Spending, CPI, demographics of overall market

2015 Pet Products Spending was $44.4B- Where does it come from?

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The 2015 Consumer Expenditure Survey conducted by the US BLS with “field” work by the Census Bureau determined that Total Pet Spending in the U.S. reached $67.75B, a $3.43B (5.3%) increase over 2014. Pet Products (Pets, Food & Supplies) generated $44.39B, 65.5% of the total and 97% of the increase.  Specifically, annual Pet Products spending increased by $3.32B (+8.1%).  This came from a huge $5.43B (22.5%) increase in Food spending which overcame a $2.1B drop in Supplies. In earlier analyses we determined that the increase was primarily driven by the Baby Boomers, who elected to upgrade their Pet Food in 2015. However, that’s not the whole $44.4B Pet Products story.

Where did the bulk of the spending come from? In this report we will look at Pet Products Spending in terms of 10 demographic categories. The goal is to determine what groups are responsible for most of the overall spending. Our target number was to find demographic segments in each category that account for 60 to 80% of the total. In some cases this was easy – Homeowners. In other situations, we had to bundle individual segments together to reach our 60% “minimum”. Ex: Occupation – All Wage & Salary earners

Knowing the specific group within each demographic category that was responsible for generating the bulk of Pet Products Spending is a first step in a targeted marketing program. In part 2 of this 3 part report we will drill deeper to show the best and worst performing demographic segments for 2015! But first… Let’s “show you the money!”

In the 2 charts that follow, the demographic groups appear in ranked order by Total Pet Product market share from highest to lowest. I also included their share of total CU’s (Financially Independent Consumer Units). This allows us to see how each performed versus the size of the demographic group.

1. Race/Ethnic – White, Non-Hispanics (87.4%) The vast majority of Pet Products Spending is done by this group. In fact, Hispanics, African Americans and Asians account for 30% of CU’s but less than 13% of Pet Products Spending. The Hispanic portion of the U.S. population is growing strongly. This situation that was addressed in a recent report specifically covering racial/ethnic spending.. (Performance Rating: 125%)

2. # in CU – 2+People (82.2%) – It just takes two. More singles are adding Pets to their household. However, if you put 2 people together pets very likely will follow. (Performance Rating: 116%)

3. Housing – Homeowners (80.4%) Controlling your “own space” has long been the key to larger pet families and especially more pet products spending. (Performance Rating: 129%)

4. Income – Over $50K (68.6%) Although Pet Parenting is common in all income groups, money does matter. The top half of CU’s by income spent 69% of Pet Products $. (Performance Rating: 138%)

5. Age – 45>74 (65.8%) Income starts high with this group then fades. The key factor is that their children are older and in most cases have left home. When this happens, their attention and spending naturally turn to their Pet Children. (Also, All the Boomers are in this group) (Performance Rating: 129%)

6. CU Composition – Married Couples (64.3%) With or without children, two people, committed to each other, is an ideal situation for Pet Parenting. (Performance Rating: 133%)

7. # Earners – “Everyone Works” (64.3%) This is a composite of CU’s, regardless of size, where all adults are employed. While this group makes and spends more money, retired folks and CU’s with 2+ people and only one earner are still a significant share of Pet Products spending. (Performance Rating: 113%)

8. Area – Suburban (63.4%) Homeownership is high plus this group also has the “space” for pets. This equation invariably equals increased Pet Products Spending. (Performance Rating: 115%)

9. Education – Associates Degree or Higher (61.3%) All education levels certainly have pets but spending is another matter. Pet Products spending increases with education level. Consumers with a formal degree beyond a high school diploma accounted for 61% of spending. (Performance Rating: 121%) By the way, those with a degree or at least some college courses were responsible for 81% of Pet Products Spending.

10. Occupation – All Wage & Salary Earners (59.9%) – Pet ownership is widespread across this group. All individual segments had a performance rating of over 80% for Pet Products. (Performance Rating: 99%)

Overview: The Demographics of Pet Products spending are slightly different from those of Total Pet Spending, which includes the Services and Veterinary segments. The Pet Service segment is largely discretionary spending and inflation has become so strong in the Veterinary Segment that it has caused many price conscious consumers to delay, eliminate or look for alternatives for many Veterinary Clinic Services. In 2015, consumers also reduced their spending on Pet Supplies, but at the same time, some also radically increased Food spending by upgrading to a higher quality. If you are a Pet Parent, you can shop for value and exercise discretion in your purchases, but ultimately you have no choice. You must spend money on Pet Products.

