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.