Pet Products Spending by Generation: Mid-Year 2018 Update

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Pet Products spending totaled $51.17B for the 12-month period ending 6/30/18. This was an increase of $5.3B (+11.5%). Total U.S. spending for the period totaled $7.95 Trillion, up $370B (+4.9%). Driven by big increases in both Food and Supplies, Pet Products Spending growth far exceeded the pace of Total U.S. spending.

In this report we will update Pet Products Spending for arguably the most popular demographic measurement – by Generation. Baby Boomers built today’s Pet Industry, but they are getting old. What happens next? Gen Xers are next in line but most of the discussion revolves around Millennials. Last year at this time the Gen Xers had a big year. Are they still performing? What about the youngsters? Are they stepping up in life and spending? Have the Boomers still got it? Let’s take a closer look. The numbers come from or are calculated from data in the US BLS Consumer Expenditure Survey.

First, let’s define each generation and look side by side at their share of Consumer Units (H/H’s) and Total Spending.

          Generations Defined:

  • Millennials: Born 1981 and after
    • In 2018, age 19 to 37
  • Gen X: Born 1965 to 1980
    • In 2018, age 38 to 53
  • Boomers: Born 1946 to 1964
    • In 2018, age 54 to 72
  • Silent: Born 1928 to 1945
    • In 2018, age 73 to 90
  • Greatest: Born before 1928
    • In 2018, age 91 and over

  • Boomers are still the largest group with 44.4M CUs (34.0%) and the biggest spenders – $2.8T. Their numbers are down but their spending is still growing and over performing as their share in relation to their share of CUs is 105%.
  • Gen X is the second largest CU group. Their overall numbers are down slightly as more singles “pair up”. However, their spending was up $123B to $2.56T. They are the leaders in spending performance, and it got even better, 121%.
  • Millennials are the largest generation in sheer numbers, but third in CUs. More are developing financial independence as CUs grew by 2.7M – up 5M (+17%) in 2 years. They also had the biggest increase in spending +$228B. Their total spending was $1.77T – 3rd However, their spending performance is only 86%.
  • The Silent generation actually gained slightly in CUs and their overall spending was up $18B so they remain a viable force in the marketplace. The Greatest Generation will soon be too small to be a measurable, separate spending group. They will be replaced by Gen Z by 2020.

There is the obvious difference in age to be considered and differences in behavior. However, we have also learned that there are key Consumer Unit characteristics, like income, family situation and home ownership that make a difference both in Total Spending and in Pet Spending. Let’s look at some of these key differences.

  • It just takes 2. CUs with 2 or more people account for 84.8% of all Pet Products Spending. (up from 81% last year)
  • The size of the CU and number of children is all about Family responsibility and all the financial pressures that this generates. The CU size overall is unchanged from Mid-2017 and still peaks with the Gen Xers. However, the Boomer and Gen X generations decreased by 0.1 person. Perhaps, their Millennial kids are moving out.
  • Married couples with children under 18 are an important segment, 23.4% of all CUs. They account for 26.5% of all Pet Products spending and 32.8% of Supplies Spending. However, as the number of children grows, the increased financial responsibility can slow Pet Spending.
  • Boomers still average 2+ people in the CU. However, they are much less likely to have children <18 at home. As their human children leave home, they turn their attention and spending to their Pet Children who are still with them.
  • Pet Products spending is also tied to the number of earners in a CU. 2+ Earner CUs account for 41% of the total but they spend 49% of Pet Products $. As you can see the “earning” is being done in America by Gen Xers, Millennials and Boomers with Gen Xers at the top, as to be expected. Boomers are down 0.1 as more move into retirement.
  • Homeownership – Owning and controlling your own space has always been a key to increased Pet Ownership and spending. Homeowners currently account for 80.2% of all Pet Products Spending, which increased by $4.89B (+13.5%). Renters’ spending was up too, but only $0.4B (+4%), which highlights the importance of homeownership.
    • Nationally, Homeownership remained steady at 63%. Gen Xers remain at or near the national average. Homeownership continues to increase until we reach the oldest Americans.
    • The Millennials are obviously lagging behind but they did increase from 34% to 36% and are up from 32% in 2016. This is encouraging. Boomers also moved up 1% to 78%. The homeownership rate for the over 25 Millennials still remains 20% below the rate for the older generations when they were the same age.