Comments: In terms of this report, the spending disparity in regard to Race/Ethnicity is very evident. Putting 2 people together is definitely a “good bet for pet”. The correlation between homeownership (especially with a yard) and pet spending has been true from the earliest days of the industry. Yes, income does matter, especially with the current movement to upgrade Pet Food. but how you make the money isn’t as important. Educated consumers are also more likely to spend more. They usually make more money but they may also respond better to situations like the value of higher quality nutrition – even though it comes at a significantly higher price. Finally, as parents grow older and their children start to leave home, they turn their attention and spending to their Pet Children.

Pets are an integral part of the American way of life…but there is still room for the relationship to grow.

In Part 2 we will look at the Demographic Segment “Winners and Losers”

2015 U.S. Pet Spending by Racial/Ethnic Groups

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Over 88% of the $67.75B that we spent on our companion animals in 2015 was done by 69.9% of the 128.4 million financially independent Consumer Units. These “majority” CU’s are White, Not Hispanic. That means that the 38.4 million CU’s – 30.1%, which are Racial or Ethnic minorities, generated less than 12% of Total Pet Spending.

In our earlier demographic analyses, we noted specific instances of minority “under performance”. In this report, we will drill deeper to get more specifics on the Pet Spending by Minority Groups – Hispanics (All Races), African Americans and Asians. The U.S. is growing more ethnically diverse every day so this is a situation and an opportunity which needs to be investigated.

Note: All the numbers are calculated from or taken directly from the Annual US BLS Consumer Expenditure Survey.

Let’s get started by looking at the Racial/Ethnic make-up of the U.S.

  • The White, Not Hispanic group also includes Native Americans and Pacific Islanders.
  • 2015 is the first year that the White, Not Hispanic group fell below 70% of the total CU’s
  • Asian share of CU’s was down slightly.
  • The biggest growth in number of CU’s came from Whites, although it was only 4K more than Total Minorities.
  • African Americans are increasing at a rate more than double the White Population.
  • The Hispanic growth is spectacular. Hispanic CU’s are increasing 3½ times faster than Whites.

Now let’s take a look at some of the characteristics that we have found to be important in pet spending behavior.

  • CU Size – Hispanics have by far the largest CU’s, 30+% higher than average. However, in 2015, smaller CU’s, 2-3 people, generated the most spending and had the biggest increase largely due to the Food Upgrade by the Boomers.
  • # Children under 18 – In 2014, CU’s with more than 1 child bought the most pet products. In 2015, it was the older age groups with a child over 18. Note: With twice as many children per CU than Whites, the Hispanics are sure to gain in share of CU’s, even without immigration.
  • # Earners– It is more likely that all the adults work in a Hispanic family. With twice as many kids, this could be tough.
  • Homeownership – Homeowners account for 80+% of all Pet Spending. The percentage of Hispanics and African Americans that own homes is 40% less than Whites. Both groups are also twice as likely to live in a Center City than in the suburbs. Asians are also likely to be Center City dwellers. The rate of pet ownership is lower in Center Cities.
  • Education was also an important factor in 2015 spending, especially regarding the Food Upgrade and the Veterinary segment. The Asians are the leaders, while Hispanics have the lowest percentage of after High School education.

Next, we’ll compare each to the National Avg in Income, Spending, Pet Spending and Pet Share of Total $pending.

CU National Averages: Income – $69,627; Total Spending – $55,978;

Pet Spending – $528.17; Pet Share – 0.944%

  • Asian Americans make and spend the most money…but not on their pets. This may be due to cultural differences.
  • African Americans and Hispanics have lower incomes and their overall spending is relatively in line. However, they spend significantly less on their pets. This is especially true of African Americans and indicates a significantly lower rate of pet ownership. A consumer survey from HUD on emergency disaster planning found this number to be 24%.
  • The spending of White Americans is very much tied to income, except where their pets are concerned, then…$$$.

