U.S. Total Pet Spending – By Age AND Income Group: 2016>2017

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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.

We have seen that the key demographic factor behind increased pet spending is income. At the same time, the demographic that attracts the most broadscale interest and media attention is the spending by generation. Although we can’t  bundle these 2 together. The US BLS has again produced 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 2016 and 2017. As you recall, Total Pet Spending averaged over $70B during this period . Unfortunately, due to the complexity of this report we only have the numbers for Total Pet, not for the individual industry segments.

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 Millennials
  • 35 to 44 – 85% Gen Xers; 15% Millennials
  • 45 to 54 – 75% Gen Xers; 25% Boomers
  • 55 to 64 – All Boomers
  • 65 & Over – 6 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. Therefore, we will again focus on the largest, most impactful groups. Our first chart shows the share of CU’s for the 10 largest age/income segments. There are highlights which apply to all 3 share/performance charts in the report and should help you in viewing and comparing the data.

  • Outlined in green = gained share
  • Outlined in red = lost share
  • Filled in green = new to Top 10

Each of the age/income groups has an assigned a bar color. Ex: 55>64 $100K+ is always red. 25>34 $100K+ is orange, etc.

In terms of age, all 25>34 Income groups are a shade of yellow; 35>44 is black (only 1); 45>54 are shades of blue; 55>64 are red/pink; Over 65 are shades of green. Now that you know the “rules”, let’s get started.

  • The first thing that you notice is that there is no “middle ground”. All of the 10 largest segments are either under $50K (6) or over $100K (4). Last year it was 7 to 3 but this year the high income 25>34 group replaced 35>44 <$30K.
  • The 2 largest segments are at the opposite ends of the income spectrum but both “held their ground”.
  • 3 of the 4 segments that gained share are $100K+. Every $100K age group from 25>64 is now in the top 10. The lift in the 65>, $30>49K group comes from Baby Boomers retiring. Average retirement income is $40K.
  • All 4 of the segments that lost share are <$50K. (3 are <$30K). Most of the “losing” CUs moved up a notch in income.
  • There are no big groups in the middle ground, $50>100K. Middle income America is very fractionalized by age group.

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 demographic measurements across income and age groups.

# of children under 18 – Larger households can create financial pressure which can impact spending on Pet “Children”. As expected, most children, at least the ones under 18, are in the 25>54 yr old group, peaking with the 35>44 yr olds. The number children tends to increase with income. However,  the 25>34 yr old Millennials are an exception. CU’s with incomes below $50K have the most children. There are also two dips in the number of children – $50>69K and over $100K. Let’s see if that impacts pet spending.

% Homeownership – About 81% of Total Pet Spending comes from Homeowners. Having more space that you control has always been a key to increased pet spending. 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. In CU’s making over $100K, the 55>64 yr olds edge out the over 65 group – 94 to 93 to claim the overall title. The national homeownership average is 63%. You can see that the younger the group, the higher the required income to meet the average.

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 over 45 group has fewer children and is more likely to own a home, so they have more money and space for pets.
  • $30K>49K – This is the only income group to regularly increase spending with age which puts the 65+ group on top. The average retirees’ income is $40K. Once they reach this level, the financial pressure is reduced, and they can increase their focus and spending on their pets.
  • $50>69K – Every age 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 noted earlier.
  • $70>99K – We have reached middle income. The over 55 groups show another big increase and in fact the spending of the 55 to 64-year olds reaches the “stratosphere”. Last year they were the overall #1 Pet Spending age/income group. This year they are very close. The 25 to 44 group is still feeling strong financial pressure. The spending increase by the 35>44 yr olds slows and spending by the 25>34 yr old Millennials dips slightly – more children?
  • $100K+ – $100K is a magic number. At this level Pet Spending explodes for all but the 55>64-year-old group. Their number dips to $1100 but is still equal to last year. Undoubtedly the most significant increases came from the 35>54 group. With some relief from financial pressure they focused more on their pets. Although 35>44 won the overall title with $1462, 45>54 was only $18 behind ($1.50 less per month). The only group under $1000 is the 25>34 yr olds. However, their average income is 20% below the others so $800+ spent on pets is still pretty darn good.

