U.S. Total Pet Spending – By Age AND Income Group

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Using data from the annual Consumer Expenditure Survey conducted by the US BLS, we have done an in depth analysis of U.S. Pet Spending in over a dozen different individual demographic categories. This has given us a better understanding of “who” is behind the strength and continued growth of the Pet Industry. As always, the focus of the US BLS is on accuracy but at the same time they are never satisfied with the status quo. They are continually experimenting with new reports. This commitment to “make it better” is what led to the very timely and wildly popular demographic spending report by generation.

They’re at it again, producing a report that combines the two most popular and impactful spending demographic measures – income and age group. To get the required sample size, they combined the data from 2015 and 2016. As you recall, the Total Pet Spending for each of these years exceeded $68B. Unfortunately, because of the complexity of this test report we only have the numbers for Total Pet, not for individual industry segments…yet.

Even this “simplified” report requires a rather complex analysis. We have endeavored to keep it as simple as possible to make it easier to visualize and comprehend. The data is segregated into the following groups:

Age Groups

25 to 34 – All older Millennials

35 to 44 – All younger Gen Xers

45 to 54 – ½ Gen Xers & ½ Boomers

55 to 64 – All Boomers

65 & Over – 5 yrs of Boomers + older groups

Income Groups

Under $30K

$30K to $49K

$50K to $69K

$70K to $99K

$100K & over

This produces 25 subgroups, accounting for 98% of Total Pet Spending. The under 25 group is not included due to a very low share of Pet Spending and an extremely small sample size in the highest income levels. It is still very complex, especially in building graphs. Normally, a pie chart would be used to show the share of total CUs for each group. However, 25 slices of a pie, with 15 having a share less than 3%, make the chart unreadable. Therefore, we will focus on the largest, most impactful groups. Our first chart shows the market share for the 10 largest age/income segments.

  • The economic division in the U.S. is very apparent as all the largest groups are either under $50K or over $100K.
  • However, the division is strongly weighted towards lower incomes as 7 of 10 are under $50K – 5 of these are <$30K.
  • The 2 largest segments of each of the 3 groups in the 35>64 age range are over $100K and under $30K.
  • The oldest and youngest Americans have 4 of the 10 largest groups, all under $50K. (1/6 of all CUs are 65>, <$50K)
  • There are no groups in the $70>99K range. Middle income America is obviously very fractionalized in terms of age.

It’s not all about income and age. There are other factors that impact Pet Spending. Two of the biggest are homeownership and family size, especially the number of children in the household. The following graphs show the distribution of these two demographics across income and age groups.

# of children under 18 – The financial pressure is high on lower and middle income Parents trying to fulfill the needs and wants of their human children and still be good Pet Parents. As expected, the vast majority of children are found in CU’s in the 25 to 44 year age range, especially the 35 to 44 yr old Gen Xers. Also, the number of children generally increases with CU income, except for Millennials. Their path is a bit of a roller coaster with the lowest number of children being in households with the highest income. We have all heard that Millennials are a little different. They are slow to leave their parents’ home, get married later, delay having children and are more likely to live in households with 2+ unmarried adults. These are all factors affecting the number of children in their households.

% Homeownership – About 83% of Total Pet Spending comes from Homeowners. Having more space that you control has always been a key to increased pet spending. Perhaps more than any other demographic, Homeownership regularly increases by age and income. For every age group, higher income means a higher percentage of homeownership. This is also true by income group as increased age shows increased homeownership, with one slight variation. There is a virtual tie for first at 94% by both over 55 groups, making $100K or more. The national homeownership average is 62%. You can see that the younger the group, the higher the required income to meet the average. It has been noted that Millennials are more likely to live in central cities and less likely to own a home than previous generations. This is reflected in the fact that they don’t reach the national homeownership average until their income exceeds $100K.

Now let’s get to the $pending. The next chart groups Pet Spending by income group so we can see if age matters.

  • <$30K – This group represents almost 1/3 of all U.S. households and obviously has a financial struggle. The 45>64 year age group, which is ¾ Boomers spends noticeably more than the other groups.
  • $30K>49K – With less family pressure the 45 and older groups increasingly focus on their Pet Children. Of note, the over 65 group takes the lead in household pet spending in this income range. The average retirees’ income is $40K. Once they reach this level, the financial pressure is reduced and they can increase their focus on their pets.
  • $50>69K – Every group increases their Pet Spending but there is a big lift in the over 55 groups. Apparently this is a significant income threshold for them in terms of Pet Spending. We also see an incredible lift in the spending by the 25 to 34 year old Millennials. This could relate to that dip in the number of children that we saw earlier as well as the differences in the Millennial lifestyle.
  • $70>99K – We have reached middle income. The over 55 groups show a big increase and in fact the spending of the 55 to 64 year olds takes off like a rocket. They become the overall #1 Pet Spending age/income group. The 35 to 44 group is still feeling strong financial pressure and remains in last place. The spending by the Millennials dips slightly but they are still 10% ahead of the 35 to 44 Gen Xers.
  • $100K+ – Pet Spending explodes when income reaches $100K. The 55>64 year old group dips slightly but they still lead the pack. Perhaps the most significant increase (150%) comes from the 35>44 group. With some relief from financial pressure they can focus more on their pets. The only group under $1000 is the 25>34 year olds. However, their average over $100K income is 20% below the others so the $800 is on a relative par with the other groups.

