Archive for year: 2017

Price has always mattered but it has truly come to the forefront in the consumers’ mind since the great recession. In this report we will review the latest “Petflation” trends for all industry segments but we will also take a look back in time 10 years to 2007, before the economic crisis struck. Let’s see what has changed and how we got to where we are today.

The following chart graphically shows the annual CPI change from 2007 to today – Ytd May of 2017.

• The first thing that you notice is that since 2009 the Supply Segment has travelled to the beat of a different drummer. Prices are only 0.8% higher now than in 2007. In fact, prices now are almost exactly equal to August 2007.
• The period from 2007 to 2009 was a strong economic time. Prices in all segments just went up, like clockwork. With a 20.5% increase in 2 years, Pet Food was “leading the pack”. There is a story behind this. As a result of the melamine recall of 2007, U.S. consumers became concerned over Pet Food Safety. They moved strongly toward U.S. made Pet Foods, with all U.S. ingredients. These products cost more to produce and drove the overall price of Pet Food up – significantly. Although the 6% increase in 2 years for Supplies may seem tame in comparison, it was triple the segment’s annual rate of increase for the earlier years in the century.
  • The revenue growth in the industry for these years was primarily due to increased prices.
• Then came the great recession. Most industries felt the impact on prices in 2009, with a drop in the national CPI for the first time since 1955. (The recession was a big deal!) However, prices in the Pet Industry weren’t affected until 2010. Prices fell in both Food and supplies and the increase in Non-Vet Services was slowed. Prices in the Veterinary segment were unaffected. They just kept going up at the same rate.
• From 2010 to 2013, prices in all segments but supplies increased, but at a slower rate than the “pre-recession” time. Supplies was a completely different story. There are a variety of Supplies categories. Many are considered discretionary spending and have relatively low usage rates. With the consumers’ new shopping priorities – Price is #1, many supplies categories began to be looked upon as commodities and sales became very price sensitive. The initial price drop of 2010 was followed by an even bigger drop in 2013. Obviously, new rules applied to Supplies.
  • With lower inflation rates in this period, more of the industry’s growth was real.
• From 2013 to 2016, prices in both of the Service segments continued to inflate – the Veterinary segment at 3.5% per year and Services at 2.4%. Revenue in the Service segment was unaffected, but the Veterinary Segment saw all growth coming from price increases. The amount of Vet Services provided in 2015 was actually about equal to 2010 – they just cost more.
• From 2013 to 2016 – Pet Food prices began to fall. It had become a more competitive environment in this segment. Food sales usually tend to stagnate when prices fall. Consumers don’t buy more food. They just spend less. However, in this case, we were on the edge of a change in food buying behavior. During the second half of 2014, the older Millennials began to try the new classification of foods, dubbed Super Premium. In early 2015 they backed away from this experiment but another group caught the fever – The Boomers. They went for these new, nutritionally concentrated, pet foods in a big way, over a $5.8B increase in spending. However, overall Food prices continued down as the manufacturers of “regular” recipes tried to “buy back” their lost customers.
• In 2013 and 2014 – Supply Prices dropped sharply. By 2014, this had caught the consumers’ attention and Supply sales moved up strongly. Then prices stabilized and began to move up. Apparently, the price sensitivity in Supplies had become very pronounced. In 2015 Consumers decreased their frequency of purchases by 10% and sales fell about $2B. Prices stabilized in 2016 but still moved up slightly.

As you can see, in the Post-Recession world, price can make a huge difference in consumer spending behavior. Now let’s take a closer look at the recent history of “Petflation”. The following chart documents the monthly change in CPI by Industry segment over the last 24 months, from May of 2015 through May of 2017.

