Spending, CPI, demographics of overall market

Petflation 2022 – March Update – Inflation Again Grows in All Segments

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Inflation continues to make headlines. There have been year over year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. In March the CPI was up 8.5% vs 2021, the biggest increase since 1981. Food at Home (groceries) has a similar story. Prices were up 10% over 2021, the biggest increase and the only double-digit percentage increase in any month since 1981. As we have seen in recent years, even minor price fluctuations can affect consumer pet spending, especially in the more discretionary pet segments. With that in mind, we will continue to publish monthly reports to track petflation as it evolves in the marketplace.

Total Pet prices were 4.1% higher in December 2021 than in December 2020, while the overall CPI was up 7.0%. In March 2022, Total Petflation was up +7.5% vs 2021 and the overall CPI was +8.5%. You can see that the gap has significantly narrowed. In December the rate of Petflation was 58.5% of the national number. In March it was 88.2%. This and future reports will include:

  • A rolling 24 month tracking of the CPI for all pet segments and the national CPI. The base number will be pre-pandemic December 2019 in this and future reports, which will facilitate comparisons.
  • Monthly comparisons of 22 vs 21 which will include Pet Segments and relevant Human spending categories. Plus
    1. CPI change from the previous month
    2. Inflation changes for recent years (20>21, 19>20, 18>19)
    3. Total Inflation for the current month in 2022 vs 2019
    4. Average annual Year Over Year inflation rate from 2019 to 2022
  • YTD comparisons
    1. YTD numbers for the monthly comparisons #2>4 above

In our first graph we will track the monthly change in prices for the 24 months from March 2020 to March 2022. We will use December 2019 as a base number in this and future reports so we can track the progress from pre-pandemic times through an eventual recovery. Inflation is a complex issue. This chart is designed to give you a visual image of the flow of pricing. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The current numbers plus those from 12 and 24 months earlier are included as are the yr-end numbers for 2020 & 2021.This will give you some key waypoints for comparisons.

The pandemic began in March 2020. At that time, you see that inflation was not an issue. There are 2 distinctly different patterns between the 2 Services segments and the 2 Products segments. Although there are some ups and downs, Veterinary and Services prices generally inflated after mid-2020, a pattern similar to the overall CPI. Food and Supplies prices generally deflated until late 2021. After that time, inflation took off. In March the rate of increase over the prior month slowed for Services and Supplies but accelerated for Food and Veterinary. Here are some things to note:

  • U.S. CPI – The inflation rate was below 2% through 2020. It turned up in January 2021 and continued to grow stronger through March 2022. 88% of the overall 11.9% increase since 2019 occurred in the last 15 months.
  • Pet Food – Prices stayed generally below December 2019 levels from April 2020 to September 2021, when they turned up. There was a sharp increase in December. 86% of the 5.4% total has happened since November.
  • Pet Supplies – Remember that Supplies prices were high in December 2019 due to the added tariffs. They had a “deflated” roller coaster ride until mid-2021 when they returned to December 2019 prices and essentially stayed there until 2022 when they turned sharply up reaching a new all-time pricing high in January, beating the 2009 record. They have continued to set new price records in February and now March.
  • Pet Services – Normally inflation is about 2+%. Perhaps due to closures, prices increased at a lower rate in 2020. In 2021 consumer demand increased but there were fewer outlets. Prices increased strongly in 2021 with the biggest lift coming in January>April. Inflation got even stronger in 2022 but the rate slowed a little in March.
  • Veterinary – Inflation has always been something that you can count on in Veterinary Services. Prices began moving up in March 2020 and grew consistently through the 2021 recovery. Then a pricing surge began in December which pushed them past the overall CPI with total inflation since 2019 reaching +14.6%.
  • Total Pet – The blending of the segment patterns made the Pet Industry appear calm compared to the overall market. That ended in December 2021 as prices surged for all segments. In March, Food & Vet were the drivers.

Next, we’ll turn our attention to the Year over Year inflation rate change for the month of March and compare it to last month, last year and to previous years. We’ve added some human categories to put the pet numbers into perspective.

Overall, Prices vs 2021 were up 8.5% vs 2021 with the Grocery increase now hitting double digits. There are some small positives. Only 5 of 9 categories had price increases over 1% from last month. It was 6 in February. Plus, the price for Haircuts & Other Personal Services was up 4.6% vs 2021 but actually down from February. There is a little hope.

  • U.S. CPI – Prices are up 1.3% from February. The targeted inflation rate is less than 2%. In March, prices were up 8.5%, more than 4 times higher than the “targeted” rate. Overall Inflation is getting worse.
  • Pet Food – Prices are up 2.3% vs February and 5.9% vs March 2021. They are being measured against a deflationary year, but that increase is almost triple the pre-pandemic 2.1% increase from 2018 to 2019.
  • Food at Home – Prices are up 1.5% from February. The increase from 2021 is 10%, which is the largest March increase and the only double digit monthly % increase for any month since 10.3% in March 1981. Inflation for this category since 2019 is still 10+% more than the national CPI.
  • Pets & Supplies – Prices were up 0.6% from their record in February, setting a new record. March prices are being compared to deflated prices in 2021 but the increase only trails Food at Home, Veterinary and the national CPI.
  • Veterinary Services – March prices are up an incredible 3.4% from February. This pushed them up 9.1% from 2021, more than twice the increase in past years. They also took over the top spot in the increase since 2019, +17.9%.
  • Medical Services – Prices sharply increased at the start of the pandemic in March 2020 but then inflation slowed and returned to a more normal rate in 2021 and 2022.
  • Pet Services – Inflation slowed in 2020 but began to grow in 2021 & 2022. Prices are up 0.3% from February and 5% from 2021, slowing slightly from a record 6.5% increase in February, but still above the increase of previous years.
  • Haircuts & Other Personal Services – Prices fell from February but remain higher than usual since 2020.
  • Total Pet – The inflation rate is getting larger and is now 5 times the rate of last year. Food & Veterinary are driving it up as it gets ever closer to the national CPI rate of increase. Inflation has caused problems in the past by reducing the frequency of purchase in Supplies, Services and Veterinary. Super Premium Food has been generally immune as consumers are used to paying big bucks and it is needed every day. We’ll see if consumers are still willing to pay the higher prices for more discretionary products and services at the same frequency as they did in the past.

Now here’s a look at Year to Date numbers. How does 2022 compare to previous years…so far?

The increase from 2021 to 2022 is the biggest for 7 of 9 categories. The average annual increase since 2019 is over 3% for all but Pet Food & Pet Supplies. This is due to deflation in 2021.

  • U.S. CPI – The current increase is double the average increase from 2019>2022, but over 4 times the average annual increase from 2018>2021. Inflation is a big problem that started recently.
  • Pet Food – Inflation is growing stronger, especially after deflation in 2021.
  • Food at Home – The 2022 YTD inflation beat the overall CPI. You can clearly see the impact of supply chain issues.
  • Pets & Pet Supplies – Prices have strongly turned up since the beginning of the year. Although the 2021>22 increase is being measured against a deflationary 2021, it is very significant and the highest of any Pet Industry segment.
  • Veterinary Services – Has the most inflation since 2019 and is the only segment on the chart in which the inflation rate has consistently grown each year throughout the pandemic and recovery. No matter what, just charge more.
  • Medical Services – Prices went up significantly at the beginning of the pandemic, but the rate has slowed since and has now essentially returned to pre-pandemic levels.
  • Pet Services – Inflation slowed a little in March after February’s largest year over year monthly increase in history. However, the current YTD increase remains 2nd only to 6.6% in 2009. Demand has grown for Pet Services while the availability has decreased, a formula for inflation.
  • Haircuts & Personal Services – The services segments, essential and non-essential were hit hardest by the pandemic. Now as consumers move closer to their normal patterns of spending, including value shopping, prices actually fell in March. The YTD inflation is still high but moving closer to a more normal rate.
  • Total Pet – When we first looked at the pandemic impact on Petflation. We saw basically two different patterns. Prices in the Services segments continued to increase, and the rate accelerated as we moved into 2021. The product segments – Food and Supplies, were on a different path. They generally deflated in 2020 and didn’t return to 2019 levels until mid-year 2021. Food prices began a slow increase, but Supplies remained stable until we neared yearend. In 2022, everything changed as Food and Supplies prices turned sharply up. In March, inflation in the 2 largest segments – Food and Veterinary, accelerated while it slowed in Supplies and Services. This pushed the YTD CPI increase vs 2021 for Total Petflation ever closer to the extraordinarily high rates in the overall market.

Inflation is radically increasing in the Pet Market. Will it impact spending? Let’s put it into perspective. The 5.8% YTD increase in Total Pet is far below the 10.3% record set in 2009 but almost 4 times larger than the 1.5% avg since then.

Although pet spending continues to move to higher income groups, the impact of inflation varies by segment. Supplies is the most affected. Many categories are commoditized and very price sensitive. Super Premium Food has become widespread because the perceived value has grown. Higher prices just push people to value shop. Veterinary prices have strongly inflated for years, resulting in a reduction in visit frequency. Spending in the Services segment is driven by higher incomes, so inflation is less impactful. We’ll just have to wait and see the impact of the latest surge in Petflation.

2020 Total Pet Spending was $83.74B – Where did it come from…?

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Total Pet Spending in the U.S. was $83.74B in 2020, a $5.31B (6.8%) increase from 2019. These figures and others in this report are calculated from data in the annual Consumer Expenditure Survey conducted by the US BLS. 2020 was a strong year for the industry, on the surface. However, when you look at each segment the pandemic caused considerable turmoil. Pet Food spending spiked as specific groups binge bought early in the year. The high prices of Supplies and the fact that many categories are discretionary, rather than necessary caused their $ to continue falling. Services was hurt the most as many outlets were subject to pandemic related restrictions and closures. Veterinary Services was deemed the other necessary pet expenditure by consumers so their $ surged. 2020 Pet Spending certainly deserves a closer look.

The first question is, “Who is spending most of the $83+ billion dollars?” There are of course multiple answers. We will look at Total Pet Spending in terms of 10 demographic categories. In each category we will identify the group that is responsible for most of the overall spending. Our goal was to find demographic segments in each category that account for 60% or more of the total. To get the finalists, we started with the biggest spending segment then bundled related groups until we reached at or near 60%.

Knowing the specific group within each demographic category that was responsible for generating the bulk of Total Pet $ is the first step in our analysis. Next, we will drill even deeper to show the best and worst performing demographic segments/groups and finally, the segments that generated the biggest dollar gains or losses in 2020.

In the chart that follows, the demographic categories are ranked by Total Pet market share from highest to lowest. We also included their share of total CU’s (Financially Independent Consumer Units) and their performance rating. Performance is their share of market vs their share of CU’s. This is an important number, not just for measuring the impact of a particular demographic group, but also in measuring the importance of the whole demographic category in Spending. All are large groups with a high market share. A performance score of 120+% means that this demographic is extremely important in generating increased Pet Spending. I have highlighted the 5 groups with 120+% performance.

The only group change from 2019 is that Rural was added to Suburban as the bigger Suburbs lost ground in 2020. There were changes in the numbers and rankings and only 5 made the 120%+ club, down from 6 in 2019. Higher Education and 35>64 yr olds dropped out while Everyone Works moved in. Married Couples made the biggest gain in share and performance while All Wage & Salary Earners had the biggest drops. In fact, their share fell below 60% and their performance was less than 100%. Higher Income remains the single most important factor in Total Pet Spending.

  1. Race/Ethnic – White, not Hispanic (87.3%) down from 87.6%. This is the 2nd largest group and has the largest share of Pet Spending. Their performance was essentially stable at 127.6% but they fell from #2 to #3 in terms of importance in Pet Spending demographic characteristics. Although this demographic, along with age, are 2 areas in which the consumers have no control, spending disparities within the group are enhanced by differences in other areas like Income, CU Composition and homeownership. There are also apparently cultural differences which impact Pet Spending. Asian Americans are first in income, education and spending but last in Pet Spending as a percentage of total spending – 0.37% vs a national average of 1.04%.
  2. Housing – Homeowners (83.3%) Controlling your “own space” has long been a key to larger pet families and more pet spending. 2020 was a bad year for renters (-$0.62B) but an even worse year for Homeowners w/Mtges (-$2.1B). Homeowners spent $5.92B more but the group’s performance fell from 127.7% to 126.6% because of more home owning CUs. They dropped from 3rd to 4th place in importance for increased pet spending. The homeownership rate is growing in the younger CUs but most of the pet spending lift in the group is coming from older people who are still working but have paid off their homes.
  3. # in CU – 2+ people (80.3%) up from 78.2%. Singles are now the only group with under 100% performance. In 2020 all CUs with 3 or less people spent less. The 2.1% gain in share and performance increase of 2+ CUs from 112.2% to 114.4% was entirely driven by +$7.7B from 4 person CUs and +$2.7B from the 5+ Person group.
  4. Area – Suburban & Rural (71.6%) Homeownership is high and they have the “space” for pets. The larger suburbs had a bad year so Rural was added to get to 60+% share of pet spending. This pushed performance up to 113.6% from 95.1%. Center City had an increase of $0.68B but their performance is by far the worst at 76.8%
  5. # Earners – “Everyone Works” (70.7%) up from 68.4%. These are CUs of any size where all adults are employed. This group’s share ranking stayed in 5th place. However, their performance increased from 117.0% to 123.0%. They joined the 120%+ club and are now the 5th most important category. CUs with 2 or more earners had a $5.0B increase. This further reinforces the tie between income and increased pet spending.
  6. CU Composition – Married Couples (64.7%) With or without children, two people, committed to each other, is an ideal situation for Pet Parenting. In 2020, they moved up from 10th to 6th in share of spending due entirely to CUs with an oldest child over 6. Those with a child over 18 had an especially good year, +$8.57B. The overall group’s performance skyrocketed from 124.3% to 133.4%, moving them up to 2nd place in importance.
  7. Income – Over $70K (64.3%) They maintained their share but their performance rating fell to 147.9% from 155.0%. However, CU income is still by far the single most important factor in increased Pet Spending. Spending was on a true roller coaster – Under $50K: +$2.98B; $50>100K: -$4.57B; $100>150K: +$8.45B; $150K>:-$1.55B. The key dividing line was $100K. The over $100K group now has 28.5% of CUs but accounts for 51.6% of Total Pet $.
  8. Age – 35>64 (63.2%) There was a clear divide within this group. The 35>54 yr olds spent $3.18B less while the 55>64 yr olds spent $6.36B more. They maintained share but their performance fell from 121.0% to 118.4%. They are now out of the 120+% club and they dropped from 6th to 8th in overall importance.
  9. Education – Associates Degree or Higher (61.3%) down from 68.4%. Higher Education level is usually tied to higher income and Pet spending. It can also be a key factor in recognizing the value in product improvements. 2020 largely threw this history out the window as those with less than a college degree led the way in spending in the necessary segments – Food and Veterinary. However, they did have a minor drop in Services $ and the biggest drop in Supplies $. Overall spending for the Assoc & Higher group fell -$2.33B and their performance fell precipitously from 123.1% to 107.0%, removing them from the 120%+ club. In 2020, Higher Education fell to next to last in importance in Pet Spending.
  10. Occupation – All Wage & Salary Earners (59.2%) – Their share fell sharply from 65.0% to 59.2%. Their drop in performance from 106.5% to 96.3% was even more significant as they are the only big group with performance below 100%. Service workers had a small, $0.3B increase but the overall increase was driven by Self-Employed, +$8.84B and Managers/Professionals, +$3.41B. Every other occupation and Retirees spent less. Low level, white collar workers had the worst year, with a spending decrease of -$3.56B. In 2020, “The Bosses” ruled in Pet Spending!

Total Pet Spending is a sum of the spending in all four industry segments. The “big demographic spenders” listed above are determined by the total pet numbers. The share of spending and performance of these groups varies between segments and in a few cases falls below 60%. We also altered the groups in some segments to better reflect where most of the business is coming from. There is no doubt that the pandemic caused some turmoil in Pet Spending,

The group performance is a very important measure. Any group that exceeds 120% indicates an increased concentration of the business which makes it easier for marketing to target the big spenders. Income over $70K is again the clear winner, but there are other strong performers. High performance also indicates the presence of segments within these categories that are seriously underperforming. These can be identified and targeted for improvement. The low performance by the Wage/Salary earners came as a result of the strong performance of Self-Employed.

Now, let’s drill deeper and look at 2020’s best and worst performing segments in each demographic category

Most of the best and worst performers are just who we would expect and there are only 6 that are different from 2018. Changes from 2019 are “boxed”. We should note:

  • Income is important in Pet Spending, which is shown by the 194.3% performance by the $100>149K> group. There was also a clear dividing line. Over $100K: 181.2%; Under $100K: 67.7%.
  • Occupation – “I’m the Boss” (Self-Employed & Mgrs/Professionals) The only occupations with 100+% performance.
  • Age – The 54>64 yr olds are Boomers that have the highest income and biggest families in their generation.
  • Region – With a strong year from Rural areas, the Midwest replaced the Northeast at the top.
  • CU Composition/Number – The importance of children was maintained, especially older ones and the performance of Married, Couple Only fell again. The “magic” CU number also moved up from 3 to 4.
  • Boomers moved back on top with their emotional binge food buying and Gen Z fell to the bottom – no surprise.

Most expected winners are still doing well. The “new” winners reflect the spending surge from the Boomers. In the next section we’ll look at the segments who literally made the biggest difference in spending in 2020.

We’ll “Show you the money”! This chart details the biggest $ changes in spending from 2019.

Lots of turmoil. There are 24 Winners and Losers. 6 segments held their spot from 2019 while 6 switched from winner to loser or vice versa. Overall, 75% were different from 2019.