It’s time to look at actual Dollars Spent. We’ll review the spending on Total Pet and each industry segment in terms of share of sales as well as a 3 year history of each of the Racial/Ethnic Minority segments.

In the graph showing market share of Total Pet, as well as those that follow, the overwhelming dominance of White Americans in terms of spending on their pets is all too apparent.

  • Performance = Share of Spending/Share CU’s: Hispanic – 47%; Asians – 45%; African Americans – 29%
    • This reinforces the probable low level of Pet ownership among African Americans.
    • With the exception of a big drop in Total Pet Spending by African Americans, all other groups showed an increase.
    • While the $ amount is small, the 18.7% increase by Asians could be significant. We’ll see where it comes from.
  • Spending History – From 2013 to 2015, U.S. Total Pet Spending increased $10.0B (+ 17.3%). During the same period, Minority Spending fell $0.75B (-8.6%).
    • Overall, Total Minority groups showed a decline each year.
    • African Americans had a big increase in 2014, but then “gave it back” in 2015. They are basically even with 2013.
    • Hispanics had a huge decline in 2014, but made a partial comeback in 2015. However, it was not enough. They are $0.89B (17.7%) down from 2013 spending.
    • Asian spending dipped in 2014 but bounced back in 2015. They are 10% “ahead” of their 2013 total.
    • Without the two massive drops, Hispanic in 2014 and African Americans in 2015, the numbers would be positive.

Bottom Line: Pet Spending is not making progress with Minority Groups. Now, the individual segments…First Food.

  • Performance = Share of Spending/Share CU’s: Hispanics – 49.0%; Asians – 46.1%; African Americans – 27.0%.
  • All groups had an increase in Pet Food Spending in 2015. The increases by Asians and African Americans were especially significant. The Asians increase may be a food upgrade, but both are maintaining and possibly adding pets.
  • Spending History – From 2013 to 2015, U.S. Pet Food Spending increased $6.54B (+ 28.5%). During the same period, Minority Spending increased $0.13B (+3.9%)
    • Asians are the only group with an increase in both years.
    • This “need” segment doesn’t reflect the overall U.S. growth but it is at least relatively stable. Now, Supplies.

  • Performance = Share of Spending/Share CU’s: Hispanics – 69.4%; Asians – 38.0%; African Americans – 28.0%.
    • Hispanics were one of the few Demographic segments in any category to have an increase in Supplies spending.
    • The decreases from Asians and African Americans were small in $, but a 20% decrease is still significant.
  • Spending History – From 2013 to 2015, U.S. Pet Supplies Spending fell $0.07B (- 0.5%) – Essentially Flat. During the same period, Minority Spending increased $0.16B (+8.2%)
    • Hispanics’ consistent growth in Supplies in conjunction with stable Food Spending is a good Pet Parenting sign.
    • The Supplies Segment is largely “discretionary” so spending is often impacted in groups with financial pressures.
    • Asians have the least income pressure so it makes a small spending cut due to a Food Upgrade more plausible.

Now, we will turn to the Service Segments. We’ll begin Non-Vet Pet Services.

  • Performance = Share of Spending/Share CU’s: Hispanics – 49.3%; Asians – 45.3%; African Americans – 26.7%.
    • This segment is generally discretionary spending so income and convenience generally matter.
    • For the Hispanics, with big families and everyone working, the convenience of services becomes a real “need”.
  • Spending History – From 2013 to 2015, U.S. Pet Services Spending increased $0.98B (+ 18.6%). During the same period, Minority Spending increased $0.03B (+4.2%)
    • Growth is minimal and considering the increase in CU’s, all groups are losing market share. Now, Veterinary.

  • Performance = Share of Spending/Share CU’s: Asians – 50.9%; African Americans – 32.2%; Hispanics – 23.4%.
    • Income and education are big factors in Veterinary Spending. Whites and Asians had the only increases.
  • Spending History – From 2013 to 2015, U.S. Veterinary Spending rose $2.56B (+17.6%). During the same period, Minority Spending decreased $1.05B (-39.6%).
    • This Demographic category illustrates the impact of the ongoing high inflation in this segment, especially among the Hispanic group. Financial pressures forced them to make a choice. They chose to spend their Pet $ on Food, Supplies and even Services at the expense of Veterinary.