• Total Pet – Prices in Total Pet increased 1.71% in 2 years, an annual rate of inflation under 1%, which is low. It was produced by a very reasonable 1.49% increase in the first half followed by a dramatically low increase of only 0.22% in the second 12 months. The 0.22% increase is the lowest 12 month inflation rate for Total Pet since they began keeping records back in 1997. This CPI history also clearly demonstrates that you should always look beneath the surface of any summary numbers. The individual parts can tell a very different story from the total.
• Veterinary – The first half was “business as usual” or even stronger, with a 3.97% increase in prices. However, there was a distinct change in the second 12 months. Prices only went up 1.8% and included a rare one month price drop of almost 1%. Perhaps, this segment is starting to react to a decrease in frequency of consumer visits.
• Service – The Service segment has a pattern somewhat similar to Veterinary. Prices were up a “normal” 2.25% in the first 12 months. In the second half prices only increased 0.6% and there were 3 monthly price drops, including a 0.7% drop in May ‘17. It’s possible that this discretionary segment is starting to experience competitive pressure.
• Pet Products – There is one situation of note that applies to both Food and Supplies. The annual CPI numbers can give the impression of a smooth increase or decrease. In the last few years, the norm for these two segments has been wild short term swings in prices. You can see examples of this for both categories in the first 8 months of the graphs. There have still been ups and downs but since January of 2016 the changes have been less radical.
• Pet Food – As we said, in 2015 the Boomers moved to upgrade their food to Super Premium. This chart shows how strongly the regular brands reacted – with over a 2% overall drop in prices in just 2 months – July and August 2015. The prices gradually worked their way back up to more normal levels by year end. However, another drop began in late summer of 2016. So far the prices have not recovered. One possibility is that even the high end products are now experiencing competitive pressure. Consider this fact. In 2015 there were 108 exhibitors selling Dog and/or Cat Food at SuperZoo. In 2017, just 2 years later, there were 147 – a 36% increase. If you have a good idea, others will try to get a piece of the action.
• Pet Supplies – Prices were up for most of 2015 and sales were down over a billion dollars. As we approached the prime holiday season, retailers reacted and prices fell almost 2%. It was not enough. The CPI only showed a slight overall increase for the year but sales fell by $2B. Prices moved back up to at or near previous levels and stayed there until the fall of 2016. They have generally moved down since then. The Supplies CPI actually has been relatively stable for 20 months now. We will have to wait and see how this affects consumer spending in this segment. The USBLS’ spending numbers for 2016 will be available in September.

In the past 24 months we have 2 trends that may have long term significance.

• The high inflation rate in both Service Segments has slowed in the past 12 months.
• Although both the CPI for Food and Supplies are trending down slightly, they have become more stable. They still have monthly variations but the pricing swings are less severe.

Thus far, we have focused solely on the CPIs for the Pet Industry. Let’s see how they compare over time to the National CPI and other relative industries. The final chart compares the CPI change from 2009, a pivotal year, to May of 2017.

• The annual inflation rate of Total Pet is only 1.42% – 23% lower than the overall national CPI. However, we know that the story behind the Total Pet number is not quite as rosy as it seems to be.
• The inflation rate for Pet Food is less than half that of Food & Beverages. There have been big pricing swings in Pet Food and the segment has been in deflation since 2013.
• The deflation in Supplies is both unusual and concerning because it puts strong profit pressure on manufacturers and retailers.
• Even with the recent slowing of inflation in the Veterinary segment, prices have increased 13.1% faster than Human Medical care. The consumer impact is magnified because Pet Insurance is not as effective as Human healthcare policies in lowering out of pocket expenses. Plus, the participation percentage is far lower.
• The inflation rate for the Service Segment has remained relatively constant over this time frame with little to no impact on revenue – so far.

That wraps it up for this Petflation update. We’ll check again when the Spending numbers for 2016 are released.

 

 

 

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

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:

• $150K – ↑$0.59B
• Total Wage & Salary Earners – ↑$0.54B
• 25>34 yr Age Group – ↑$0.41B
• Hispanics, African Americans & Asians – ↑$0.66B
• Homeowners with Mortgages ↑$0.63B
• Center City ↑$0.72B

According to the numbers from the American Pet Products Association (APPA), the total U.S. Pet Industry increased $6.47B (10.7%) in 2016. This was spectacular to say the least. However, about $4B came from a data reporting adjustment to Food $ales based upon information from the US BLS which indicated that previous years Food numbers were too conservative. What is most important is that this year’s numbers more accurately reflect the true strength of the industry, especially in the largest and critically important Food Segment. Even factoring in “Petflation”, the increase in the amount of goods and services sold was 9.2% and 85.9% of the industry’s growth was “real”. Less than 15% came from price increases.

In this post we’ll take a closer look at the performance of the total market and importantly, the individual segments. The report will cover 2016 but also put this year’s numbers into perspective for the period from 2009 to 2016, the time since the great recession.

Here are the details for 2016. Some key data is highlighted:

OBSERVATIONS

• Two consecutive years of deflation in the Food segment ended in 2016 with a reasonable CPI increase of 0.2%.
• Sale of Live Pets fell slightly for the third consecutive year, which is a concern.
• The Supply segment came up short of projected numbers but prices were flat so 97% of the growth was real.
• The Service segment hit their projected sales number but the inflation rate was relatively high so only 67.3% of the increase was real, down from 77.5% in 2015
• The Veterinary Segment also reached the projected number but the continuing high inflation rate resulted in Pet Parents actually buying less in terms of the amount of veterinary services for the second consecutive year.
• The Total Pet Market – up 10.73%…was primarily driven both by the performance and the reporting adjustment in the Food segment. The Food and Supplies segments, with minimal price increases pushed the real growth up to 85.9% – outstanding. The high inflation rate in the Vet Segment continues to depress consumer sales, affecting the entire industry’s numbers.