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

  • Amazingly enough the oldest group is the most stable. As their income increases, they show strong, consistent growth in pet spending. If they have more money, they spend more on their pets. It’s as simple as that.
  • The 4 younger groups have different stories to tell but they have one thing in common. At some point they reach a significant threshold income and their Pet Spending explodes, sometimes doubling or more.
  • The 55 to 64-year-old Boomers and the 25 to 34-year-old Millennials are the only groups that have dips in spending, but they also have 2 significant lifts. For both, the initial big increase occurs at $50>69K. The Boomers immediately follow up with another substantial jump at $70>99K. The Millennials lose a little ground then jump 70+% at $100K.
  • The 35>54 group is about 80% Gen Xers. They have 2 slightly different paths but end up in almost the same place. For the 35>44 group, spending consistently grows but flattens out at $70>99K. When income reaches $100K, their spending almost triples and they finish in 1st For the older 45>54 group, spending growth is minimal until they reach $70K and it jumps +77%. However, it almost doubles at $100K putting them in 2nd place overall.
  • Even with a dip by the Boomers, this view certainly reinforces $100K income as a magic level in Total Pet Spending.

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

  • These 10 age/income groups account for 50% of all U.S. CU’s and 68% of Total Pet Spending.
  • Money Matters Most as all 5 age groups making $100K+ are included along with 2 in the $70>99K range
  • Age is still a big factor as 6 of the 10 groups are 55+ yrs old, primarily due to the Boomers
  • The biggest gains are from the 35>54-year olds. They took over the top 2 spots and added a group.

Finally, let’s look at the top performers which we will define as having the highest Share of Pet $/Share of CU’s. It is the same group as last year and 8 are repeats from the chart above and have matching colors in the chart below.

  • Once again age matters as only the same two under 45, over $100K income groups made the list.
  • However, money matters even more in Pet Spending performance than in Pet Spending $. There are no groups making under $50K. The 2 under $50K, 65+ age groups were replaced by 2 65+ age groups making from $50 to $99K.
  • Only 9 groups are “earning their share” (100+%). The groups with lower performance are losing share to the 35>54 yr olds (80% Gen Xers). The biggest gains came from the 35>44-year olds as every CU over $30K improved.

The data in this report strongly reinforces the importance of income in Pet Spending. It also gives evidence that the younger groups, primarily the Gen Xers, are beginning to step up, especially in their higher income segments. 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 2018: $72.56B – 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 $3.05B (4.4%) in 2018 to $72.56B. This is slightly more than last year’s increase of 4.1% and very consistent with the 4+% annual growth rate since 2011. There was one notable exception to the “norm”. In 2016 the industry grew 10.7% due to an upward adjustment in Food $ which research had shown to be too conservative. However, the industry has gotten “back on track” in the last 2 years.

As you recall, 2017 brought considerable excitement with a record low inflation rate of 0.4%. This meant that 90.2% of the increase was a real increase in the amount of Pet products and services sold. In 2018, the pricing turned up by +1.25%, a more normal rate. Sales continued to grow but the amount of real growth fell to 70.6%, also a more normal number. However, these are “summary” numbers. Each segment has a different story to tell. 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 2018, but also put this year’s numbers into perspective for the period from 2009 to 2018.

Here are the specifics from 2018.

  • After record deflation of -1.1%, Pet Food segment pricing stayed low, maintaining the highly competitive market.
  • The drop in live pet sales occurred as projected. This critical industry segment continues a gradual decline.
  • Pet Supplies flipped from deflation to inflation, the highest rate since 2009. Sales surprisingly increased greater than anticipated, but 22% was due solely to price increases.
  • The inflation rate in the Service segment more than doubled. This means that the drop in the amount of Services was actually -3.2%, 4 times greater than the drop in retail dollars.
  • Veterinary pricing also moved up from a record low rate. This probably caused a slight reduction in frequency, so they didn’t meet the projection. 43% of the increase was due to inflation, which is actually low for this segment.
  • The Total Pet Market was up 4.39% as the Product segments beat their projected numbers while the Service segments missed. The upturn in prices definitely hurt both Services and Veterinary, probably through reduced frequency. The Food segment retained “the low ground” in prices and continued to expand upgrades. The Supplies segment quite remarkably avoided the usual negative impact that inflation has on sales.

