Archive for year: 2018

U.S. Consumers spent $7.8 Trillion dollars in 2017, up $383B (+5.2%) from 2017. However, the pet industry had an even better year. Americans spent $77.13B, 0.99% of total expenditures, on our companion animals. Increases in the three largest industry segments drove overall Pet Spending up $9.84B (+14.6%) in 2017. U.S. Consumers are heavily driven by value and in 2017 they found it almost “across the board” in all industry segments. Even the Services segment, which had a small decrease, had an increase in purchase frequency. Pet Parents just paid less. We’ll continue to monitor the situation to see if this spending behavior continues or evolves.

In this report we will look at Pet Spending for undoubtedly today’s most “in demand” demographic measurement – by Generation. Baby Boomers have driven the industry. Are they starting to fade? Are Millennials stepping up? What about Generation X? 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 U.S Consumer Units (CUs are basically Households)

GENERATIONS DEFINED

• Millennials: Born 1981 to 1999
  • In 2017, Age 18 to 36
• Gen X: Born 1965 to 1980
  • In 2017, Age 37 to 52
• Baby Boomers: Born 1946 to 1964
  • In 2017, Age 53 to 71
• Silent Generation: Born 1928 to 1945
  • In 2017, Age 72 to 89
• Greatest Generation: Born before 1928
  • In 2017, Age 90+

• Baby Boomers are still the largest number of CU’s at 44.7M and 34.4% of the total but they are starting to lose some ground. In fact, all 4 of the older generations have fewer CU’s than in 2016.
• The 2 Oldest Generations will continue to lose CUs primarily due to death or movement to permanent care facilities. However, it appears that the Gen Xers are reducing their CU count by coming together in their “middle age” years.
• Millennials have the largest number of individuals, but they rank only third in the number of CU’s. However, this number is rapidly growing as a significant number gained financial independence in 2017.

Now let’s look at some key CU Characteristics.

The most significant change is that Millennials are “coming of age” with increases in all areas. The oldest Americans are fading in all measurements but homeownership, which registered an increase from all groups but the Gen Xers.

• CU Size – CU’s with 2+ people account for 71.3% of all U.S. CU’s and 82.5% of pet spending (up from 80.5%). In 2017 Millennials exceeded the National Average for the first time. However, CU size, with all the related responsibilities, still peaks with the Gen Xers and then starts dropping. The Boomers are the last to average over 2 people per CU.
• # Children < 18 – 28.6% of U.S. CU’s have children and they generate 28.1% of Pet Spending. For the first time, CU’s with children aren’t earning their share. However, the story is more complex. In the past Single parents spent the least and the pet spending of married couples increased as their children got older, which often correlated with increased household income. In 2017, married couples with an oldest child under 6 fell to the bottom in Pet Spending. In 2017, there were 3 changes in the number of children per CU. The Silent Generation fell to essentially 0. The Gen Xers dropped from 1.2 to 1.1 and the Millennials increased from 0.8 to 0.9. This means that the drop in pet spending by households with the oldest child under 6 was likely driven by Millennial parents.
• # Earners – Pet spending is also tied to the number of earners in a CU. 2 Earner CUs annually spend 27.9% more on their pets than 1 Earner CUs. As the chart shows, the “earning” is being done in America by Gen Xers, Millennials and Boomers. In 2017, Gen Xers remained steady at 1.7, while Boomers fell 0.1 and Millennials increased by 0.1
• Homeownership – Owning and controlling your own space has always been a major factor in increased Pet Ownership and spending. Currently, homeownership is 62.9%, up from 62.4%, and accounts for 81.4% of Total Pet Spending, up from 79.8%. All groups but Gen Xers had an increase in homeownership and homeowners accounted for 92.5% of the total Pet Spending increase.
  • Millennials are the most common renters in society, but their level of Homeownership increased from 33% to 35%. However, it is still only 55% of the national average and about 2/3 of the rate of Gen Xers and Boomers when they were the same age.
  • Gen Xers remain near the national average and the rate of Homeownership continues to grow as we age.

Next, we’ll compare the Generations to the National Avg.:

In Income, Total CU Spending, Total Pet Spending and the Pet Share of Total CU Spending

• CU National Avg: Income – $73,573;
• Total CU Spending – $60,060;
• Total Pet Spending – $593.63;
• Pet Share of Total CU Spending – 0.99%

• Income – The 37>52 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 17% less and this difference will increase as they age. The income of the Silent Generation is about half of the Boomers as retirement becomes almost universal in this 72+ year old group. With an influx of new CU’s, Millennials’ income fell 6% and is now 22% less than the Boomers and only 65% 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 has become less in line with their income. They are not deficit spending yet, but their income fell 6% while spending increased by 5.5%
• Pet Spending – The Boomers are by far the Pet Spending leaders, but the Gen Xers also exceed the National average per CU. Millennials’ Pet Spending fell in relation to the national average, but they still moved into 3^rd place overall.
• Pet Spending Share of Total Spending – In 2017 the Pet Spending share almost reached 1%. It was driven up by a substantial increase from the Boomers with help from the younger groups, who have shown consistent growth. At the same time, the 2 oldest generations continue their decline. Although, the Silent generation is still ahead of the Millennials. The Boomers remain the runaway leaders and the only group to exceed the 1% level for Pet Spending.

Now, let’s look at Total Pet Spending by Generation in terms of market share as well as the actual annual $ spent for 2014 through 2017. The 2017 numbers are boxed in red (decrease) or green (increase) to note the change from 2016.

• Boomers continue to dominate Pet Spending and their share is back up to 46.8% after falling to 44.0% in 2016.
• There is a definite age-related pattern which is readily apparent in the bar graph. Spending in the oldest groups is relatively low and falling. In contrast, the two youngest groups are showing consistent year after year growth. That leaves the Boomers in the middle. They have the biggest share and are also the most likely group to have a strong reaction to trends. With their tremendous buying power, this can cause major spending swings in the industry.
• In 2017, the Boomers led the way to a record spending year, but they got strong support from Gen Xers and Millennials. Combined they were up $10.5B, but each group was up over 10% with an increase in excess of $2B.
• Boomers – Ave CU spent $804.94 (+137.82);
  • 2017 Total Pet spending = $36.09B, Up $6.48B (+20.7%)
  • 2014>2017: Up $6.62B; In 2017, they had a big lift in all but the services segment.
• Gen X – Ave CU spent $616.37 (+$74.42);
  • 2017 Total Pet Spending = $21.34B, Up $2.0B (+10.4%)
  • 2014>2017: Up $3.58B; Their annual Pet spending growth since 2014 has been the most consistent of any group.
• Millennials – Ave CU spent $413.14 (+$36.54);
  • 2017 Total Pet Spending = $13.49B, Up $2.05B (+17.9%)
  • 2014>2017: Up $3.8B; The Millennials had a big lift in spending in 2014 but Spending grew only slightly in 2015. Since then, their total pet spending has grown by $3.76B. Plus, it has become much more evenly balanced across industry segments as they have become more conscious of all facets of pet parenting.
• Silent Gen. – Ave CU spent $368.80 (-$28.27);
  • 2017 Total Pet Spending = $6.07B, Down $0.60B (-9.0%)
  • 2014>2017: Down $0.8B; They still spend a relatively high amount on their pets, but age is becoming a factor.
• Greatest Gen.– Ave CU spent $102.91 (-$2.73);
  • 2017 Total Pet Spending= $0.14B, Down $0.09B (-41.2%)
  • 2014>2017: Down $0.39B; After a lifelong commitment to their pets, their Pet Parenting days are fading away.

The Boomers are back in a big way and they brought their younger spending partners to help!