The Chart below may make it easier to compare the situation in the individual Segments

Now let’s take a look at the performance of the individual segments from 2009 through 2016 starting with Food.

OBSERVATIONS

• The adjustment to more accurately reflect the current sales of Pet Food made quite a difference in the average numbers for the period from 2009 to 2016
  • 7.02% Annual Growth Rate
  • Low average inflation – 0.82%
  • 6.15% CPI adjusted Growth Rate: 88% of the growth since 2009 has been “real” – That’s Outstanding!
• In the 7 years since 2009…
  • 3 were deflationary (-0.6%) Average
  • 4 were inflationary (1.9%) Average

Both deflation and strong inflation can be concerning. We have only had 4 deflationary years in Food (2000 was the other). The 2010 deflation came after a combined 20% Food CPI increase from 2007 to 2009 – in the heart of the recession and real growth ceased. The decrease in 2010 was a welcome break and brought a big positive response from the consumer and adjusted growth exceeded retail sales.

The years from 2011 to 2013 brought CPI increases in the 2+% range. This was a bit too high and dropped the percentage of real growth below 50%. In 2014-15, prices fell so the consumer paid less but “real” growth improved. The big concern with deflation is the impact on the supply and distribution channels and ultimately on the consumer… thru reduced choices. In 2016, prices moved into a healthier range. In the future, a positive inflation rate for Food that stays at or below 1% should produce the best results.

Here’s what the period from 2009 to 2016 looks like on a graph:

2017 Retail Food sales are projected to increase 5.2% to $29.69B. This seems very reasonable. In the chart you also see the big lift caused by the adjustment. It’s important to remember that the 2016 numbers are more accurate. If the APPA were to adjust the numbers from earlier years it would likely just straighten the growth line’s path to the top. It’s also a little too early to project the Pet Food CPI for 2017. February prices are up 0.1% from December and up 0.17% from a year ago. This is on track for a desirable low increase in the CPI.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

• Deflation
  • Cumulative
    • Prices are 4.87% below 2009 (and still about equal to what they were in April 2008)
    • Falling at an annual rate of -0.71%
  • Short Term – Stopped with very minor CPI increases in both 2015 and 2016
• Retail Sales – When deflation ended, the retail growth rate slowed as this category is now very price sensitive.
• Over the whole period, the Consumer bought more…and paid less!
  • Retail Sales annual growth rate is 4.24%
  • Price Adjusted annual growth rate is 4.99% – 18% higher than the retail rate

In Supplies, the first deflationary year was 2010. However, we should remember that inflation has generally not been a big issue in this segment. From 1997 to 2004 Pet Supplies increased in prices at an annual rate of under 0.5%. Then in 2005 and continuing through 2009, the CPI increased an average of 2.75% per year. This doesn’t sound like much but remember it was 5 times the rate of the previous 7 years and 2 of the biggest increases (over 3.0%) came in 2008 and 2009, in the heart of the recession. The consumer reacted – and bought less.

Prices fell 1.7% in 2010 and the consumer bought more. The prices briefly stabilized in 2011 and then began moving downward. The consumer’s reaction was to buy more. 2015 and 2016 brought another pricing pause, similar to 2010. Overall Retail growth slowed to 2.5% and adjusted growth dropped from 4.6% in 2014 to 2.4% in 2016.The good news for the sellers is that this growth was 99% real and more profitable.

Here’s the graph:

In 2017 Pets & Pet Supplies are projected to increase only 0.8% to $16.94 B. This reflects an expected $100M decrease in Live Animal Purchases and minimal growth in Supplies (1.5%). Many categories in the Supply segment have become commoditized and commodities are very price sensitive. February 2017 prices are down 0.9% from December and 0.7% from a year ago. If this continues, it could spur increased spending. However, innovation is the only real cure. Consumers will spend more for products that make Pet Parenting easier or better.

Now onto the Service Segments – First, NonVet Services.

OBSERVATIONS

• Growth
  • Annual Retail Growth rate 8.00% – The highest in the industry
  • Annual Inflation rate – a little high at 2.42% but appears to be slowing.
  • Years of inflation may be catching up to this segment as the spending increase in 2016 was about half of the increase in 2015.
  • 68.1% “real” growth – 75+% should be their target.