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 2018 starting with Food.

OBSERVATIONS

  • The Pet Food World changed in 2014, having a huge impact in the overall numbers since 2009:
    • 6.26% Annual Growth Rate (Driven up from 4.64% by the 2016 adjustment in Food $).
    • Low average inflation – 0.51% (Pushed down to this low level by two -1+% pricing drops)
    • 5.72% CPI adjusted Growth Rate: Over 91% of the growth since 2009 has been “real” – Truly amazing!
  • In the 9 years since 2009…
    • 5 were deflationary (-0.6%) Average
    • 4 were inflationary (1.9%) Average

After 2013, deflation has been the norm in Pet Food. In a need category, this usually slows retail sales. You don’t buy more food because it is cheaper. However, this occurred at the same time as the introduction of super premium foods. This has produced the unusual situation of growing retail food sales despite extraordinarily strong deflation.

The Pet Food Market is the most competitive in history. Manufacturers, Retailers and whole Retail channels, including the internet are now actively engaged in a furious battle for the consumers’ pet food $. This price war is initially great for consumers and has allowed a much deeper demographic penetration of super premium. However, it is putting increased profit pressure on the supply and distribution channels. This could be bad for all, including the consumer, thru reduced choices. Prices may have “bottomed out” in 2018. A reasonable inflation rate, perhaps 1%, might be best for the future.

Here’s what 2009 to 2018 looks like on a graph:

Until the uptick in 2018 and excluding the 2016 adjustment, the annual retail growth rate has generally been slowing. At the same time, deflation has caused the “real” growth rate to increase since 2014. Deflation essentially stopped in 2018 and they “met” at +4.5%. What will happen in 2019? Through February the CPI is up 1.5% vs 2018. Last year it was deflating. We don’t know if this will continue or how it will impact spending. It’s time for yet another new, “must have” upgrade in Food to keep consumer spending moving up.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

  • Deflation – Turning around?
    • Prices are 4.3% below 2009 (and about equal to what they were in June 2008)
    • 2018 had the highest inflation since 2009 but overall prices are still falling at an average annual rate of -0.49%
    • Prices have deflated 5 times in 9 years but in 3 of the last 4 years they have turned up.
  • Retail Sales – Supplies had been price sensitive with increased growth rate tied to deflation. That was not the case in 2018.
  • However, over the whole 9-year period, the Consumer bought more…and paid less!
    • Retail Sales annual growth rate is 4.08%
    • Price Adjusted annual growth rate is 4.59% – 12.5% higher than the retail rate – which is beyond Amazing!

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. The increase in retail sales was the lowest since 2009 and “real” sales were up less than 3%. 2018 brought a change to the pattern. Inflation was stronger, +1% but so were retail sales, +4.7%, the biggest increase since 2012. Ideally, we probably need to get to about a +0.5% rate.

Here is the graph:

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

OBSERVATIONS

  • Growth
    • Despite the unprecedented spending drop in 2018, the annual Retail Growth rate is 6.9%, highest in the industry
    • In 2018 the Inflation rate more than doubled the rate of 2017. It had been declining then fell precipitously in 2017. The annual average since 2009 stands at 2.27%, which is second to Veterinary and the gap is narrowing.
    • 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 and spending actually decreased in 2018.
    • 65.5% “real” growth since 2009. In 2017, this reached 84%. In 2018 the decrease in the amount of services was actually – -3.2%, undoubtedly due to a drop in frequency. 75+% real growth is probably a realistic goal.

In the past there have been no big negatives regarding this segment. 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 did not retard growth. In 2017 increasing competition from a growing number of outlets offering pet services had an impact, as the inflation rate fell to 1.1% in 2017 – a near record low. In 2018 the inflation rate doubled to a more normal 2.4% but this time the consumer noticed. A drop in visit frequency produced the segment’s first decline in spending. It certainly demonstrates that even the Services segment is not immune to the consumers’ focus on price.