Comments

One thing that we should always keep in mind is that all these numbers are averages. These Racial/Ethnic Groups are made up of individuals and are represented in virtually all Demographic Category Segments. Examples: 9% of all people with a Master’s Degree or higher are African Americans. 5% of the CU’s with an income above $200K are Hispanic.

However, overall, these rapidly growing racial/ethnic groups are not keeping pace with U.S. Pet Spending. In fact, they are losing ground…at an alarming rate. Consider this: Minority spending on Pet Products, just Food & Supplies, went from $5.3B in 2013 to $5.6B in 2015 – a $0.3B (5.0%) increase. At the same time, the number of minority CU’s increased 4.9%. So, all of this increase essentially came just from having more CU’s. At the same time, the White segment had a $6.2B (19.0%) spending increase with only a 1.1% increase in CU’s. The Result: The Total Minority Group’s market share of Pet Products spending fell 10% in just two years, even with a 5% increase in spending.

Asian Americans come from a variety of cultures, each with their own history regarding Pet Ownership. They certainly have the income and recent increases in Pet Food spending indicate the number of Asian Pet Parents may be growing.

Hispanics and African Americans are the two fastest growing groups and they share certain key characteristics. Their income is 20-30% below the National Average. Homeownership is 25-33% less. They are more likely to live in Center City areas. All these factors tend to reduce Pet Spending and ownership. The African American group has the lowest numbers in these measurements and a low percentage of Pet Households. The Hispanic group has another characteristic which is relevant to spending – kids. Having twice as many children under 18 per CU can only add to their financial pressures.

Most of the factors reducing Pet Spending are societal rather than just industry issues. However, the Pet Parenting desire still appears to be strong in these groups. We see it in Hispanic Spending on Food and especially Supplies. Also, despite having the lowest average income, African Americans still spend more on Veterinary than any other minority. The Pet Industry should recognize the situation as both a challenge and an opportunity. We need to do what we can to encourage and facilitate Pet Parenting in these groups.  It will pay “dividends” to everyone.

2015 Total Pet Spending Was $67.75B – The Demographic “Winners & Losers”

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Consumer spending on Pets in 2015 totaled $67.75B, an increase of $3.43B (5.3%) over 2014. In our last report, we established who was doing most of the spending (60>80+%) in the major demographic categories. In this report, we will drill deeper into the data to determine:

  • Which segments performed best…and worst in each demographic category
  • Which segments had the biggest gain or loss* in Total Pet Spending $. (*or smallest gain)
  • Some non-winners whose performance merits “Honorable Mention”
  • The “Ultimate” Pet Spending Consumer Unit in 2015

Performance

We’ll get started with the best “Performing” segments. To determine a segment’s performance we simply compare their share of the overall Pet Spending to their share of the total CU’s. (Financially independent Consumer Units) Example: If a segment spends 15% of all Pet $ and has 10% of all the CU’s, then their performance rating is 15/10 = 150% – very good. If their share of spending was only 5%, then their performance rating is 5/10 = 50% – not so good. This method puts every segment on a level playing field…then, may the best one win. Once again, all numbers in this report were calculated from data provided by the US BLS in their Consumer Expenditure Survey.

Here are the best and worst performers for 11 demographic categories, ranked by performance – from high to low.

Most of the “winners and losers” are the same as last year.  Changes from 2014 are “boxed”. We should note:

  • The average winning performance is 8% higher than last year and the average” loser” is 2% lower so the differences are becoming more extreme.
  • The influence of the “older” Baby Boomers’ upgrade in Food is apparent across several demographic categories
    • Age – This year age has more impact. It is ranked 6th in terms of winning percentage. Last year it was 10th.
    • # in CU – Last year the winning number was 3 people. This year it is down to 2
    • CU Composition – Last year it was “all married couples with children”. This year, it’s those with a child over 18.
  • Occupation – The Self-employed, which always rank high, had a big spending increase in all categories. Managers & Professionals dropped out of the top spot in 2015 primarily because of a big decrease in Veterinary Spending.
  • Race/Ethnic – In 2014, Asians had the lowest spending performance. In 2015, African American bought 10% more food but their spending was down significantly in all other segments which resulted in an overall decrease of 27%.
  • Region – The South actually had the largest increase in $ but it couldn’t keep pace with an increase of 1.9M CUs.

