May 2017 – Pet Business Professor

U.S. Pet Services Spending (Non-Vet) $6.82B (↑$0.96B): 2016 Mid-Year Update

May 31, 2017/in Pet Market/by John Gibbons

The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2015 to 6/30/2016. The report shows Non-Vet Pet Services Spending at $6.82B, Up $0.96B (+16.4%) from a year ago. The following charts and observations were prepared from calculations based upon data from that report and earlier ones. The first chart will help put the $6.82B into perspective with recent history.

Specific Comparisons

2013 > 2015: ↑$0.98B (+18.6%)
Mid-Yr2014> Mid-Yr2016: ↑$1.5B (+28.2%)
2015 ($6.26B) vs 2014 ($5.67B)
- ↑$0.59B (+10.4%)
  - 1^st Half ↑$0.19B
  - 2^nd Half ↑$0.4B
Mid-Yr 16 ($6.82B) vs Mid-Yr 15 ($5.86B)
- ↑$0.96B (+16.4%)
  - Jul>Dec 2015 ↑$0.4B
  - Jan>Jun 2016 ↑$0.56B

Observations

Pet Services has shown uninterrupted growth since 2013.
The growth has accelerated since the second half of 2015.
Although inflation has slowed from the beginning of 2015 through Mid-year 2016, it has still averaged over 2% per year. Thus far, the rising prices have not had an impact on overall Pet Services Spending.

Let’s take a look at the Mid-Year Services Spending by Age Group.

Age Group Observations

The bulk of Pet Services Spending (70%) is done by the 45 and over group (61% of all CU’s)
All but 2 Age Groups are spending more on Pet Services
The 35>44 Age group is down slightly. This is the group of Gen Xers who are under strong financial pressure as they are at the peak of Family responsibilities.
The over 75 group is more likely to “need” pet services than have them as a convenience. In this case, it is possible that the rising prices could be impacting this lower income group.

Now let’s look at Pet Spending by Income Group

Income Group Observations

It’s an interesting pattern. The Below Avg income group and the wealthiest group over $150K are driving the increase.

Under $70K ↑$0.32B and $70K > $150K ↓$0.32 exactly cancel each other out.
CU’s making over $150K, with a $259K avg income, are in effect, generating the entire $0.96B increase.
The above average income group, primarily those who are Gen Xers, are at the peak of family pressure and are thinking twice about the largely discretionary spending on Services.

Comments

The $0.96B growth in Services Spending in the 12 month period ending 6/30/16 was the biggest growth in any 12 month period since they began the annual survey in 1984. It beats out the $0.82B increase in 2012 which came after a 2 year spending decline in 2010-11 due to cautious spending as a result of the financial crisis. Also, the inflation rate for Mid-Yr 2016 was 2.5%, which sounds like a lot. However, the annual inflation rate from 2000 to 2009 in this industry segment averaged 4.1% so 2.5% is a 40% drop. It also means that 85% of the recent $0.96B growth was real.

Of the $0.96B increase, $0.4B came in July-Dec 2015 and $0.56B came in the first half of 2016. So what’s in store for the second half of 2016? Inflation continued to slow, finishing up at 2.03% for the year. Except for the 2010 recession aftermath year, that’s the lowest rate since 1999. 2016 seems to be poised to be an exceptional year for services.

The good news also is widespread. Here are some of the biggest Demographic Segment gainers In Services Spending:

All Wage & Salary Earners ↑$0.66B
White, Not Hispanic ↑$0.96B;
College Grads ↑$1.09B
Homeowners & Renters are all Up. HomeOwners w/o Mtge ↑$0.51B
Suburbs ↑$0.77B…only Rural areas are down.
All Married and Unmarried CU’s are Up. Married Couples “only” (No children) lead the way ↑$0.56B
All Sizes of CU’s (1 > 5+) are up. 3 person or Less CU’s ↑$0.85

U.S. Pet Supplies Spending $14.84B (↓$1.01B): Mid-Year 2016 Update

May 23, 2017/in Pet Market/by John Gibbons

2015 was quite a year for Pet Food but not so good for Pets & Supplies. Now it’s time to see what the beginning of 2016 brought to Supplies Spending. In the US BLS Mid-Year Update of their Consumer Expenditure Survey covering the 12 month period ending 6/30/16, Supplies Spending was $14.84B, down $1.01B from a year ago and even slightly less than 2013. The following chart should put the recent history into perspective.