Here’s how the sales look on a graph:

2019 sales are projected to bounce back, increasing 3.3% to $6.1B. This is 47% below the growth rate since 2009 and except for 2018, the lowest ever. Prices through February of 2019 are 3.9% higher than the same period in 2018 so it appears that the inflation rate is growing. If this segment has developed more price sensitivity, this does not bode well for spending in 2019. However, if the many outlets offering services start to see a continued drop in visit frequency, this could cause another price war, but this time with increased spending.

Now, let’s take a closer look at the Veterinary Service Segment, which accounts for 25.0% of Pet Industry Sales.

Observations

  • Retail Growth
    • Sales are Up 50.4% since 2009
    • Annual growth rate 4.64%
  • Inflation is the problem
    • Annual avg CPI increase is 3.32% since 2009. 2017 had a record low, 2.2%. 2018 was up but still below average.
  • Adjusted Growth rate since 2009 is only 1.28%. However, it has been up sharply the last 2 years.
    • Price increases account for 72.5% of the total sales increase from 2009 to 2018.
  • “Real Sales”
    • Consumers actually bought less in the amount of Veterinary Services in 4 of the last 9 years. They just paid more.
    • Sales were basically stagnant from 2009 to 2016 – average annual growth rate 0.49%
    • Inflation fell to a record low in 2017 and stayed low in 2018. This produced a $2.1B increase, with 61% “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 set a record low rate in 2017 and stayed low in 2018. Pet Parents responded. They increased the frequency of visits and sales in the Veterinary segment rose $2.1B over 2 years.

Here’s what it looks like:

Veterinary Sales are projected to increase 4.8% in 2019 to $18.98B. This percentage is down from the past 2 years. One key factor in the continued strong growth in this segment appears to be maintaining an inflation rate of 2.5% or less. Inflation turned up in the 4th quarter of 2018 to 2.8%. In 2019, the prices through February are 3.1% higher than the same period in 2018. This is definitely concerning, but the first quarter often has the highest inflation rate in this segment. 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 2018 were ↑59.4% since 2009. Annual growth rate is 5.31%
  • Inflation: Only 12.4% since 2009; 1.31% annual CPI increase. 2018 returned to “normal” after a record low 0.4%
  • “Real” Sales are 74.5% of the Total increase since 2009 with an annual growth rate of 3.96%

Total Pet Retail numbers are a big reason why so many people are attracted to the industry. The retail numbers had been good across all segments, until 2018 when Services $ fell. As our analysis has shown, 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 the industry has been struggling with deflation in Food and Supplies and inflation in the Veterinary Segment. In 2018, Food prices were flat and the other segments turned up. As a result, the Total Pet inflation rate rose to a more “normal” level.

  • Supplies prices have deflated 5 times in 9 years. Commoditization and a lack of innovation have created extreme competitive pressure which deflates prices. 2018 brought strong inflation for this segment +1%. In the past, even a small increase in CPI slowed sales. In 2018 this was not the case.
  • After record -1.1% deflation, in 2018 Food prices essentially paused at that low level. Food has deflated 5 of the last 9 years. However, unlike Supplies, the Pet Food segment has been fueling growth with premium upgrades.
  • 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 followed by 2.6% in 2018 produced $2.1B in increases and 61% was real. Keep it up!
  • Pet Services has had consistent growth and the number of outlets has radically increased. In 2017, due to this competitive pressure, the inflation rate fell to 1.1%. In 2018 inflation more than doubled and sales fell.

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

In 2019 Total Pet Sales are projected to increase 3.9% to $75.38B. Although 3.9% would be the lowest increase since 2009, it could be challenging to achieve. One of the key factors in achieving these numbers is reasonable inflation. Strong inflation began in all segments at the end of 2018 and continues into 2019. The CPI for Total Pet through February is 2.8% higher than the same period in 2018. That’s a tie for the highest rate since 2009. If this continues or grows, it could definitely depress sales.  A new premium food trend would be very welcome.

Remember: It’s up to industry participants to make it happen!

 

 

 

 

 

 

 

PETFLATION – 2018 Update; Prices turn up↑

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Pricing – specifically the Consumer Price Index (CPI) is an important reflection of what is happing in the retail market. Manufacturers and retailers set prices but ultimately it is up to the consumer to determine if they are acceptable or not.