Now let’s look at the same data from the age group view.

  • Each age group seems to regularly increase Pet Spending as their income grows. Then, at some point they reach a significant threshold income and their Pet Spending doubles.
  • For the 55 to 64 year old Boomers and the 25 to 34 year old Millennials, the critical point is $50 to 69K.
  • For the oldest group, it comes at the lower $30>49K level. As we stated earlier, this is the average income for retirees and indicates a significant reduction in financial pressures.
  • The 35 to 44 year olds have a different story. With the pressure from the largest families and in a critical phase of career building they don’t get any relief until their income passes $100K. When it does, they have a truly amazing response – a 150% increase in Pet Spending, moving up from last place to 3rd, trailing only the over 55 groups.
  • Although the Boomers peak at a lower level, you can certainly see that an income of $100K+ is a universal magic number in Total Pet spending

Now, we will truly “show you the money”. Here are the top 10 groups in terms of Total Pet $pending.

  • These 10 age/income groups account for 50% of all U.S. CU’s and 65% of Total Pet Spending.
  • Money Matters Most as all age groups making $100K or more are included.
  • Age is also a huge factor as 7 of the 10 groups are over 55 years old. (55>64 Boomers win with 4 groups)
  • The 3 groups under 55 all make more than $100K

Finally, let’s look at the top performers which we will define as having the highest Share of Pet $/Share of CU’s. 7 are repeats from the chart above and have matching colors in the chart below. New additions are outlined in green.

  • Once again age matters as only the same two under 45, over $100K income groups made the list.
  • Although it seems impossible, money matters even more in Pet Spending performance than in Pet Spending $. There are no groups making under $50K. The 2 under $50K, over 65 age groups were replaced by 2 other over 65 age groups making from $50 to $99K. Even the 55>64 Boomers lost their <$30K group to a 45>54 middle income group.

The data in this report strongly reinforces the importance of age (life stage) and especially income in Pet Spending. The availability of disposable income results in increased Pet Spending for every age group. Pet Spending really explodes when any group’s income meets or exceeds $100K. For the lower income groups, the amount of available disposable income varies due to circumstances. The younger groups have more pressure due to family size and building a career. The 45>64 age groups have less family pressure. The over 65 folks just need to meet some low minimum income levels. One thing is certain for everyone. When disposable income increases, one of the first places that it gets spent is on pets.

 

 

 

 

U.S. PET INDUSTRY $ALES IN 2017: $69.51B – TAKING A CLOSER LOOK

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According to the numbers from the American Pet Products Association (APPA), the total U.S. Pet Industry increased $2.76B (4.1%) in 2017 to $69.51B. This is less than half of last year’s increase. However, remember that the 2016 numbers were driven significantly upward by an adjustment to Pet Food $ which research had showed to be too conservative. The increase in 2017 is more reflective of the consistent growth in the 4+% range since 2011.

However, 2017 was not without excitement as the overall inflation for the industry hit a record low of 0.4%. This had a definite impact on many industry segments and meant that overall, 90.2% of the Total Pet Sales Increase was a real increase in the amount of Pet products and services sold. Less than 10% came from price increases – also a new record.

In this report we’ll take a closer look at the performance of the total market and importantly, the individual segments. The report will cover 2017, but also put this year’s numbers into perspective for the period from 2009 to 2017.

Here are the specifics from 2017.

OBSERVATIONS

  • The Food segment set a record with a deflation rate of -1.1%. It is a very price competitive market which contributed to the Food segment not making the projected retail $. Although the value of Food sold increased 4.12%.
  • After 3 years of declining sales, the sale of Pets essentially leveled out, when a drop had been projected.
  • Prices in the Supplies segment deflated in 2017, spurring sales and producing a larger than anticipated increase.
  • The inflation rate in the Service segment also slowed significantly. This contributed to them beating their projection and generating a markedly higher real growth rate – 83.8% of the 6.9% retail increase was real.
  • The Veterinary Segment also had a record low inflation rate and Pet Parents responded with a $1.1B increase in spending, which was 67% greater than anticipated.
  • The Total Pet Market was up 4.13% as every segment but Food beat their projected numbers. The record low inflation rate of 0.4% was a positive factor in increased spending on Supplies and both Service Segments. In Food, absent a new major trend, the deflation retarded retail spending $. The low inflation also produced another record, as 90.2% of the industry’s growth was a “real” increase in products and services.

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 2017 starting with Food.

OBSERVATIONS

  • The last 3 years have had a huge impact in the overall numbers since 2009:
    • 6.5% Annual Growth Rate (Driven up markedly by the 2016 adjustment in Food $)
    • Low average inflation – 0.58% (Pushed down to an unhealthy level by two -1+% pricing drops)
    • 5.89% CPI adjusted Growth Rate: Over 90% of the growth since 2009 has been “real” – Truly amazing!
  • In the 8 years since 2009…
    • 4 were deflationary (-0.7%) Average
    • 4 were inflationary (1.9%) Average

Since 2013, deflation has been the norm in Pet Food. In a need category, this usually slows retail sales. However, at the same time, we have seen a strong trend to upgrade to ever more expensive premium foods. This has produced the unusual situation of growing retail sales despite extraordinarily strong deflation.

What these “dueling” factors indicate is that the Pet Food Market is the most competitive in history. Manufacturers, Retailers and whole Retail channels are now actively engaged in a furious battle for the consumers’ pet food $. While this price war is initially great for consumers, it could have a negative impact on the supply and distribution channels and ultimately on the consumer… thru reduced choices. In the future, a positive inflation rate for Food that stays at or near 1% should produce the best results…for everyone.

Here’s what 2009 to 2017 looks like on a graph:

Except for the adjustment in 2016, the annual retail growth rate has generally been slowing. At the same time, the deflation has caused the “real” growth rate to increase since 2012. What will happen in 2018? It’s too early to predict the CPI for 2018. However, through February, the rate of deflation is -1.3%. Last year prices were up 0.17% through February and we still got a record -1.1% annual price drop. This is not a good sign. To counter this continuing deflationary environment we need yet another new, “must have” upgrade in Food to drive consumer spending up.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

  • Deflation
    • Prices are 5.3% below 2009 (and about equal to what they were in July 2007)
    • Falling at an annual rate of -0.67%
    • After a brief respite in 2015 & 2016, prices deflated in 2017 for the 5th time in 8 years.
  • Retail Sales – This category has become very price sensitive as increased growth rate seems tied to deflation.
  • Over the whole period, the Consumer bought more…and paid less!
    • Retail Sales annual growth rate is 4.01%
    • Price Adjusted annual growth rate is 4.71% – 18% higher than the retail rate

After the Recession consumers became much more price driven. This had a huge impact on Supplies as most purchases are discretionary and many categories have become commoditized. The first deflationary year was 2010. The Consumer responded very positively with a 6% increase in “real” purchases. This trend continued through 2014 with “real” purchases showing an annual increase of 5.9%. Then prices leveled out in 2015 & 2016 and the increases in both full retail and price adjusted sales fell to the 2.5% range.

In 2017, deflation returned but was not as impactful as in the past. While Supplies sales exceeded expectations, the increase in retail sales was the lowest since 2009 and “real” sales were up less than 3%. Deflation causes strong profit pressure throughout the production and distribution channels. For the good of all we need to get to about a +0.5% rate.

Here is the graph:

In 2018 Pets & Pet Supplies are projected to increase only 1.9% to $17.53B. This reflects an expected $100M decrease in Live Animal Purchases and a 2.7% increase in Supplies. We have noted that the Supplies segment has become very price sensitive. Through February 2018 prices are down -0.5% from a year ago. If this continues or even grows, it could spur increased spending. However, innovation is the only real cure for this condition. The Pet Food segment has shown that consumers will pay more for a truly better product. We need this in Supplies.

Now on to the Service Segments – First, Non-Vet Services.

OBSERVATIONS

  • Growth
    • Annual Retail Growth rate 7.9% – The highest in the industry
    • Annual Inflation rate – still a little high at 2.25% but has been slowing and dropped markedly in 2017.
    • Years of inflation may have caught up to this segment as the spending increases in 2016 & 2017 were about half of the increase in 2015.
    • 69.9% “real” growth since 2009. In 2017, this reached 84%. 75+% is a realistic target.

There are no big negatives regarding this segment. However, it is largely driven by discretionary spending so the consumers’ household income is a bigger factor in spending in this segment than any other. Years of relatively strong inflation and increasing competition from a growing number of outlets offering pet services have finally had an impact, as the inflation rate fell to 1.1% in 2017 – a near record low. The segment has shown strong, consistent growth since the recession, even reaching double digits in 2015. While the 2017 increase was only 6.9%, 84% of the growth was real – a record high. The impact of Services on the industry is limited as it is by far the smallest segment, only accounting for 8.9% of total Pet Industry Sales…but that’s up 20% from its 7.4% share back in 2009.