  • Area Type – The big suburbs still have the biggest share of Pet $ (38.9%) but they flipped from 1st to last in 2020.
    • Winner – Rural – Pet Spending: $16.09B; Up $9.31B (+137.1%)                          2019: Suburbs 2500>
    • Loser – Suburbs 2500> – Pet Spending: $32.61B; Down -$3.54B (-9.8%)        2019: Center City
    • Comment – Spending in The Rural segment literally exploded. Center City also spent $0.68B more – a big change from their recent pattern. The downside came from the usually reliable Suburbs.
  • Occupation – Tech, Sales, Clerical flipped from 1st to last.
    • Winner –– Self-Employed – Pet Spending: $15.87B; Up $8.84B (+125.9%)                        2019: Tech, Sales, Clerical
    • Loser – Technical, Sales, Clerical – Pet Spending: $9.59B; Down -$3.56B (-27.1%)        2019: Mgrs & Professionals
    • Comment – In 2020 the “Bosses” ruled as Self-Employed & Mgrs/Professionals together spent $12.25B more.
  • Region – The 2019 winner and loser flipped places.
    • Winner – Midwest – Pet Spending: $25.27B; Up $8.65B (+52.0%)                                2019: Northeast
    • Loser – Northeast – Pet Spending: $12.61B; Down -$2.38B (-15.9%)                            2019: Midwest
    • Comment – In 2019 the Northeast had the only increase in Total Pet $. In 2020 they fell to the bottom. The Midwest made a huge comeback, but the West also spent more. They were the only regions to spend more.
  • CU Composition – Having children became more important as Married, Couple Only had another big $ decrease.
    • Winner –– Married, Oldest Child 18> – Pet Spending: $16.858; Up $8.57B (+103.3%)         2019: Singles
    • Loser – Married, Couple Only – Pet Spending: $21.20B; Down -$1.71B (-7.5%)                         2019: Married, Couple Only
    • Comment – Kids matter! Couples with an oldest child over 6 spent more but surprisingly, so did Single Parents.
  • Income – No repeats or flips here but the negative impact of the pandemic on the middle-income group is apparent.
    • Winner – $100 to $149K – Pet Spending: $23.37B; Up $8.45B (+56.6%)                                   2019: $150 to $199K
    • Loser – $70 to $99K – Pet Spending: $10.64B; Down -$3.52B (-24.9%)                                       2019: Under $30K
    • Comment – The $100-149K group had the biggest increase but spending flipped up or down by $50K income groups. <$50K Up; $50>100K Down; $100>150K Up; $150>200K Down; $200K> Up.
  • Housing – Homeowners w/o Mtge kept their spot at the top.
    • Winner – Homeowner w/o Mtge – Pet Spending: $28.81B; Up $8.02B (+38.6%)                   2019: Homeowner w/o Mtge
    • Loser – Homeowner w/Mtge – Pet Spending: $40.96B; Down -$2.10B (-4.9%)                       2019: Renter
    • Comment – Homeowners w/Mtge, the biggest spenders, had the biggest drop, but Renters again spent less.
  • # in CU – 2 People CUs continued their decline and stayed at the bottom.
    • Winner – 4 People – Pet Spending: $17.88B; Up $7.74B (+76.3%)                          2019: 1 Person
    • Loser – 2 People – Pet Spending: $28.43B; Down -$2.57B (-8.3%)                         2019: 2 People
    • Comment: Although 2 people CUs still spend the most, 34.0% of all Pet $, in 2020 the movement was to bigger CUs. 4 People led the way but 5+ Person CUs had the only other increase. 4+ People was the new magic number.
  • Age – A new winner and loser, with the Boomer surge coming to the forefront.
    • Winner – 55>64 yrs – Pet Spending: $24.15B; Up $6.36B (+35.8%)                             2019: 75+ yrs
    • Loser – 35>44 yrs – Pet Spending: $13.29B; Down $1.56B (-10.5%)                             2019: 45>54 yrs
    • Comment: There was another spending rollercoaster in 2020: <25: -$1.06B; 25>34: +$2.56B; 35>54: -$3.1B; 55>74: +$7.38B; 75+: -$0.48B.
  • Generation – The Generations flipped at the top and bottom of the Total Pet spending change ladder.
    • Winner – Baby Boomers – Pet Spending: $34.85B; Up $6.11B (+21.3%)                               2019: Gen X
    • Loser – Gen X – Pet Spending: $23.96B; Down -$1.79B (-7.0%)                                               2019: Baby Boomers
    • Comment – Boomer $ spiked in Food & Veterinary while the Gen X growth ended largely due to a drop in Food $.
  • Education – BA/BS stayed at the bottom while those without a College degree took over the top spot.
    • Winner – Less than College Grads – Pet Spending: $39.68B; Up $6.02B (+17.9%)         2019: Adv. College Degree
    • Loser – BA/BS Degree – Pet Spending: $22.56B; Down -$1.26B (-5.3%)                              2019: BA/BS Degree
    • Comment – Largely due to changes in Food spending patterns, Education’s importance declined sharply in 2020.
  • Race/Ethnic – White, Not Hispanics (87.3% of all Pet $) won again.
    • Winner – White, Not Hispanic – Pet Spending: $73.09B; Up $4.36B (+6.3%)               2019: White, Not Hispanic
    • Loser – Asian American – Pet Spending: $1.59B; Up +$0.06B (+3.8%)                            2019: African American
    • Comment – While we had a usual winner, it’s important to note that all groups spent more on their pets in 2020.
  • # Earners – 2 Earners have the biggest share of Pet $ (45.1%) and kept their spot at the top.
    • Winner – 2 Earners – Pet Spending: $37.75B; Up $3.80B (+11.2%)                                  2019: 2 Earners
    • Loser – No Earner, Single – Pet Spending: $4.82B; Down -$1.10B (-18.5%)                  2019: 1 Earner, 2+ CU
    • Comment – While 2+ Earner CUs had the biggest increases, only No Earner, Singles spent less in 2020.

We’ve seen the best overall performers and the “winners” and “losers” in terms of increase/decrease in Total Pet Spending $ for 12 Demographic Categories. Now, here are some segments that didn’t win an award, but they deserve….

HONORABLE MENTION

5 of the 6 are new to the list. Let’s start with Single Parents. They are the group with the most financial pressure. Their spending increase of $0.74B (+48.1%) is quite an accomplishment. Next in line is 5+ Person CU’s. 2020 was a year for bigger CUs. They finished 2nd to 4 Person CUs. 2020 was largely focused on the importance of higher incomes but there were some exceptions. The low income $30>39K group also had a significant increase in spending, +$1.29B (+25.5%). We have already noted that all Racial/Ethnic groups increased spending but African Americans had the only double digit percentage increase at +21.9%. Millennials are the only repeat on the list as their spending increase was 2nd only to the big surge by Boomers. While Self-Employed clearly won the occupational battle, Managers & Professionals finished a strong second and inspired the creation of the “I’m the Boss” grouping.

Summary

To properly review 2020, we must put it into context with recent history. Total Pet Spending reached $78.60B in 2018, a $14.28B, 22.2% increase from 2014. However, it was not a steady rise, Total spending actually fell in 2016 and each segment had at least one down year. There were a number of factors driving both the growth and tumult within the industry. Two big positives were the movement to super premium pet foods and the rapid expansion of the number of outlets offering pet services. On the downside were value shopping, trading $ between segments and outside influences like the FDA dog food warning and tariffs. Pricing, inflation/deflation was also a negative/positive factor in some cases.

In 2019, the industry had another small decrease, -$0.16B (-0.2%) which was largely driven by a huge drop in spending in Supplies caused by Tarifflation. This affected virtually every demographic segment and caused Supplies $ to fall below 2014. Services spending also fell slightly as consumers value shopped. The good news was Pet Food bounced back from the impact of the 2018 FDA warning to reach a new record high. Veterinary $ also increased 2.7%. Unfortunately, this was entirely due to a 4.1% increase in prices. The amount of Vet Services actually decreased.

That brings us to 2020 and the Pandemic. This caused a lot of turmoil. The effect was positive for Food and Veterinary, especially Food. Out of fear of possible shortages, many Pet Parents binge bought Pet Food. Spending also increased considerably in Veterinary, as consumers focused on their Pets’ needs. The more discretionary segments suffered. With continued high prices, Supplies continued their widespread decline. Services had by far the biggest negative impact from the pandemic as many outlets were subject to closures and restrictions.

In the best/worst performing segments, Boomers took back the top spot, but spending moved towards larger 4 Person CU’s and a more rural environment in the Midwest. It was another “booming” year for Boomers.

The biggest $ changes saw more turmoil than in 2019. 6 segments held their position, compared to 9 in 2019, while 6 switched from 1st to last or vice versa, compared to 4 in 2019. Many winners were the “usual suspects” but there were some surprise winners with huge increases: < College Grads, Self-Employed, Rural, 4 Person CUs, Married, w/Child 18>. The 55>64 yr-old Boomers are not a surprise winner. However, a closer examination shows that many surprises have close ties to this group. To better understand this, let’s look closer at the Rural Segment – avg age 56 – 45% H/O w/o Mtge. Farms are in Rural areas and up to 25% of all Self-Employed businesses are non-corp. farms. Farmers avg age is 57. The median income for commercial family farms is $164K. Rural residents are also 50% less likely to be a college grad. Areas with low population have bigger CUs and more pets, but also have less access to retail stores, so they are more likely to fear product shortages. This example illustrates how the surprises can be connected to each other and to more normal winners like the 55>64 yr old Boomers. We will continue our analysis of 2020 Pet $ by drilling down into the individual segments.

But before we go…The Ultimate Total Pet Spending CU in 2020 consists of 4 people – a married couple with a child over 18. They are in the 55 to 64 age range. They are White, but not Hispanic. At least one graduated from college. They both work in their own business and earn $100>149K. They paid off the mortgage on their house located in the rural Midwest

Retail Channel Monthly $ Update – January Final & February Advance

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The Retail recovery has been generally successful, but now, our attention has turned to an unexpected factor also attributed to the pandemic – extreme inflation. Since this can affect retail sales, we will continue to track the retail market with data from two reports provided by the Census Bureau and factor in the CPI from US BLS.

The Census Bureau Reports are the Monthly and the Advance Retail Sales Reports. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – about 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

We begin with the Final Retail Report for January and then move to the Advance Report for February.  We will now compare 2022 to 2021, 2020 and 2019. In both reports we will show both the actual and the “real” change in $ as we factor inflation into the data.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports, and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2021, 2020 and 2019.
  • Current YTD change – % & $ vs 2021, 2020 and 2019 (In the Jan. Final, YTD is unnecessary, so we add the Avg chge)
  • Monthly and Year To Date $ will also be shown for each group/channel

First, the January Final. Retail hit bottom in April 2020 but began recovery. The recovery strengthened in 2021 and became widespread. Total Retail $ broke the $700B barrier for the 1st time in December. As usual, $ dropped from December but 2022 started strong. Here are the major retail groups. (All $ are Actual, Not Seasonally Adjusted)

The January Final is $5.5B more than the Advance Report. Only 1 group was down. Specifically: Restaurants: -$0.3B; Auto: +$1.7B; Gas Stations: +$0.2B; Relevant Retail: +$3.9B. The normal big drop in retail sales from December is readily apparent but it is less than in past years. The recovery for Restaurants and Gas Stations is late and still surging. All groups have now been positive vs past years for 8 consecutive months. Now, let’s look at the “Real” January lift, factoring in inflation. The Jan 22 to Jan 21 inflation was 7.5% overall. That would put the “real” increase for Total Retail at +5.9% (44% of 13.4%); Restaurants – Inflation = 6.4%. Real Increase: 18.0% (73.8%); Auto – New & Used Vehicle Inflation = 23.1%. It’s likely that sales were down as much as -10%; Gas Stations – Gasoline Inflation = 40.0%. Real Change: -6.7%. Relevant Retail – Inflation = 7.5%. Real Increase: 1.9% (20.2%). Inflation is a major problem.

Now, let’s see how some Key Pet Relevant channels did in January.

Overall – You see the importance of the holiday buying surge to these channels as all were down vs December and only the most essential channels – Supermarkets and Drug Stores had less than double digit decreases.

  • Building Material Stores – Their amazing lift has slowed in the winter months, especially in Farm Stores, which had the only decrease vs January 2021. Most of the increase from 2019 for both Home Ctr/Hdwe and Farm Stores came from the 20>21 lift. Home Ctr/Hdwe $ continued to grow but Farm Stores just held their ground. The January YOY inflation for Tools, Hdwe, Outdoor Equip/Supp was 10.7% That makes the January “real” numbers:

Home Ctr/Hdwe: +10.9%, Real: +0.2%; Farm Stores: -0.05%, Real: -10.8%

  • Food & Drug – Both of these channels are truly essential. Except for the food binge buying in the early part of the pandemic, they tend to have smaller fluctuations in $. Supermarkets have had stronger growth since 2019. Much of that is due to more families choosing to cook at home. Here are the real January numbers which may be a surprise. The inflation rate for Food at Home in January was 7.4%. Prices for Drugs (Rx & OTC) were up only 1.3%. The YOY growth was

Supermarkets: +7.8%, Real: +0.4%; Drug Stores: +9.1%, Real: +7.8%

  • Sporting Goods Stores – Like Hardware/Farm stores, they benefited from the pandemic in that consumers turned to self-entertainment, especially sports & outdoor activities. They had a huge drop from December but managed to stay at the extraordinarily high 2021 level. The high demand has pushed the inflation rate for Sporting Goods to 8.2%. There was literally no $ growth from January 2021 to 2022. Considering inflation, that equates to an -8.2% drop in sales.
  • General Merchandise Stores – $ in all channels fell substantially from December but were up slightly from January 2021. SuperCtrs/Clubs have a higher percentage of groceries which makes for more frequent visits and generally higher numbers, including growth rate. Discount Dept Stores were struggling before COVID but had a strong 2021. Using the overall inflation rate of 7.5%, here are the January numbers

SupCtr/Club: +4.5%, Real: -3.0%; $/Value Strs: +2.5%, Real: -5.0%; Disc. Dept. Strs: +1.8%, Real: -5.7%

  • Office, Gift & Souvenir Stores – These non-essential stores started to recover in the spring of 2021, but they are still not there yet. Sales are up vs January 2021, but every other measurement is negative, including vs 2019. The available inflation number most appropriate for them is “limited” as it cuts out food, energy, shelter and used vehicles – +5.1%. Their sales were +3.1% so real sales were actually down -2.0%.
  • Internet/Mail Order – The sales growth of the undisputed “hero” of the Pandemic is slowing as they were up 13.6% from 2021, slightly slower than their average growth rate of 17.3%. With inflation at 7.5%, their real growth is 6.1%.
  • A/O Miscellaneous – This is a group of specialty retailers. Pet Stores are 22>24% of total $. In May 2020 they began their recovery which reached a record level by December 2021 as annual sales reached $100B for the first time. January $ are up 22.4% from 2021. Using the 5.1% “limited” inflation rate, their real sales are +17.3%. However, by any measure, they are the percentage leader in January growth. Take note: In January 2022, this group, of which Pet Stores are an important and growing segment, beat the growth rate of Internet/Mail Order over both last year and since 2019.

Inflation is an important factor. In actual $, 9 of 11 channels increased sales over January 2021. However, when you factor in inflation, including the rate most in tune with each Channel’s offerings, the number with any “real” growth falls to 5. Until things change, inflation will be a big part of retail sales discussions. Now, the Advance numbers for February.

We have had 2 straight memorable years. 2020 saw the 2 biggest monthly drops in history but Total Retail finished by reaching $600B for the first time in December. In 2021, the recovery strengthened with all big groups positive in all measurements vs 2019 & 2020 for the final 7 months. Total Retail reached $713B in December and broke the $7T barrier for the year. Relevant Retail was also strong as annual sales reached $4T but in fact, all big groups set annual sales records in 2021. As usual, sales fell in January from their December peak and driven down by Relevant Retail, Total Retail $ continued to decline in February. In virtually every year, February is the low point for retail sales.

Overall – The only negative numbers are vs January and not for all groups. We should also note that the February sales patterns since 2019 look normal for Total Retail, Relevant Retail and Auto with annual increases. Remember, February 2020 was pre-pandemic and by February 2021, only Restaurants and Gas Stations had not begun a strong recovery.

Total Retail – January Sales set a record beating the 2021 record by 13.4%. February was even better, breaking the $500M barrier for the 1st time and beating the 2021 record by 17.7%. YTD numbers are up 15.5%, with an annual growth rate since 2019 of 9.0%. However, 59% of the growth since 2019 occurred from 2021 to 2022 which brings inflation into the conversation. The inflation rate for February 2022 vs 2021 was 7.9%, even higher than January. YTD prices are up 7.7%. Here are the numbers. February: +17.7%, Real: +9.8% (55.4%); YTD: +15.5%, Real: +7.8% (50.3%). Inflation is a big factor, but real growth is still strong.

Restaurants – They were hit hard by the pandemic and didn’t truly start to recover until March 2021. However, sales in 7 of the last 8 months of 2021 exceeded $70B and 2021 was the biggest year in history, $821B. January sales fell from December but turned up in February. This happens about half of the time as these 2 months compete for the low point in Restaurant sales. Their February sales pattern clearly reflects their late recovery, especially from a $12B drop in 2021. YTD sales are up an average of 5.1% since 2019, becoming more normal. Inflation for Food away from home in February was 6.8%. YTD, it is 6.6%. Here is real growth. February: +33.0%, Real: +26.2% (79.4%); YTD: +28.6%, Real: +22.0% (76.9%) This is by far the best performance of any group and significantly improves the Total Retail numbers.

Auto (Motor Vehicle & Parts Dealers) – This group actively worked to overcome the stay-at-home attitude with great deals and a lot of advertising. They finished 2020 up 1% vs 2019 and hit a record $1.54T in 2021. In January, sales fell but then turned up in February, the usual pattern in a normal year. Their YTD growth rate since 2019 is 10.4%, the highest of any big group. But what about inflation? The overall inflation rates of Feb: 7.9% and YTD: 7.7% would produce real increases of Feb: +9.7%; YTD: +7.7%. However, the inflation rates for new & used vehicles, which account for most of the sales in this group, were Feb: +23.5%, YTD: +23.3%. This would create a real drop in sales of Feb: -5.9%, YTD: -8.0%. It seems likely that there is an ongoing drop in the actual amount sold in this group which is tied to extreme inflation.

Gas Stations – Gas Stations were also hit hard. If you stay home, you drive less and obviously need less gas. This group started recovery in March 2021 and reached a record $588B for the year. January sales fell -5.1% from December and February sales also dropped slightly. However, they were up 36.6% vs 2021. Gasoline inflation is in all the headlines so let’s get right to the numbers. Gasoline inflation vs 2021 for February is 38% and YTD is 39% which generates the following. February: +36.6%, Real: -1.4%; YTD: +34.9%, Real: -4.1%. While the gap is narrowing, extraordinarily high prices are hindering growth. People are ready to get out and about, but high gas prices are causing them to reconsider.