2015 ($14.9B) vs 2014 ($17.0B)
- ↓$2.1B (-12.4%)
  - 1^st Half ↓$1.15B
  - 2^nd Half ↓$0.95B
Mid-16 ($14.84B) vs Mid-15 ($15.85B)
- ↓$1.01B (-6.4%)
  - Jul>Dec 2015 ↓$0.95B
  - Jan>Jun 2016 ↓$0.06B – Flat
2015 vs 2013 – Spending Flat:↓$0.06B
Mid-16 vs Mid-14 – Spending ↓$1.09B

The Chart clearly shows the Spending ride that Supplies has taken since 2013, climbing to the summit in 2014 then descending into the valley in 2015. Supplies is a diverse and complex segment so there are a number of factors behind these changes in Spending. For this report we will focus on 2 which seem particularly relevant.

The first is pricing – inflation/deflation. Many Supplies Categories are commoditized so spending is impacted by the rise and fall of prices. 2014 was a “deflation” year. Prices were down so the largely discretionary Supplies spending was up, way up. During the Holiday season of 2014, prices turned upward. Spending was not significantly slowed…but the prices stayed up into the new year. This would have a negative impact.

At the same time in 2015, another trend was starting in another segment. A large group of consumers, mostly Baby Boomers was choosing to upgrade their Food to Super Premium. This upgrade was significantly more expensive so this group immediately began looking for ways to save on discretionary spending. Basically, everyone was looking for savings and Supplies prices were going up. The result was a $2B drop in Supplies spending primarily from only a 10% decrease in purchase frequency. In Nov-Dec 2015, the Consumer Price Index for Pet Supplies dropped by a record 2% – but it wasn’t enough to turn the year around. Prices stayed down for the first half of 2016 and Spending stabilized at the level of the same period in 2015, which is not good, but at least it stopped falling.

Now let’s look at the 2016 Mid-year Supplies Spending versus previous year by Age Group

At the end of 2015, every age group was showing decreased spending on Supplies vs 2014. At the Mid-Year update in 2016 we are starting to see evidence of at least a pause in the decline if not the beginning of a turnaround.

The biggest drop in Supplies is still occurring in the age groups which have Baby Boomers who range in age from 52 to 70 at the time of this report. In 2015 the Boomers opted to upgrade to Super Premium Foods and reduced spending in other areas, especially Supplies. We’re still seeing the residual effect of that choice.
Supplies have always been an important portion of overall Pet Spending for the younger groups so it’s fitting that the Under 35 group is showing an increase. Perhaps the turnaround will start with the Millennials.
Another point to note is the increase, although slight, at both ends of the age spectrum. The individuals in age groups are always changing. This increase indicates that new pet households are being added and that existing pet households are being maintained.

Now let’s look at Supplies Spending by Income Group to see if Money Matters.

Just like the Age Groups, every Income group showed decreased spending in 2015. At the 2016 Mid-Year update, the decline is still pretty pervasive but there are a couple of positives.

The $1B decrease is almost equally split between the Over $70K and Under $70K groups.
All the Income Levels under $70K are also showing a drop in Supplies Spending.
The $100>$150K group is still reflecting the cut back in Supplies Spending which was driven by the Food Upgrade and value shopping. Their income is $120K but this group is at the peak of family responsibilities & children <18.
There is a slight increase of $0.12B in the above average income group $70>$100K. There is probably a strong correlation between this group and the lift in the 25>34 age group, especially married couples only.
The Over $150K group is also showing an increase of $0.11B. With an average income of $259K, discretionary spending is just that…at their discretion.

Comments

2015 was not a good year for Supplies. It was a year of price inflation. While not strictly tied to the CPI, many of the commoditized Supply Categories are strongly influenced by price. With inflation, Spending fell $2.1B in 2015. Prices had a record drop in November-December. This may have mitigated the decline but it was not enough to turn the second half around. The lower prices continued for the first half of 2016 and Spending stopped falling and flattened out at a level equal to the first half of 2015. What will happen in the second half? We’ll just have to wait and see. The Segment could certainly use a turnaround. Here are some large Demographic segments that are showing an increase in Supplies Spending for the first Half of 2016 and might lead the way.

<$100K ↑$0.36B
35>44 yrs ↑$0.19B
3 Person or less CU’s ↑$0.5B
College Grads ↑$0.14B
White, Not Hispanic ↑$0.14B
Northeast & Western Regions ↑$0.3B

U.S. Pet Food Spending $28.6B (↑$1.94B): Mid-Year 2016 Update

May 9, 2017/in Pet Market/by John Gibbons

The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2015 to 6/30/2016. The report shows Pet Food Annual Spending at $28.62B (Food & Treats). The following charts and observations were prepared from calculations based upon data from that report and earlier ones. The first chart will help put the $28.6B into perspective with recent history.