There are no big negatives regarding this segment. However, it is largely driven by discretionary spending so the consumers’ spending power is a big factor. That’s why years of relatively strong inflation could result in a consumer “push back” at some point. However, it has grown strongly and consistently in the improving economy since the recession, especially since 2011. In 2015 the growth even reached double digits at 11.8% but slowed to a more normal 6.5% in 2016. The impact on the industry is limited as it is by far the smallest segment, only accounting for 8.6% of total Pet Industry Sales…but that’s better than 7.4% back in 2009.

Here’s how the sales look on a graph:

2017 sales are projected to be $6.11B, up 6.1%. This increase is down a bit from last year’s 6.5% and 25% below the segment’s average annual growth rate. In regard to inflation, prices are up 0.2% since December and 1.4% from a year ago. Inflation is still ongoing in this segment. The big question is how much? If it stays near or below 2% then their real growth would be about the same as 2016 – 66%. Since price is increasingly a factor in spending, we’ll periodically update the CPI status for all segments during 2017.

Veterinary Services generate 23.9% of Total Pet Industry $ales.

Let’s take a closer look at the Veterinary Service Segment.

OBSERVATIONS

• Retail Growth
  • Sales are Up 32.5% since 2009
  • Annual growth rate 4.10%
• Inflation is the problem
  • Annual average CPI increase 3.59%
• Price increases account for 88.1% of Retail growth!
• “Real Sales”
  • Consumers actually bought less in vet services in 2011, 2012, 2015 and 2016. They just paid more.
  • Sales have been stagnant since 2009 – average annual growth rate 0.49%
  • Even worse, 2016 “real” sales were about equal to 2010 (actually a little less). Consumers bought the same “amount” of Veterinary Services. They just paid almost $4B more.

Regular veterinary visits are generally viewed as a “need” not a “want”. The high inflation rate over the years finally generated a consumer response in 2011…they cut back on veterinary services. Consumers have turned to OTC medicines, supplements, treatments and home testing whenever possible. Some NonPet Retailers are offering “no appointment” clinic days in their stores where Consumers can bring their pets for vaccinations and other procedures at radically discounted prices. Pet Health Insurance is growing and there may be fundamental changes in Veterinary Clinics – more chains and groups. Major medical procedures and emergency care will always be needed but it seems steps should be taken to make regular veterinary care more affordable.

Here’s the graph of sales since 2009:

Veterinary Services are projected to reach $16.62 B in 2016, up 4.2%.That seems a bit high considering recent performance. Inflation continues unabated as the CPI in February is already up 1.2% since December and 2.5% from a year ago. If the Veterinary Segment can hit the projected Sales number then they will likely avoid a third consecutive year with a decrease in services. However price increases would probably still account for 80+% of the increase in sales.

Now in our final section we’ll go back to the total pet market.

OBSERVATIONS

• Retail Sales in 2016 ↑46.6% since 2009; Annual growth rate 5.62%
• Inflation: Only 10.57% since 2009; 1.45% annual CPI increase.
• “Real” Sales are 73.2% of the Total increase with an annual growth rate of 4.11%

The great Total Pet Retail numbers are a big reason why so many people are attracted to the industry. They look even better with the APPA’s adjustment in Food reporting to get a more accurate number, but the retail numbers are consistently good across all segments. However, as I’ve said so often, you need to look a little deeper into “petflation” and the actual amount of goods and services being sold. In recent years we have been struggling with deflation in Food and Supplies and inflation in the Veterinary Segment.

• Deflation in the Supplies Segment has now paused for 2 consecutive years. Commoditization, channel migration, consumer value shopping and lack of innovation had created extreme competitive pressure which deflated prices. Consumers were buying more… but paying less. Recent small increases in the CPI have slowed the growth of retail sales slightly. We’ll see if deflation begins again or if this segment has truly reached a turning point.
• After 2 years of deflation in the Food segment, prices rose slightly in 2016. However, the big news is the significant consumer move to Super Premium foods, which offer superior nutritional benefits at a higher price.
• The Veterinary segment has the opposite pricing problem. Years of inflation have caught up. Consumers bought less in 4 of the last 7 yrs. 88% of growth is from price increases and 2016 “real” sales are slightly below 2010.

Here’s the graph of Total Pet Sales since 2009:

In 2017 the Total Industry is expected to increase 3.9% to $69.36B. This could be a little low if the Super Premium Food trend continues and expands and Supplies bounce back with improved growth. In terms of CPI Inflation, the 2016 rate of 1.39% seems to be a reasonable estimate. Recent years have seen real sales growth at about 3%. Combined with the CPI this would produce a Total Industry Increase of 4.4% to $69.7B. We’ll just have to wait and see what happens.

One last thought – Always look beneath the surface in your business numbers. The headlines may not tell the whole story!