Relevant Retail – Less Auto, Gas and Restaurants – This the “core” of U.S. retail and accounts for 60+% of Total Retail Spending. There are a variety of channels in this group so they took a number of different paths through the pandemic. However, their only down month was April 2020. They finished 2020, up +7.1% and 2021 got even better as they reached a record $4.47T. They have led the way in Total Retail’s recovery which became widespread across the channels. In January and February sales fell from the previous month but this is the normal pattern. Sales hit bottom in February then begin a Spring lift. Both January & February set new monthly $ records and the YTD annual growth rate is 9.0% with a relatively normal growth pattern. Although over 40% of the increase since 2019 occurred this year. That says we should look at the impact of inflation. We’ll use the overall inflation rates: February: 7.9%, YTD: 7.7%. February: +12.8%, Real: +4.9% (38.3%); YTD: +11.1%, Real: +3.1% (27.9%). Although this is significantly better than January when real growth was only 0.7%, it is still concerning when only 1/3 of the growth in this big group is real.

Gas Stations are unquestionably the inflation loser but now Relative Retail and Auto, which had the strongest recovery from COVID are starting to feel the effect of strong inflation. Next, we’ll drill down to look at what is happening in the individual retail channels. Remember, the channels in the chart are less defined than in the Final Monthly reports and we will look across the whole market, not just pet relevant outlets.

  • Relevant Retail: Feb: +12.8%, Real: +4.9%; YTD: +11.1%, Real: +3.4%. 9 of 11 channels were down vs January but all were up vs February 2021. In fact, 10 of 11 were up in all measurements vs 2019>2021. It was a record month.
  • All Dept Stores – This group was struggling before COVID, and the pandemic hit them hard. They began to recover in March 2020, and they have continued to grow through February. The most appropriate inflation rate to use for them is less Food, Energy, Shelter & used vehicles which are Feb: 5.3%, YTD: 5.1%. That puts their numbers at Feb: +22.4%, Real: +17.1%; YTD: +16.3%, Real: +11.2%. Their recovery is getting stronger by any measure.
  • Club/SuprCtr/$ – They fueled a big part of the overall recovery because they focus on value which has broad consumer appeal. Inflation is a big factor in their current numbers as their lift has slowed at least temporarily. Using the national CPI, Feb: +10.9%, Real = +3.0%, YTD: +7.4%, Real: -0.3%
  • Grocery – These stores are the most essential and depend on frequent purchases so except for the binge buying in 2020, their changes are generally less pronounced. However, inflation has also hit Groceries, 8.6% in February and 8.0% YTD. This is the biggest increase since 1981. February: +8.4%, Real = -0.2%; YTD: 8.0%, Real: 0.0% – No Change
  • Health/Drug Stores – At least the drug stores in this group are essential, but consumers visit far less frequently than Grocery stores. Their February sales actually dropped in 20>21 but most of their COVID ride has been rather calm. Using the CPI for Rx & OTC drugs (Feb: 2.5%, YTD: 1.9%) their numbers are: Feb: +8.7%, Real: +6.2%; YTD: +8.8%, Real: +6.9%
  • Clothing and Accessories – They were also nonessential and what you were wearing didn’t matter when you stayed home. That changed in March 2021 and consumers’ pent-up needs caused explosive growth which has continued through February. Apparel inflation is Feb: 6.6%, YTD: 6.0%. Their $ are Feb: +31.0%, Real: +24.4%; YTD: +25.8%, Real: +19.8%
  • Home Furnishings – They were also less impacted by COVID. Sales dipped Mar>May in 2020. Then as consumers’ focus turned to their homes, furniture became a priority. Inflation on Furniture is extremely high, 17.1% for both February and YTD. That causes a big turnaround in their numbers. Feb: +7.4%, Real: -9.7%; YTD: +4.4%, Real: -12.7%
  • Electronic & Appliances – Look at the graph. This channel has problems beyond the pandemic. Sales fell in Apr>May of 2020 and didn’t reach 2019 levels until March 2021. Right now, their sales are stagnated. We’ll wait and see if they have a yearend lift. We’ll use the “limited” CPI: Feb: 5.3%, YTD: 5.1%. Feb: +2.6%, Real: -2.7%; YTD: -0.4%, Real: -5.5%.
  • Building Material, Farm & Garden & Hardware –They truly benefitted from the consumers’ focus on home. Their spring lift has become almost year-round and it’s ready to start again. The CPI for Hdwe & Outdoor is Feb: 10.6% YTD: 10.7%. Here are their February numbers. Feb: +14.9%, Real: +4.3%; YTD: +12.0%, Real: +1.3%.
  • Sporting Goods, Hobby and Book Stores – Consumers turned their attention to personal recreation and sales in Sporting Goods outlets took off. Book and Hobby Stores recovery was slower. It appears that the YTD lift has slowed in 2022. The product groups in these outlets have radically different CPIs so using the “limited” inflation version seems to be the best choice. Feb: 11.6%, Real: 5.3%; YTD: 5.7%, Real: 0.6%.
  • All Miscellaneous Stores – Pet Stores have been a key part of the strong and still growing recovery of this group. They finished 2020 +0.9% but sales took off in March 21, setting a new monthly record in December. The growth continues in 2022 as they are 2nd to Clothing in February & YTD lift. Since 2019 their growth is 2nd to NonStore. The “limited” CPI also seems right for this group and generates these great numbers. Feb: +24.6%, Real: +19.3%; YTD: +21.2%, Real: +16.1%
  • NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV. The pandemic accelerated the movement to online retail. They ended 2020 +21.4%. The growth continued in 2021 and in December monthly sales exceeded $100B for the 1st time and they broke the $1 Trillion barrier in annual sales. Growth is a little slower in 2022 but still strong. Using the national CPI, their latest numbers are Feb: +13.9%, Real: +6.0%; YTD: +14.3%, Real: +6.7%

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded with their regular store sales.

Recap – 2020 was quite a year, with the trauma of April & May followed by the triumph of breaking $600B for the first time in December. 2021 was even more memorable as it produced record sales for all major groups and Total Retail exceeded $7T for the 1st time. Relevant Retail was the major driver in this recovery. Since May of 2020 their sales have exceeded past years in all measurements, and they reached $4.47T in 2021. The recovery was widespread as all but 2 groups on our Advance Chart set sales records in 2021. 2022 began pretty normally for Relevant Retail as sales fell from December but exceeded 2021. The big change was that inflation that began in late 2021 hit levels not seen in decades and came to the forefront of every conversation. As we saw in our analysis, it affected virtually every channel and even turned 4 channels from positive to negative. This will not go away quickly and if it continues or worsens it will ultimately result in consumers buying less, ending retail growth by any measurement. We will continue to monitor the situation.

 

 

“Petflation” 2022 – February Update – Inflation Surges in All Segments

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Inflation continues to make headlines. There have been year over year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. Just recently it was announced that Food at Home (groceries) prices were up 8.6% over 2021, the biggest increase since 10.7% in 1981. This month’s huge increase is only in 4th place with 2nd place going to 1979, +13.9% and the top spot going to 1974, +22.3%. By the way, the average interest rate for a 30 year fixed rate mortgage in 1981 was 16.6%. As bad as things look right now, they can get much worse. As we have seen in recent years, even minor price fluctuations can affect consumer pet spending, especially in the more discretionary segments. With that in mind, we will initiate monthly reports to track petflation as it evolves in the marketplace.

Total Pet Products & Services prices were 4.1% higher in December 2021 than in December 2020. That’s high, but still much better than the overall CPI increase of 7.0%. We’ll start tracking 2022 in greater detail. Each report will include:

  • A rolling 24 month tracking of the CPI for all pet segments and the national CPI. The base number will be pre-pandemic December 2019 in this and future reports, which will facilitate comparisons.
  • Monthly comparisons of 22 vs 21 which will include Pet Segments and relevant Human spending categories. Plus
    1. CPI change from the previous month
    2. Inflation changes for recent years (20>21, 19>20, 18>19
    3. Total Inflation for the current month in 2022 vs 2019
    4. Average annual Year Over Year inflation rate from 2019 to 2022
  • YTD comparisons
    1. YTD numbers for the monthly comparisons #2>4 above

In our first graph we will track the monthly change in prices for the 24 months from February 2020 to February 2022. We will use the December 2019 as a base number in this and future reports so we can track the progress from pre-pandemic times through an eventual recovery. Inflation is a complex issue. This chart is designed to give you a visual image of the flow of pricing. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The current numbers plus those from 12 and 24 months earlier are included as are the yr-end numbers for 2020 & 2021.This will give you some key waypoints for comparisons.

You immediately see a distinct difference in patterns between the 2 Services segments and the 2 Products segments. While there were some dips and differences, Veterinary and Services prices generally inflated during the whole 2-year period with an accelerated rate in 2021, a pattern similar to the overall CPI. Food and Supplies were generally deflated

below December 2019 prices until mid-year 2021. At that time, Food turned slowly up and Supplies returned to 2019 levels. In December inflation accelerated for all segments but Supplies, which turned sharply up in 2022. In the 1st two months of 2022 inflation rates continue to grow nationally and for all pet segments. Here are some things to note:

  • U.S. CPI – The inflation rate was below 2% through 2020. It turned up in January 2021 and continued to grow stronger through February 2022. 87% of the overall 10.4% increase since 2019 occurred in the last 14 months.
  • Pet Food – Prices stayed generally below December 2019 levels from April 2020 to September 2021, when they turned up. There was a sharp increase in December which has grown larger through February.
  • Pet Supplies – Remember that Supplies prices were high in December 2019 due to the added tariffs. They had a “deflated” roller coaster ride until mid-2021 when they returned to December 2019 prices and essentially stayed there until 2022 when they turned sharply up reaching a new all-time pricing high in January, then again in February, breaking the old record which was set way back in September 2009.
  • Pet Services – A normal inflation rate is about 2+%. Despite or maybe because of closures, price increased at a lower rate in 2020. In 2021 consumer demand increased but there were fewer outlets. Prices increased strongly in 2021 with the biggest lifts coming in the 2nd and 4th In 2022, inflation has grown even stronger.
  • Veterinary – Inflation has always been something that you can count on in Veterinary Services. Prices were flat in February 2020 (amazing) but began moving up in March and grew consistently through the 2021 recovery. A pricing surge that started in December allowed them to beat the overall CPI with an inflation rate of +10.8%.
  • Total Pet – You can see that the blending of the segment patterns made the Pet Industry look very price calm compared to the overall market. That ended in December 2021 as prices surged up in all segments.

Next, we’ll turn our attention to the headlines, which largely focus on the Year over Year inflation rate change for the month. We’ll do a little “catch up” as this report will show comparisons for both January and February. We’re also going to look a little deeper to see how the recent numbers compare to the past, including:

  • Vs last month
  • 21>22
  • 20>21
  • 19>20
  • 18>19
  • Tot 19>22
  • Avg 19>22

We also included some “human” categories that can be compared to a pet segment. First, a look at January!

The inflation rate from January 2021 was large and growing significantly for all pet segments. We should also note that it is getting significantly worse as prices were up over 1% from December for 6 of 9 categories.

  • U.S. CPI – Through the pandemic and early recovery, inflation remained at or near normal levels. In 2021 and now 2022, inflation accelerated, resulting in increases not seen in decades.
  • Pet Food – Inflation is the lowest in this segment and only about 1/3 the rate of human groceries. Note the every other year up/down pattern. Because of the size of the Food segment, you see a similar pattern in Total Pet. The 2.7% lift is small vs 2021 but it is larger because it is going against deflated numbers in 2021.
  • Food at Home – You can see the low pre-pandemic inflation rate (normal) which turned sharply up in the pandemic and continues to accelerate. It is now 10 times higher than “normal”. It is largely being driven by shortages due to supply chain problems.
  • Pet Supplies – Prices surged in January to a new all-time record high. (beating Sept 2009). However, we should put this increase into perspective as it comes vs a period of strong deflation
  • Veterinary – Veterinary inflation had slowed before the pandemic, but it returned to more normal high levels. It is high and growing so much that the increase since 2019 is 27% greater than that of the national CPI.
  • Medical Services – Inflation spiked in 2020 but has returned to a more normal rate, well below Veterinary.
  • Pet Services – With closures and consumers’ DIY attitude in the pandemic, demand slowed as did inflation. That ended in 2021 as prices started up again. In January, the price increase vs 2021 was the biggest of any pet segment.
  • Haircuts & Personal Services – Inflation was consistent pre-pandemic. It has grown about 50% in 2021 and 2022.
  • Total Pet – Pre-pandemic, Total Pet inflation was above the national average. The deflation in the products segments drove the inflation rate for Total Pet down. However, all segments have now turned sharply up so the inflation rate is 4 times higher than it was just 1 year ago.

We have seen that prices increased strongly in January vs December producing year over year numbers that are now concerning in the Pet Industry as well as the overall market. Let’s look at February.

As you can see, a bad situation in January, got even worse in February. Prices vs February 2021 were up 7.9% overall with the Grocery increase being the largest since 1981. Again 6 of 9 categories had price increases over 1% from last month, and the increases were generally larger than the January over December increases.

  • U.S. CPI – Prices are up 0.9% since January. The targeted inflation rate is less than 2%. In February, prices were up 7.9%, basically 4 times higher than the “targeted” rate.
  • Pet Food – Prices are up 1.1% vs January and 3.7% vs February 2021. Granted, they are being measured against a deflationary year, but that increase is more than double the pre-pandemic increase from 2018 to 2019.
  • Food at Home – As we said earlier, the year over year increase in February is the largest since 10.7% in 1981 but only 40% of the 22.3% increase in 1974. Things are bad but could get a lot worse. The inflation for this category since 2019 has now increased 10% more than the national CPI.
  • Pets & Supplies – Prices were up 2.3% from their record in January, setting a new record. February prices are being compared to deflated prices in 2021 but the increase is still high, only trailing Food at Home and the national CPI.
  • Veterinary Services – February 2020 was still pre-pandemic. You can see that inflation then was at more normal levels, about twice the national CPI. It then increased to a new higher level and stayed there. However, in February it fell to 2nd place in the overall increase since 2019 as it now trails Haircuts and Other Personal services.
  • Medical Services – Prices sharply increased in pre-pandemic February 2020 but then inflation slowed and has returned to a more normal rate in 2020. Prices were up 0.4% from January, the smallest increase for any category.
  • Pet Services – While inflation slowed during the pandemic and early recovery, it is spiking now – Up 1.3% from January and 6.5% from 2021, the biggest increase in history and almost triple the rate of the previous 2 years.
  • Haircuts & Other Personal Services – This category is obviously important to consumers and they will pay the price.
  • Total Pet – The inflation rate is getting larger and is now 5 times the rate of last year. Only Food is keeping it down as it gets closer to the national CPI rate of increase. Inflation has caused problems in the past by reducing the frequency of purchase in Supplies, Services and Veterinary. Super Premium Food is generally immune as consumers are used to paying big bucks and it is needed every day. We’ll see if consumers are still willing to pay the higher prices for more discretionary products and services at the same frequency as they did in the past.

Now we’ll use the same chart format to look at Year to Date numbers – what does January + February add up to and how does 2022 compare to previous years…so far?

The strong current increase in inflation seen in January and February is reflected in YTD numbers. The increase from 2021 to 2022 is the biggest for 7 of 9 categories. The average annual increase since 2019 is over 3% for all but Pet Food & Pet Supplies. This is due to deflation in 2021.

  • U.S. CPI – The current increase is double the average increase from 2019>2022, but over 4 times the average increase from 2018>2021. Inflation is a big problem that started recently.
  • Pet Food – Inflation is growing stronger, especially after deflation in 2021.
  • Food at Home – Thanks to February, the 2022 YTD increase in prices surpassed that of the overall CPI. You can clearly see how supply chain issues have grown more impactful on prices.
  • Pets & Pet Supplies – Prices have strongly turned up since the beginning of the year, breaking their all-time record set 13 years earlier. Although this year’s increase is being measured against a deflationary 2021, it is very significant and in 3rd place, trailing only Food at Home and the national CPI.
  • Veterinary Services – This chart clearly shows that the inflation rate has consistently grown each year throughout the pandemic and recovery. Regardless of the circumstances, just charge more.
  • Medical Services – Prices went up significantly just before the pandemic, but the rate has slowed since and is now essentially returned to pre-pandemic levels.
  • Pet Services – February 2022 was the largest year over year monthly increase in history and now has helped produce a YTD increase that is 2nd only to 6.6% in 2009. Demand has grown for Pet Services while the availability has decreased, a formula for inflation.
  • Haircuts & Personal Services – The services segments, essential and non-essential were hit hardest by the pandemic. Now as consumers move closer to their normal patterns of spending, the segment is not prepared so the increased demand is driving prices up at an astounding rate.
  • Total Pet – When we first looked at the pandemic impact on Petflation. We saw basically two different patterns. Prices in the Services segments continued to increase, and the rate accelerated as we moved into 2021. The product segments – Food and Supplies, were on a different path. They generally deflated in 2020 and didn’t return to 2019 levels until mid-year 2021. Food prices began a slow increase, but Supplies remained stable until we neared yearend. In 2022, everything changed as Food and Supplies prices turned sharply up. Supplies had the biggest YTD increase of any segment. This change in Products, in conjunction with the strong inflation rate in both Services segments has pushed Total Petflation ever closer to the extraordinarily high rates in the overall market.

Inflation is radically increasing in the Pet Industry. Will it impact spending? Let’s put it into perspective. The 4.9% YTD increase in Total Pet is far below the 10.3% record set in 2009 but over 3 times larger than the 1.5% average since then.

Although pet spending is increasingly moving to higher income groups, the impact of inflation varies by segment. Supplies has been impacted the most. Many categories are commoditized and very price sensitive. The move to high priced Super Premium Food has become widespread because the perceived value has grown so higher prices just push people to value shop. Veterinary prices have strongly inflated for years. The result has been a reduction in visit frequency. Spending in the Services segment has taken off in recent years, but it is driven by higher incomes because of its convenience so inflation is less impactful. We’ll continue to monitor the situation but we’ll just have to wait and see the impact of the latest surge in Petflation.