Next, we’ll compare the Generations to the National Average in Income, Spending, Pet Products Spending and Pet Products Share of Total $pending:

  • CU Avg Income – $76,335 
  • Total Spending – $60,815
  • Pet Products Spending – $391.90
  • Pet Products Share of Total Spending – 0.64%

  • Income – The 38>53-year-old Gen Xers are the leaders. The Boomers earn about 20% less and their income will continue to fall as they age. The big drop begins with the Silents as retirement becomes almost universal. The Millennials income is still 20% less than the Boomers and only 64% of the Gen Xers.
  • Total Spending – The Gen Xers make the most and spend the most, but their spending is not out of line with their income. Boomers also spend more than the average, but their income can still 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 The Millennials under 25 are also in an after tax income deficit spending situation. The rising income from the 25>37 group makes up the difference and brings their overall generational spending more in line with income.
  • Avg CU Pet Products Spending – The Boomers have been alone at the top since they made the move to upgrade to Super Premium Food in 2015. Their lead began dropping when they began value shopping for food in 2016 but it has bounced back with the 2nd wave of Super Premium. The Millennials are closing the gap but still trail the Gen Xers by 27% and the Boomers by 41%. The Gen Xers made a big move in Pet Products spending last year as they broke the national average for the first time since 2014. However, they lost ground this year – down to 104.9% from 112%.
  • Pet Products Share of Total Spending – One measure of the level of commitment to their Pets.
    • The Pet Products share of total spending increased to 0.64%. Only Boomers exceed the National Average but everyone under 91 years of age is at least 87% of the national average.
    • In a flip flop from last year, Gen Xers were the only big group to decrease their pet products spending in terms of its share of their overall spending. The drop was small and should be put into perspective. This group not only makes and spends the most money, they had by far the biggest increase per CU in these areas.
    • Millennials are in 3rd place in both income and total spending and moved up to 3rd place in Pet Products Spending share. Their Total Spending was up 5.5% but their Pet Products Spending was up 18.5%.
    • You can see that spending for the very Oldest, “Greatest” Americans continues to drop but the 73 to 90-year-old Silent Generation is still making “noise” with their commitment to their pet companions.

Now let’s look at Pet Products $ spent by Generation and their share of the total.

  • In terms of 2018 Mid-Yr Performance, all but the Greatest were up, but the lift was driven by Boomers & Millennials.
  • Boomers still have the largest share, but the Millennials gained the most, moving up to 19.4% from 17.3% last year.
  • Overall – Ave CU spent $391.90 (+37.98); 2018 Mid-Yr Pet Products spending = $51.17B, Up $5.3B (+11.5%)
    • The bulk of the lift is coming from 2017. July>Dec 17, Up $3.82B; Jan>Jun 2018, Up $1.48B
  • Boomers – Ave CU spent $502.14 (+$56.71); 2018 Mid-Yr Pet Products spending = $22.47B, Up $2.52B (+12.6%)
    • Big lift in 2017 but spending turned down in 2018. – Jul>Dec 17, Up $3.25B; Jan>Jun 18, Down $0.73B.
  • Gen X – Ave CU spent $411.04 (+$14.03); 2018 Mid-Yr Pet Products Spending = $14.39B, Up $0.47B (+3.3%)
    • Relatively flat but turning up in 2018. – Jul>Dec 17, Down $0.24B; Jan>Jun 18, Up $0.70B
  • Millennials – Ave CU spent $298.37 (+$46.65); 2018 Mid-Yr Pet Products Spending = $9.95B, Up $2.00B (+25.2%)
    • The most consistent, strong growth of any group. – Jul>Dec 17, Up $0.77B; Jan>Jun 18, Up $1.23B.
  • Silent Gen. – Ave CU spent $262.63 (+$23.33); 2018 Mid-Yr Pet Products Spending = $4.29B, Up $0.36B (+9.1%)
    • Growth in both halves but the bulk of the lift came in 2018. Jul>Dec 17, Up $0.07B; Jan>Jun 18, Up $0.28B.
  • Greatest Gen.– Ave CU spent $71.37 (-$0.83); 2018 Mid-Yr Pet Products Spending= $0.08B, Down $0.04B (-35.3%)

The increase was driven by Boomers in 2017 and  Millennials in 2018. Let’s look at individual segments. First, Pet Food

  • Boomers drove the lift in the 2nd half of 2017, then they began value shopping at the start of 2018.
  • The Millennials had a big lift at the beginning of 2018. Perhaps this is the start of a Pet Food new trend?
  • Overall – Ave Cu spent $240.44 (+$21.01); 2018 Mid-Yr Food spending = $31.36B, Up $2.92B (+10.2%)
    • After a big lift in the 2nd half of 2017, growth slowed markedly. Jul>Dec 17 (+$2.67B); Jan>Jun 18 (+$0.25B)
  • Boomers – Ave CU spent $333.30 (+$45.96); 2018 Mid-Yr Food spending= $14.96B, Up $2.11B (+16.5%)
    • July>Dec 17 (+$2.86B) – Wave to Super Premium continues. Jan>Jun 2018 (-$0.75B) – In 2018: Value shopping.
  • Gen X – Ave CU spent $222.45 (-$10.83); 2018 Mid-Yr Food spending= $7.83B, Down $0.32B (-3.9%)
    • Some value shopping in 2nd half of 2017 then began to bounce back. Jul>Dec 17 (-$0.43B); In Jan>Jun 18 (+0.11B)
  • Millennials – Ave CU spent $177.16 (+$26.95); 2018 Mid-Yr Food Spending $5.85B, Up $1.06B (+22.1%)
    • Jul>Dec 17 (+$0.26B); Jan>Jun 18 (+$0.80B). Some of the lift is coming from a big increase in CUs. However, we could be seeing the start of a new food trend. Remember, Millennials pioneered the move to Super Premium.
  • Silent Generation – Ave CU spent $164.31 (+$8.53); 2018 Mid-Yr Food spending $2.65B, Up $0.09B (+3.6%)
    • Spending was flat in the 2nd half of 2017, then picked up in 2018. Jul>Dec 17 (+0.01B); Jan>Jun 18 (+$0.08B)
  • Greatest Gen. – Ave CU spent $56.32 (-$1.57); 2018 Mid-Yr Food spending= $0.06B, ↓ $0.03B (-34.9%) – fading.

We are still seeing the impact of the 2nd wave of Super Premium in 2017. However, 2018 started off strong for Millennials while Boomers began value shopping. It could signal the beginning of a new Food trend. Now, Supplies.

  • Boomers still have the largest share but Supplies spending skews younger – Gen X and Millennials control 53.7%.
  • The lift is consistent and widespread. The Oldest Americans are losing CUs, driving spending down.
  • Overall – Ave CU spent $151.46 (+$16.97); 2018 Mid-Yr Supplies spending = $19.81B, Up $2.38B (+13.6%)
    • Supplies spending has been strong and growing for 24 months. Jul>Dec 17 (+$1.15B); Jan>Jun 18 (+$1.23B)
  • Baby Boomers – Ave CU spent $158.09 (+$10.75); 2018 Mid-Yr Supplies spending= $7.50B, Up $0.40B (+5.7%)
    • With a big increase in Food $, the Supplies lift is more subdued. Jul>Dec 17 (+$0.39B); Jan>Jun 18 (+$0.01B)
  • Gen X – Ave CU spent $188.59 (+$24.86); 2018 Mid-Yr Supplies spending= $6.56B, Up $0.78B (+13.4%)
    • Consistent growth with biggest lift in the 1st half of 2018. Jul>Dec 2017 (+$0.19B); Jan>Jun 18 (+$0.59B)
  • Millennials – Ave CU spent $121.21 (+19.70); 2018 Mid-Yr Supplies spending= $4.09B, Up $0.94B (+29.9%)
    • More CUs and a strong lift in both halves. Jul>Dec 17 (+$0.51B); Jan>Jun 18 (+$0.43B)
  • Silent Generation – Ave CU spent $98.32 (+14.80); 2018 Mid-Yr Supplies spending= $1.64B, Up $0.26B (+19.2%)
    • Surprisingly consistent growth in both halves for this older group. Jul>Dec 17 (+$0.05B); Jan>Jun 18 (+$0.21B).
  • Greatest Gen. – Ave CU spent $15.05 (+$0.74); 2018 Mid-Yr Supplies spending= $0.02B, Down $0.01B (-36.8%)

2015 saw a steep drop in Supplies spending as consumers upgraded to Super Premium Pet Food and reduced the frequency of Supplies purchases. Spending flattened out in the first half of 2016 but then this segment began a magical 24 month run. Consumers began value shopping for Pet Food and spent some saved money on Supplies. There were great values to be had as Supplies prices deflated for 22 months. This combination of circumstances generated an incredible $4.97B Supplies spending lift. The increase was driven by Gen X and Boomers, +$3.62B, but the Millennials stepped up in the last year, +$0.94B. Only the Greatest Generation spent less which was due to their declining numbers.

In the final chart we will compare each generation’s share of spending on Total Products, Pet Food and Pet Supplies to their share of CU’s and see “Who is earning their share?” Then we will review their actual performance numbers.

Performance = Share of Spending/Share of CU’s;    100+% indicates you are “earning your share”

If a share of market is outlined , then performance exceeds 100%.

  • Greatest Generation – is not included in this section as both their market share and CU share are too small.
  • Silent Generation Performance – Pet Products: 65.7%; Pet Food: 66.2%; Pet Supplies: 64.9%
    • This group ranges in age from 73 to 90. Pet ownership is more difficult after age 75 and this is reflected in the low share of Pet Products spending. However, the desire and the commitment are still there. Their performance is remarkably consistent between Food and Supplies, but it is definitely dropping as they age.
  • Baby Boomers Performance – Pet Products: 129.2%; Pet Food: 140.4%; Pet Supplies: 111.5 %
    • The Boomers truly led the way in building the pet industry and they are still at it. They are earning their share and are the spending leader in both Food and Supplies. Driven by their 2017 spending increase in Food, their overall performance is up from last year. Ultimately this will begin to fade as they age. However, based upon their history, they will continue to perform well for many more years.
  • Gen X Performance – Pet Products: 105.7%; Pet Food: 93.9%; Pet Supplies: 124.5%
    • The Gen Xers are next in line and next in performance to the Boomers. They outperform the Boomers on supplies. However, their Food performance fell below 100% as they were in the value shopping phase. Gen Xers range in age from 38 to 53. They already make and spend the most money. As they grow older, their children will start to move away from home and their focus will increasingly turn to their Pet Children. Expect their overall performance to continue above the 100% level and to ultimately surpass the Boomers.
  • Millennials Performance – Pet Products: 75.3%; Pet Food: 72.4%; Pet Supplies: 80.0%
    • The Millennials are widely touted as the future of the industry. This is ultimately true, but the future is still a ways off. The Millennials are currently 19 to 37 years old. They have a lot of pets, but their responsibilities are growing, and money is still in short supply. They continue to spend a lot on Supplies as they establish pet households and seek products that make Pet Parenting easier. There is also strong evidence that they are leading the way in each new food trend. One thing is certain. Value shopping is their golden rule, especially on the internet. They are 17 years away from occupying the highest income age group. Plus, they are having children later so the spending lift from children leaving will undoubtedly be delayed. They may be 20 years away from Pet Spending dominance.

A Final Word – In the 2017 mid-year update, Pet Products Spending belonged to the Gen Xers. They produced $2.33B of a $2.41B increase with a strong performance in both Food and Supplies. This year the honor should be shared between the Boomers and the Millennials. With a huge lift in Food, Boomers accounted for 85% of the spending increase in the 2nd half of 2017. Then the Millennials stepped up to provide 83% of the lift in the 1st half of 2018. Overall the Boomers won, with a $2.52B increase. The Millennials finished 2nd, +$2.0B but they win the consistency award as they spent more in both halves in both Food and Supplies. Note: An Honorable mention should go to the Silents, who also had a small lift in both halves in both segments. Overall, it was an incredible 12 months for Pet Products spending, up $5.3B.

             

 

 

 

 

U.S. Pet Services Spending (Non-Vet) $7.87B (↑$1.3B): 2018 Mid-Yr Update

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The US BLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2017 to 6/30/2018. In our analysis of Pet Supplies Spending we saw that it remained “gold”. Spending was up across virtually every demographic segment for the second consecutive year. Pet Food Spending was also strong for the year but growth had slowed significantly in the first half of 2018. Now we turn our attention to Pet Services. The Mid-year numbers show that spending in this segment was $7.87B, up $1.30B (+19.9%) from the previous year. This segment is known for consistent, albeit small increments of growth. In 2017 spending fell 4% at mid-year and was down 1% for the year. This was the first decline in any 12-month period in 4 years and the first annual decline since 2011. Then, driven by a spectacular 1st half of 2018, Services rebounded with literally the single biggest $ increase in history. This deserves a closer look. First, we’ll review recent Services spending history.

          Here are the Mid-Year 2018 Specifics:

  • Mid-Year 2018 vs Mid-Year 2017: ↑$1.30B (+19.9%)
    • Jul > Dec 2017: ↑$0.20B
    • Jan > Jun 2018: ↑$1.10B

Pet Services is by far the smallest industry segment. However, except for 2010 and 2011, the period immediately following the Great Recession, it had consistent annual growth from 2000 through 2016. Spending in Food and Supplies have been on a roller coaster ride during that period. Service Spending more than tripled from 2000 to 2016, with an average annual growth rate of 7.6%. Spending in the Services Segment is the most discretionary in the industry and is more strongly skewed towards higher income households. Prior to the great recession, the inflation rate averaged 3.9% with no negative impact. The recession affected every industry segment, including Services. Consumers became more value conscious, especially in terms of discretionary spending. Services saw a slight drop in spending in both 2010 and 2011, but then the inflation rate fell to the 2+% range and the segment returned to more “normal” spending behavior. In mid-2016 inflation dropped below 2% and continued down to 1.1% by the end of 2017. This was primarily due to increased competition from free standing businesses but also an increase in the number of Pet Stores and Veterinary Clinics offering pet services. While prices still went up slightly, there were deals to be had and consumers shopped for the best price. There was no change in purchase frequency. Consumers just paid less. There are 2 periods on the chart which best illustrate the impact of this behavior. In the 1st half of 2013, inflation fell to 0.7% and spending decreased by -$0.44B. In the first half of 2017, inflation dropped to a record low 0.4% and spending fell -$0.28B. Obviously, some inflation is necessary in Services. In the 2nd half of 2017 spending turned up again. That brings us to the huge $1.1B lift in 2018. This is unprecedented. Only increased purchase frequency and and/or deeper market penetration could have produced this spectacular increase.

Let’s take a closer look at some spending demographics – Age and Income.

In the graphs that follow we will compare spending for the Mid-year 12 months ending 6/30/18 to the previous period ending 6/30/17. In our graphs we will also include the 2017 yearend $pending. This will also allow you to see the spending changes in the 2nd half of 2017 and the 1st half of 2018.

The first graph is for Income, the single most important factor in increased Pet Spending, especially in Services. Here’s how you get the change for each half using the Over $70K group as an example:

  • Mid-yr Total Spending Change: $5.62B – $4.53B = Up $1.09B (Note green outline = increase; red outline = decrease)
  • 2nd half of 2017: Subtract Mid-17 ($4.53B) from Total 2017 ($4.82B) = Spending was up $0.29B in 2nd half of 2017.
  • 1st half of 2018: Subtract Total 2017 ($4.82B) from Mid-18 ($5.62B) = Spending was up $0.80B in 1st half of 2018.

  • Both the Over and Under $70K groups had a 12-month spending increase. However, Over $70K was responsible for 84% of the $1.3B national lift. The Under $70K group decreased spending in the 2nd half of 2017 so their overall increase was produced solely by a big lift in the 1st half of 2018.
  • The individual groups over $70K all showed growth in both halves. The over $150K had a minimal increase in the second half of 2017 but made up for it with a big lift in 2018. This group is also growing in CU’s, up +13.8%.
  • The lower income, $30>50K group had the only 12-month spending decrease, which was driven down by a drop in the 2nd half of 2017. The $50>70K group mirrored this pattern but their 2018 lift was enough to put them on the plus side. These groups caused the 2nd half spending drop in under $70K. Both had a big lift in Pet Food Spending during that time so they either found great values or cut back on discretionary spending.
  • Perhaps the most significant fact on the chart is somewhat “hidden”. If you look closely, you will see that every income group, from top to bottom, posted an increase in Services spending in the 1st half of 2018. In the industry segment that is most driven by income, this is a truly rare occurrence. Something was happening.

Now, Services’ Spending by Age Group.

  • The overall spending lift is being driven by the under 54 group, especially the 35>44-year olds. All of these groups had a small increase in the last half of 2017 followed by a big jump in spending in 2018.
  • The over 65 group also increased overall spending, but their lift occurred in the 2nd half of 2017. Spending actually fell in 2018. Retirees had a big lift in Pet Food spending in 2018 so the drop may be the result of trading $.
  • The 55>64-year-old Baby Boomers had the only decrease in Services spending. It was driven down by a sharp drop in the 2nd half of 2017. This corresponds with a movement to upgrade Pet Food by a substantial portion of this group. Their Services spending bounced back in the 1st half of 2018, but they may be in danger of losing the overall lead in Services spending to the 45>54-year olds. Their lead is down to $0.04B. ($1.69B to $1.65B)

Now let’s look at what is happening in Pet Services spending at the start of 2018 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 11 demographic categories. Remember, the increase in the 1st half of 2018 was $1.1B, much more than the $0.2B in the 2nd half of 2017.

The first thing that is readily apparent is that the increases dominate. The decreases are minor. In fact, in 5 demographic categories all segments increased Services spending. It is actually even better than that. Only 7 of 82 individual demographic segments spent less on Services in the 1st half of 2018. That means that 94% spent more. That is a strong indication that the Services segment is making a deeper penetration into the market. Further evidence is that Services spending increased or held their ground in all segments in these 4 critical categories:

  • Income
  • Race/Ethnic
  • Area (Rural>City)
  • CU Size

At the same time, the importance of high income to significant increases in Services spending is also right out front. The “winners” group is a virtual list of demographic groups with high income. Including:

  • $150+K Income
  • Mgrs & Professionals
  • 2 Earners
  • 35>44 year olds (#2 Income)
  • White, Not Hispanic
  • Advanced College Degree
  • Homeowner w/Mtge
  • Gen X (#1 income)

We also see a definite connection in some of the “losing” groups. Retirees, 65>74-year olds, Homeowners without mortgages and the Silent Generation are all related in that they are primarily older Americans.

There are 2 other winners that deserve some notice – Center City and Married Couples with an oldest child under 6. Both of these segments had the biggest $ increase in their category and are also the top performers in terms of share of spending vs share of CU’s. Both demonstrate the “convenience” appeal of Pet Services, even in the younger groups.

So, what happened to cause the record lift in Services spending in the 1st half of 2018 and what comes next? We have noted the number of outlets offering Pet Services has radically increased. This created a highly competitive market and the inflation rate dropped to near record lows. Today’s value conscious consumers saw that deals were available, and they took advantage of the situation. However, they didn’t increase the frequency of purchase. They just paid less. This drove overall Pet Services spending down in the 1st half of 2017. The segment started to recover in the 2nd half but not enough to prevent the first annual decrease in Pet Services spending since 2011. However, it was a start. In 2018, consumers started to recognize the convenience offered by more outlets. The latest big food upgrade was also winding down. The result was that Services started a deeper penetration into the market. Much of it was in their existing prime segments, but it also spread to some lower income groups. The result – a $1.1B explosion in Pet Services spending.

Will this continue? What can we expect in the 2nd half of 2018? We can’t say for sure, but inflation could be a factor. Services prices turned up sharply in May 2018, +2.5% in 1 month. By year end the CPI was up +3.4%. This is a pre-recession rate. The last time we saw this was 2011. At that time, post-recession, value driven consumers rejected it and spending fell -7.2%. High income groups may not be affected by the price increase. We’ll see if it impacted other segments and total Services $pending.