Now let’s truly “Show you the money”. In the next chart, we’ll look at the biggest $ changes in spending from 2014. As a rule there are both positive and negative situations. However, in 1 category every segment spent more in 2015.

In this chart, we truly see the impact of the Boomer’s food upgrade on Pet spending and how 2015 was radically different from 2014. There are new winners and losers in virtually every category. In a few cases they just switched positions. 2015’s winner was 2014’s loser and vice versa. We’ll take a look at one demographic category at a time.

  • Education – Pet Parents are widespread across all education levels. You can see that from the 2014 winner.
    • Winner – College Grads – Pet Spending: $38.93B; Up $6.41B (+19.7%)
      • 2014: < Less than College grad
    • Loser – High School Grads or less – Pet Spending: $10.36B; Down 3.08B (-22.9%)
      • 2014: BA/BS Degrees
    • Comment – In 2015 Education level seemed to truly matter. Perhaps the value of upgrading to the nutritionally superior, but higher priced foods, as well as the need for regular Vet visits was more apparent. With generally lower income, the big drop in the less educated group could have been a result of increased financial pressures.
  • Age – This category had the 2nd biggest influence of any category. In 2014 it was ranked 9th.
    • Winner – 45> yrs – Pet Spending: $47.92B; Up $5.08B (+11.8%)
      • 2014: 65+ yrs
    • Loser – 25>44 yrs – Pet Spending: $18.15B; Down $1.99B (-9.9%)
      • 2014: 45>54 yrs
    • Comment: This category most shows the influence of the Boomers since they are all in the winning segment. The 25>44 yr age group is at the peak of their family responsibilities and feeling financial pressure. It also appears that the 25>34 group were the first to upgrade their Pet Food in 2014, then backed off in 2015…probably price.
  • # in CU – In 2014 all CU sizes had an increase in Pet Products Spending. That was not the case in 2015.
    • Winner – 2 People – Pet Spending: $29.06B; Up $5.0B (+20.8%)
      • 2014: 2+ People
    • Loser – 4+ People – Pet Spending: $12.96B; Down $2.87B (-18.1%)
      • 2014: 1 Person
    • Comment: In 2014, more people meant more spending. In 2015 it was the opposite story. Only CU’s with 3 or fewer people had an increase. Financial pressures are once again the likely cause for the spending decrease in the larger CUs. Of note, a 2 person CU is very common in the older age groups and in the under 25.
  • Race/Ethnic – The vast majority of Spending comes from the White, Not Hispanic group.
    • Winner – White, Not Hispanic – Pet Spending: $59.81B; Up $3.87B (+6.9%)
      • 2014: White. Not Hispanic
    • Loser – African American – Pet Spending: $2.45B; Down $0.93B (-27.5%)
      • 2014: Hispanic
    • Comment – Hispanic and Asian spending was up. African Americans had the only decrease.
  • Housing – Homeowners dominate. Last year all groups were up. In 2015 Renter’s spending fell due to Veterinary.
    • Winner – Homeowner, No Mtge – Spending: $18.4B; Up $3.69B (+25.1%)
      • 2014: Homeowner w/Mtge
    • Loser – Renter – Pet Spending: $11.82B; Down $0.74B (-5.9%)
      • 2014: Renter
    • Comment – Usual winner is Homeowner w/Mtge. Those with No Mortgage are usually older and often retired.
  • Income – Increasing Income usually increases spending…but not always. In 2015, Middle income spending dropped.
    • Winner – Over $100K – Pet Spending: $27.12B; Up $3.57B (+15.2%)
      • 2014: Over $70K
    • Loser – $50 to $99K – Pet Spending: $19.95B; Down $1.64B (-7.6%)
      • 2014: Under $30K
    • Comment – The over $100K segment had a huge increase. However, the <$50K group was also up $1.5B (+8.0%).
  • CU Composition – You will see a strong interrelationship between this group and the # Earners and Age groups.
    • Winner – Married Couple Only – $21.69; Up $3.47B (+19.0%)
      • 2014: All Married Couples
    • Loser – Married, with all children <18 – $10.4B; Down $2.8B (-21.2%)
      • 2014: Singles
    • Comment – The Married Couple only group tends to be under 25 or over 55. Both of these groups had a big lift from upgrading Food in 2015. The Married w/children <18 drop was primarily in Food & Supplies due to financial pressures. We also saw this in the 25>44 age group, which is the age range for the vast majority of this group.
  • # Earners – Usually more earners means a higher income and more Spending.
    • Winner – 2 Earners – Pet Spending: $25.88B; Up $2.76B (+11.9%)
      • 2014: 2+ in CU w/1 Earner
    • Loser – 2+ in CU with 1 Earner – Pet Spending: $14.18B; Down $1.12B (-7.3%)
      • 2014: 2 Earners
    • Comment – In this category we are seeing the impact of a couple of trends. The huge 2014 lift in Food and subsequent drop in 2015 by the 25>34 yr olds due to financial pressures and the Boomer Food upgrade in 2015. Note: In the 25>34 group one person often suspends employment for a time to devote themselves to child care.
  • Occupation – Pet Parents are widespread across occupations. Spending depends both on income and commitment.
    • Winner – Retired – Pet Spending: $13.14B; Up $2.57B (+24.3%)
      • 2014: Retired
    • Loser – Operators & Laborers – Pet Spending: $2.76B; Down $0.78B (-22.1%)
      • 2014: Tech/Sales/Clerical
    • Comment – The Retired group wins 2 years in a row with big lifts in Food and Veterinary. This is not just the Boomers. The Silent Generation is a big part of this. All occupations bought more food but only Managers & Professionals had an increase in Supplies. The overall decrease by Operators/Laborers was due to a big drop in Veterinary spending.
  • Region – Regions vary in size and demographics like race/ethnicity and income. Plus, the South is growing rapidly.
    • Winner – South – Pet Spending: $24.28B; Up $1.75B (+7.8%)              
      • 2014: Midwest
    • Loser – Midwest – Pet Spending: $14.84B; Down $0.69B (-4.4%)
      • 2014: South
    • Comment – All regions had a lift in Food, especially the West and South. Quite frankly, the South “won” because of an increase of 1.9M CU’s. The Midwest was driven down by a big drop in Supplies after a big lift in 2014.
  • Area Type – All areas showed an almost equal increase in $.
    • Winner – Rural (Pop <2500) – Pet Spending: $8.57B; Up $1.23B (+16.8%)
      • 2014: Center City
    • Loser – Suburban – Pet Spending: $43.74B; Up $1.08B (+2.5%)
      • 2014: Suburbs
    • Comment – All areas had an increase in Food and a drop in Supplies. The largest segment, Suburban, has been last for 2 years in a row.