 

Retail Channel Monthly $ Update – December Final & January Advance

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The Retail recovery has been generally successful, but a long and complex journey. Now, we are seeing a new and largely unexpected factor also attributed to COVID – extreme inflation. Since this can affect retail sales, we will continue to track the retail market with data from two reports provided by the Census Bureau and add in the CPI from US BLS.

The Census Bureau Reports are the Monthly and the Advance Retail Sales Reports. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – about 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

We begin with the Final Retail Report for December and then move to the Advance Report for January, giving us a final look at 2021 and a 1st look at 2022. In the December Final we will compare 2021 to both 2020 and 2019. In the January Advance we will compare 2022 to the 3 prior years and add in the Avg Annual Change. Note: January Monthly $ = YTD.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports, and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2020 and 2019 (In the Advance, we compare 2022 to 21,20 & 19)
  • Current YTD change – % & $ vs 2020 and 2019 (In the Advance, YTD is unnecessary, so we add the Avg chge)
  • Monthly and Year To Date $ will also be shown for each group/channel

First, the December Final. Retail hit bottom in April 2020 but began recovery, hitting record $ in December. $ fell in Jan>Feb but set a new $ records in March & May. Sales slowed through September but turned up in October, setting new records in November & December. Here are the major retail groups. (All $ are Actual, Not Seasonally Adjusted)

The final total is $2.3B less than the Advance report projected a month ago. 2 groups were up and 2 were down. The specifics were: Restaurants: +$0.7B; Gas Stations: +$0.5B; Auto: -$1.4B; Relevant Retail: -$2.0B. Sales vs November were up for all groups but Gas Stations. Total Retail $ales broke $600B for the 1st time in December 2020. December 2021 $ales broke the $700B barrier. Restaurants & Gas Stations had a truly strong December vs 2020 as their recovery strengthens. Auto had the strongest recovery with 23.5% growth in 2021 producing an annual YTD growth rate since 2019 of +11.3%. A slight $ dip in December is normal for Gas Stations but all groups contributed to setting a new $ record. Importantly, for the 7th consecutive month, all groups were positive in all measurements vs 2020 or 2019.

Now, let’s see how some Key Pet Relevant channels did in December.

  • Overall – 1 was down vs last month. A December dip in Home Ctr/Hrdwre is not unusual. Office/Gift/Souvenir $ had a strong month but are still down at yr-end vs 2019. December set another new $ record for Relevant Retail.
  • Building Material Stores – Their amazing lift has slowed as we move into winter. The surge came from pandemic spending patterns developed in 2020. Consumers began focusing on their homes. Their Spring lift slowed in 2021 but Building and Farm stores are still going strong. Sporting Goods stores have a similar pattern. Sales took off in May 2020, set a record in December and continued strong in 2021. They slowed in the Spring/Summer but set a record in November, then exploded in December. Yr-end they are +47.3% vs 2019, a Growth Rate of 21.4%!
  • Food & Drug – Supermarkets were +$77.7B in 2020. $ are up vs November and +9.6% vs December 2020. 2021 $ were +3.3% vs the 2020 binge and +16.0% vs 2019. Drug Stores were +$17B (+5.7%) for 2020. They had a record March. Sales then stabilized until hitting a new record in December. They finished 2021 at +7.7%.
  • General Merchandise Stores – $ in all channels fell in Jan/Feb then spiked in March. Monthly sales by channel varied up/down until all stores turned up in October & set a new GM $ record in December. Clubs/SuprCtrs & $ Stores are leading the way with a combined annual growth rate of +8.9%. These channels promote value. Their success reinforces its consumer importance. Disc. Dept. Strs again show all positive numbers, growing at 4.3%.
  • Office, Gift & Souvenir Stores– $ were up +31.7% vs November and they finished the year up 24.9% vs 2020. However, they were still down -1.7% vs 2019. Things have improved but full recovery is pushed into 2022.
  • Internet/Mail Order – Their December sales broke the $100B for the first time and they finished the year +13.2% vs 2020. This comes on top of a 25.3% lift last year and generates an average growth rate of 19.1%
  • A/O Miscellaneous – This is a group of specialty retailers which includes Florists, Art Stores and Pet Stores (22>24% of total $). In May 2020 they began their recovery. December 2021 was their 8th consecutive month over $10B and set a new record, $11.5B. Yearend $ are +26.3% vs 2020 and +41.6% vs 2019. Avg Growth: 19.0% – 3rd

Relevant Retail began recovery in May 2020 and hit record $ in December. In 2021 $ fell in Jan/Feb, turned up again in March and began a monthly up/down rollercoaster. December $ brought records for both monthly and annual sales. Moreover, all but 1 channel were ahead of all 2020 & 2019 measurements. The big drivers continue to be the Internet, SuperCtrs/Clubs/$ Stores and Hdwe/Farm. Now, the Advance numbers for January.

We have now had 2 straight memorable years. 2020 saw the 2 biggest monthly drops in history but Total Retail finished by reaching $600B for the first time in December. In 2021, the recovery strengthened with all big groups positive in all measurements vs 2019 & 2020 for the final 7 months. Total Retail reached $713B in December and broke the $7T barrier for the year. Relevant Retail was also strong as annual sales reached $4T but in fact, all big groups set annual sales records in 2021. Some channels are still suffering but the Retail market made a widespread, strong recovery. That brings us to 2022. First, let me issue a warning. You will see universal drops in sales from December and some will be huge. This is to be expected and totally normal. Here is the average Dec>Jan $ drop for the 10 years prior to the pandemic:

Total Retail: -20.2%

Restaurants: -8.0%

Auto: -11.5%

Gas Stations: -4.1%

Relevant Retail: -26.5%

The other factor on everyone’s mind is inflation. We will address that issue, especially when we look at the change in sales vs January 2021. Now, let’s get started.

Overall – The only negative numbers are vs December. We should also note that the January sales patterns since 2019 look pretty normal for Total Retail, Relevant Retail and Auto with year over year increases. Remember, January 2020 was pre-pandemic and by January 2021, only Restaurants and Gas Stations had not begun a strong recovery.

Total Retail – Sales in 2021 were up $1.2T (+19.4%) vs 2020, with an annual growth rate of 9.4% since 2019, the best in history. It took 2 years to recover from the Great Recession in 2009. This time it appears that we effectively accomplished it in 1 year. Annual inflation for 2021 vs 2020 was +4.7% so 75.8% of the 19.4% increase was real – 14.7%. In January, sales fell -18.5% from December, which is slightly less than a “normal” -20.2%. This is impressive since December sales reached an all-time high. However, January sales also set a record for the month, beating the previous best in 2021 by 12.3%. Although 2022 is the best performer, January sales for Total Retail have increased regularly since 2019 with an average annual lift of 8.4%. Jan 22 vs Jan 21 – Inflation = +7.5%. “Real” $ increase = +4.8% (39% of 12.3%) Inflation could be starting to have an impact.

Restaurants – They were hit hard by the pandemic and didn’t truly start to recover until March 2021. However, sales in 7 of the last 8 months of 2021 exceeded $70B. December $ were a record for the month and 2021 was the biggest year in history, $821B. January sales fell 10.9% from December, a little higher than their usual 8.0%, but were up 24.9% from 2021. Their January sales pattern clearly reflects their late recovery as sales are only up an average of 4.9% since 2019. Jan 22 vs 21 – Inflation: Food away from home = +6.4%; “Real” $ increase = +18.5% (74.3%). Damn Good!

Auto (Motor Vehicle & Parts Dealers) – Staying at home causes your car to be less of a focus but this group actively worked to overcome this attitude with great deals and a lot of advertising. They finished 2020 up 1% vs 2019 and the last 10 months of 2021 were the biggest in history, generating a record $1.54T in 2021. Their growth rate from 2019>21 averaged +11.3%, the best of any big group. In January 2022, sales fell -11.3%, minimally better than their normal -11.5%. Sales increased 11.4% in January vs 2021. You an see that the biggest increases occurred in 2021 and 2022 but they also have a pretty normal January growth pattern, with an annual average increase of +9.7%. Jan 22 vs 21 – Inflation: Overall = +7.5%; New & Used Vehicles = +23.1%. This means that at best the Real $ increase was +3.9%. The worst and more likely case is that there was actually a decrease in the amount sold in the Auto group.

Gas Stations – Gas Stations were also hit hard. If you stay home, you drive less and obviously need less gas. This group truly started recovery in March 2021. They were positive vs 2019 & 2020 for the last 10 months of 2021 and reached a record $588B (+36.7%) for the year. January sales were down -5.6% from December, slightly more than their usual -4.1%. However, they were up 32.7% vs 2021. You can see that they have a January sales pattern that is similar to Restaurants but more extreme which is evident by their 10.7% 2019>22 growth rate, which is twice as high. Inflation comes to the forefront in this group because the spectacular rise in gasoline prices has generated a lot of headlines in the media. Jan 22 vs Jan 21 – Gasoline Inflation = +40.0%. “Real” $ change = -7.3%. Spend more but get less.

Relevant Retail – Less Auto, Gas and Restaurants – This is considered the “core” of U.S. retail and traditionally accounts for about 60+% of Total Retail Spending. The channels in this group took a variety of paths through the pandemic due to many factors, like closures, binge buying, online shopping and consumers’ focus on “home”. However, their only down month was April 2020. They finished 2020, up +7.1% and 2021 got even better. March>December were 10 of the 12 biggest months of all time and helped generate a record $4.47T, +14.1% in 2021. They have led the way in Total Retail’s recovery with an average annual growth rate from 2019 of +10.6%. The recovery was primarily driven by Nonstore, Grocery, SuperCtrs/Clubs/$ Stores and Hardware/Farm but it became widespread with help from channels like Sporting Goods and even Miscellaneous Stores (includes Pet). In January sales fell -23.9% from December but still set a record for the month. This looks like a big decrease but is actually less than the normal drop of -26.5%. It reinforces the importance of December holiday sales to this group. Sales in January were +8.2% vs 2021 and almost equal to their annual growth rate of +8.3% since 2019. Their January sales pattern shows regular growth since 2019 but the biggest lift occurred in 2021 as more channels became productive and they strongly kicked off what was to become a record year. Jan 22 vs Jan 21 – Inflation = +7.5%. “Real” $ increase = +0.7% (8.5% of 8.2%). This is concerning as inflation has stopped, at least temporarily, the real growth in this huge, segment that is critically important to the U.S. Retail Marketplace.

In the groups with the strongest recovery from COVID, Relative Retail and Auto, monthly increases are slowing so we are now starting to see the effect of strong inflation. Now, we’ll look at what is happening in the individual retail channels. Remember, the groups in the chart are less defined than in the Final Monthly reports and we will look across the whole market, not just pet relevant outlets. Also remember the 7.5% inflation rate to put the $ changes into better perspective.

Everyone was down vs December and the January Sales of Electronics & Appliance Stores have been slowly falling since 2019. Sporting Goods were down a little vs 2021 but all other channels showed increases vs every year.

After hitting bottom in April 2020, Relevant Retail has now beat the previous year’s $ for 21 consecutive months. They set an all-time record of $406.8B in December and finished 2020 +$260B vs 2019. 2021 was even stronger with record sales in every month and a new record of $461.0B in December & Yr-end, $4.47T. Essential channels were the drivers:

  • Nonstore Retailers
  • Food & Beverage – Grocery
  • Bldg Materials/Garden/Farm
  • SuperCtrs/Club/Value/$ Strs

That brings us to 2022. Relevant Retail was up 8.2% vs 2021 but inflation was 7.5%, so the real increase was about 0.7%. In fact, only 7 of 13 channels had a year over year sales increase over 7.5% and some were just barely over.

General Merchandise Stores – Sales fell sharply vs December, especially in Department Stores, -50.3%. In terms of increase vs 2021, they beat inflation with +10.3% but sales growth was strong because of 2 straight years of decline. Average growth is only 1.9%. Clubs/SuperCtrs/$ stores didn’t beat inflation, but their annual average growth rate is 8.1%. They are the key to the future of the GM channel. Here are the actual and “real” increases from 2021.

  • All GM: +6.4%, Real = -1.1%; Dept Stores: +10.3%, Real = +2.8%; Club/SuprCtr/$: +5.8%, Real = -1.7%

Food and Beverage, plus Health & Personal Care Stores – These stores are more essential and depend on frequent purchases so the drop from December was less severe. They had similar January lifts but the average increase for Grocery/Food & Beverage, +7.0% is twice that of Health/Drug stores, +3.5%. (BTW: Grocery Inflation was +7.4% vs 2021)

  • Food & Bev: +7.2%, Real = -0.2%; Grocery: +8.1%, Real = +0.7%; Health/Drug Stores: +7.7%, Real = +0.2%

Clothing and Accessories; Electronic & Appliances; Home Furnishings – A big drop from December, especially for Clothing but they have mostly recovered. The January order pattern and growth rate shows an earlier and stronger recovery for Furniture. Electronic/Appliance is just now back to 2019 $ and continued their pattern of January declines.

  • Clothing: +19.1%, Real = +11.6%; Electronic/Appliance: -3.0%, Real = -10.5%; Furniture: +1.5%, Real = -6.0%

Building Material, Farm & Garden & Hardware –Their Dec>Jan drop was small, as expected. They have benefited from consumers focusing on their home needs. They ended 2020 (+14.3%) and 2021 (+13.5%) and continued strong into January with a 12.7% increase over 2021 so they’re still beating inflation 2022 = +12.7%, Real = +5.2%

Sporting Goods, Hobby and Book Stores – Consumers turned their attention to personal recreation and sales in Sporting Goods outlets took off. The group ended 2020 +7.0% vs 2019 and 2021 was up an incredible +28.6%. January was down -44.3% from December and even down -0.8% from 2021, reducing its avg growth from 14.5% to 9.2%. Their incredible record setting run may have come to an end and stabilized at a new, higher level. 2022 = -0.8%%, Real = -8.3%.

All Miscellaneous Stores – Pet Stores have been a key part of the strong and still growing recovery of this group. They finished 2020 +0.9% but sales took off in March 2021, hitting a record $17.1B in December. Sales fell an average amount in January but were still 13.2% ahead of 2021 which was the 2nd best, behind Clothing Stores. This put their average January growth rate at +11.4%, second only to Nonstore Retailers. 2022 = +13.2%, Real = +5.7%

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV. The pandemic accelerated the movement to online retail. They ended 2020 +21.4%, +162.9B. This was 63% of the entire increase for Relevant Retail. Sales growth continued in 2021 and in December monthly sales exceeded $100B for the 1st time. For the year, they finished +13.6% and also broke the $1 Trillion barrier. January sales fell -25.4% from December but were +8.9% vs 2021 and they maintained the highest average rate of increase, +13.6%. 2021 = +8.9%, Real = +1.4%

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded with their regular store sales.

Recap – 2020 was quite a year, with the trauma of April & May followed by the triumph of breaking $600B for the first time in December. 2021 was even more memorable as it produced record sales for all major groups and Total Retail exceeded $7T for the 1st time. Relevant Retail was the major driver in this recovery. Since May of 2020 their sales have exceeded 2020 and 2019 in all measurements and reached $4.47T in 2021. The recovery was widespread as all but 2 groups on our Advance Chart set sales records in 2021. January began pretty normally for Relevant Retail with a -23.9% drop from December. This is slightly less than average and actually very good considering the record Holiday sales in 2021. With the strong retail recovery, another unexpected issue has come to the forefront, runaway inflation. The CPI is rising at year over year rates that haven’t been seen in decades. The retail recovery means a return to “normal” which includes smaller, more “normal” sales increases. Right now, sales continue to increase. Consumers often pay more but get less. As we’ve seen in the Pet Industry, strong inflation can severely reduce sales. We’ll keep tracking the retail market.

“Petflation” 2021 – A Closer Look at the CPIs for the Pet Industry

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Inflation has made a lot of headlines recently. There have been year over year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. In December 2021, overall prices were up 7.0% over December of 2020. Food for home consumption was up 6.5% and Gasoline prices went through the roof at +49.6%. That raises the obvious question, “What is happening in the Pet Industry?”

In this report we will attempt to answer that question? The simple answer is that prices for Total Pet Products & Services were 4.1% higher in December 2021 than in December 2020. That’s high, but still considerably better than the overall CPI increase. However, as usual, the answer is considerably more complex. We will look at the numbers in greater detail, including:

  • Tracking the monthly changes in prices from December 2019 to December 2021
  • Comparing the annual inflation rate for 2019 through 2021
  • Comparing the December 2021 numbers to both 2020 and 2019

We will do this for Total Pet and all industry segments. We can now do this for all segments because on 2/11 the US BLS started reporting the CPI for Pet Services again. They had discontinued it at the start of 2021 because of problems caused by COVID. Upon learning of the discontinuation, we made the case for reversing this policy. We used their consumer spending data to craft a rationale to demonstrate the importance of the Pet Industry to U.S. Retail and the strong growth of the Services segment in recent years. We also pointed out the importance of Pets to U.S. families – 2/3 of U.S. H/Hs have a pet, twice as many as have a child under 18. They agreed with us and not only began publishing again but filled in all the missing monthly data for 2021. With that being said, let’s get started.

In our first graph we will track the monthly change in prices from December 2019 to December 2021. This is not designed to impart specific data, but rather to give you a visual image of the flow of pricing from the beginning of the pandemic through the retail recovery that the market experienced in 2021. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The end numbers, compared to December 2019 and some other key waypoints, like December 2021 are included.

You immediately see a distinct difference in patterns between the 2 Services segments and the 2 Products segments. While there were some dips and differences, Veterinary and Services prices generally inflated during the whole 2-year period with an accelerated rate in 2021, a pattern similar to the overall CPI. Food and Supplies were generally deflated below December 2019 prices until mid-year 2021 when they turned slowly up. Here are some things to note:

  • U.S. CPI – The inflation rate was low through 2020. It turned up in January and continued to grow steadily in 2021. 80+% of the overall 8.5% 2 year increase occurred in 2021.
  • Pet Food – In April 2020 prices fell below December 2019. They stayed deflated until September 2021 when they turned up, with a sharp increase in December.
  • Pet Supplies – First remember that Supplies prices were high in December 2019 due to the added tariffs implemented in late 2018. They had a “deflated” roller coaster ride until mid-2021 when they returned to December 2019 prices and essentially stayed there.
  • Pet Services – A normal inflation rate is about 2+%. Despite or maybe because of closures, price increased at a lower rate in 2020. In 2021 consumer demand increased but there were probably fewer options. Prices increased strongly in 2021 with the biggest lift coming in the Spring.
  • Veterinary – Inflation has always been something that you can count on in Veterinary Services. Prices started moving up at the start of the pandemic and grew consistently through the 2021 recovery. A price spike in December allowed them to edge out the overall CPI and win the top spot in inflation at +8.6%.
  • Total Pet – You can see that the blending of the segment patterns make the Pet Industry look very price calm compared to the overall market. Inflation was basically nonexistent in 2020 but grew slowly and steadily in 2021.

We’ve seen the overall CPI patterns by month over 2 years. Now, let’s turn our attention to the annual CPI. We will use pre-COVID 2019 as our primary base year and we’ll add in Human Food for comparison. We will show these CPI changes:

  • 2018>19
  • 2019>20
  • 2020>21
  • 2019>21
  • Avg Chge 19>21

The 2 Pet Services segments are driving recent inflation in the Pet Industry. This is usually the norm. Prior to the pandemic Pet Food & Supplies were going through an unusual period of inflation. In Pet Food the FDA, warning was a factor and Supplies were suffering from Tariffs. The Services Segment is the closest match to the overall CPI pattern.

  • U.S. CPI – Inflation slowed to 1.2% in 2020 due to the pandemic, then the rate nearly quadrupled to 4.7% in 2021. The average rate from 2019>2021 was 3.0%, about 50+% higher than a normal year.
  • Pet Food – In 2020, prices basically stayed at the elevated 2019 level. They turned up in 2021 but inflation stayed below 1%, which generally would have little to no impact on spending.
  • Human Food at Home – You see the pandemic impact here. The 2020 inflation rate of 3.5% was 4 times that of pre-COVID levels, probably due to shortages. The rate stayed the same in 2021, showing that problems weren’t fixed.
  • Pet Supplies – As we said, prices were at an abnormally high level prior to the pandemic. This discretionary, largely commoditized segment is impacted by pricing. Despite the 2020 drop, sales fell as consumers focused on Pet needs. Inflation returned in 2021 and prices were near 2019. We’ll see if the wants/needs of Pet Parents will overcome this.
  • Pet Services– 2020 inflation was near normal, but the segment was most affected by closures. By 2021, outlets were open but fewer options drove prices up at twice the normal rate. The $ will likely grow because there is still a need.
  • Veterinary – This pet segment traditionally has the highest inflation rate. In recent years, it has caused Pet Parents to reduce the frequency of visits. Much of the growth has come from price increases. The pandemic had little impact on inflation. Inflation slowed in 2020 but then a grew slightly in 2021. The rate stayed about 4.0%. The segment did benefit from the pandemic. Pet Parents focused on needs. They spent more at the Vet and visited 1.8% more often.
  • Total Pet – The deflation that happened in the Product segments offset the inflation in the Services segments, keeping inflation below pre-pandemic 2018>19 levels and in virtually all measurements vs the overall CPI.

Next, we’ll turn our attention to the headlines, which largely focus on the inflation rate from December 2020 to December 2021. We’re going to look a little deeper to see how the recent numbers compare to the past, including:

  • 2018>2019
  • 2019>2020
  • 2020>2021
  • 2019>2021

One thing is certain. The inflation rate from December 2020 was huge for every group in the chart, providing most, and in some cases, all of the price lift since pre-pandemic 2019.

  • U.S. CPI– The price surge was huge – more than 3 times the lift from 2018>19 and 5 times the lift from 2019 to 2020.
  • Pet Food – Although the 20>21 lift was less than pre-pandemic 2018>19, it was a complete reversal from the drop that occurred in 2020.
  • Food at Home – Decembers in 2020 and 2021 have been bad news for grocery prices. The rate from 2019>2020 was spectacularly high at 3.9% but 2021 saw this grow to 6.5%, a 67% increase. In 2 years, prices are up 10.7%.
  • Pet Supplies – Talk about a flip flop. The increase in 2021 essentially wiped out the drop in 2020 – Net: no gain/loss.
  • Pet Services – Services prices increased from 2019>2020 but at a slower than normal rate. From 2020>2021 the inflation rate was 5 times higher than the previous year and fueled more than ¾ of the 8.1% increase since 2019.
  • Veterinary – Once again the increase rate slowed a little in 2020, then returned to normal in 2021.
  • Total Pet – The 2021 increase in all segments pushed Total Pet inflation above the 2018>19 rate and was responsible for 91% of the 4.5% lift from 2019.

That wraps it up for this Petflation Update. Price matters to everyone. Combined with quality, it defines Value, which is the top driver in consumer spending behavior. Inflation/deflation can discourage/encourage spending, especially in the more discretionary categories, like Pet Supplies. Overall, pricing in the Total Pet Industry appears to be faring reasonably well. 20/21 data for Total Pet is lower than the data for the total U.S. CPI in virtually all inflation measurements. However, as I have always said, look beneath the surface to see what is truly happening. When we do that, we see pricing trends that basically divide the segments into 2 groups – Services and Products. Prices in the Services group, Non-Vet and Veterinary have strongly inflated, especially in 2021. In the Products group – Food and Supplies, prices were high before the pandemic. The result was that prices stayed near or below the 2019 level until mid-year 2021. Then they turned up but not as much as in the Services Group. The Product group accounts for over 60% of Industry $ so their trend was very influential in keeping Total Pet inflation at a more reasonable level. The media was right about 1 thing. December was a terrible month for inflation. Prices in every Pet segment turned sharply up.

Of note, inflation continued in all segments in January 2022 with Supplies prices passing their previous record high set in September 2009. We’ll see what the rest of 2022 brings.

2020 U.S. Pet Spending by Generation – Boomers’ Spending Surges

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In 2020 Americans spent $83.74B on our companion animals, 1.04% of $8.05 Trillion in total expenditures. Pet Spending was up $5.31B (+6.8%), a big change from the spending dip in 2019. There was 1 overriding factor affecting all spending, including pet in 2020 – the pandemic. Consumers focused on the necessary segments – Food and Veterinary, while the discretionary segments – Supplies and Services, suffered. Out of fear of shortages, Pet Parents binge bought Food early in the pandemic. On the negative side, closures caused Services to have a radical reduction in frequency.

In this report we will look at how the pandemic affected the Pet Spending for today’s most “in demand” demographic measurement – by Generation. In 2020, although Gen Z $ are often bundled with Millennials for comparison, we can now compare their annual spending vs the previous year. Using data from the US BLS Consumer Expenditure Survey we’ll look for answers.

We’ll start by defining the generations and looking at their share of U.S. Consumer Units (CUs are basically Households)

GENERATIONS DEFINED

Gen Z: Born after 1996

In 2020, Age under 24

Millennials: Born 1981 to 1996

In 2020, Age 24 to 39

Gen X: Born 1965 to 1980

In 2020, Age 40 to 55

Baby Boomers: Born 1946 to 1964

In 2020 Age 56 to 74

Silent/Greatest: Born before 1946

In 2020, Age 75+

  • Baby Boomers still have the largest number of CU’s at 43.3M and 33.0% of the total. They had a slight increase in 2020 but generally they have been losing ground. In fact, they have 1.8M fewer CU’s than in 2016.
  • The Oldest Generations will continue to lose CUs primarily due to death or movement to permanent care facilities.
  • Gen X has the second most CUs and gained ground in 2020.
  • Millennials have the largest number of individuals, but they rank only third in the number of CU’s.
  • Gen Z lost CUs as did Millennials. The pandemic caused many younger folks to move back home or group together.

Now let’s look at some key CU Characteristics

One significant change was the increase in homeownership. This was primarily driven by the Gen Xers and Millennials. Gen Xers still have the biggest CUs but now Millennials have the most children <18 per CU.

  • CU Size – CUs with 2+ people account for 70.2% of all U.S. CUs (up from 69.8% in 2019) and 80.3% of pet $ (up from 78.2% primarily due to a huge spending lift by 4+ person CUs). Millennials are actively building their H/Hs. However, CU size, with all the related responsibilities, still peaks with the Gen Xers and then starts dropping. The Boomers are the last group with 2+ CUs but that will end soon. Gen Z joined the 2+ group for the 1st time in 2020.
  • # Children < 18 – 27.7% of U.S. CU’s have children and they generate 38.4% of Pet Spending. CUs with children were the driving force in the increase in Pet spending. Married Couples with children spent $8.77B more and even single parents increased pet spending by $0.77B. All other groups spent less. The biggest decrease came from Married Couples with no children – down -$2.22B. “Unmarried Adults only” CUs, of 2 or more people were next to last with a decrease of -$1.43B. Singles had the biggest increase in 2019. In 2020, they spent -$0.55B less on their pets. Overall, there was no change in the # of children per CU in 2019 but there were changes within groups. Millennials took over the top spot while the number of children per CU for both Gen X and Boomers decreased. We should note that CU’s with the oldest child over 18 had the biggest Pet $ increase, +$8.77B. This group is often Baby Boomers.
  • # Earners – Pet spending is usually tied to the number of earners in a CU. In 2020, 2 person, 2+ earner CUs still spent the most on their pets and had the biggest increase, +$5B (+11.8%). Generally, these are the younger generations, but the 55 to 64 year old Baby Boomers are also an important part of this group.
  • Homeownership – Owning and controlling your own space has always been a major factor in increased Pet Ownership and spending. Driven by the younger groups, homeownership increased to 65.81% from 63.74%. However, the pet spending pattern was even more defined. Homeowners with no Mtges spent +$8.0B more on their pets. Homeowners with mortgages spent -$2.1B less on their pets while the Pet $ for Renters fell -$0.6B. We should note that the number of Baby Boomer Homeowners w/no Mtge grew from 38% to 41%. The homeowners share of Total Pet Spending grew from 81.4% to 83.3% due to those without a mortgage and was likely driven by Boomers.
    • As expected, Gen Z are the most common renters in society. Homeownership by Millennials has moved up to 47% but it is still only 71% of the national average.
    • Gen Xers have been above the national avg since 2018 and Homeownership continues to increase with age.

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

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

CU National Avg: Income – $84,352; Total CU Spending – $61,282; Total Pet Spending – $637.78; Pet Share – 1.04%

  • Income – The Gen Xers are still at the top and their lead grew. The Boomers income plunged from 112% to 93% and they fell to 3rd place. Millennials’ income moved up to beat the national average and they are now #2. Income drops radically in the oldest group as they retire, and Gen Z is just getting started.
  • Total Spending – The Gen Xers make the most and spend the most but it’s not out of line with their income. Millennials increased their spending so that it now equal to the national average. Like their income, Boomers’ spending fell below the national average. Thanks to a big lift in income in relation to spending, the oldest group and Gen Z are no longer deficit spending in relation to their after tax income. With strong increases in both Income and spending, the retail importance of Millennials is growing.
  • Pet Spending – Again only 2 groups exceed the national average, but Boomers replaced Gen X in the top spot. Millennials are still 3rd but are 15% below Gen X and 30% below Boomers. The oldest and youngest groups trail.
  • Pet Spending Share of Total Spending – The national number grew from 0.94% to 1.04%. The growth was driven by a 0.09% increase from Millennials and a huge 0.31% lift from Boomers. All other groups fell and Boomers are still the only group to spend more than 1% of their total expenditures on their pets. In 2018 every group spent at least 0.92% of their total CU spending on their pets. In 2019 this fell to 0.82% and in 2020 it was down to 0.70%.

Now, let’s look at Total Pet Spending by Generation in terms of market share as well as the actual annual $ spent for 2015 through 2020. The 2020 numbers are boxed in red (decrease) or green (increase) to note the change from 2019.

  • Boomers are still the biggest force in Pet Spending and their share is again over 40% after falling to 36.6% in 2019.
  • There are definite age-related long term patterns which are readily apparent in the bar graph. Spending in the oldest group is low and slowly falling. In contrast, the youngest group (combined Millennials & Gen Z) is the only one showing consistent year after year growth. Gen X had also been growing every year… until 2020. The Boomers have the biggest share but are on a rollercoaster ride because they are the most likely group to have a strong reaction to trends, especially in this era of super premium foods. With their tremendous buying power, this can cause major spending swings impacting the whole industry. In 2020 this was very apparent as they were the primary group that panic bought Pet Food out of fear of possible shortages due to the pandemic.
  • In 2020, every other generation was up or down. Silent/Greatest: -$1.12B. Boomers: +$6.88B. Gen X: -$1.79B. Millennials: +$2.24B. Gen Z: -$0.14B.
  • Boomers – Ave CU spent $800.78 (+$131.53); 2020 Total Pet spending = $34.85B, Up $6.11B (+21.3%)
    • 2015>2020: Up $2.70B; They got back on the roller coaster as spending turned up and is now +8.4% from 2015.
  • Gen X – Ave CU spent $665.22 (-$61.83); 2020 Total Pet Spending = $23.96B, Down $1.79B (-7.0%)
    • 2015>2020: Up $5.70B; Their annual Pet spending growth since 2015 had been strong and consistent until 2020. They fell to #2 in Ave CU Pet spending and their $ increase since 2015 fell from $7.49B in 2019 to $5.70 in 2020.
  • Millennials + Gen Z – Ave CU spent $533.80 (+$62.38); 2020 Total Pet Spending = $19.60B, Up $2.10B (+12.0%)
    • 2015>2020: Up $9.87B; As the income and overall spending of Millennials grows, their pet spending has also grown every year since 2015. The “youngsters” have the biggest increase in $ of any group, $9.87B, +101%.
    • Millennials Only – Ave CU spent $565.07 (+$71.46); 2020 Total Pet Spending= $18.67B, Up $2.24B (+13.7%)
    • Gen Z Only – Ave CU spent $254.68 (-$25.41); 2020 Total Pet Spending= $0.93B, Down $0.14 (-13.4%)
  • Silent + Greatest – Ave CU spent $354.20 (-$34.65); 2020 Total Pet Spending = $5.34B, Down $1.12B (-17.3%)
    • 2015>2020: Down $2.27B; They still spend a relatively high amount on their pets, but age is becoming a factor.

Boomers returned to the top spot in Ave CU Total Pet Spending. Driven by Millennials, the youngest pet parents are still consistently increasing their annual spending which bodes well for the future.

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

  • The trendy nature of Pet Food is more pronounced for the Boomers. In the older generations, pet ownership is fading. The younger groups have generally had more consistent growth but Gen X spending fell sharply in 2020.
  • Since 2014, Millennials’ have led the way in food trends, and they are the only group with an annual increase every year since 2015. The panic food buying in 2020 was more of an emotional reaction than a trend.
  • Boomers – Ave CU spent $442.06 (+$147.55); 2020 Pet Food spending = $19.31, Up $6.75B (+53.7%)
    • 2015>2020: Up $3.74B– Big reactions to every trend, from super premium to FDA warnings to fear of shortages.
  • Gen X –Ave CU spent$230.36 (-$53.82); 2020 Pet Food spending =$8.29B,Down $1.73B (-17.3%)
    • 2015>2020: Up $1.03B They reacted to the FDA warning by further upgrading their food. No pandemic panic buying for them. They value shopped.
  • Millennials + Gen Z – Ave CU spent $191.02 (+$29.17); 2020 Pet Food Spending = $7.07B, Up $0.94B (+15.4%)
    • 2015>2020: Up $3.43B They are the only group with increased spending every year since 2015. Their income is growing as is a commitment to their pets. They pioneer food upgrades and they too bought more just to be safe.
    • Millennials Only – Ave CU spent $206.94 (+$35.39); 2020 Pet Food spending = $6.86B, Up $1.07B (+18.6%)
    • Gen Z Only – Ave CU spent $52.97 (-$29.04); 2019 Pet Food spending = $0.20B, Down $0.13B (-39.7%)
  • Silent/Greatest – Ave CU spent $147.57 (-$5.12); 2020 Pet Food spending = $2.17B, Down $0.31B (-12.5%)
    • 2015>2020: Down $0.98B; They are committed to their pets, but COVID hit them hard and their CU #s are fading.

Pet Food Spending is driven by trends – new Super Premium Foods, FDA warnings and even fear of shortages due to COVID. Millennials lead the way in thoughtful changes, but Boomers lead in emotion. Now, on to Supplies Spending.

  • Gen X took over the top spot in both CU spending and share as Boomer spending plummeted again. The younger groups dominate this segment as Gen Xers and Millennials/Gen Z together account for 66% of Supplies spending.
  • Gen X – Ave CU spent $152.47 (-$1.70); 2020 Pet Supplies spending = $5.49B, Up $0.02B (+0.4%)
    • 2015>2020: Up $0.92B; Gen Xers are again the leader in CU spending. They were affected by the new tariffs in 2019 but essentially held their ground in 2020 so that they now have the biggest share of Supplies $.
  • Baby Boomers – Ave CU spent $101.85 (-$34.96); 2020 Pet Supplies spending = $4.41B, Down $1.49B (-25.3%)
    • 2015>2020: Down $1.53B; Their 2019 spending was hit hard by tariffs. In 2020 they spent their Pet $ on Food!
  • Millennials + Gen Z – Ave CU spent $123.76 (+$5.59); 2020 Pet Supplies spending = $4.52B, Up $0.18B (+4.2%)
    • 2015>2020: Up $1.29B; Supplies are still Millennials’ best performing segment. They were the least impacted by the tariffs in 2019 and were the only group with any real growth in 2020.
    • Millennials Only – Ave CU spent $125.05 (+$6.41); 2020 Pet Supplies spending = $4.12B, Up $0.20B (+5.2%)
    • Gen Z Only – Ave CU spent $111.92 (-$2.09); 2020 Pet Supplies spending = $0.40B, Down $0.02B (-4.8%)
  • Silent + Greatest – Ave CU spent $47.75 (-$17.38); 2020 Pet Supplies spending = $0.73B, Down $0.37B (-33.3%)
    • 2015>2020: Down $0.59B; This $ conscious group was hit hard first by tariffs then by the pandemic.

In 2016 most Consumers value shopped for super premium food and spent some of their savings on Supplies. Supply prices dropped in 2017 and everyone under 72 spent more! Late 2018 saw added tariffs but only Boomers dialed back their purchases. In 2019 the sharply rising prices drove spending down in all groups. In 2020 Millennials and Gen X spent a little more while the older groups spent a lot less.