From 2013 to 2015 the Pet Food Segment grew from $23B to $29.5B – a $6.5B (28.3%) increase in 2 years!
Most of the increase occurred from 2014-2015 when spending reached $29.5B – a $5.4B (22.4%) increase
- First half of 2015 – Up $2.6
- Second half of 2015 – Up $2.8B
Mid-Year 2015 ($26.7B) vs Mid-Year 2014 ($22.9B)Up $3.8B
Mid-Year 2016 ($28.6B) vs Mid-Year 2015 ($26.7B)
- Up $1.9B
- July>Dec 2015 – Up $2.8B
- Jan>Jun 2016 – Down $0.9B

2015 was the critical year. It produced the tremendous lift in spending due to the move to upgrade to Super Premium, which was primarily driven by the Baby Boomers. However, 2015 was a unique year in another way too. There was a radical increase in Food Spending and at the same time, the biggest deflation since they began keeping records back in 1997. These don’t usually go together since you don’t buy more food just because it’s cheaper. Perhaps the brands that were losing consumers to the Super Premium Foods were trying to “buy them back”. The result was we had the huge lift due to the upgrade at the same time that everyone else was paying less for their regular food. This appears to have created a value shopping mentality in that the consumer was looking for the best price in other retail outlets and the internet. The deflation continued through the first half of 2016 and so did the pricing scramble.

Let’s see where the $28.6B came from – First by Age Group

The 55>64 Age group, which is all Baby Boomers is still driving the mid-year increase – Up $2.95B
You also see the influence of the youngest Boomers in the small lift in the 45>54 Age Group.
The 65>74 age group is a different story. This group, who originally bought into the Food Upgrade, appears to have backed off a bit.
The 25>44 age group was the first to try upgrading Food in the second half of 2014 which started the “lift”. In 2015 they backed away. The drop you are seeing is primarily a result of that.
At the extreme edges of the Age Spectrum, it appears that the Under 25 group is adding pets and the over 75 folks are maintaining them.

Now let’s look at Spending by Income Group:

Pet Food Spending is almost evenly divided between CU’s earning < $70K and those earning >$70K
This upgrade to Super Premium was not strictly about money but more about the benefit to your Pet.
The biggest decrease is coming in the mid to upper income groups. This seems unusual but it is still reflective of the roll back from Super Premium in the 25>44 age group that occurred in 2015.
You can see that the Under $70K group (Note: Avg U.S. Income is $73K) and the super high incomes are driving the increase. The >$150 is certainly not all Baby Boomers. We may have a new convert to Super Premium.

Comments

Mid-Year 2016 Pet Food Spending totaled $28.62B, an increase of $1.94B (7.3%). That is excellent but I’m sure the question on everyone’s mind is what about the $0.88B decrease in the first 6 months of 2016? What does that mean? Unfortunately, there is no absolute answer. The huge $5.4B lift in Food in 2015 came primarily from the upgrade in Food by Baby Boomers. In fact, their increase was closer to $5.8B so they made up for declines in other groups.

When a large group makes a major change like switching to Super Premium, not everyone will stick with it. You will undoubtedly see some slippage. In the first half of 2016, the 55>64 age group spent slightly less than in 2015 – $0.19B. The Retired group spent a lot less – $0.9B.

There is another factor at work here in the decline in spending in the first half of 2016 which affects everyone…deflation. There was strong deflation in Pet Food Prices for all of 2015 and this continued into the first half of 2016. Even if you are loyal to your Pet Food Brand, why would you pay more than you have to? In today’s world, price comparison is much easier and the internet is now a real option for Food as well as Supplies. Consumers did their homework and paid less.

So what will happen in the second half of 2016? Will there be a net increase in spending for 2016 over 2015? The answer is of course, no one knows.

For 2016 to show an increase over 2015, consumers would have to spend $0.9B more in the second half of 2016 than they did in the second half of 2015, which was the largest second half of all time. Deflation ended in July of 2016 but without a move to Super Premium by a significant demographic segment(s) an overall increase for 2016 seems unlikely. We’ll wait and see. Don’t be overly concerned. In reviewing 30 years of Pet Food Spending history I have noted that there are periodic plateau years where spending slows or even declines slightly, only to bounce back with a renewed vigor. Recent Plateau years occurred in 2013, 2010, 2006, 2003, 2000 and 1997. Pet Food will come back strong, either in the second half of 2016 or in 2017. It always has. Here are some demographic segments that showed strength and increased Pet Food spending in the first half of 2016: