2017 U.S. VETERINARY SERVICES SPENDING $20.67B…UP ↑$2.56B

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Veterinary Services is the second largest segment in the Pet Industry. In recent years, a high inflation rate, over 3.5%, has caused a reduction in Veterinary visits and put spending on a rollercoaster ride. In 2016 spending increased 5.6%. However, in 2017 inflation slowed markedly and consumers responded. Spending reached $20.67B – Up -$2.56B (+14.1%) from 2016. In this report, we’ll take a closer look at the demographic drivers of the 2017 increase. (Note: Like 2016, all 2017 numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Interview Survey, rather than their Diary report. The low frequency of Veterinary Visits is still generating an exceptionally high variation on the data collected by the Diary method. Interview seems to be a more logical and accurate way to track Veterinary Service Expenditures.)

Let’s get started. Veterinary Spending per H/H in 2017 was $159.01, up from $139.84 in 2017. (Note: A 2017 Pet H/H (68%) Spent $233.84) More specifically, the increase in Veterinary spending came as a result of:

  • 0.3% more H/H’s
  • Spending 6.1% more $
  • …7.2% more often

We’ll take a closer look. But first, the chart below gives an overview of recent Veterinary Spending.

There was a big spending drop in the first half of 2015, which coincided with the upgrade to Super Premium Foods – Trading $. Then consumers began value shopping for Premium Foods. The subsequent savings freed up $ for Veterinary Services. Spending began to climb until it flattened out at the beginning of 2017. In 2017, inflation in the Veterinary Segment slowed markedly, especially in the second half. The result was that spending literally “took off”.

Now, let’s look at Veterinary spending by some specific demographics. First, here is a chart by Income Group

Observations

Although not as pronounced as Pet Services, Veterinary Spending is driven by income. This makes it very significant that every income level increased spending in 2017. The biggest lift came from the $70 >$150K group – up $1.53B (24.6%)

  • Over $150K (10.9% of H/H’s) – $5.68B, Up $0.50B (+9.6%) This highest income group is definitely the biggest driver in Veterinary Spending as 10.9% of H/H’s generated 51.4% of the $3.56B increase since 2015.
  • $100>150K (12.7% of H/H’s) – $4.32B, Up $0.93B (+27.4%) This middle/upper income group responded strongly to the slowed inflation rate.
  • $70K>100K (14.9% of H/H’s) – $3.43B, Up $0.60B (+21.2%) Their spending pattern almost exactly matches the $100>150K group which indicates very similar motivations.
  • $30K>70K (31.4% of H/H’s) – $4.68B, Up $0.41B (+9.6%) After bottoming out during the Food upgrade, the spending by this group has grown steadily. The pattern is remarkably similar to the $150K+ group, just not quite as strong.
  • Under $30K (30.2% of H/H’s) – $2.56B, Up $0.12B (+4.8%) This group is price sensitive and includes many older retirees who spent heavily in 2015 then dialed it back. The slowed inflation in 2017 brought a minor increase.

Now, here is Veterinary Spending by Age Group

Observations

The 35>44 young GenXers and those over 75 spent slightly less. Everyone else spent more. In the detailed data below, be sure to note the changes in frequency. A reduction in visit frequency has been an ongoing problem…but not in 2017.

  • <25 (5.8% of H/Hs) – $73.00 per H/H – $0.55B – Up $0.14B (+33.6%) This youngest group is getting serious about the responsibilities of Pet Parenting. Their Veterinary spending has almost doubled in just 2 years.
  • 25>34 (16.4% of H/Hs) – $119.58 per H/H – $2.54B -Up $0.33B (+15.4%) The commitment of these Millennials to the welfare of their pets is growing. They are the only group to increase Veterinary spending every year since 2014.
    • 2.0% more H/Hs
    • Spent 10.8% more $
    • …2.1% more often
  • 35>44 (16.2% of H/H’s) – $141.43 per H/H – $2.98B – Down $0.10B (-3.1%) This group is under tremendous financial pressure as their human family responsibilities are peaking. In 2017, they had double digit increases in 3 Pet Industry segments. The Veterinary segment paid a small price for these big gains. They spent a little less…but more often.
    • 1.7% fewer H/Hs
    • Spent 9.5% less $
    • …8.9% more often
  • 45>54 (18.1% of H/Hs) – $221.73 per H/H – $5.23B – Up $1.15B (+28.3%) This group has the highest income but value is still a big driver. Their response to the radically slowed inflation was to spend significantly more money and more often. They accounted for 44.9% of the total Veterinary Spending increase.
    • 2.0% fewer H/Hs
    • Spent 21.3% more $
    • …7.8% more often
  • 55>64 (19.0% of H/Hs) – $219.50 per H/H – $5.42B – Up $0.70B (+15.0%) This group is all Baby Boomers and until 2015 was the leader in Veterinary Spending. In 2015 they spent an extra $5B to upgrade their Pet Food and Veterinary Spending was severely reduced. In 2016, they regained the lead in Veterinary spending and it has continued strong growth, with the same pattern – Spend slightly more money much more often.
    • 0.3% more H/Hs
    • Spent 2.4% more $
    • …12.0% more often
  • 65>74 (14.3% of H/Hs) – $169.15 per H/H – $3.14B – Up $0.47B (+17.2%) This group is very price sensitive. Strong inflation has caused reduced spending. The pricing “slow down” in 2017 changed all that, especially the frequency.
    • 1.8% more H/Hs
    • Spent 4.2% more $
    • …10.5% more often
  • 75> (10.2% of H/Hs) – $60.63 per H/H – $0.80B – Down -$0.15B (-15.7%) This group of oldest Pet Parents has a strong commitment to their pets – in 2015 a $1B increase in Veterinary Spending. In 2016, they upgraded their food. In 2017 they increased spending in Food, Supplies and Services. They just don’t have quite enough money.
    • 1.4% more H/Hs
    • Spent 16.2% less $
    • …0.9% less often

Now, let’s take a look at some other key demographic “movers” behind the 2017 Veterinary Spending increase.

Summary

2017 was definitely a great year for the Veterinary segment. As you look at the chart above you will see that 4 demographic categories – Income, Housing, Area Type and Race/Ethnic had no segments that spent less on Veterinary Services in 2017. The increase was truly widespread as 77 of 92 (83.7%) demographic segments spent more in 2017 than they did in 2016. The chart is basically loaded with the “usual” winners and losers.

However, there are 2 segments that are in an unusual position. Self-employed have a high average income so they are not normally a “loser”. However, in 2017 they dialed down their spending in every category but supplies. The level of the decrease was magnified by the fact that the number of “self-employed” households also fell 8.7%. Apparently, owning your own business became less popular in 2017. On the winning side, Homeowners w/o Mortgages is unusual. In 2017, they just edged out Homeowners with a mortgage by $0.2B. Their victory was fueled by a $1.0B spending increase from retired folks. This must have been “younger” retirees as the over 75 group spent less.

The continued high inflation rate in Veterinary Services has had a major impact on Veterinary spending since the great recession. The “new” value conscious consumer has rebelled against ever increasing prices. They have delayed or eliminated many routine procedures or sought alternative solutions. The spending in this “necessary” segment has become much more dependent on household income. People were visiting the Veterinarian less often, just paying more. This makes the 7% increase in frequency incredibly important as it indicates a definite change in spending behavior.

The why behind this change is a significant decrease in inflation. The CPI for Veterinary Services only increased 2.2% in 2017. This is the lowest rate since they began keeping records back in 1997. In fact, prices in the second half of 2017 only increased 0.7% – incredible. You saw the consumer response – a huge spending lift. But what comes next? In the first half of 2018, prices are up 1.7%. This seems high but it is actually the same as 2017. We’ll just have to wait and see.