Next, we’ll turn our attention to the Service Segments. First, Non-Veterinary Pet Services

  • Only Gen Z spent more. Gen X is still #1 in both CU spending and share. Gen X/Millennial/Gen Z share = 62.1%
  • Gen X – Ave CU spent $69.98 (-$15.62); 2020 Pet Services spending = $2.52B, Down $0.52B (-17.0%)
    • 2015>2020: Up $0.40B; As the #1 group, they were strongly impacted by the COVID related drop in frequency.
  • Baby Boomers – Ave CU spent $50.60 (-$13.90); 2020 Pet Services spending = $2.19B, Down $0.59B (-21.3%)
    • 2015>2020: Down $0.28B; Boomers had the biggest drop in $ as they focused on the needed segments.
  • Millennials + Gen Z – Ave CU spent $48.09 (-$2.34); 2020 Pet Services spending = $1.76B, Down $0.09B (-5.1%)
    • 2015>2020: Up $0.74B; They had the smallest decrease of any group and the biggest $ increase since 2015. In 2020 Gen Z actually got into the Services game for the first time.
    • Millennials Only – Ave CU spent $49.52 (-$4.82); 2020 Pet Services spending = $1.63B, Down $0.16 (-9.1%)
    • Gen Z – Ave CU spent $34.92 (+$19.45); 2020 Pet Services spending = $0.13B, Up $0.07B (+118.8%)
  • Silent + Greatest – Ave CU spent $27.58 (-$28.80); 2020 Pet Services spending = $0.42B, Down $0.53B (-55.5%)
    • 2015>2020: Down $0.22B; They definitely have the need but were the group most impacted by the pandemic.

This segment had slow annual growth until 2017 which saw a small drop in spending due to an extremely competitive environment. Consumers increased frequency but paid less. In 2018, the increased number of outlets really hit home, especially for the younger groups and spending exploded. 2019 brought another small decrease as Gen Xers and Millennials looked for and found a better deal. 2020 brought pandemic restrictions and closures. Frequency and $ fell.

Now, Veterinary Services

  • Boomers are still the biggest spenders in this segment, but again they only lead Gen Xers in $ because of more CUs.
  • The younger groups have a consistently growing commitment to this Pet Parenting responsibility. The combined Veterinary spending of Millennials/Gen Z and Gen Xers has increased $7.74B (+126%) since 2015.
  • Boomers – Ave CU spent $206.27 (+$32.84); 2020 Veterinary spending= $8.93B, Up $1.45B (+19.4%)
    • 2015>2020: Up $0.76B; In 2020, Boomers focused on needed segments – Food & Veterinary. They had the biggest increase in CU spending and in Veterinary $, +$1.45B
  • Gen X – Ave CU spent $212.41 (+$9.31); 2020 Veterinary spending= $7.65B, Up $0.44B (+6.1%)
    • 2015>2020: Up $3.34B; In 2016 their Veterinary spending exceeded the national CU Average. In 2018, they took over the top spot in CU spending. They are still #1 per CU and #2 in share as the Boomers had a bigger lift.
  • Millennials + Gen Z– Ave CU spent $170.94 (+$29.96); 2020 Veterinary Spending $6.25B, Up $1.07B (+20.7%)
    • 2015>2020: Up $4.40B; Their CU spending is up 165% since 2015. Veterinary has become a much bigger priority.
    • Millennials Only – Ave CU spent $183.56 (+$34.48); 2020 Veterinary spending = $6.05B, Up $1.13B (+22.9%)
    • Gen Z Only – Ave CU spent $54.87 (-$13.73); 2020 Veterinary spending = $0.20B, Down $0.06B (-22.5%)
  • Silent + Greatest – Ave CU spent $131.30 (+$16.65); 2020 Veterinary spending $2.02B, Up $0.08B (+4.2%)
    • 2015>2020: Down $0.76B; Their pets’ health is still a priority. Their CU increase only trails Millennials & Boomers.

Gen Xers and Millennials have consistently increased their commitment to Veterinary Services. In 2015, their share of Veterinary Spending was 36%. It is now 56% – a 56% increase. This is a big, fundamental change in spending behavior.

One last chart to compare the share of spending to the share of total CU’s to see who is “earning their share”

  • Baby Boomers Performance – Total: 126.1%; Food: 158.8%; Supplies: 88.2 %; Services: 96.3%; Veterinary: 108.9%
    • Boomers led the way in building the industry and are still the “top dogs” in $. They earn their share and are still the spending leader in Total Pet and the “needed” segments – Food & Veterinary. They are also the most emotional Pet Parents, so their spending is subject to radical swings like 2020’s panic, binge buying of Pet Food. They should hold the lead in Pet $ for several more years and be a major force for many more, but the Gen Xers and then Millennials are preparing to take their turn at the top.
  • Gen X Performance – Total: 104.2%; Food: 82.0%; Supplies: 132.0%; Services: 133.2%; Veterinary: 112.2%
    • After 2 years at the top Gen Xers fell to 2nd in performance. They earned their share in Total Pet and all industry segments but Food. Until 2020 they had increased their Total Pet Spending every year since 2015. Except for this year’s big dip in Food, their spending has become more balanced and their performance has improved. Gen Xers range in age from 40 to 55 so they are just entering the peak earning years. Expect their commitment and pet spending to continue to grow.
  • Millennials Performance – Total: 88.8%; Food: 74.2%; Supplies: 108.2%; Services: 94.3%; Veterinary: 96.9%
    • Millennials are now the only group to have increased their pet spending every year since 2015. Their spending is more evenly balanced, and performance has improved but their future as the Pet Parenting spending leaders is still a long way off. Their income, home ownership and pet spending are all increasing. They are educated and well connected. Indications are that they may lead the way in adopting new trends, especially in food. Their progress is good news, but in reality, their leadership is still more than a decade away.
  • Silent/Greatest Performance – Total: 54.6%; Food: 50.4%; Supplies: 41.3%; Services: 52.5%; Veterinary: 69.3%
    • Pet Parenting is more challenging in old age, but they remain committed. 0.86% of their total spending is on pets.
  • Gen Z Performance – Total: 40.5%; Food: 20.1%; Supplies: 96.9%; Services: 66.5%; Veterinary: 29.0%
    • They are just beginning so the numbers are low and progress is slow. However, they have “figured out” Supplies.

Baby Boomers are still the Pet $ leaders, but Gen Xers, followed by Millennials are ultimately the future of the industry. Both groups seem ready, willing and able to take their turn at the top. As these groups have risen, Pet Spending has become more balanced across the generations. This bodes well for the continued strong growth of the industry.

Retail Channel Monthly $ Update – November Final & December Advance

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The Retail market hit bottom in April 2020 then began its recovery. The journey has been long and complex and Consumer spending behavior continues to evolve. Amazingly, we have not beaten the virus yet so we will continue to track any impact on the retail marketplace with data from two reports provided by the U.S. Census Bureau.

The Reports are the Monthly Retail Sales Report and the Advance Retail Sales Report. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – about 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

We begin Final Retail Report for November and then move to the Advance Report for December, giving us a first look at year-end 2021. The retail impact of the pandemic began in March 2020, peaked in April, then recovery started in May. We will compare 2021 to both 2020 and 2019 to document the progress of the retail market to a full recovery.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports, and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2020 and 2019
  • Current YTD change – % & $ vs 2020 and 2019
  • Monthly and Year To Date $ will also be shown for each group/channel

First, the November Final. Retail hit bottom in April 2020 but began recovery, hitting record $ in December. $ fell in January/February but set a new $ records in March and then again in May. Sales declined through September but turned up again in October & November. Here are the major retail groups. (All $ are Actual, Not Seasonally Adjusted)

The final total is $0.6B more than the Advance report projected a month ago. 2 groups were up and 2 were down. The specifics were: Auto: +$0.8B; Gas Stations: +$0.2B; Restaurants: -$0.2B; Relevant Retail: -$0.1B. Sales vs October were down for all groups but Relevant Retail. Total Retail $ales broke $600B for the 1st time in December. November $ales beat that number and in fact, set a new all time record. Auto continues to have the strongest recovery with an annual YTD growth rate since 2019 of +11.4%. A $ dip in November is normal for all but Relevant Retail as we start the holiday season. Importantly, for the 6th consecutive month, all groups were positive in all measurements vs 2020 or 2019.

Now, let’s see how some Key Pet Relevant channels were doing in November.

  • Overall – 4 were down vs last month. Drug & Supermarket drops were minor while the Farm dip was normal. Office/Gift/Souvenir $ were down vs October & YTD vs 2019. November set a new $ record for Relevant Retail.
  • Building Material Stores – Their amazing lift has slowed as we move into winter. The surge came from pandemic spending patterns developed in 2020. Consumers began focusing on their homes. Their Spring lift has slowed in 2021 but Building and Farm stores are still going strong. Sporting Goods stores have a similar pattern. Sales took off in May 2020, hit a record peak in December and continued strong into 2021, peaking in March. $ slowed a little through October but set a new record in November. YTD they are +47.6% vs 2019, a Growth Rate of 21.5%!
  • Food & Drug – Supermarkets were +$77.7B in 2020. $ are down vs October but +7.3% vs November 2020. YTD $ are on par with the 2020 binge and +15.5% vs 2019. Drug Stores were +$17B (+5.7%) for 2020. They had a record March. Sales have been relatively stable since then. Their YTD $ are +7.4%.
  • General Merchandise Stores – $ in all channels fell in Jan & Feb then spiked in March. Monthly sales by channel have been up or down since then but GM set a new non-December sales record in November. Clubs/SuprCtrs & $ Stores are leading the way with a combined annual growth rate of +8.9%. These channels promote value. Their success reinforces its consumer importance. Disc. Dept. Strs again show all positive numbers, growing at 4.9%.
  • Office, Gift & Souvenir Stores– $ are down sharply from October (normal) but were +24.3% vs November 2020. COVID hit them hard. They are still down YTD vs 2019 but getting a little better. Recovery will take more time.
  • Internet/Mail Order – Their sales were +19.3% from October as we move into the holidays. Their COVID fueled growth continues. In November 2019, their avg annual growth rate was +12.9%. Now, it is +19.6% – up 51.9%
  • A/O Miscellaneous – This is a group of specialty retailers – chains and indies. It includes Florists, Art Stores and Pet Stores (22>24% of total $). Pet Stores were usually essential, but most stores were not. In May 2020 they began their recovery. Their 2020 sales were up +12.1%. November 2021 was their 7th consecutive month over $10B and set a new record, $11.0B. YTD $ are +27.5% vs 2020 and +41.0% vs 2019. Avg Growth: 18.7% – 3rd Best

Relevant Retail began recovery in May and hit record $ in December. $ fell in Jan & Feb, turned up again in March and began a monthly up/down rollercoaster. November $ set a record and all channels but 1 are ahead of all 2020 & 2019 $. The big drivers are the Internet, SuperCtrs/Clubs/$ Stores and Hdwe/Farm. Now, the Advance numbers for December.

2020 was a memorable year. In April & May we experienced the 2 biggest retail spending drops in history, but the problems actually began in March. Retail sales began to recover in June and in October, YTD Total Retail turned positive for the 1st time since February. In December, Total Retail broke the $600B barrier – a historic first. Sales fell in both January and February but still set monthly sales records. Then they took off again in March, setting a new monthly sales record. April sales were down slightly but they spiked again in May to set yet another spending record. June>Sept $ fell but then came back in October>December. November & December set new records with December reaching $715B. Only Gas Stations were down vs November, but all were positive in all other measurements for the 7th straight month. 2021 is also memorable. All big groups set $ records. Total Retail broke the $7T barrier and Relevant Retail passed $4T. Other areas of the economy are still suffering and inflation has become a bigger factor in increases. However, consumers continue to spend “big bucks”, especially in Relevant Retail, and the overall Retail market continues its strong recovery.

Total Retail – In March and May Total Retail set new sales records. From June>Sept sales dipped slightly. October through year-end saw a resurgence with November & December setting all time records. December $ reached $715B and 2021 numbers totaled $7.4T, both barrier breakers. Sales finished +19.3% vs 2020 with an average annual sales growth rate since 2019 of 9.5%. The previous highest growth rate ever in records going back to 1992 was 8.23% in 1993>1994. More History: Sales fell in both 2008 & 2009. Total drop: -8.4%. Recovery took 2 years. 2010 & 2011. Total increase was +13.1%. Net increase 2007>2011: +3.6%. Avg Growth: +0.9%. Inflation Note: Retail $ were +16.9% vs December 2020. Inflation was +7.0% so up to 41% of the lift came from higher prices. The “Real” increase was +9.9%. In December 2019 (pre-pandemic), Retail $ were +5.5% over 2018. Inflation was 2.3%, 42% of the lift. The “Real” increase was +3.2%. Long term, strong inflation can slow spending but right now, Retail is far outperforming pre-COVID 2019.

Restaurants – This group has no negative measurements vs 2020 or 2019 for 7 straight months. February 2020 YTD sales were up 8.1% vs 2019. In March Restaurants started to close or cease in person dining and sales fell -$33.3B (-52.5%) vs 2019. Sales hit bottom in April at $30.1B, the lowest April $ since 2003. Sales started to slowly increase in May but never reached a level higher than 88% vs the previous year. 2021 started off slowly. Through February, YTD sales were -16.7% from pre-pandemic 2020 and -10.0% from 2019. In March sales took off and hit a record $76.5B in July. 7 of the last 8 months in 2021 exceeded $70B which produced a record year, $821B. +32.1% vs 2020 and +6.1% vs 2019. Avg Growth since 2019 = +3.0%

Auto (Motor Vehicle & Parts Dealers) – Staying home causes your car to be less of a focus in your life. Sales began to fall in March and hit bottom in April. Auto Dealers began combating this “stay at home” attitude with fantastic deals and a lot of advertising. It worked. They finished 2020 up 1% vs 2019 and have returned to a strong positive pattern in 2021. The “attitude” grew amazingly positive in a record March and slowed only slightly from April>December as sales exceeded $119.8B in all 10 months – the 10 biggest months in history. Their campaign was amazingly effective in recovering the business in 2020 and generated a record $1.54T in 2021, up 23.6% vs 2020. Their Year-end Avg Annual Growth Since 2019 = +11.4% – the best performance of any big group.

Gas Stations – Gas Station $ales have been mixed. If you drive less, you need less gas. Sales turned down in March 2020 and reached their low point in April. They moved up but generally stayed about 15% below 2019 levels for the rest of 2020. In February they were still behind 2020 in monthly and YTD $ but ahead of 2019 in both measurements. In March, sales skyrocketed and continued to grow to a record level in July. They fell in Aug/Sept but reached a record $55.3B in October. Sales fell in Nov/Dec, but they have been positive in all measurements vs 2019 & 2020 since March. This produced a record $588B for 2021, +36.6%. However, inflation comes to the forefront in this channel. Gas prices can be volatile. They dipped in the first 2 months of the pandemic but returned to more normal levels for the balance of 2020. Strong inflation began in 2021. In fact, December prices were 49.6% above 2020. That means that the 41.4% year over year $ lift in December was actually a decrease in the amount of gas sold. Year-end Growth Rate Since 2019 = +7.1%

Relevant Retail – Less Auto, Gas and Restaurants – This is considered the “core” of U.S. retail and traditionally accounts for about 60+% of Total Retail Spending. In looking at the individual channels in this group, we have seen a variety of results due to many factors, like non-essential closures, binge buying, online shopping and a consumer focus on “home”. However, overall, April 2020 was the only month in which spending in this group was down vs 2019. Monthly $ales exceeded $400B for the first time ever in December. They finished 2020 up $260B, +7.1%. Their performance was the only reason that Total Retail was able to finish 2020 with positive numbers, +0.5%. Sales fell in January and February 2021 but set monthly records. In March they turned sharply up and then began an up/down $ roller coaster ride. Sales turned up in October and set a record in November which was blown away by $461B in December. March>December are 10 of the 12 highest $ months of all time and helped generate a record $4.47T in 2021, +14.1%. Relevant Retail has exceeded $361B in monthly sales 12 times. 11 of those have occurred since the onset of the pandemic. It is also very important that the Relevant Retail group has posted positive numbers versus last year and YTD for every month since April 2020 and their average YTD growth rate since 2019 is +10.5%. The recovery has become widespread as all channels have been positive in all measurements vs both 2020 and 2019 for 5 consecutive months. The primary recovery drivers were and continue to be Nonstore, Grocery, SuperCenters/Clubs/$ Stores plus a never ending “spring lift” from Hardware/Farm and Sporting Goods and growing help from Miscellaneous Stores (includes Pet).

Now let’s look at what is happening in the individual retail channels to see where the $ are coming from. December $ were up 13.3% from November and an increase occurred in 12 of 13 channels. Remember, the groups in the chart are less defined than in the Final Monthly reports and we will look across the whole market, not just pet relevant outlets.

Sales in 12 of 13 channels were up vs November but all were up vs December 2020, vs December 2019 and YE (Year-end) vs 2020 and 2019. (Relevant Retail Avg Annual Growth Rate since 2019 = +10.5%)

After hitting bottom in April 2020, Relevant Retail has beat the previous year’s $ for 20 consecutive months. They set an all-time record of $406.8B in December and finished 2020 +$260B vs 2019. 2021 was even stronger with record sales in every month and a new all-time record of $461.0B in December & YE: $4.47T. Essential channels were consistent drivers:

  • Nonstore Retailers – The biggest driver. Online shopping continues to grow in # of households and in $.
  • Food & Beverage – Grocery– Restaurant $ have come back but consumers continue to eat & drink more at home.
  • Bldg Materials/Garden/Farm– Their “Spring” lift may be ending but consumers are still focused on their homes.
  • SuperCtrs/Club/Value/$ Strs – They kept the GM channel strongly positive. Value is still a big consumer priority.

Regarding the Individual Large Channels (Includes YE Actual increase vs 2020 & Avg Annual Growth Rate since 2019)

General Merchandise Stores – Sales increased for all channels vs November and all other numbers were also positive. Even Department Stores $ are growing increasingly positive. After dipping to +7.5% in February, the avg growth rate by Club/SuperCtr/$ stores has stabilized at about 8.9% ever since. These stores are still the key to this channel.