Here’s how the sales look on a graph:

2018 sales are projected to increase 5% to $6.47B. This is 35% below the growth rate since 2009 and even 25% below the growth rate since 2015, so this estimate may be a little low. The keys to a bigger increase are continued growth in the number of outlets offering Services and maintaining a relatively low inflation rate. Through February 2018 prices are 1.1% above the same period in 2017. If this rate can be maintained throughout the year, it is likely that Services Sales will increase more than the 5% projection.

Now, let’s take a closer look at the Veterinary Service Segment, which accounts for 24.8% of Pet Industry Sales.

OBSERVATIONS

  • Retail Growth
    • Sales are Up 41.8% since 2009
    • Annual growth rate 4.46%
  • Inflation is the problem
    • Annual average CPI increase is 3.42% since 2009, but 2017 saw a record low CPI increase of 2.2%
  • Adjusted Growth rate since 2009 is only 1.01%. However, this has doubled since 2016 as 2017 was up 4.7%
    • Price increases account for 77.4% of the sales increase from 2009 to 2017.
  • “Real Sales”
    • Consumers actually bought less in vet services in 4 of the last 8 years. They just paid more.
    • Sales were basically stagnant from 2009 to 2016 – average annual growth rate 0.49%
    • Then inflation fell to a record low in 2017 and sales took off – Up $1.12B (7%) and 68.6% were real!

Regular veterinary visits are generally viewed as a “need” not a “want”. However, the high inflation rate over the years finally reached a point where Pet Parents, especially those with income pressure, started delaying or foregoing regular procedures entirely. They looked for substitutes in OTC medicines, supplements and treatments whenever possible. They also turned to “no appointment” clinic days offered by some non-pet retailers to get vaccinations and other procedures at radically discounted prices. Then the Veterinary Services inflation rate turned sharply downward in the 2nd quarter of 2016. It stayed at a record low rate through 2017 and Pet Parents responded. They increased the frequency of visits and sales in the Veterinary segment rose $1.1B, the biggest increase of any segment.

Here’s what it looks like:

Veterinary Sales are projected to increase 7% in 2018 to $18.3B. This is basically a replication of 2017. From what we have seen over the past 8 years, this is possible but only if the segment maintains an inflation rate of 2.5% or less. Through February of 2018 prices are 2.6% higher than 2017. This seems concerning, but the first quarter invariably has the highest inflation rate in this segment. In fact, this is EXACTLY the same rate as YTD in 2017, the year with the record low rate. Ultimately, we will just have to monitor the CPI and see what happens.

Now we’ll wrap it up with Total Pet.

OBSERVATIONS

  • Retail Sales in 2017 were ↑52.7% since 2009; Annual growth rate is 5.43%
  • Inflation: Only 11.0% since 2009; 1.31% annual CPI increase. (2017 saw a record low rate: 0.4%)
  • “Real” Sales are 74.8% of the Total increase; Annual growth rate of 4.06% (In 2017, 90.2% of increase was real)

The consistently strong Total Pet Retail numbers are a big reason why so many people are attracted to the industry. The retail numbers have been good across all segments. However, to get the “real” story 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. In 2017 the Total Pet inflation rate fell to 0.4%

  • After a 2 year pause, deflation returned to the Supplies Segment for the 5th time in 8 years. Commoditization and a lack of innovation have created extreme competitive pressure which deflates prices. Even a small increase in CPI slows sales, usually through reduced purchase frequency. Innovation is desperately needed!
  • After a 1 year pause, Pet Food prices fell a record -1.1%. However, unlike Supplies, the Pet Food segment has been countering the incredibly competitive market with periodic premium upgrade trends. Another is needed.
  • After years of strong inflation and “flat” real sales the Veterinary segment finally got the word. A record low 2.2% inflation rate in 2017 resulted in a $1.1B increase and 69% was real. Keep it up!
  • The Services segment has been growing in sales and number outlets. In 2017, this competitive pressure was finally visible as the inflation rate fell to 1.1%. Consumers responded as sales grew 6.9% and 84% were real.

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

In 2018 Total Pet Sales are projected to increase 3.8% to $72.14B. This would be the smallest percentage increase since 2009. The key factors in meeting or beating this forecast are both of the Service segments continuing lower inflation rates, Supplies staying at or slightly below zero in CPI and whether a new Food Trend starts. Quite frankly, Food is probably the key. If a new Food trend takes off, this could radically increase overall sales. We’ll have to wait and watch.

Remember: In analyzing your own data, always look beneath the surface numbers!