. Sales are finally catching up with a 9.1% increase.
  • The Auto Parts Stores are a mixed bag, with all chains opening new stores. Only Advance is underperforming in sales. With the continued growth of the Pet Travel product category, it is somewhat surprising that everyone’s offering of Pet items continues to be so small. This could be an opportunity.
  • Among Apparel retailers, the value outlets continue to show strong growth. All three of these chains carry pet products. The big increase at Ascena came solely from the acquisition of Ann Taylor and Loft.

Observations

  • Want proof of the evolving face of U.S. Retail? – Amazon sales are up 91.3% in 3 years!
    • The Phone People – Verizon and Apple, continue to grow. However, not a good year for AT&T.
    • Barnes & Noble dropped off the list in 2016. Best Buy, Toys R Us and Gamestop continue to decline.
  • Signet Jewelry made the list in 2014 by acquiring Zales. After an initial drop in sales, they rebounded – up 10.7%.
  • Mass Merchants’ growth percentage is subpar and is being driven by Wal-Mart and Costco.
    • Wal-Mart is the “big dog” and their 2.7% increase in 2016 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 down almost $4B. Sales have been flat in the last 2 years, but in 2016 turned down – sharply.
    • Costco continues its spectacular growth. BJ’s revenue fell $2B. They are seeking help to improve online sales.
  • Home Improvement/Hardware is showing continued strong growth by all “players”. The big guys are doing especially well with a $9B combined increase from Home Depot and Lowe’s – both are Top 10 retailers.
  • Home Goods sales were flat except for Ikea, whose spectacular growth came as a result of corporate restructuring.
  • Tractor Supply continued their strong growth (+8.9%). Their average annual growth rate is 9.5% since 2013.

Observations

  • Supermarkets – $389B in Sales; 17 Companies; Over 16,500 stores; All Selling Pet Products. This is a very important group for the Pet Industry. With the highest frequency of consumer visits of any channel, the competition is fierce. The mergers and acquisitions continue as companies try to strengthen themselves for the daily battle. This year we saw 4 of 2015’s Top 100 Retailers become 2 as Kroger acquired Roundy’s and Ahold acquired Delhaize.
    • The % increase is below average. However, all but 2 cos. are showing sales growth. Kroger’s +$2B leads the pack.
    • With only Sprouts joining the Top 100, the number of Supermarket chains dropped to 17, but the store count still increased by 400 over the 2015 group.
  • Small Format Value Stores: Overall, this retail channel does more business than Traditional Department Stores.
    • Dollar General continues as the top performer, up 7.9%, matching their average annual growth rate since 2013.
    • Dollar Tree’s 2015 acquisition of Family Dollar Stores seems to still be producing.
    • Only Big Lots performance is subpar, but they have 2 consecutive years with increases after 2 years of declines.
    • This retail channel continues to grow in numbers and popularity. They are committed to Pet Products and their focus on value appeals to today’s ever more price conscious consumers. Plus, they are easy to shop.
  • Pet Stores – PetSmart’s growth is 3.4%, slightly better than last year’s 3.2%. However, the big news is Petco’s entry into the Top 100. This provides further evidence of the strength of the U.S. Pet Industry.
  • Office Supply Stores – This channel is under siege. As store closings continue, retailers are turning to online ordering.
  • Sporting Goods – Sports Authority closed in 2016 but the 2 remaining retailers, Dick’s and Academy, continue to show strong growth in both store count and sales.

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.

  • Last year Restaurants had a 6.4% increase, driving the Top 100 $ up. This year’s -3.5% is a big turnaround. However, this is somewhat deceptive. Although sales at Yum are suffering, the big drop is due to a business re-structuring of their franchisees. Without Yum, Top 100 restaurant sales are up 3.4%, basically on par with regular retailers.

Wrapping it up!

The Top 100 got there by producing big numbers so it’s not surprising that their performance exceeds the overall market. Although in 2016, their increase (+3.5%) was only 10% better. In 2015 it was more than double – 4.9% to 2.3%

Pet Products are an important part of the success of the Top 100. Sixty-six companies on the list sell Pet Food and/or Supplies in 138,000 stores and/or online. If we drill down a bit, we get to 54 retailers who stock pet in their stores. This group generated $1.6T in sales. Now, let’s “Do the math”. If we take out the $10B done by PetSmart and Petco and the remaining companies generated only 1.5% of their sales from Pet, we’re looking at $23B in Pet Products sales from only 52 “non-pet store” sources! By the way, the 1.5% estimated share for Pet items is low based on data from the U.S. Economic Census.

Whether you are a manufacturer, a distributor or a competing retailer, monitoring the Top 100 group is important. What happens in this group reflects the evolution of the overall retail market. We see the continuing decline of Department Stores coinciding with the growing popularity of Value outlets. Nothing demonstrates the growing influence of the internet better than Amazon’s continued spectacular growth. The competition in the market is clearly shown in Supermarkets, where 8 Top 100 retailers became 4 in just 2 years through mergers/acquisitions. In business, like in biology, you must adapt to a changing environment or face extinction.

Don’t forget to download the 2016 Top 100 Retailer Excel file to do your own analysis

[button link=”https://pmud8a.a2cdn1.secureserver.net/wp-content/uploads/2017/08/Top100-US-Retlrs-2016-Ranked.xlsx” type=”icon” newwindow=”no”] Download 2016 Top 100 U.S. Retailers List(Excel)[/button]