  • All GM: +12.1%, Avg = +7.6%; Dept Stores: 21.7%, Avg = +1.5%; Club/SuprCtr/$: +10.2%, Avg = +8.9%

Food and Beverage, plus Health & Personal Care Stores – Sales in Grocery were down in March>May from 2020 – No surprise, as these were 2020 binge months. In Jun>Dec they beat 2020 $. Health/Personal Care finished 2020 at +1.8% but 2021 has been better. December was up 15.1% from November and YE $ are +9.5%% vs 2020 and +11.4% vs 2019.

  • Food & Bev: +4.2%, Avg = +7.9%; Grocery: +3.7%, Avg = +7.6%; Health/Drug Stores: +9.5%, Avg = +5.6%

Clothing and Accessories; Electronic & Appliances; Home Furnishings – March > Dec have been spectacular for all these channels. The increase in Clothing vs November was an incredible +41.0%. All were up vs last month, remained positive in all measurements vs 2020 or 2019 for the 10th consecutive month and ended 2021 at least 25% ahead of 2020.

  • Clothing: +48.4%, Avg = +6.2%; Electronic/Appliance: +25.2%, Avg = +3.0%; Furniture: +26.4%, Avg = +10.1%

Building Material, Farm & Garden & Hardware – The lift that began in 2020 has slowed but they have benefited from consumers focusing on their home needs. They ended 2020 +53B (+14.3%). Sales took off in March, set a record in April, but have slowed and stabilized around $39B, including the only Nov>Dec channel $ drop. 2021: +13.5%. Avg = +13.9%

Sporting Goods, Hobby and Book Stores – Book & Hobby stores are open but Sporting Goods stores have driven the lift in this group. Consumers turned their attention to personal recreation and sales in Sporting Goods outlets took off. The group ended 2020 +7.0% vs 2019. The growth accelerated in 2021 ending with a huge lift in December, up 30.7% from November to $13.5B, by far their biggest month ever. At year-end they were +28.6%. Avg Annual Growth = +17.3%

All Miscellaneous Stores – Pet Stores were deemed essential but most other stores were not, so closures hit this group particularly hard. Sales hit bottom at -$3.8B in April then began to rebound. They finished with a strong December and ended 2020 +$1.2B, +0.9%. In March 2021 sales took off and reached the $14+B level in May. They have stayed there and set a record of $15.3B in October. Sales spiked spectacularly in December, setting a new monthly record of $17.1. At  year-end they were +27.3% with an Avg Growth = +13.3% (4th Best). Their recovery is very real.

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV. The pandemic accelerated the movement to online retail. In February 2020 NonStore $ were +8.6% YTD. In December monthly sales exceeded $100B for the 1st time. They ended 2020 at +21.4%, +$162.9B. This was 63% of the total $ increase for Relevant Retail Channels. Their 2020 performance made them the largest channel and every month in 2021 has produced record $. December set a new all-time monthly record of $115.4B and Year-end 2021 $ exceeded $1 Trillion, +13.6%. Avg Annual Growth= +17.4%

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded with their regular store sales.

Recap – 2020 was quite a year. April & May had the 2 biggest YOY sales decreases in history while December sales broke $600B for the first time. 2021 may be even more memorable. With a strong December, Total Retail and all major groups had a record year. Total Retail broke $7T for the 1st time. The Relevant Retail group began their recovery in May 2020 and kept Total Retail positive in 2020. They continued to grow in 2021 to a record $4.47T. The recovery was widespread. A few small channels are still struggling but all groups in the December chart, but Dept & Electronics Stores set sales records in 2021. FYI: Nonstore reached $1 Trillion and is the largest channel for the second consecutive year, with 23.5% of Relevant Retail $. The Holiday season also set records. It likely began early with a record October but Nov/Dec still “rule”. In 2021, Nov/Dec Relevant Retail $ were a record $868B, +14.0% from 2020. Some Services Outlets are still suffering but almost all Retail Channels have recovered. While some Consumer retail spending behaviors may have changed, the U.S. Retail Market is the strongest in history.

PET STORES – CHAINS vs INDIES

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In our 30 year history of Pet Stores, we tracked their rise to the top spot in pet products sales, which was largely due to the creation and rapid growth of chains and Pet SuperStores. They gained the #1 position in 1997 and have held it ever since. However, that journey has not been without challenges. They maintained a 40% market share in Pet Products in 1997 and 2002 but that fell to 33.1% in 2012 due to increased competition from the mass market. From 2012 to 2017, there was a new challenger – the Internet, but Pet Stores remained strong. They increased their share of Pet Products sales slightly to 33.3%. This was a small, but very significant gain as Pet Stores and $ Stores were the only 2 retail channels to gain market share in Pet Products $ in this 1st Internet Tsunami.

There is no doubt that that Pet Stores are resilient and a key consumer channel for Pet Parents. However, not all pet stores are the same. There is the key difference of Indies vs Chains. However, not all chains are created equal. They range from small local chains to regional to the national behemoths. In this report we will look at how these groups have progressed from 2002 to 2017, with an especially deep look at who stood their ground from 2012 to 2017 and how they did it.

We’ll start with the share of stores and Total $ for 2017 for independents and various sizes of chains. Remember, there were 9984 pet stores (with employees) in 2017, an increase of 1192 (+13.6%) from 2012. $ales showed even stronger growth, up $3.6B (+24.7%) to $18.4B in 2017.

Pet Store Numbers – Indies lost a little ground while the big chains are growing at a staggering rate. The small local chains (2>9 Stores) are also growing, especially the 5>9 group. The 10>24 group lost share, but they are basically in a transitional step on their way to 25+ stores. Chain Stores have more than half of all pet outlets with employees, 51.5%.

Pet Store $ales – The big chains dominate Pet Store $, 71.5%. However, $ales in the Indies and small local chains are still growing. $ales in the small chains are actually growing at a significantly higher rate than the big guys.

This shows where the pet store channel is at. Let’s see how it got there with data from 2002 to 2017. First # of Stores

Share of Pet Stores

  • The number of Pet Stores grew from 7626 in 2002 to 9984 in 2017, an increase of 2358 (+30.9%).
  • The number of Indies has slowly but steadily declined from 5285 in 2002 to 4839 in 2017, -446 (-8.4%)
  • During the same period, chain store outlets have more than doubled, from 2341 in 2002 to 5145 in 2017, +2804 (+119.8%).
  • That makes 2017 a very significant year. Independent Pet Stores were a key part of the foundation of the Pet Industry. For the 1st time they were outnumbered by chain stores.
  • The big chains, 25+ stores, have been the driving force in the growth in the number of Pet Stores in the 21st century. They went from 1512 stores in 2002 to 4287 in 2017, +2775 (+183.5%) – almost triple.
  • The 10>24 Store chains are a transitional phase, so their market share has been up and down. They are often focused on growing numbers for a stronger regional or even national presence so many move up to the 25+ group.
  • The 2>9 group is a combination of the 2>4 and 5>9 store groups and was created because their growth pattern is very similar. As you can see, their share of stores fell consistently from 2002 to 2012. Their store count fell from 646 to 554, -14.2% during this period. Then they turned it around. They added 16 more companies and 72 stores (+13.0%) between 2012 and 2017. They didn’t gain share but held their ground vs the big guys.

Now let’s look how the share of Pet Store $ have “evolved” over the same period.

Share of Pet Store $

  • Pet Store $ales grew from $7.6B in 2002 to $18.4B in 2017, a $10.8B (+142.1%) increase.
  • Independent Store $ increased from $2.4B to $3.8B, +$1.4B (+58.3%) during those years. That’s a 3.1% annual increase but it wasn’t nearly enough as they lost significant share through 2012. 2012>2017 was a different story. Their sales increased +22.1%. They lost 0.4% in share but essentially “held their ground”.
  • Chain stores have dominated the $ in this channel since 1997. Between 2002 and 2017 their total sales grew from $5.2B to $14.6B (+180.8%). As Indies lost share, they gained. From 2012 to 2017, their sales increased +$2.9B (+25.4%). However, like the Indies, their share essentially plateaued.
  • Like store count, the big chains have driven the growth in Pet Store $. Their sales grew $4.3B, +104.7% between 2002 and 2017. However, their growth from 2012 to 2017 was 25.1%, slightly below the rate of total chain $.
  • The transitional 10>24 Store chains had an up and down pattern that exactly mirrored their pattern in store count. They had a 2.1% increase in $ from 2012 to 2017 which resulted in a 27.6% drop in share, from 2.9% to 2.1%.
  • The 2>9 Store local chain group earned the only green highlight on the chart. From 2002 to 2012 their $ grew +2.7% but Their share of $ was nearly cut in half. The 2012>2017 period had a radically different story. Their $ales grew +$0.34B (+47.1%), by far the biggest percentage increase of any group. At $1.05B, they broke the “billion $ barrier” for the first time. Their share of $ grew 0.9% to 5.7%, an 18.8% increase.

This last chart on share of $ told a similar story to the store count chart up until 2012. Then some patterns changed. This suggests that we should take a closer look at what happened between 2012 and 2017. In this next chart we look at the % change in some key measurements from 2012 to 2017 for the different groups of Pet Stores.

Before we get to the specifics for each group, we’ll comment about how each measurement relates to our “deep dive”.

  • Total $ – The gap between share of $ for Chains and Independents had been growing through 2012. Then the growth flattened out in 2017. This change in pattern indicated that we should look a little deeper. There are 2 primary drivers behind a change in $ – Number of Stores and Average Sales per store.
  • # of Stores – This is often the main reason behind a change in $. If your business model remains unchanged, then your $ are connected to your store count – up or down.
  • Avg $/Store – This can reflect product trends in the industry and is also a measure of your consumer appeal. The movement to Super Premium Pet Foods began in 2014/15 and had a differing impact upon the groups.
  • # of Employees – If you don’t change your in store business model, this should be directly tied to store count.
  • Avg # Employees/Store – Employees have a variety of functions, including stocking shelves, building displays and keeping the store “cleaned and polished”. However, the most important responsibility may be interacting with customers. Pet Parents want interaction and discussion when they are shopping for products for their Pet “Children”. This has been a key reason that Pet Stores have maintained the top $ position over other channels.

Now, let’s see how the various Pet Store groups performed in these areas between 2012 and 2017.

  • All Pet Stores – This will be a key group for comparison as it reflects the progress of the entire Pet Store Channel.
    • Total $: $18.4B, +24.7%
    • # Stores: 9984, +13.6%
    • Avg $/Str: $1.84M, +9.8%
    • # Employees: 119.9K, +13.6%
    • # Employ/Str: 12.01, +0.01%

The growth in Total $ came from both increased store count and $ per store but more stores was the biggest driver. In terms of employees, the overall model was unchanged as employees/store went from 12.0 to 12.01.

  • Single Stores – They don’t have the most number of stores for the 1st time in history.
    • Total $: $3.8B, +22.2%
    • # Stores: 4839, -2.5%
    • Avg $/Str: $0.78M, +25.3%
    • # Employees: 29.3K, +8.3%
    • # Employ/Str: 6.1, +11.0%

They lost some stores but radically increased the $ per store. Specialty Super Premium foods and increased consumer connection from more employees per store were factors in holding their ground in share of $.

  • All Chains – Now, the biggest group in both $ and Stores. We’ll look for similarities and differences within the group.
    • Total $: $14.6B, +25.3%
    • # Stores: 5145, +34.3%
    • Avg $/Str: $2.83M, -6.7%
    • # Employees: 90.6K, +15.5%
    • # Employ/Str: 17.6, -14.0%

Overall, their $ growth slightly exceeded the channels growth rate, but it was entirely driven by more stores as the average store sales fell. They also added a lot of employees but the employees per store fell significantly. One factor is that some chains began adding smaller format stores to save money and have a more personal experience.

  • 2>4 Store Chains – We added this group back in to look for differences between them and the 5>9 Store group.
    • Total $: $0.55B, +37.3%
    • # Stores: 362, +7.4%
    • Avg $/Str: $1.53M, +27.8%
    • # Employees: 4.4K, +26.3
    • # Employ/Str: 12.2, +17.6%

This group represents a critical time for Pet Store owners. They have a successful store. Could they do even better if they added another location or 2.  In 2017, more companies opted in, but others continued to grow and moved up to the 5>9 group. They grew 7.4% in stores but increased the number of employees per store by twice that amount, +17.6%. This is important any time, but it was extremely important in the movement to Super Premium food. They offered the product but also had the personnel to discuss the consumers’ wants and needs. This helped drive their per store sales up 27.8%, to a level double that of Single Stores and produced a 37.3% increase in Total $.

  • 5>9 Store Chains – This group, with more stores and better coverage can become a major force in local markets.
    • Total $: $0.50B, +59.9%
    • # Stores: 264, +21.7%
    • Avg $/Str: $1.89M, +31.4%
    • # Employees: 3.1K, +34.7%
    • # Employ/Str: 11.7, +10.8%

This group had a game plan similar to the 2>4 group but with even stronger results. They added even more stores. This, in combination with increased store sales drove Total $ up 60%. They have the stores and people to be strong competition to the big chains in their local market.

  • 10>24 Store Chains – Most are committed to further growth so there is a continual influx and outflow of companies.
    • Total $: $0.39B, -7.2%
    • # Stores: 232, -15.0%
    • Avg $/Str: $1.69M, +9.2%
    • # Employees: 2.3K, -0.4%
    • # Employ/Str: 9.7, +17.2%

This is a transitional group, on their way up. They added employees per store and increased Store sales. Their Total $ fell solely because of a 15% drop in the number of stores.

  • 25+ Store Chains – This group is the dominant force in the Pet Store Channel and has been since the 90’s.
    • Total $: $13.1B, +25.1%
    • # Stores: 4287, +42.7%
    • Avg $/Str: $3.06M, -12.3%
    • # Employees: 80.8K, +14.8%
    • # Employ/Str: 18.8, -19.5%

With 42.9% of the stores and 71.5% of the $, there is no doubt this is the dominant group in the Pet Store channel. Their $2.6B (+25.1%) increase was also 72.6% of the Total $ increase for Pet Stores. They are the group that allowed Pet Stores to maintain and gain in market share of pet products against the Mass Market and an Internet Tsunami. With that being said, the group continues to evolve with many new smaller footprint stores designed to give Pet Parents an even more personal retail experience. This contributed to fewer employees per store and reduced Store volume. One thing hasn’t changed. They continue to open stores at a spectacular pace.

Observations

The movement to personalize our pets really came to the forefront of Pet $ with the strong movement to Super Premium Foods which began in the 2nd half of 2014 with Millennials and then spread to Boomers and ultimately became widespread across the consumer marketplace. The big chains remain the bulwark of the Pet Store channel. However, they provided a wall of protection which allowed small, localized chains to grow and prosper. They offer a more personal shopping experience and often were the first to stock and sell some new Super Premium pet foods. You see the results of this broadened appeal in the increase in per store sales for all pet stores with fewer than 25 outlets, including Indies. The biggest % growth in store $ occurred in the 2>4 and 5>9 groups. The 5>9 store group became especially stronger with a 60% increase in Total $. The reason is twofold. They offer a personalized experience but have enough outlets in any given local market to be a convenient option for consumers. We also shouldn’t forget the progress of the 2>4 Store group. I did a year long investigation of Pet Stores 3 years ago to validate the numbers. I found that a large number of new independents entered the market, but over the course of the year, over 8% of existing indies “closed their doors”.

The chain stores, big and small, lost virtually no outlets. There is a lesson here, that is almost as old as humanity but also applies to retail pet stores. “There is safety in numbers!” It just takes 2 or maybe 5 or you could move up to 15. After that the sky is the limit! Chain stores began in the 90’s. The big guys will remain dominant but there is room for all sizes!

There is another classification of Pet Stores that has come more to the forefront….

Pet Store Franchises

Let’s take a closer look. These stores are either owned by the Franchisee or the Franchisor.

In 2017 their share of stores was:

  • All Franchise Stores: 10.6%
  • Franchisee owned: 6%
  • Franchisor Owned: 4.0%

And their share of $ was:

  • All Franchise Stores: 7.7%
  • Franchisee Owned: 3.7%
  • Franchisor Owned: 4.0%

About 1 in every 9 Pet Stores is a Franchise outlet but they take in only 1 of every 13 dollars spent at U.S. Pet Stores. Franchisee Owned lead the way in number of stores, but Franchisor Owned stores produce more $.

This is where they were at in 2017. Let’s take a look at how they got there by viewing the changes in key measurements from 2012 to 2017.

These are the same key measurements, just for groups most relevant to franchises, including their biggest competitor.

  • Non-Franchise Chains – This is their biggest competitor and accounts for 40.9% of stores and 71.6% of Pet Store $.
    • Total $: $13.15B, +21.7%
    • # Stores: 4082, +33.2%
    • Avg $: $3.22M, -8.6%
    • # Employees: 79.8K, +10.6%
    • # Employ/Str: 19.5, -16.9%

Being on top creates a lot of pressure. They had a huge $ increase from opening more stores. Their percentage increase in $ was actually, even smaller than Indies, who closed 2.5% of their stores. They were the only group to have drops in Average Store $ and the number of employees per store.

  • Total Franchise Stores – They gained ground in share of stores and $ but 1 subgroup was a bigger driver.
    • Total $: $1.42B, +72.5%
    • # Stores: 1063, +38.8%
    • Avg $: $1.33M, +24.3%
    • # Employees: 10.8K, +70.9%
    • # Employ/Str: 10.1, +23.1%

Their growth rate in stores and Total $ was basically triple that of the whole Pet Store channel. The growth rate for Average Store $ was slightly behind the rate for Indies but it was 70% higher in actual $. They also led the way in employee increases and broke the 10 employee per store “barrier”.

  • Franchisee Owned Stores – Same name and business model, but different levels of execution from corporate stores.
    • Total $: $0.68B, +39.5%
    • # Stores: 660, +19.1%
    • Avg $: $1.04M, +17.1%
    • # Employees: 5.6K, +37.2%
    • # Employ/Str: 8.5, +15.2%

Although they lost some share to Franchisor Owned stores, they are still 62.1% of all Franchise Stores. They had significant growth in all measurements, but the store level execution of the Franchise business model can vary between stores producing a lower growth rate. In many ways the business behavior of these stores is more like that of an enhanced Independent Store. They have the 2nd lowest Store $ and number of employees per store. Both these measurements are 30+ higher than Indies and 30+% lower than Franchisor Owned stores. The growth in stores is promoted and driven by the Corporation and the increase in store $ over an independent store likely comes from the impact of the store Brand name and the Franchise business model.