Since price is the primary factor in 75% of all consumer buying decisions, it definitely matters. However, it has a different impact on different industry segments.

After a record low inflation rate of 0.4% in 2017, Total Pet returned to a more “normal” 1.3% in 2018. As always, every segment contributed proportionally to the industry total. Here are the specifics:

  • Pet Food Prices were down slightly (-0.02%), virtually stable. This comes after the biggest drop ever in 2017 (-1.1%) and was the 5th annual decrease in the last 9 years.
  • Veterinary Prices went up 2.6%. This was a small uptick from 2.2% in 2017, which was the lowest in history.
  • Pet Services Prices increased 2.4%, more than double the 1.1% in 2017.
  • Pet Supplies prices increased a full 1%. This is by far the largest increase since 2009. The previous leader was +0.07% in 2016. Prices are still -4.3% below the 2009 peak.

Before we get drill down into the numbers, let’s look at the pricing history for the industry. The US BLS began measuring the CPI for all Pet Industry segments in 1997. Here is the cumulative Petflation through 2018.

Average Annual Inflation Rate

                  • Veterinary Services: +4.6%
                  • Non-Veterinary Services: +3.1%
                  • Total Pet: +2.6%
                  • Food and Treats: +2.0%
                  • Pets and Supplies: +0.6%

The first thing that you note is that the pricing behavior of the 2 Services segments is far removed from the Product segments, especially Supplies. There are some key waypoints:

  • 2010 – The Great Recession makes an impact on the industry. This is one year later than the overall market. Both Food and Supplies deflate. Services inflation hits a record low, but the Veterinary segment seems largely unaffected.
  • 2007 – The Melamine recall. Food Prices begin to radically increase as consumers demand made in the USA.
  • 2009 – Supplies prices reach their all-time high and begin a general decline.
  • 2013 – Food prices peak. The move to upgrade to Super Premium and the resulting price war begins in late 2014.
  • 2004>2005 – The likely start date for “humanization”. The movement to premium food begins and style becomes a factor in supplies, resulting in record inflation rates for this segment until the Great Recession hits.

The great recession was a traumatic event for consumer spending. In 2009 overall consumer spending fell for the first time since 1956. The impact on the Pet Industry was delayed until 2010 but it was significant. Pricing came to the forefront in 75% of all consumer buying decisions. Let’s take a closer look at the post-recession period.

This chart details the annual change in CPI since 2009 for the Total Industry and every industry segment.

In this more focused graph, it is readily apparent that the Great Recession significantly affected every segment, including Veterinary. We also see that every segment immediately bounced back. The 2 Service segments returned to inflation rates that were at or near pre-recession levels. Prices also increased in both of the product segments, but not nearly to pre-recession rates.

An interesting convergence occurred in 2012>2013. In 2012 inflation for both service segments moved sharply down while food prices increased. They ended up with virtually the same rate. They moved slightly apart in 2013 but this “agreement” between such divergent segments just doesn’t happen. During the same time frame, Supplies prices deflated very strongly.

That brings us to 2014>2016. Veterinary inflation increased and stabilized at about 3.6%. The Services CPI rate moved sharply up, then began to fade gradually. Pet Supplies deflation slowed in 2014 then turned to 2 consecutive years of inflation under 0.1%. In 2014 the movement to upgrade to Super Premium food began. In the resulting retail battle prices deflated for 2 years. There was a minor uptick in 2016, but not for long.

That brings us to 2017, which was a very significant year for the Pet Industry. Once again, all the segments moved in the same direction in terms of pricing – ↓Down. The service segments did not deflate but their inflation rate slowed significantly. Veterinary inflation set a new record low of 2.2%. The Services segment didn’t set a record, but they were close. Their rate of 1.1% was second only to the 0.9% in 2010 which came as a result of the great recession. After 2 years of minor inflation, Supplies prices deflated -0.4%. Not to be outdone by the Veterinary Segment, Pet Food prices fell – 1.1%, a new record decrease. These combined to produce a record low inflation rate for Total Pet of 0.4%. Perhaps it was just a coincidence, but the US BLS Expenditure reported a $9.8B (14.6%) increase in pet spending for the year.

In 2018 we also had an almost unified movement in pricing but this time it was ↑up. The Food segment CPI did not increase. It was essentially flat with a decrease of only -0.02%. The Veterinary inflation moved up to 2.6% from the record low 2.2%. This was still significantly below their recent average of 3.6%. The rate for Pet Services more than doubled from 1.1% to 2.4%. However, the biggest change came from Supplies. Their CPI increased by 1%. This may not seem like much, but prices have been generally deflating since the recession. They haven’t had an increase this large since 2009, in the pre-recession world. The tariffs imposed in 2018 are undoubtedly a factor. When you put all the segments together, Total Pet had a 1.3% increase. This seems like a reasonable post-recession inflation rate. How will spending be affected? We’ll have to wait and see. The biggest risk is for a reduction in purchase frequency, which could cost billions of $. If frequency stays at or near previous levels, then increased prices = increased $.

In this last section we will break the most recent years down even further, into quarters. In this chart, we will look at 2016 to 2018 and compare the CPI of each quarter to the same period in the previous year. The annual numbers tend to give the impression of a smooth flow. There is often considerable fluctuation.

We will follow the pricing journey over the most recent years by industry segment. First up is…

  • Veterinary – The annual rates show a significant slowing of inflation in 2017 but it regained about 1/3 of the lost ground in 2018. It turns out that the decline actually began in the second quarter of 2016, reaching the low point in the second quarter of 2017. The rate then turned up slightly but remained very stable for 15 months and finished with a significant lift in the final quarter of 2018.
  • Pet Services – Like Veterinary, the annual inflation rate in this segment fell in 2017 and bounced back in 2018. However, the changes were much more extreme with a 45% drop and a 120% rebound. The timing of the decline also began in the second quarter of 2016 and bottomed out in the second quarter of 2017. This low inflation rate essentially remained constant for 12 months then inflation “exploded” upward in the second quarter of 2018 with a 160% increase to 2.9%. It slowed in the third quarter but then increased to 3.9% in the fourth quarter. This segment hasn’t seen an inflation rate this high since 2011.
  • Pet Food – There was a minor pricing increase in 2016 which was driven totally by a big lift in the third quarter. Prices then turned down slightly, but the drop increased markedly in the second quarter of 2017 and maintained this deflation rate for 12 months. The lower price level was stable from April through September of 2018. A huge price increase in the fourth quarter essentially erased the deflation for the year and the 2018 prices remained near the level of 2017.
  • Pet Supplies – This segment had miniscule inflation in 2016. Prices turned down in 2017 but then had a huge lift (for Supplies) in 2018. The upturn in prices in 2016 was driven solely by a big lift in the fourth quarter, which is prime buying season. Prices turned slightly down in the first quarter of 2017 and maintained deflation through the first quarter of 2018. Prices then turned up in the second quarter of 2018 and inflation increased strongly, reaching a level of 2.3% by the fourth quarter. Tariffs were undoubtedly a factor in this rise.
  • Total Pet – Inflation was a relatively normal 1.4% in 2016 then began to slow in the 1st quarter of 2017. It stayed down through the 1st quarter of 2018, bottoming out at 0.0% in the 4th quarter of 2017. This produced a record low rate of 0.4% for 2017. Then, in the second quarter of 2018, driven primarily by big lifts in Supplies and Services, prices turned sharply up. There was another big lift in the fourth quarter (2.3%) as prices in all segments increased. The result was a 1.3% increase for the year, virtually identical to 2016.

The post-recession consumer is very price sensitive, but it is impossible to predict the impact of the pricing lift on 2018 $. Pet Food prices remained essentially unchanged. Veterinary increased but the big lifts came in Supplies and Services. These are the two most discretionary segments. We’ll see if consumers reduce their purchase frequency.

By the way, the inflation continues to grow. Here are numbers for Jan-Feb 2019 vs the first quarter of 2018.

  • Non-Veterinary Services: +3.93%
  • Pets and Supplies: +3.90%
  • Veterinary: +3.01%
  • Food and Treats: +1.42%
  • Total Pet: +2.72