Let’s look at individual segments. First, Pet Food…

• For Boomers and the younger groups, the up and down, trendy nature of Pet Food is readily apparent, but the swings in spending are more pronounced for the Boomers. In the older generations, pet ownership is fading.
• The Millennials’ may be the food trend pioneers so their performance in any given year may be a harbinger of the performance of Gen Xers and Boomers for the following year. If so, Food Spending should be up slightly in 2018.
• Boomers – Ave CU spent $348.92 (+$74.26);
  • 2017 Pet Food spending = $11.92B, Up $3.79B (+31.8%)
  • 2014>2017: Up $5.97B – Great prices pushed the food upgrade trend broadly across America.
• Gen X – Ave CU spent $224.52 (+33.17);
  • 2017 Pet Food spending = $7.71B, Up $0.85B (+12.4%)
  • 2014>2017: Up $0.72B Although they are the highest income group, they still recognize and act on value.
• Millennials – Ave CU spent $154.40 (+$1.39);
  • 2017 Pet Food Spending $5.05B, Up $0.25B (+5.2%)
  • 2014>2017: Up $0.77B They are the only group with increases in both 2016 and 2017, but 80% of the 2017 increase came from an increase in the number of CU’s.
• Silent Generation – Ave CU spent $156.63 (-$10.38);
  • 2017 Pet Food spending = $2.57B, Down $0.214B (-7.6%)
  • 2014>2017: Down $0.31B; From 2014>2016, their pattern is very similar to that of the Gen Xers, but in 2017 it appears that they are starting to fade.
• Greatest Gen. – Ave CU spent $51.70 (-$9.56);
  • 2017 Pet Food spending= $0.06B, Down $0.07B (-51.1%)
  • 2014>2017: Down $0.12B; A 50% drop in spending was primarily due to a 42% drop in CU’s.

Pet Food Spending is driven by trends. Perhaps the young, connected Millennials are the first to react and “buy into” each new “advance” in Pet Food so their behavior may predict the future of the segment. Now, let’s look at Supplies Spending.

• Boomers still have the largest share, but the younger groups have their biggest “presence” in Supplies. It is the only segment in which Gen Xers and Millennials together account for over half of the spending – 51.9%.
• Baby Boomers – Ave CU spent $167.52 (+$26.17);
  • 2017 Pet Supplies spending = $7.49B, Up $1.11B (+17.5%)
  • 2014>2017: Up $0.82B; They started their supplies comeback in 2016 but it truly accelerated in 2017.
• Gen X – Ave CU spent $171.74 (+$24.10);
  • 2017 Pet Supplies spending = $5.97B, Up $0.72B (+13.7%)
  • 2014>2017: Up $0.49B; Gen Xers perform best in Supplies. Like the Boomers, they surpassed their 2014 record.
• Millennials – Ave CU spent $112.34 (+$17.67);
  • 2017 Pet Supplies spending = $3.66B, Up $0.85B (+30.4%)
  • 2014>2016: Up $0.63B; Supplies are again Millennials’ best performing segment. In 2016 they cut spending to help fund increases in Food and Veterinary. In 2017 they came back incredibly strong to set a new all time high.
• Silent Generation – Ave CU spent $86.92 (+6.57);
  • 2017 Pet Supplies spending = $1.43B, Up $0.08B (+5.6%)
  • 2014>2017: Down $0.27B; Pattern is similar to Boomers & Gen X, but not as pronounced and with lower results.
• Greatest Gen. – Ave CU spent $14.78 (-$5.13);
  • 2017 Pet Supplies spending = $0.02B, Down $0.03B (-54.2%)
  • 2014>2017: Down $0.10B; A big drop in CU’s and Supplies have a lower priority for these oldest Pet Parents.

Most groups cut back on Supplies spending in 2015 due to a combination of rising prices and an attempt to compensate for the cost of upgrading their pet food. Supplies started their comeback in 2016 when Consumers value shopped for food and spent some of their saved money on Supplies. Then Supply prices dropped in 2017 and basically everyone under 90 years old recognized the value and spent more on Supplies – $2.74B more!

Next, we’ll turn our attention to the Service Segments.

First, Non-Veterinary Pet Services

• Boomers have the biggest share, but again the combined Gen X/Millennial share is larger in a discretionary segment.
• Baby Boomers – Ave CU spent $65.52 (-$5.65);
  • 2017 Pet Services spending = $2.93B, Down $0.28B (-8.7%)
  • 2014>2017: Up $0.25B; Services are becoming more appealing with age but Boomers have learned to value shop.
• Gen X – Ave CU spent $54.68 (+$6.16);
  • 2017 Pet Services spending = $1.90B, Up $0.176B (+10.2%)
  • 2014>2017: Up $0.31B; Significantly increased the frequency but got Services at a good price.
• Millennials – Ave CU spent $36.75 (-$1.21);
  • 2017 Pet Services spending = $1.20B, Up $0.07B (+6.4%)
  • 2014>2017: Up $0.49B; Services are growing in importance. They are the only group with an increase every year.
• Silent Generation – Ave CU spent $44.58 (+$0.17);
  • 2017 Pet Services spending = $0.73B, Down $0.015B (-2.0%)
  • 2014>2017: Up $0.07B; They definitely have a growing need. The decrease came from a drop in number of CU’s.
• Greatest Gen. – Ave CU spent $3.64 (-$7.00);
  • 2017 Pet Services spending = $0.005B, Down $0.015B (-78.9%)
  • 2014>2017: Down $0.03B; A big drop in the number of CU’s and in pet parents.

This segment has always found a way to grow every year – until 2017. The small drop in spending was caused by a combination of factors. An extremely competitive environment created deals so even with increased frequency, consumers paid less. Another factor is age. Services are often of greatest benefit to older pet parents. In 2017 the number of “over 53” CU’s fell by 1.7M. Small increases by the Millennials and Gen Xers couldn’t make up the difference.

Now, Veterinary Services

• Boomers continue to dominate this industry segment – their share is 73% more than the #2, Gen Xers.
• Of particular interest is the consistently growing commitment of the younger groups to this Pet Parenting responsibility. The combined veterinary spending of Millennials and Gen Xers has increased $4B (+74%) since 2014.
• Boomers – Ave CU spent $222.98 (+43.04);
  • 2017 Veterinary spending= $9.97B, Up $1.853B (+22.8%)
  • 2014>2017: Down $0.41B; Although not yet back to their 2014 level, they staged a major comeback in 2017.
• Gen X – Ave CU spent $165.43 (+$10.99);
  • 2017 Veterinary spending= $5.75B, Up $0.26B (+4.7%)
  • 2014>2017: Up $2.05B; Since 2016, their Veterinary spending has exceeded the CU Average. They are a solid #2.
• Millennials – Ave CU spent $109.65 (+$18.69);
  • 2017 Veterinary Spending $3.58B, Up $0.88B (+32.5%)
  • 2014>2017: Up $1.91B; Their CU spending is up 74% since 2014. Veterinary has become a much bigger priority.
• Silent Generation – Ave CU spent $80.67 (-$24.63);
  • 2017 Veterinary spending $1.33B, Down $0.45B (-25.2%)
  • 2014>2017: Down $0.30B; Money is always a factor. Their Veterinary spending decline continues.
• Greatest Generation– Ave CU spent $32.79 (+$18.96);
  • 2017 Veterinary spending= $0.05B, Up $0.015B (+46.4%)
  • 2014>2017: Down $0.15B; Food and Veterinary are still the biggest priorities of these oldest pet parents.

Gen Xers and Millennials have consistently increased their commitment to Veterinary Services. In 2014, their share of Veterinary Spending was 30%. It is now 45.1% – a 50% increase. This is a big, fundamental change in spending 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: 62.1%;
  • Food: 65.2%; Supplies: 60.8%; Services: 85.6%; Veterinary: 50.7%
  • This group ranges in age from 72 to 89. Pet Parenting is more challenging after age 75. (note: They perform best in Services) The desire and the commitment to their pets is still there. This is evident in the fact that 0.83% of their total CU spending is on pets, which is higher than Millennials. They don’t earn their share but they’re trying.
• Baby Boomers Performance–Total: 136.1%;
  • Food: 146.9%; Supplies: 117.2 %; Services 125.9%; Veterinary: 140.2%
  • 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. At some point, this will begin to fade with age. However, that is still years off. After a dip in 2016, due to value shopping for food, they came “Booming Back” – +$6.5B in 2017.
• Gen X Performance – Total: 103.4%;
  • Food: 92.6%; Supplies: 120.2%; Services: 105.0%; Veterinary: 104.0%
  • The Gen Xers are next in line to Boomers in age and performance. In 2017, they “earned their share” as their Total Pet Spending performance again exceeded 100%. They have increased their Total Pet Spending every year since 2014. During this time, their spending has become more diverse and their performance has improved. They now earn their share in every area, but Food and it is close at 92.6%. They range in age from 37 to 52 so they are just entering the peak earning years. Expect their commitment and their pet spending to continue to grow.
• Millennials Performance – Total: 69.7%;
  • Food: 64.7%; Supplies: 78.6%; Services: 70.6%; Veterinary: 69.0%
  • Like the Gen Xers, Millennials have increased their pet spending every year since 2014. However, their future as the Pet Parenting spending leaders is still a long way off. They need increased income and a more settled family and home environment. Right now, their spending is becoming more evenly spread across segments and their performance just passed the Silent Generation but is still 30% below Gen X and about half that of the Boomers. They are educated and well connected. Indications are that they may lead the way in adopting new trends, especially in food. Their progress is good news, but in reality, their leadership is still more than a decade away.

Gen Xers and Millennials are ultimately the future of the industry, so everything should be done to encourage them and to make their Pet Parenting experience easier and better. However, by any spending measurement, the “here and now” of the Pet Industry is still the Baby Boomers.

 

 

 

 

 

 

 

 

 

 

 

In 2017 Total Pet Spending in the U.S. was $77.13B, a $9.84B (14.6%) increase from 2016. There was almost universal good news. The movement to Super Premium Foods made a deeper penetration across demographics. Deflating prices in the Supplies Segment spurred spending. Veterinary prices had record low inflation which increased spending AND visit frequency. The only “bad” news came from a minor decrease in Services spending. Increased competition saw consumers shopping for value. Their purchase frequency on Services was up a bit. They just paid a little less. Trading $ between segments was not a big factor in 2017. Food had a big turnaround. Supplies and Veterinary built upon a spending increase that began in 2016. Only Services was down, for the first time since 2010. Here are the $ changes:

• A big $4.61B (+17.4%) turnaround in Food
• A $74B (+17.3%) lift in Supplies
• A $2.56B (+14.1%) increase in Veterinary
• A very unusual –$0.07B (-1.0%) drop in Services

Let’s see how these numbers blend together at the household level. In any given week, 28.4 Million U.S. Households (1/5) spent money on their Pets – food, supplies, services, veterinary or any combination – up from 27.1M in 2016.

In 2017, the average U.S. Household (pet & non-pet) spent a total of $593.63 on their Pets. This was a 14.3% increase from the $519.57 spent in 2016. However, this doesn’t “add up” to a 14.6% increase in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

• 0.3% more H/H’s
• Spent 9.5% more $
• 4.3% more often

If 68% of U.S. H/H’s are pet parents, then their annual H/H Total Pet Spending was $872.99.

Now, 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 & 2017 Totals include Veterinary Numbers from the Interview survey, rather than the Diary survey due to high variation)

• In 2015, the Food upgrade began, but early in the year consumers were trading $ in other segments to pay for it.
• In 2016, they were intensely value shopping for super premium foods. They started spending some of this saved money on Supplies and Veterinary Services, but not quite enough as spending fell slightly for the year.
• In 2017, the Industry showed its true strength. Spending took off in all but Services, especially in the second half, when it was up $6.57B from the same period in 2016. Consumers found the money and spent it on their Pets.

Now we’ll look at some Demographics. First, 2017 Total Pet Spending by Income Group

All Income Groups increased Total Pet Spending!

• < $70K – (61.6% of U.S. H/Hs); H/H Pet Spending: $393.93, +13.6%; Total $: $31.37B, ↑$2.98B (+10.5%)..
  • Food ↑$1.88B
  • Supplies ↑$0.90B
  • Services ↓$0.33B
  • Veterinary ↑$0.53B
  • The move to Super Premium Food became more widespread across all incomes. You also see the positive impact of price deflation in Supplies and record low inflation in Veterinary Services. Money matters a lot to this group. Value Shopping is a necessity and they also “traded” some Services $ to pay for other increases.
• >$70K – (38.4% of U.S. H/Hs); H/H Pet Spending: $911.26, +11.7%; Total $: $45.76B, ↑$6.86B (+17.6%) from…
  • Food ↑$2.73B
  • Supplies ↑$1.84B
  • Services ↑$0.26B
  • Veterinary ↑$2.03B
  • This group continues to grow, up 4.2% in 2017. This magnifies the impact of increased household spending. They also show that income remains the single biggest factor in Pet Spending. 38% of households spent 59% of Total Pet $. They spent significantly more in all segments and accounted for 70% of the Total Pet increase.
• < $30K – (30.2% of U.S. H/Hs); H/H Pet Spending: $286.42, +10.1%; Total $: $10.91B, ↑$0.63B (+6.1%) from…
  • Food ↑$0.42B
  • Supplies ↑$0.09B
  • Services ↑$0.004B
  • Veterinary ↑$0.12B
  • This lowest income group truly shows just how great 2017 was for the Pet Industry as they registered increases in every segment, even Services.
• $30>$70K – (31.4% of H/Hs); H/H Pet Spending: $492.83, +15.2%; Total $: $20.46B, ↑$2.35B (+13.0%) from…
  • Food ↑$1.46B
  • Supplies ↑$0.81B
  • Services ↓$0.33B
  • Veterinary ↑$0.41B
  • This low to middle income group is by necessity price sensitive, but is also committed to their pets. The drop in Services spending came from a combination of trading $ and value shopping in a competitive market.
• $70>$99K – (14.9% of H/Hs); H/H Pet Spending: $697.80, +13.0%; Tot $: $13.41B, ↑$1.89B (+16.4%) from…
  • Food ↑$0.99B
  • Supplies ↑$0.25B
  • Services ↑$0.05B
  • Veterinary ↑$0.60B
  • This upper middle income group also had across the board increases but their primary focus was on the more “necessary” segments. They upgraded their food and increased their Veterinary visits.
• $100K>$149K– (12.7% of H/Hs); H/H Pet Spend: $900.95, +22.3%; Tot $: $15.02B, ↑$3.32B (+28.4%) from…
  • Food ↑$1.59B
  • Supplies ↑$0.44B
  • Services ↑ $0.37B
  • Veterinary ↑$0.93B
  • We should probably start calling them the “swing” group. In 2015 they were the Star of the income groups. In 2016, they had the worst performance with decreased spending in every segment. In 2017 they are back on top again. This probably indicates that they are the most responsive to industry trends. They have the money to do what is needed or what they want, but are still very “value” conscious.
• $150K> – (10.9% of H/Hs); H/H Pet Spending: $1214.05, +2.5%; Total $: $17.33B, ↑$1.65B (+10.5%) from…
  • Food ↑$0.16B
  • Supplies ↑$1.15B
  • Services ↓$0.16B
  • Veterinary ↑$0.50B
  • Money Matters ! They are the proof. They are the best performing income group in Total Pet Spending with 10.9% of U.S. Households generating 22.5% of all Pet $. They are also the only income group to increase annual Pet Spending every year since 2014. The slight dip in Services spending actually makes sense. They spend 35% of all Pet Services $ so they are the most likely to be aware of “deals” in the highly competitive market. They didn’t reduce their purchase frequency. They just paid less. Actually, it even gets worse/better as income goes even higher. The over $200K segment of this group is the runaway best performer in every industry segment and generates 13.2% of all Pet $ from only 5.5% of the households.

Income Recap –  The #1 driver in consumer spending behavior is value. VALUE = QUALITY + PRICE. 2017 was a year of great Value in the Pet Industry. All four industry segments matter to Pet Parents and income is the most impactful demographic in spending so it often comes down to “price”. In 2015 we saw a strong move to high priced Super Premium Pet Foods. By 2017, the price had come down so the movement spread. 2017 also saw deflating Supplies prices, a record low inflation rate in Veterinary Services and extraordinary retail competitive pressure in Services. All of this “price” pressure served to substantially increase the “value” in every segment. U.S. consumers recognize and respond to Value. In  2017, they did…in a big way in Pet Spending…across all income groups!

Next let’s look at the 2017 Total Pet Spending by Age Group

All groups spent more but the groups over 35 led the way with double digit increases.

• <25 – (5.8% of U.S. H/Hs); H/H Pet Spending: $258.82, +9.1%; Total $: $1.99B, ↑$0.12B (+6.6%) from…
  • Food ↓$0.20B
  • Supplies ↑$0.14B
  • Services ↑$0.04B
  • Veterinary ↑$0.14B
  • This youngest group is just getting started in life and as Pet Parents. In 2017 they value shopped for food but increased spending in all other segments. They are the only group to increase Pet $ every year since 2014.
• 25-34 – (16.4% of U.S. H/Hs); H/H Pet Spending: $446.83, +6.4%; Total $: $9.56B, ↑$0.67B (+7.5%) from…
  • Food ↓$0.08B
  • Supplies ↑$0.41B
  • Services ↓$0.002B
  • Veterinary ↑$0.34B
  • These oldest Millennials are just starting their families and careers so they are prone to trading $ between segments. However, they have shown slow, but steady spending growth since 2015.
• 35-44 – (16.2% of H/Hs); H/H Pet Spending: $579.89, +12.9%; Total $: $12.155B, ↑$1.20B (+11.0%) from…
  • Food ↑$0.80B
  • Supplies ↑$0.36B
  • Services ↑$0.13B
  • Veterinary ↓$0.10B
  • This group has the largest families and is in the middle of building their careers. This makes them very sensitive to value. They responded to the opportunity in 2017. The decline in Veterinary comes after a 38% increase in 2016 and is the result of just paying less. Their spending frequency actually increased.
• 45-54 – (18.1% of U.S. H/Hs); H/H Pet Spending: $729.90, +17.7%; Total $: $17.17B, ↑$2.29B (+15.4%) from…
  • Food ↑$0.74B
  • Supplies ↑$0.56B
  • Services ↓$0.17B
  • Veterinary ↑$1.15B
  • This group has the highest income but still appreciates value. They responded strongly to the values in 2017, especially Veterinary.  They also increased their frequency in Services but got good deals so they spent less.
• 55-64 – (19.0% of U.S. H/Hs); H/H Pet Spending: $866.44, +21.3%; Total $: $21.44B, ↑$4.07B (+23.5%) from…
  • Food ↑$2.83B
  • Supplies ↑$0.82B
  • Services ↓$0.28B
  • Veterinary ↑$0.71B
  • These Baby Boomers learned about value shopping in 2016 from Super Premium Pet Foods. They have applied that knowledge across the board. The drop in Services comes after a 54% increase in 2016. Plus, 90% of the decrease just comes from paying less. They have had a long standing commitment to all aspects of pet parenting, which is once again demonstrated with a $4B (23.5%) increase in what was already the highest level of pet spending.
• 65-74 – (14.3% of U.S. H/Hs); H/H Pet Spending: $585.83, +6.0%; Total $: $10.87B, ↑$0.99B (+10.0%) from…
  • Food ↑$0.26B
  • Supplies ↑$0.20B
  • Services ↑$0.07B
  • Veterinary ↑$0.46B
  • Many in this group are retired and now over half are Baby Boomers. Their commitment to their pets along with their new found skill in value shopping really shows. They don’t have as much money as the younger Boomers but they were the only age group to increase spending in every industry segment.
• 75> – (10.2% of U.S. H/Hs); H/H Pet Spending: $303.60, +13.9%; Total $: $3.96B, ↑$0.50B (+14.5%) from…
  • Food ↑$0.25B
  • Supplies ↑$0.25B
  • Services ↑$0.15B
  • Veterinary ↓$0.15B
  • Pet Parenting is more difficult and money is tight for these oldest Pet Parents but their commitment is still there. They increased spending in 3 of the 4 industry segments. In Veterinary, their frequency was virtually unchanged. They just spent less. This could be a combination of lower prices and a cut back on some services.

Age Group Recap: 2017 was a great year for the Pet Industry and the good news was widespread. Although the groups over 35 had the biggest increase, all age groups spent more on their Pets. There are two lower profile groups that deserve some special recognition and they are years apart. The 65>74 year olds were the only age group to have an increase in every industry segment. Plus, we can’t forget the youngsters. The under 25 households are the only age group to increase Total Pet Spending every year since 2014.

Even the few decreases in spending for individual segments were not primarily due to less frequent purchases. Consumers just spent less in a market “ripe” with great values.

Finally, let’s take a look at some Key Demographic “Movers” for 2017.

Summary

2017 was a spectacular year for the Pet Industry and the good news was widespread. This is immediately apparent from the chart. 7 of 10 demographic categories had no segments that spent less on their Pets in 2017. It gets even better. 87 of 92 individual segments (94.6%) increased their Total Pet Spending.

Many of the winners, like high income, managers, 2 people H/H’s, married couples only, 55>64 year olds and white, not Hispanics are familiar names in the winners’ circle. The same is true on the losing side for under $30K income, renters, center city, singles and married couples with an oldest child under 6.

There are two surprise winners, which further emphasizes the wide ranging impact of the spending lift. Specifically, 2+ person households with only one earner are usually under financial pressure. By the same token, high school graduates with some college are also not usually in the highest income tier. Both of these segments usually don’t have an excess of disposable income, but in 2017 they found some and generated the biggest Pet spending increase in their category.

On the “down” side, there is only one unexpected losing segment – self-employed. This high income segment had a bad year. In fact, they had the biggest spending decrease in 3 of the 4 industry segments. However, they had 8.9% fewer households, which was a big factor. Center City also came in last in 3 segments, but their only decrease was in Services.

6 of the 10 Total Pet winners had the biggest increase in 3 categories. Only 2 person households owned the top spot in all industry segments. With no human children, their focus and spending naturally turns to their pet children.

On the other side, Asians had small decreases in Food and Services but didn’t finish last in any individual segment. However, when you add up all their numbers, they had the lowest increase in Total Pet Spending.

As we noticed early on in our analysis, the key to the Pet Spending lift was “Value”, in every segment. Super Premium Pet Food was available at attractive prices. Pet Supplies Prices deflated, which always spurs consumers to spend more and more often. Veterinary prices, which have been strongly inflating for years fell to a record low rate. People not only spent more Veterinary $ but their frequency was significantly up. Services had a minor spending decrease. This came from the retail competitive pressure as the number of outlets offering services increased. Consumers maintained their frequency of visits but many got a “deal”.

What about 2018? If much of the big lift was driven by lower or “more acceptable” prices in every segment then the CPI could be a major factor. Through September of 2018, Pet Food prices have remained essentially stable. Veterinary prices have moved up to a more “normal” inflation rate. However, prices in both Services and Supplies turned sharply up in the second quarter. In general, this does not bode well for spending. However, it’s the pet industry. We’ll just have to wait and see.