We’ve now seen the best overall performers and the “winners” and “losers” in terms of increase/decrease in Total Pet Spending $ for 11 Demographic Categories. Not every good performer can be a winner but some of these “hidden” segments should be recognized for their outstanding performance. They don’t win an award but they deserve….

Honorable Mention

  • Age – <25 yrs – Pet Spending: $1.31B; Up $0.3B (+25.8%)
    • Comment – This small group is just getting started with life and Pet Parenting. Their percentage of increase was the largest of any age group. They had a huge increase in the average CU spending for Food as well as increases in both Supplies and Services, so they are adding pets and even buying upgraded Food. The only reason that their increase in $ wasn’t greater is that there was a 9% drop in the number of CU’s.
  • Race/Ethnic – Asian – Pet Spending: $1.34B; Up $0.2B (+18.7%)
    • Comment – This small group has the CU highest income but perennially has the lowest average spending on companion animals. With strong increases in Food & Veterinary Spending they moved out of last place in 2015.
  • Income – <$30K – Pet Spending: $11.3B; Up $1.67B (+17.3%)
    • Comment – Much of this segment consists of older and younger consumers. With all segments but Supplies showing an increase, this is evidence that spending on our Pet “Children” is not just about income.
  • # of Earners – No Earners – Pet Spending: $11.45B; Up $1.43B (+14.3%)
    • Comment- The vast majority of this group are retired. Their 14.3% increase was the largest of any segment in the category. Still more proof that the motivation for increased Pet Spending is not limited to increased income.
  • Region – Northeast – Pet Spending: $11.82B; Up $1.3B (+12.0%)
    • Comment – This densely populated area benefited from a strong performance by the Center City areas, which even had an increase in Supplies. Their 12% overall gain was by far the best of any Region.