 

 

2017 U.S. PET SERVICES SPENDING $6.77B…Down ↓$0.07B

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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…

 

 

 

 

2017 U.S. PET SUPPLIES SPENDING: $18.58B…UP ↑$2.74B

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2017 was a record setting year for the Pet Industry as spending soared to $77.13B, a $9.4B (14.6%) increase from 2016. The Supplies segment even exceeded this pace as spending reached $18.58B, a $2.74B (17.3%) increase. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

2017 continued and in fact, built on an upturn in Supplies spending which began in the second half of 2016. In this report we’ll “drill down” into the data to try to determine what and who are “behind” the huge spending lift in Supplies.

In 2017, the average household spent $142.90 on Supplies, up 16.9% from $122.25 in 2016. (Note: A 2017 Pet H/H (68%) Spent $210.00) This doesn’t exactly match the 17.3% total $ increase. Here are the specific details:

  • 0.3% more H/H’s
  • Spent 11.6% more $
  • 4.7% more often

Let’s start with a visual overview. The chart below shows recent Supplies spending history.

Since the great recession, you can’t talk about spending trends in the Supplies segment without talking about price – the CPI. Although many supplies are needed by Pet Parents, when they are bought and how much you spend is often discretionary. Additionally, many of the product categories in this segment are now considered commodities, so price is the main driver behind consumer purchasing behavior. When prices fall, consumers are more likely to buy more. When they go up, consumers spend less and/or buy less frequently.

2014 was the third consecutive year of deflation in Supplies as prices reached a level not seen since 2007. Consumers responded with a spending increase of over $2B. Prices stabilized and then moved up in 2015.

In 2015 we saw how the discretionary aspect of the Supplies segment can impact spending in another way. When consumers spend a lot more $ in another segment, like for a food upgrade, they are likely to cut back on Supplies – swapping $. This is what happened in 2015. Many consumers upgraded their food, spending +$5.4B more. This gave them less to spend on other aspects of Pet Parenting. This, in conjunction with inflation, caused supplies to suffer as consumers spent 4.1% less, but they bought 10% less often. That seemingly small drop in purchase frequency (ex: Buy every 33 days instead of buying every 30 days) drove $1.6B (78%) of the $2.1B decrease in Supplies spending.

In 2016, supplies’ prices flattened out and consumers value shopped for their upgraded food. Supplies spending stabilized and began to increase in the second half. In 2017 supplies prices deflated, reaching a new post-recession low. The consumers responded with a huge $2.74B increase in Supplies spending that was widespread across demographic segments. An important factor in the lift was an increase in purchase frequency which is now within 5% of the 2014 rate.

That gives us an overview of the situation. Now let’s look at “who” was behind the big spending increase. First, we’ll look at spending by income level, the most influential demographic in Pet Spending.

In 2017 Supplies spending increased in every income segment. Here are the specifics.

  • <$30K (30.2% of H/H’s) – $133.37 per H/H – $2.69B – Up $0.09B (+3.4%). This group obviously must closely watch their discretionary spending. They are also the only group to spend less in 2017 than in 2014. However, this somewhat deceptive as their H/H supplies spending actually increased 4%, but the number of H/H’s fell 8%.
  • $30K>$70K (31.4% of H/H’s)- $126.35 per H/H – $5.15B Up  $0.81B (+12.6%). This lower income group had a big drop in 2015. In 2016 they started to bounce back and in 2017 this accelerated with the 2nd biggest $ increase.
  • $70>$100K (14.9% of H/H’s) – $157.21 per H/H – $3.04B Up $0.25B (+8.9%). This middle income group spends more than the national average on supplies and closely matches the national pattern but with smaller “swings”.
  • $100K>$150K (12.5% of H/H’s) – $195.40 per H/H – $3.22B Up $0.43B (+15.4%) Except for a dip in 2016, the Supplies Spending in this group has been essentially flat. The drop in 2016 actually coincided with a drop in their total H/H expenditures. Value shopping is not limited to the lower income groups.
  • $150K> (10.9% of H/H’s) – $316.35 per H/H – $4.47B Up $1.15B (+34.6%) With by far the biggest lift in both $ and in percentage, this group reinforces the importance of income in Supplies spending.

Please note that while the $150K+ group had the biggest increase, the 2nd spot belonged to the lower income $30>70K.

Now, we’ll look at spending by Age Group.

It’s the same story as the Income demographic. Every age group spent more on Supplies in 2017. Here are the specifics.

  • 45>54 (18.1% of H/H’s) $179.90 per H/H – $4.24B – Up $0.56B (+15.3%) This highest income age group has been the leader in Supplies spending since 2007. Fewer H/H’s (-2.0%) spent 9.4% more on supplies, 7.5% more often.
  • 55>64 (19.0% of H/H’s) $168.56 per H/H – $4.17B – Up $0.82B (+24.3%) A portion of this “Boomer” group dialed back their supplies spending while upgrading their food. In 2017 they came back strong as 0.3% more H/H’s spent 21.6% more on Supplies, 2.0% more often. The lowest Supplies prices (CPI) since 2007 were very alluring.
  • 35>44 (16.2% of H/H’s) $165.53 per H/H – $3.49B – Up $0.36B (+11.5%) This group is second in income and overall expenditures. In 2016 these Gen Xers led the way with a big lift in Supplies spending which continued into 2017 when 1.7% fewer H/H’s spent 6.5% more $, 6.5% more often.
  • 65>74 (14.3% of H/H’s) $132.12 per H/H – $2.45B – Up $0.20B (+8.7%) In 2016 they saved money on food and spent it on supplies. In 2017 growth continued as 1.8% more H/H’s spent 6.8% more, with the same frequency.
  • 25<34 (16.4% of H/H’s) $118.54 per H/H – $2.52B – Up $0.41B (+19.4%) These Millennials are the only group spending less on Supplies in 2017 than in 2014. Their priorities have changed. They upgraded food and doubled veterinary spending. However, in 2017 2.0% more H/H’s spent 13.2% more on supplies, 3.4% more often.
  • <25 (5.8% of H/H’s) $87.63 per H/H – $0.67B- Up $0.14B (+27.4%) This small group had 3.9% more H/H’s, spent 23% more $, but 0.4% less often. I think the big $ increase earns them a “pass” on the slightly lower frequency.
  • 75> (10.2% of H/H’s) $78.79 per H/H – $1.04B, Up $0.14B (+31.9%) This group spends 15% more than they earn. The deflated supplies prices were very appealing as 1.4% more H/H’s spent 5.6% more, 23.1% more often.

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

Summary

The big drop in spending in 2015 highlighted the vulnerability of a discretionary segment like supplies, especially through a small reduction in purchase frequency. However, the supplies segment provides many products which make the lives of pets and their “parents” easier and better, so we knew that a spending recovery was inevitable. The recovery began in the second half of 2016, as consumers “freed up” money by value shopping for their new upgraded food. Deflation in 2017 accelerated the process and spending passed the $17B level of 2014 by mid-year. By year end, spending had reached 18.58B. This was $1.58B more than 2014, $2.74B more than 2016 and $3.74B more than the spending low point in mid-2016. Purchase size was up significantly and spending frequency was 95% of 2014 – a more normal market.

If you would like more proof of “normalcy”, just look at the winners in the chart above. College Grads, Managers, Homeowners w/Mtge, $150K+ income and small Suburbs are all the “usual suspects” behind a lift in Supplies spending. However, the 2017 spending lift was almost universal. All income and age groups spent more and in fact, 89 of 94 demographic segments (94.6%) bought more supplies.

The $2.74B increase in Supplies spending was obviously great news, especially following the $0.94B increase in 2016. This gives the Supplies segment an average annual increase rate of 3% since 2014, which is not great, but is a return to more normal levels. How it happened does cause some concern as supplies prices deflated 0.4% in 2017. This may not sound like much but it did push them down to the level of 2007 and to a record 5.3% below their all-time high in 2009.

Deflation increases profit pressure on retailers and especially manufacturers. In Supplies, it appears that the only way to increase spending is to reduce prices. What happens if they go up? We’ll soon find out as prices rose sharply in the second quarter of 2018. In June of 2018 they were 1.85% higher than in December of 2017.