 

 

 

 

Non-Vet Pet Services has shown consistent growth in recent years. In 2017, spending fell -$0.07B to $6.77B, a (-1.0%) decrease from 2016. This was the first drop since 2010 – the great recession.  It is a minor decrease but as we drill deeper we will once again find that consumer pet 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)

Services’ Spending per H/H in 2017 was $52.06, down from $52.77 in 2016. (Note: A 2017 Pet H/H (68%) Spent $76.55)

More specifically, the decrease in Pet Services spending came as a result of:

• 0.3% more households
• Spending 1.6% less $
• 0.3% more often

The chart below gives an overview of recent spending on Pet Services

The growth was consistent until Mid-year 2016. In the second half of 2016, spending flattened out and then fell sharply in the first half of 2017. The second half of 2017 saw a spending rebound, but it was not quite enough. The pattern over the last 18 months coincides with a radically lower inflation rate. It appears that the price sensitivity in this segment is growing. Now, let’s look at some specific spending demographics. First, by Income Group.

In 2017, the upper middle income groups spent more but it wasn’t enough to overcome the spending decrease by 2 disparate groups – H/H’s just below the average income and the upper tier, over $150K. Since 2014, the spending by the $30>100K group is down while the high and low end groups are both up. However, 92% of the increase came from the $100+K group. Services spending is still driven by income as the $100+K group, 23.6% of H/H’s, spends 42.2% of the $.

• <30K (30.2% of H/H’s) – $19.38 per H/H – $0.76B, Up $0.004B (+0.5%) – This segment usually doesn’t have the money to spare for Services. However, they were one of only two segments to increase H/H spending – +3.2%.
• $30>70K (31.4% of H/H’s) – $29.11 per H/H – $1.19B, Down $0.33B (-21.9%) – This group dialed back their discretionary spending on Supplies to help offset a big spending increase in all other segments.
• $70>100K (14.9% of H/H’s) – $49.99 per H/H – $0.97B, Up $0.5B (+5.7%) – They actually spent slightly less per H/H on Services. The small spending lift in total $ came from a 6.2% increase in the number of H/H’s.
• $100>150K (12.7% of H/H’s) – $90.67 per H/H – $1.5B, Up $0.37B (+32.3%) – There was a 29% lift in H/H spending on Services by this group which indicates both new users and an increase in frequency by existing users.
• $150K> (10.9% of H/H’s) – $166.79 per H/H – $2.36B, Down -$0.16B (-6.2%) – Their H/H Pet Services spending fell 9.7% which shows that even the wealthiest Americans appreciate a value.

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

The Age demographic also reflects a truly “mixed bag” in spending. Perhaps, the key observation is that the 65+ group, the fastest growing segment, is spending significantly more on Services. Here are the specifics:

• 75> (10.2% of H/H’s) – $29.71 per H/H – $0.39B – Up $0.15B (+63.5%) This group has the greatest need for pet services but money is always an issue. The competitive values available made a huge difference in 2017. Up 63.5% can’t be ignored. 4% more H/H’s spent 60.4% more $, 0.5% more often.
• 65>74 (14.3% of H/H’s) – $66.72 per H/H – $1.24B – Up $0.07B (+5.6%). This group is also very value conscious but 2017 was certainly their year for “pets” as they were the only age group to increase spending in every pet industry segment. In Services, the lift was small but 8% more H/H’s spent 13.8% more $, 8.8% less often.
• 55>64 (19.0% of H/H’s) $65.12 per H/H – $1.61B – Down -$0.28B (-14.8%) In 2016 they had a huge lift in Services spending, taking over the #1 spot. In 2017 they turned their attention to the other segments. They cut back on services spending primarily by value shopping as 3% more H/H’s spent 13.3% less $, 2.1% less often.
• 45>54 (18.1% of H/H’s) – $63.00 per H/H – $1.49B – Down -$0.17B (-10.4%) This group has the highest income and until 2016 was the leader in Pet Services spending. In 2017, these regular users took advantage of the available values in the competitive market, which is obvious as 2.0% fewer H/H’s spent 12.6% less $, 4.6% more often.
• 35>44 (16.2% of H/H’s) – $48.98 per H/H – $1.03B – Up $0.13B (+14.7%) While they haven’t fully recovered from the huge drop in 2016, the competitive situation in 2017 at least got them back in the game. The group size was smaller, -1.7%, but they spent 3.6% more money. However, it was most significant that they spent it 12.5% more often.
• 25>34 (16.4% of H/H’s) – $41.06 per H/H – $0.87B – Down – $0.002B (-0.2%) This group of Millennials is also value conscious. In 2016 they upgraded their Food. In 2017 they spent more on Supplies and Veterinary. Throughout this time Services spending has been essentially flat. In 2017, 2.0% more H/H’s spent 4.3% more $ but 6.2% less often
• <25 (5.8% of H/H’s) – $18.08 per H/H – $0.14B – Up $0.04B – (+37.2%) Pet Services is low priority to these youngest Pet Parents, but the 2017 market got their attention. 3.9% more H/H’s spent 12.9% more $, 17.5% more often.

Finally, let’s take a look some other key demographic “movers” behind the 2017 Pet Services Spending decrease.

SUMMARY

The overall spending decrease was minor but the graph above gives some idea of the tumult that was going on within demographic categories. 53% of individual demographic segments spent less on Pet Services in 2017, while 47% spent more, so the ups and downs were relatively evenly divided.

In the graph above, about half of the winners are expected groups, like High Income and…

• Managers and professionals
• 2 people H/H’s
• College grads.
• Homeowners w/mtge

However, there are some definite surprise winners, especially…

• 65+ years – This growing group definitely has a need for services, but usually not the money. This is very significant.
• African Americans – have only 4.5% of the Services business. White, Non-Hispanics account for 88%. An Amazing Win!
• 1 Earner, 2+ H/H’s – Many H/H’s in this group have strong financial pressures – an unusual win.
• Rural Suburban (<2500 Pop) – Services $ are skewed towards more urban areas but this group increased spending by 39%.

There are some surprises in the “losers” column too.

• Self-employed and 3+ earner households have higher income which usually means more Services Spending, not less.
• Center City – Pet Services got their start in this area. A big drop is unusual to say the least.
• Advanced Degrees – The biggest surprise. This is the second best performer in Services of ALL demographic segments.

So what caused all this turmoil? In a word – Competition. In 2017 there was a significant increase in the number of retail outlets offering Pet Services. For Pet Stores, the addition of Pet Services was one way to counteract the impact of the internet and the Mass Market. “You can’t get your dog groomed online…or in a SuperCenter!” More and more outlets began offering “one stop shopping” for all your pet needs. Convenience is a big consumer driver. However, the #1 driver remains price/value. The increased competition encouraged retailers to offer deals as they fought to gain new customers and keep existing ones. We saw this in the Services CPI. While it was not deflating, it had the second lowest increase since they began keeping records. Only 2010 had a smaller increase, which was due to the great recession.

So how can this affect Services spending? Lower prices and “deals” can attract new users or encourage existing customers to buy more or more often. Both of these increase revenue. However, it can also result in regular users spending less for the same services. There is another factor at work in Services Spending. It is the most discretionary of all the segments. This can result in consumers trading out Service $ to use in another segment, like a food upgrade. In 2017, we saw “all of the above” which created the turmoil.