Summary

2015 was a year of extremes which is best illustrated by the situation in 2 Industry Segments – Food and Supplies.

  1. Plus: Food Spending ↑$5.4B. The Baby Boomers upgraded their Food and their Food spending went up $5.8B.
  2. Minus: Supplies Spending fell almost across the board, primarily due to a drop in purchase frequency– ↓$2.1B

Spending in the other 2 segments basically cancelled each other out. Services continued their steady growth ↑$0.58B, driven primarily by convenience in the under 55 age group, but with income always a factor. Veterinary spending was down ↓$0.47B and continued to be negatively impacted by a high inflation rate. This was somewhat mitigated by the strong commitment from the oldest Americans to the care of their companion animals.

You have seen the individual demographic winners and losers. However, when you step back it often seems to be 2 ends against the middle. Let’s look at what that means in terms of 2 important demographic measures – Income and Age:

  • Income: The increase is coming from the Over $100K group and the Under $50K group. It is middle income America, $50>99K, with the biggest financial pressures of housing, children and career that is feeling the pinch.
  • Age: The increase is coming from the >45 and the <25 groups. The older crowd has both high and low incomes but smaller families. The <25 group generally has lower incomes but also fewer responsibilities. The middle 25>44 age group had a significant drop in spending, but they are building careers, buying houses and taking care of most of the under 18 children in America. Their income is growing but not as fast as their responsibilities.
  • One other trend should be noted – Education: This came to the forefront in 2015. It may be that the better educated were quicker to see the value of the upgrading their pet food – at a substantially higher price.

AND NOW…FINALLY, WHAT YOU HAVE ALL BEEN WAITING FOR…THE “ULTIMATE” PET CONSUMER UNIT

The “Ultimate” Pet Spending Consumer Unit consists of 3 people – a married couple with an 18+ year old child, still living at home. Mom and Dad are in the 55 to 64 age range. They are White, but not of Hispanic origin. At least one of the Parents has an advanced College Degree. Everyone works in the CU. Mom and Dad have their own business but their child also works, at least part time. They’re doing very well with a total Household income in excess of $150K. They own their home or to be more accurate, share ownership with the bank. They live in a rural area (under 2500 pop.) in the West, but it is adjacent to a good sized metropolitan area. This gives them plenty of space for their companion animals, but they are still close enough to commute to the City for business, shopping and entertainment – the benefits of the Urban environment…We all wish that there were more of them.

 (↓Here are some CU Spending Fun Facts↓)

That “wraps it up” for this report. We look forward to the US BLS Mid-Year 2016 Update in May.

2015 Pet Spending was $67.75B – Where did the $ come from…?

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As we have reported, the 2015 Consumer Expenditure Survey conducted by the US BLS with “field” work by the Census Bureau determined that Total Pet Spending in the U.S. reached $67.75B – an increase of $3.43B (+5.3%). After a detailed analysis, we concluded that the increase was primarily driven by the Baby Boomers, who elected to upgrade their Pet Food in 2015. However, that’s not the whole $67.8B story.

Where did the bulk of the spending come from? In this report we will look at Total Pet Spending in terms of 10 demographic categories. The goal is to determine what groups were responsible for most of the overall spending. Our target number was to find demographic segments in each category that account for 60 to 80% of the total. In some cases this was easy – Homeowners. In other situations, we had to bundle individual segments together to reach our 60% “minimum”. Ex: Ages 45>74

Knowing the specific group within each demographic category that was responsible for generating the bulk of Pet Spending is a first step in a targeted marketing program. In an upcoming “awards” post we will drill even deeper to show the best and worst performing demographic segments for 2015! But first…we’ll “show you the money!”