  • Franchisor Owned Stores – These stores are classified as Franchises but essentially operate like a regular chain.
    • Total $: $0.73B, +120.9%
    • # Stores: 403, +90.1%
    • Avg $: $1.82M, +16.2%
    • # Employees: 5.2K, +132.2%
    • # Employ/Str: 12.9, +22.1%

Like the big regular chains, this group made a commitment to store growth. They increased the number of stores by an amazing 90%. This combined with a 16% increase in store $ produced a 121% increase in total $. Not to rain on their parade, but their average $ per store is still slightly below the $1.84M for Total Pet Stores and 43% lower than the $3.22M for Non-Franchise Chains. Their 22% growth in employees per store should also come with an (*). They have the lowest annual pay per employee for any group, even 29% below that for Indies, and it fell -6.8% between 2012 and 2017. It is likely that they have a high and growing percentage of part-time employees.

That wraps up our look at Franchised Pet Stores. We saw that Franchisee owned stores outperform Independent Stores, but Franchisor owned significantly outperformed them in store $ and growth. True performance is the share of $ divided by the share of stores. A score of 100+% means that a group is “earning their share”. Performance provides us a method to compare the subsets of Franchises to the subsets of store count. We will end our Pet Store analysis with this graph:

As expected, singles are the worst performers. If you’re considering opening a store, buying a franchise might offer more success. If you already have a successful store, should you open another? The answer appears to be yes. There is safety in numbers and greatly improved performance in the 2>4 group. Now comes the big question. Do you have the will and the resources to become a “force” in your local market? If so, then go for it. The 5>9 store group is 1 of only 2 groups performing above 100%. They even outperform the Franchisor owned group. The final step to 25+ stores is difficult and open to few. You first transition to 10>24 stores, where you learn the challenges of attaining regional success in possible anticipation of a national goal. That goal is truly “gold” as 25+ are the best performers and responsible for Pet Stores holding their ground in 2017 vs the Mass/Internet.

 

 

Retail Channel Monthly $ Update – October Final & November Advance

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The Retail market hit bottom in April 2020 then began its recovery. The journey has been long and complex and Consumer spending behavior continues to evolve. We have not beaten the virus yet so we will continue to track the ongoing recovery of the retail marketplace with data from two reports provided by the U.S. Census Bureau.

The Reports are the Monthly Retail Sales Report and the Advance Retail Sales Report. Both are derived from sales data gathered from retailers across the U.S. and are published monthly at the same time. The Advance Report has a smaller sample size so it can be published quickly – about 2 weeks after month end. The Monthly Final Report includes data from all respondents, so it takes longer to compile the data – about 6 weeks. Although the sample size for the Advance report is smaller, the results over the years have proven it to be statistically accurate with the final monthly reports. The biggest difference is that the full sample in the Final report allows us to “drill” a little deeper into the retail channels.

We will begin with the Final Retail Report for October and then move to the Advance Report for November. Remember, the retail impact of the pandemic began in March 2020, peaked in April, then recovery started in May. We will compare 2021 to both 2020 and 2019 to document the progress that the retail market has made towards a full recovery.

Both reports include the following:

  • Total Retail, Restaurants, Auto, Gas Stations and Relevant Retail (removing Restaurants, Auto and Gas)
  • Individual Channel Data – This will be more detailed in the “Final” reports and we fill focus on Pet Relevant Channels

The information will be presented in detailed charts to facilitate visual comparison between groups/channels of:

  • Current Month change – % & $ vs previous month
  • Current Month change – % & $ vs same month in 2020 and 2019
  • Current YTD change – % & $ vs 2020 and 2019
  • Monthly and Year To Date $ will also be shown for each group/channel

First, the October Final. Retail hit bottom in April 2020 but began recovery, hitting record $ in December. $ fell in January/February but set a new $ records in March and then again in May. Sales declined through September but turned up in October. Here are the major retail groups. (All $ are Actual, Not Seasonally Adjusted)

The final total is $0.7B less than the Advance report projected a month ago. All groups but Restaurants were down slightly. The specifics were: Relevant Retail: -$0.8B; Gas Stations: -$0.1B; Auto: -$0.3B; Restaurants: +$0.5B. Sales vs September were up in all groups. Total Retail $ales broke $600B for the 1st time in December. October sales beat that number and in fact were the 4th highest of all time. Auto continues to have the strongest recovery with an annual YTD growth rate since 2019 of +11.6%. While a spending dip in September is the “norm” in U.S. Retail, so is an October rebound. Importantly, for the 5th consecutive month, all groups were positive in all measurements vs 2020 or 2019.

Now, let’s see how some Key Pet Relevant channels were doing in October.

  • Overall – No channels were down vs last month, a big change from 10 in September. In fact, the only negative was Office/Gift/Souvenir YTD $ vs 2019. October was the 2nd biggest month in history for Relevant Retail.
  • Building Material Stores – Their amazing lift has slowed a little. The surge came as a result of pandemic spending patterns developed in 2020. Consumers began focusing on their homes. Their Spring lift has slowed in 2021 but Building and Farm stores are still going strong. Sporting Goods stores have a similar pattern. Sales took off in May 2020, hit a record peak in December and continued strong into 2021, peaking in March. $ slowed but have now stabilized after a big drop in September. YTD they are +47.4% vs 2019, a Growth Rate of 21.4%!
  • Food & Drug – Supermarkets were +$77.7B in 2020. $ are up vs September and +8.3% vs October 2020. YTD $ are on par with the 2020 binge and +15.4% vs 2019. Drug Stores were +$17B (+5.7%) for 2020. They had a record March. Sales have been relatively stable since then. Their YTD $ are +7.2%.
  • General Merchandise Stores – $ in all channels fell in Jan & Feb then spiked in March. Monthly sales by channel have been up or down since then but all were strong in October, +10.1% vs September. Clubs/SuprCtrs & $ Stores are leading the way with a combined annual growth rate of +8.9%. These channels promote value. Their success reinforces its importance to consumers. Disc. Dept. Strs are now rebounding with all positive numbers.
  • Office, Gift & Souvenir Stores– $ are up from September and were +15.1% vs October 2020. The pandemic hit them hard. They are still down YTD vs 2019. Recovery will take more time, but their situation is improving.
  • Internet/Mail Order – Their sales rebounded after dipping in September. The pandemic continues to fuel this channel’s growth. In October 2019, their avg annual growth rate was +14.1%. Now, it is +19.4% – up 37.6%
  • A/O Miscellaneous – This is a group of small to midsized specialty retailers – chains and independents. It includes Florists, Art Stores and Pet Stores (22>24% of total $). Pet Stores were usually essential, but most stores were not. In May 2020 they began their recovery. Their 2020 sales were up +12.1%. October 2021 was their 6th consecutive month over $10B and their 2nd biggest month ever. YTD $ are +27.4% vs 2020 and +40.9% vs 2019.

Relevant Retail began recovery in May and set a $ record in December. $ fell in Jan & Feb, turned up again in March and began a monthly up/down rollercoaster. October $ were up for all and all but 1 channel are ahead of all 2020 & 2019 $. The key drivers are the Internet, SuperCtrs/Clubs/$ Stores and Hdwe/Farm. Now, the Advance numbers for November.

2020 was a memorable year for both its traumas and triumphs. In April & May we experienced the 2 biggest retail spending drops in history, but the problems actually began in March. Retail sales began to recover in June and in October, YTD Total Retail turned positive for the 1st time since February. In December, Total Retail broke the $600B barrier – a historic first. Sales fell in both January and February but still set monthly sales records. Then they took off again in March, setting a new monthly sales record of $633B. April sales were down slightly but they took off again in May to set yet another spending record, $643.1B. June>Sept $ fell but then came back in October & November with November setting a new record of $649.3B. Only Relevant Retail was up vs October, but all were positive in all other measurements for the 6th straight month. Some other areas of the economy are still suffering, some spending behavior has changed, and inflation has become a bigger factor in increases. However, consumers continue to spend “big bucks”, especially in Relevant Retail, and the overall Retail marketplace continues its strong recovery.

Total Retail – In March and then in May Total Retail set new sales records. From June>Sept sales dipped slightly but stayed above $600B. October brought a resurgence and in November sales continued to grow, setting another all time record with monthly sales of $649.3B. Relevant Retail deserves most of the credit for the record as sales for the other groups were down vs October. The current YTD average annual sales growth rate since 2019 for Total Retail is 9.4%, the highest ever in records going back to 1992. Inflation Note: Retail $ were +19.5% vs November 2020. Inflation was +6.8% so up to 35% of the lift came just from higher prices. The “Real” increase was +12.7%. In November 2019 (pre-pandemic) Retail $ were +2.6% over 2018. Inflation was 2.0%, 78% of the lift. The “Real” increase was +0.6%. Long term, strong inflation can slow spending but right now, Retail is far outperforming pre-COVID 2019.

Restaurants – This group has no negative measurements vs 2020 or 2019 for 6 straight months. February 2020 YTD sales were up 8.1% vs 2019. The Pandemic changed that. Restaurants started to close or cease in person dining in March and sales fell -$33.3B (-52.5%) compared to March 2019. Sales bottomed out in April at $30.1B, the lowest April sales since 2003. Sales started to slowly increase in May but never reached a level higher than 88% compared to the previous year. 2021 started off slowly. Through February, YTD sales were down -16.7% from pre-pandemic 2020 and -10.0% from 2019. In March sales took off and grew steadily from April through July. Sales dipped in August/September came back strong in October then fell in November. YTD their $ are +31.7% vs 2020 and +5.2% vs 2019. Their recovery is getting stronger.

Auto (Motor Vehicle & Parts Dealers) – Staying home causes your car to be less of a focus in your life. Sales began to fall in March and hit bottom in April. Auto Dealers began combating this “stay at home” attitude with fantastic deals and a lot of advertising. It worked. They finished 2020 up 1% vs 2019 and have returned to a strong positive pattern in 2021. The “attitude” grew amazingly positive in March and has slowed only slightly from April>November as sales exceeded $119.8B in all 9 months – the 9 biggest months in history. To show the effectiveness of their campaign, just look at the data. This group has exceeded $110B in monthly sales only 18 times in history. 15 of those occurred after the onset of the pandemic.  YTD Avg Annual Growth Since 2019 = +11.3% – the best performance of any big group.

Gas Stations – Gas Station $ales have been a mixed bag. If you drive less, you visit the gas station less often. Sales turned down in March 2020 and reached their low point in April. They moved up but generally stayed about 15% below 2019 levels for the rest of 2020. In February they were still behind 2020 in monthly and YTD $ but ahead of 2019 in both measurements. In March, sales skyrocketed and continued to grow to a record level in July. They fell in Aug/Sept but hit a record $55.3B in October. Sales fell in November, but they have been positive in all measurements vs 2019 & 2020 since March. Their comeback continues but inflation comes to the forefront in this channel. Gas prices can be pretty volatile. They dipped in the first 2 months of the pandemic but returned to more normal levels for the balance of 2020. Strong inflation began in 2021. In fact, November prices were 58.1% above 2020. That means that the 53.0% year over year $ lift in November was actually a decrease in the amount of gas sold. YTD Annual Growth Rate Since 2019 = +6.6%

Relevant Retail – Less Auto, Gas and Restaurants – This is what we consider the “core” of U.S. retail and has traditionally accounted for about 60% of Total Retail Spending. In looking at the individual channels in this group, we have seen a variety of results due to many factors, like non-essential closures, binge buying, online shopping and a consumer focus on “home”. However, overall, April 2020 was the only month in which spending in this group was down vs 2019. Monthly $ales exceeded $400B for the first time ever in December. They finished 2020 up $260B, +7.1%. Their performance was the only reason that Total Retail was able to finish 2020 with positive numbers, +0.5%. Sales fell in January and February 2021 but set monthly records. In March they turned sharply up and then began an up/down $ roller coaster ride. In October they reached the 2nd highest amount on record but November took over the top spot with $407.1B. March>November are 9 of the 11 highest $ months of all time. Relevant Retail has exceeded $361B in monthly sales 11 times in history. 10 of those have occurred since the onset of the pandemic. It is also very important that the Relevant Retail group has posted positive numbers versus last year and YTD for every month since April 2020 and their average YTD growth rate since 2019 is +10.5%. The recovery has become widespread as all channels have been positive in all measurements vs both 2020 and 2019 for 4 consecutive months. However, the primary drivers throughout the pandemic were and continue to be Nonstore, Grocery, SuperCenters/Clubs/$ Stores plus a seemingly never ending  2020 “spring lift” from Hardware/Farm and Sporting Goods.

Now let’s look at what is happening in the individual retail channels to see where the $ are coming from. November $ were up 7.4% from October and an increase occurred in 9 of 13 channels. Remember, the groups in the chart are less defined than in the Final Monthly reports and we will look across the whole market, not just pet relevant outlets.

Sales in 9 of 13 channels were up vs October but all were up vs November 2020, vs November 2019 and YTD vs 2020 and 2019. (Relevant Retail YTD Avg Annual Growth Rate since 2019 = +10.5%)

After hitting bottom in April 2020, Relevant Retail has now beaten the previous year’s $ for 19 consecutive months. The group set an all-time record of $406.8B in December and finished 2020 +$260B vs 2019. 2021 started strong, with record sales in every month, including a new all-time record of $407.1B in November. Essential channels are still the big drivers:

  • Nonstore Retailers – The biggest driver. Online shopping continues to grow in # of households and in $.
  • Food & Beverage – Grocery– Restaurant $ are improving but consumers continue to eat & drink more at home.
  • Bldg Materials/Garden/Farm– Their “Spring” lift may be ending but consumers are still focused on their homes.
  • SuperCtrs/Club/Value/$ Strs – They kept the GM channel strongly positive. Value is still a big consumer priority.

Regarding the Individual Large Channels (Includes YTD Avg Annual Growth Rate since 2019)

General Merchandise Stores – Sales increased for all channels vs October and all other numbers were also positive. Even Department Stores $ are growing increasingly positive. After dipping to +7.5% in February, the growth rate by Club/SuperCtr/$ stores has stabilized at about 8.8% ever since. These stores are still the key to this channel.

  • YTD Avg Annual Growth: All GM = +7.6%; Dept Stores = +1.7%; Club/SuprCtr/$ = +8.9%

Food and Beverage, plus Health & Personal Care Stores – Sales in Grocery were down in March>May from 2020 – No surprise, as these were 2020 binge months. In Jun>Nov they beat 2020 $. Health/Personal Care finished 2020 at +1.8% but 2021 has been better. November was down 2.7% from October but YTD $ are +9.4%% vs 2020 and +10.8% vs 2019.

  • YTD Avg Annual Growth: Grocery = +7.5%; Health/Drug Stores = +5.3%

Clothing and Accessories; Electronic & Appliances; Home Furnishings – March > Nov have been spectacular for all these channels. The increase in Clothing vs November 2020 was less than usual but was still +35.3%. All were up vs October and also remained positive in all measurements vs 2020 or 2019 for the 9th consecutive month.

  • YTD Avg Annual Growth: Clothing = +5.6%; Electronic/Appliance = +3.6%; Furniture = +10.1%

Building Material, Farm & Garden & Hardware – Their “Spring” lift which began in 2020 has slowed but they have greatly benefited from consumers focusing on their home needs. They finished 2020 +53B (+13.8%). Sales took off in March, set a record in April, but have since slowed and stabilized. They are still +13.4% YTD. Avg Annual Growth = +13.6%

Sporting Goods, Hobby and Book Stores – Book & Hobby stores are open but Sporting Goods stores have driven the lift in this group. Consumers turned their attention to personal recreation and sales in Sporting Goods outlets took off. The group ended 2020 +5.5% vs 2019. The growth accelerated in 2021 with a strong spike in November, up 15.8% from October to $10.2B, the 2nd biggest month ever. November YTD they are +29.9% vs 2020. Avg Annual Growth = +17.1%

All Miscellaneous Stores – Pet Stores were deemed essential but most other stores were not, so closures hit this group particularly hard. Sales hit bottom at -$3.8B in April then began to rebound. They finished with a strong December and ended 2020 -$1.0B, -0.7%. In March 2021 sales took off and reached the $14+B level in May. They have stayed there and set a record of $15.3B in October. Sales fell to $15.0B in November, but it is still #2 of all time. YTD sales are now +27.5% vs 2020 +26.9% vs 2019. Their recovery is very real. YTD Avg Annual Growth = +12.7% (4th Best)

NonStore Retailers – 90% of the volume of this group comes from Internet/Mail Order/TV. The pandemic accelerated the movement to online retail. In February 2020 NonStore $ were +8.6% YTD. In December monthly sales exceeded $100B for the 1st time. They ended 2020 at +21.4%, +$162.9B. This was 63% of the total $ increase for Relevant Retail Channels. Their 2020 performance beat the 12.9% increase in 2019 and every month in 2021 has produced record $. November was +19.9% vs October and set a new record of $105.4B. YTD $ are +14.4%. YTD Avg Annual Growth= +18.1%

Note: Almost without exception, online sales by brick ‘n mortar retailers are recorded with their regular store sales.

Recap – 2020 was quite a year. April & May had the 2 biggest year over year sales decreases in history while December sales broke $600B for the first time. 2021 may become even more memorable. November set a new $ record. Mar>Nov are 9 of the 10 biggest $ months in history with the 9 largest year over year sales increases ever. The total increase was +$1.05T, which is over 6 times the -$174B decrease from March>May 2020 which caused so much concern. At yearend 2020, Restaurants and Gas Stations were still struggling but Auto had largely recovered. Relevant retail had segments that also struggled but they still led the way for Total Spending to finish the year +0.5% vs 2019. 2021 has been even better. In Jun>Nov all major groups were positive vs both 2020 and 2019. The recovery has also become real for virtually all channels and monthly sales continue to set records. In fact, the current annual growth rates of +9.4% for Total retail and +10.5% for Relevant Retail are the best ever. Retail has recovered and continues to grow but we’ll keep checking.