Spending fell slightly in 2017, but we should remember… There were more users and they bought more often. They just spent a little less for their Services. This is not all bad news. What will happen next? In May of 2018 the Services CPI rose 2.5%, the biggest increase ever. We’ll have to wait and see…

 

 

 

 

In 2017 The U.S. Pet Industry had a year that can best be described as Spectacular. Spending skyrocketed to $77.13B, up $9.84B (+14.6%). The good news was widespread as the 3 largest industry segments registered double digit increases. The only sour note was a slight decrease in Pet Services spending. Here are the specifics:

• Pet Food – $31.11B; Up $4.61B (+17.4%)
• Pets & Supplies – $18.58B; Up $2.74B (+17.3%)
• Veterinary – $20.67B; Up $2.56B (+14.1%)
• Pet Services – $6.77B; Down $0.07B (-1.0%)

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 industry 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 2017, this was gathered by the U.S. Census Bureau from over 42,000 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 2017 Pet Food Spending totaled $31.11B in the U.S., a $4.61B (17.4%) increase from 2016. This was the second largest increase in history, trailing only the +$5.4B lift in 2015. While the size was somewhat of a surprise, the increase was expected after the drop in 2016. As you recall, in a detailed historical analysis conducted last year we discovered a distinct pattern in Pet Food Spending. The following chart documents annual Pet Food Spending since 1997 in full Retail Dollars and adjusted for inflation.

The pattern begins in 1997. Retail Pet Food Spending increases for 2 consecutive years then reaches a plateau year or even drops. There is a notable exception – the period from 2006 to 2010. During this time, there were two traumas which directly impacted the Pet Food Retail market. The first was the Melamine recall, which resulted in radically increased prices as consumers insisted on made in USA products with all USA ingredients. The second affected everyone – the great Recession in 2009. This was the first time that annual U.S. retail spending had declined since 1956. The net result was that the plateau period was extended to include both 2009 and 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”. The increases have become more pronounced in recent years and the whole situation has gotten even more complicated since 2014. That was the year that Food prices began an extended period of deflation due to an unprecedentedly competitive market.

After consumers choose to upgrade to a more expensive pet food, their #1 priority becomes, “Where can I buy it for less?” The internet entered this battle in a big way and “value shopping” was a major contributing factor in the big spending drop in 2016.

The internet also contributed to the 2017 lift in Pet Food spending by making the higher priced, upgraded foods more affordable to a wide swath of households. Super Premium was the obvious name for the last trend, which is continuing and expanding to include options like customizable, micro-targeted, ancestral and even DIY.

Pet Owners became Pet Parents in the 90’s. We took it a step further after the turn of the century and began truly humanizing our pets, especially our canine children. This trend is very accurately reflected in the evolution of Pet Food. We became increasingly more conscious of fulfilling the health needs of our pets, beginning with the first move to premium foods in 2004. This ramped up considerably after the Melamine scare in 2007. Now consumers read pet food labels, research ingredients and expect their pet foods to meet the same quality standards as the best human foods.

Just like the spending drop in 2016, the big lift in spending 2017 fits the pattern. Now, let’s look at some specifics. In 2017, the average U.S. Household (pet & non-pet) spent a total of $239.66 on Pet Food. This was a 17.1% increase from the $204.71 spent in 2016. This doesn’t exactly “add up” to the 17.4% increase in total Food Spending. With additional data provided from the US BLS, here is what happened.

• 0.3% More U.S. households
• Spent 15.1% more $
• 1.8% more often

By the way, if 68% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $352.44. 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 3 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.

An increasing number of consumers chose to upgrade their Pet Food and spending peaked in 2015. Then spending began to fall in the first half of 2016 and the decline intensified in the second half. At first it appeared that consumers were backing down on the upgrade. As it turns out, they were just applying the #1 driver in their buying behavior since the great recession – price (75%). They began shopping for value and there were plenty of bargains to be found.

The Pet Food market had become incredibly competitive between manufacturers

• Of course, initially the manufacturers of “regular” pet foods were trying to keep consumers from upgrading or to “buy back” those that switched. That is still an ongoing battle, but things quickly got more heated.
• The spending lift due to the move to Super Premium foods and supplements caused an explosion in the number of companies competing in this segment. To best illustrate this situation, let’s take a look at GPE and SZ exhibitors.

This chart shows the number of GPE and SZ exhibitors offering food or treats for dogs and/or cats from 2014>2018.

• The % increase is from 2014 to 2018. Ranging from +33% to +58%, the competition has obviously gotten fierce.
• The Treat companies began their growth in 2015 (especially at GPE) and it has continued right through 2018.
• The lift in the number of food manufacturers did not start until after the big consumer spending increase in 2015. Obviously, more companies wanted a piece of the action. Most of the growth in the numbers of Pet Food came from 2015 to 2017 which created the highly competitive market and helped fuel the -1.1% deflation in 2017. This radically increased “profit pressure”. In 2018 the growth in numbers slowed markedly and we have also seen a large number of mergers and acquisitions. This may help to stabilize both the number of companies and prices in this segment.

The competition starts between manufacturers, but the actual battle for the Consumers’ Pet Food $ is fought between retailers and now, even whole retail channels.

According to the Economic Census, most Pet Products (67%) are sold in non-pet store outlets. However, Pet Stores have traditionally been the primary purveyors of specialty foods and treats. This exclusivity protected them from battles with Mass Market outlets. The recent consumer movement to super premium and the resulting huge lift in spending has changed all that.

• Super Premium Pet Foods are significantly higher priced products which Pet Parents need every day without fail. With lower prices due to lower overhead, the internet offers big savings in $ and the convenience of regular, free home delivery. Is it any wonder why the internet has become a big player in this category?
• Some Premium brands are also moving to the mass market in an effort to reach more consumers.
• Large Mass Market retailers are developing their own private label premium brands.
• Pet Stores still have the advantage of being more flexible in their merchandising so they can respond more quickly to new trends and new products. Consumers also currently prefer to make major buying decisions on pet products in store, rather than online. This protects pet stores, at least initially, during the trial period of the food buying cycle.

I think that it is pretty safe to say that there were bargains readily available in Pet Food last year. In fact, 2017 was just a continuation of the most price competitive Pet Food market in history – across all of its segments.

Now let’s look at some specific 2017 Pet Food Spending Demographics. First, we’ll look at income. This is the most influential demographic in Total Pet Spending. In the past, it was less dominant in Food. However, the move to Super Premium has brought it more to the forefront. We will show the annual spending from 2013 through 2017. This will put the 2017 numbers into better perspective and allow you to see the cyclical nature of Pet Food Spending.

The 2017 National Numbers were – $31.11B (a new record); Up – $4.61B (+17.4%); 2013>2017 – Up $8.15B (+35.5%)

• All of these large Income Groups increased their Pet Food spending in 2017. This didn’t even happen in the big 2015 lift. However, only two individual groups – $70>$100K and $100>$150K, set new, all-time pet food spending highs. The other 3 were slightly below 2015.
• Under $70K: In 2017 (61.6% of H/Hs) – $181.18 per H/H – $14.34B; Up – $1.88B (15.1%). As incomes rise, the number of H/H’s in this segment has been shrinking. The move to significantly higher priced Super Premium foods also had a major impact. In 2015, for the first time, the under $70K group spent less than 50% of Pet Food $.
• Over $70K: In 2017 (38.4% of H/Hs) – $331.06 per H/H – $16.77B; Up – $2.73B (19.5%). The spending pattern of this higher income group is remarkably similar to the under $70K group. However, in today’s “premium” food environment, the higher incomes continue to gain share of total pet food $.
• Under $30K: In 2017 (30.2% of H/H’s) – $133.37 per H/H – $4.9B – Up $0.42B (+9.4%). Obviously this group is very price sensitive. It is also getting smaller. The number of H/H’s was down 2.6% in 2017 and 8.9% since 2013. This decrease masks the true food situation. Their Total Food $ are up 9.1% since 2013, but their average H/H food spending is up 25.2%. This group still has an ongoing commitment to their pets.
• $30K>$70K: In 2017 (31.4% of H/H’s) – $222.57 per H/H – $9.44B – Up $1.46B (+18.3%). The spending for this group is actually the closest match to the national pattern. Their income is triple that of the under $30K group. However, they still spend more than they make. This ends when incomes reach $50>$70K. For Pet Food Spending in 2017, the key was reaching $40+K in income. The $40>70K group spent $2.1B more on Pet Food, 45% of the national increase.
• $70K>$99K: In 2017 (14.9% of H/H’s) – $312.95 per H/H – $5.97B – Up $0.99B (+19.8%). The Pet Food Spending for this group has been very stable and in 2016 was even contrary to the national trend. They were the only group to increase spending on Pet Food in 2016. This middle income group is still value conscious. In 2017, it appears that the ongoing price war finally reached the “right” retail and they got fully “on board” with the Pet Food upgrade.
• $100K>$149K: In 2017 (12.7% of H/H’s) – $353.24 per H/H – $5.98B – Up $1.59B (+36.2%) They have a high income but also large families, with the resulting responsibilities. They look for deals too. Except for the dip in 2014, their spending matches the national pattern. In 2017, they had the largest increase in Pet Food spending. It appears that in today’s competitive market the pet food upgrade trend has reached a high level of penetration with this group.
• $150K> (10.9% of H/H’s) – $329.02 per H/H – $4.66B – Up $0.16B (+3.4%). 92% are college grads so they certainly know how to recognize value and how to save. Despite the higher price, they saw the value of Super Premium food very early in the cycle. In 2017, the $150>$200K part of the group finally focused on price. They reduced their H/H pet food spending by 27%. The increased $ in this group comes from the $200+K section and an increase in H/H’s.

In 2017, the increase in Pet Food spending was widespread across incomes. In fact, groups totaling 84.7% of all U.S. households spent more on Pet Food. However, there were 2 groups, $30>$40K and $150>200K, who spent less. These groups are far apart in income, but they both bought into the super-premium upgrade in 2015. It appears that the intensively price competitive market finally motivated both to “get a deal”. In terms of the income demographic, the food upgrade has made a deep penetration of the market.

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

Again, the 2017 National Numbers were – $31.11B; Up – $4.61B (+17.4%); 2013>2017 – Up $8.15B (+35.5%)

For this demographic, 2017 Pet Food Spending was simple. Over 35, spending was up. Under 35, spending was down.

• 55>64 (19.0% of H/H’s) – $413.26 per H/H – $10.24B – Up $2.83B (+38.2%). This group (all Baby Boomers) has been the key to recent major spending swings. In 2015, a large portion of them changed their Pet Food spending behavior and opted to upgrade to Super Premium. In 2016 this group looked for and found a better price. In 2017 they are back again. However, rather than a whole new trend, the huge lift seems more likely to be the result of a deeper penetration of the upgrade movement in this age group as a result of increased availability and better prices.
• 65>74 (14.3% of H/H’s) – $217.84 per H/H – $4.05B – Up $0.26B (+7.0%). Much of this group is retired, with lower income, so price is always a concern. However the number of Baby Boomers in this group is growing, now 70%, so their spending pattern resembles that of 55>64 year olds. They also have a strong commitment to their pets which is evidenced by the fact that 1.1% of their Total H/H spending is on their pets.
• 75> (10.2% of H/H’s) – $134.47 per H/H – $1.73B – Up $0.25B (+16.8%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. However, it appears that the discounted prices in 2016 and 2017 moved an increasing number of this group to upgrade their pet food.
• 45>54 (18.1% of H/H’s) – $265.27 per H/H – $6.21B – Up $0.74B (+13.6%) This group is #1 in income and 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 spent less. In 2017, it appears that they became more committed to super premium as their Pet Food Spending reached a record high.
• 35<44 (16.2% of H/H’s) – $222.95 per H/H – $4.64B – Up $0.8B (+20.9%) They are 2^nd in income and expenditures, but have the biggest families. Searching for Value is a way of life and their spending pattern tends to be less volatile. Apparently they found value in the 2017 prices as they spent 20.9% more and also set a new record.
• <25 (5.8% of H/H’s) – $80.11 per H/H – $0.62B – Down -$0.2B (-23.9%) This group has a very small share of pet food spending (2.0%) as they are just getting started as Pet Parents. Their Pet Food spending was flat in 2015>2016. In the past it has been prone to big swings, which was the case again in 2017, as it dropped -23.9%.
• 25>34 (16.4% of H/H’s) – $167.65 per H/H – $3.62B – Down -$0.08B (-2.2%) Their spending was down slightly in 2017 while all the older groups were up. I saved this group of older Millennials for last for a specific reason. They have a unique spending pattern, which is interesting and could be important. Let’s review the time since 2013:
  • Their spending was up sharply in 2014 while other groups were showing only small increases or even declining numbers.
  • In 2015, the movement to Super Premium caused a big spending lift for every group under 75 except the 25>34 group, which fell -29%.
  • In 2016, every other group under 75 was “value shopping” so their spending fell sharply. However, the 25>34 year olds spent 23.7% more.
  • In 2017, the spending of every group 35 and over increased as the food upgrade penetrated the market more deeply. For the 25>34 group, spending was down slightly, but essentially flat.
  • Is it possible that the spending behavior of the 25>34 group provides a preview of next year’s national trend? Let’s hope not. If it does, then food spending in 2018 will be down, flat or at best have a minimal increase.

Finally, let’s take a look at other key demographic “movers” behind the $4.6B increase. Some are quite surprising.

Summary

The current “deflated”, price competitive market had a big impact on 2017 Pet Food spending. Super Premium foods have made sense from the beginning. The 25>34 yr old age group first bought into this in the second half of 2014. In 2015, many others followed their lead, especially the 55>64 yr old Boomers. Most of the initial upgrade group had a college degree, worked as a manager or professional and made a lot of money. There were some exceptions, like the first wave of retirees to convert. Then in 2016 the market changed, it became more price competitive and the internet came strongly into play. Many of the 2015 upgraders value shopped the category to a $3.4B dollar decrease. However, the price war didn’t end there. In 2017, it actually intensified with more competition, record deflation and increased availability of super premium foods.

The net result of this was very positive, with increased penetration of Super Premium foods across a wide range of demographics. In fact, of 94 demographic segments 78 (83%) had increased Pet Food spending, including 6 of 8 income groups and all age groups over 35. The wide range of the trend is also shown in where and how people live. Both renters and homeowners – with and without a mortgage had increases as did every area type, from rural to center city.

You see additional very specific evidence of the deep penetration of the upgrade in the winners listed in the chart above.

• Education: HS Grad w/some college
• Occupation: Workers, not Mgrs.
• Area: Under 2500 population
• # Earners: 1 Earner, 2+ people

2017 was a great year for pet food spending – up $4.61B due to increased “upgrade” penetration. What’s next? I don’t know that we can use the performance of the 25>34 year olds to predict 2018. I think we have to just wait and see.

 

 

 

 

 

 

The Total U.S. Retail Market in 2017 reached $5.75 Trillion dollars – up $235B (+4.3%). This is significantly better than last year’s (+3.2%). For this report, we will focus on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations from the data. This segment totals $3.4 Trillion. We should also note that in 2017, Gas prices increased. As a result, for the first time since 2012, there was an increase in revenue in all these major segments

In a recent report we reviewed the 2017 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)

Remember: This data is very relevant to the Pet Industry. According to the last 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) – 11.8% of Total Retail – Up 2.7%, which was less than half of last year’s (+5.9%).
• Automobile Sales – 20.7% of the Total – Revenue grew +4.3%, about the same as 2016 (+4.1%).
• Gas Stations – 7.9% of the Total – Up 8.8% from 2016. Gas prices turned up in March of 2016 and in 2017 showed their first annual increase since 2012. The result was a sharp increase in revenue.
• Retail, Less Food, Auto and Gas – Up 4.0% to $3.4 Trillion, better than last year’s +3.6% but less than the total market. This segment is 59.6% of the Total U.S. Retail market.

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 but each segment has a different pattern. The low point for the total came in 2015 due to a precipitous drop in gas prices. However, with a big turnaround in gas prices the growth rate of the overall market has returned to more normal levels. Restaurant sales growth is an almost perfect pyramid. I wonder what 2018 will bring. Auto sales are still strong but the growth is definitely slowing. Our “Relevant Retail” Segment has been the most consistent. As expected, its 4.0% growth is below the 4.5% increase of the Top 100 Retailers. However, for the first time since 2012 it is lower than the total market. It will still serve as a benchmark as we review the individual channels. Above 4.0%, a channel is gaining market share. Below 4.0%, they are losing ground.

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 59.3% of the total. This is up slightly from 58.8% in 2016. Once again, the increase is all due to Non-Store Retailers. The other two major segments continue to lose market share. All three are very important to the Pet Industry. Based upon the last 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 – 33.1% of their Pet Products $. However, they spend over 60% more in these 3 major retail channels. Pet products are “on the list” wherever the consumer shops.

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, Food & Beverage, Non-Store and Bldg Material 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 2017: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 4.0% sales increase PLUS an additional $3.4B. Example: If a channel did $100B in 2016, they need to do $100 +$4.0 + $3.4 = $107.4B to gain just 0.1% in 2017 share. You will see channels with revenue increases that still lose share because the increase was less than 4.0%. 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 2017 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 2017 vs 2016. The next will “show us the money” by translating the percentages into $ gained or lost. Then we will have observations on each segment.

Remember, you must be up at least 4.0% or you’re losing market share!

The leader and #3 are big surprises. 9 of these pet relevant channels are showing increased sales. However, regarding market share, they are evenly split – 6 gaining, 6 losing. The market share losers include the traditionally largest channels. In the next chart, we’ll “show you the money!” Remember, the Total increase for the “Relevant Retail” Market was $132B and you must be up 4.0% PLUS $3.4B just to gain just 0.1% in Market Share.

The growth of the Internet is obvious. However, 3 channels are a bit of a surprise. The revenue from Home Centers has been growing in recent years, but Hardware and Garden/Farm Stores have been flat. What happened in 2017 to spur this growth? The answer is… bad weather. In 2017 we set a record for weather related property damage – over $300B. This “smashed” the old record of $200B set back in 2005. Consumers turned their time and resources to repairing their homes. The trend may be continuing into 2018 and even showed up online. Recently, Amazon Prime Day registered a 200% increase in sales of products in the Home Improvement category. We have seen that changes in the retail environment affect businesses. It turns out that changes in the actual environment can also have a major impact.

OBSERVATIONS BY CHANNEL

(Note: % of Total Business from Pet Products for stores that stock Pet)

• Internet/Mail Order – $545.0B, Up $57.3B (+11.7%) – 43.5% of the total increase for the $3.4T Relevant Retail Market came from Internet/Mail Order. The Consumer Migration to this channel continues – gaining 1.1% in Market Share. They passed SuperCtrs/Clubs in 2016. Now, they have set their sights on Supermarkets. (1.2% Pet)
• Super Markets – $609.6B, Up $11.3B (+1.9%) This largest sub-segment continues to lose ground as it is down 0.4% in Market Share in 2017 and 0.6% since 2015. 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 – $54.1B, Down $0.8B (-1.5%). Their decline is slowing but 50 years ago they “ruled” the GM category. However, 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 – $96.2B, Down $1.6B (-1.7%). 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 the Internet to contend with – not a good outlook. (2.3% Pet)
• SuperCenter/Club Stores – $463.0B, Up $12.7B, (+2.8%). These outlets, with their broad mixture of grocery and general merchandise…at great prices, quickly became a dominant force in the retail market – second only to Supermarkets in Market Share for many years. In 2016 they were passed by the internet. Consumers still like them as their sales are still growing, but not enough. They continue to lose market share – Down 0.15%   (2.4% Pet)
• $ & Value Stores – $78.6B, Up $5.2B, (+7.1%). – A Great Value and easy to shop – 2 of U.S. Consumers’ major “wants”. This segment has shown steady growth in recent years and got even stronger in 2017. (4.3% Pet)
• Drug Stores – $276.9B, Up $5.0B, (+1.9%). There is a lot of turmoil in this segment. Intense competition has led to large mergers and acquisitions which have slowed growth. (0.3% Pet)
• Sporting Goods – $44.7B, Down -$2.8B, (-5.9%). A Minor player in Pet. The turmoil in the category continues with mergers and store closings. (N/A Pet)
• Home Centers – $287.3B, Up $17.8B, (+6.6%). These large, “project driven” outlets have never done a significant Pet Business. The top 2 retailers – Home Depot and Lowes, continue to drive the growth. (0.6% Pet)
• Hardware – $26.1B, Up $2.5B, (+10.7%). Consumers seeking to repair weather damage had a huge impact on this channel, turning sales sharply upward after years of slow or even flat growth. (2.6% Pet)
• Farm and Garden Stores – $51.0B, Up 6.4B, (+14.2%). This segment has been growing in recent years in both overall sales and in Pet but it was largely driven by Tractor Supply. The landscape weather damage that occurred in 2017 brought Garden Centers to the forefront of the increase in sales. (8.9% Pet)
• A/O Miscellaneous Stores $78.1B, Up $3.6B, (+4.8%). Florists, Pet Stores, Art Dealers…are typical of the segments bundled into this group. Pet Stores probably account for over 20% of the $ in this segment. These stores, whether chain or independent, tend to be small to medium in size. Their increase slightly exceeded the market so these stores, which focus on another consumer trend – a more personalized shopping experience, are “holding their ground” against the large format retailers and the internet. (Pet Stores 91%)

The chart below puts the Market Share of each of these segments for 2017, 2016 & 2015 in a visual format so that it is easier to appreciate the relative sizes. Growth in share since 2015 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 the #1 channel for Pet Products. However, in the Overall Market, there are 3 Olympic Medalists. SuperCenters & Clubs are firmly entrenched with the Bronze medal. The big race is for the Gold. Two years ago in 2015 SuperMarkets led the Internet/Mail Order Channel by 4.83% in market share. In 2017 the lead was down to 1.89%. Barring a major turnaround, Internet/Mail Order should become the #1 retail channel in the U.S. no later than 2019 but perhaps as soon as 2018. One factor that could speed up the Internet/Mail Order victory is that Amazon, the largest retailer in the segment, has firmly set their sights on the fresh grocery business. They demonstrated this commitment very dramatically by their purchase of Whole Foods Market in 2017.

2017 had similarities, but also some distinct differences from 2016. The increase was 4%, up slightly from 3.6%. However, for the first time since 2012 the increase in the “Relevant Retail” market was less than the increase in the Total Retail Market. Once again the Internet/Mail Order Channel provided much of the excitement and 43.5% of the growth, but we also saw the effect of the physical environment, as record weather related property damage drove sales in all the Building Materials channels. Traditional and Discount Department stores continued their decline while sales in the easy to shop and save, $ Stores grew. The small to medium Miscellaneous Stores (Includes Pet) maintained their place in the market by appealing to consumers desiring a more personalized shopping experience.

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 their victory appears to be inevitable and may occur even sooner than expected. Traditional Brick ‘n Mortar stores will not go away but they must adapt to the new “electronic” environment.

Finally, the Chart below contains Detailed 2015 > 2017 Sales Performance Data for over 30 U.S. Retail Channels.