In the 2 charts that follow, the demographic groups appear in ranked order by Total Pet market share from highest to lowest. I also included their share of total CU’s (Financially Independent Consumer Units). This allows us to see how each performed versus the size of the demographic group.

  1. Race/Ethnic – White, Non-Hispanics (88.3%) The vast majority of Pet Spending is done by this group. In fact, Hispanics, African Americans and Asians account for 30% of CU’s but less than 12% of Pet Spending. The Hispanic portion of the U.S. population is growing strongly. This is a situation that should be researched further. (Performance Rating: 126%)
  2. Housing – Homeowners (82.6%) Controlling your “own space” has long been the key to larger pet families and more pet spending. (Performance Rating: 132%)
  3. # in CU – 2+People (80.1%) – It just takes two. More singles are adding Pets to their household. However, if you put 2 people together, pets very likely will follow. (Performance Rating: 113%)
  4. Income – Over $50K (69.5%) Although Pet Parenting is common in all income groups, money does matter. The top half of CU’s by income spent 70% of Total Pet $. (Performance Rating: 140%)
  5. Education – Associates Degree or Higher (66.5%) Once again, all education levels have pets but spending is another matter. Consumers with a formal degree beyond a high school diploma (51%) accounted for 2/3 of Total Pet $pending. (Performance Rating: 131%)
  6. Age – 45>74 (65.2%) Income starts high with this group then fades. The key factor is that their children are older and in most cases have left home. When this happens their attention and spending naturally turns to their Pet Children. (Performance Rating: 128%)
  7. Area – Suburban (64.6%) Homeownership is high and this group also has the “space” for pets. About half (55%) of U.S. CU’s accounted for almost 2/3 of Pet Spending. (Performance Rating: 117%)
  8. CU Composition – Married Couples (62.9%) With or without children, two people committed to each other is an ideal situation for Pet Parenting. (Performance Rating: 130%)
  9. # Earners – “Everyone Works” (62.2%) This is a composite of CU’s, regardless of size, where all adults are employed. While this group makes and spends more money, retired folks and CU’s with 2+ people and only one earner are still a significant share of spending. (Performance Rating: 109%)
  10. Occupation – “I’m a Boss” (61.0%) – This is another composite group, consisting of managers/professionals, self-employed and retired people. While they may not be “the” boss, they are all “bosses” to some extent. Pet ownership is so widespread across all occupations that bundling a “significant” spending majority with a common connection is difficult. (Performance Rating: 122%)

Comments: The apparent spending disparity in regard to Race/Ethnicity is an obvious concern which should be investigated. The correlation between homeownership (especially with a yard) and pet spending has been true from the earliest days of the industry. Putting 2 people together is another “good bet for pet”. Yes, income does matter, especially with the inflation in the Veterinary Segment and the current movement to upgrade Pet Food. However, how you make the money isn’t as important. Educated consumers are also more likely to spend more. They generally make more money and may respond better to the value of higher quality nutrition – at a higher price, as well as the need for regular Vet visits. Finally, as parents grow older and their children start to leave home, they turn their attention and spending to their Pet Children.

Most of these answers are the ones that we expected. However, as we have learned from past experience, it is always a good idea to look “beneath the surface” of the overall numbers. In a follow up post, we will drill deeper into the data. We will determine the best and worst performing segments in each demographic category and specifically, who generated the largest increases and decreases in Pet Spending in 2015. As usual, expect some surprises.

Pets are obviously an integral part of the American way of life…but there is still room for the relationship to grow.

 

2015 Millennial Pet $pending – A Closer Look!

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Generations have become a very “high profile” subject in our society and Millennials are by far the “lead” story. One thing that I have noticed is that we tend to “lump” them into one homogenous group. The Millennials are the largest, best educated and most technologically savvy group in the history of the world. They share many behavioral traits but in 2015 they ranged in age from 18 to 34, which can lead to some distinct differences.

For example: Two 24 year old “buddies” sharing an apartment, a newly married 28 year old couple looking to buy their first home and a 33 year old couple who own a nice 4 bedroom home in the suburbs and are expecting their second child…are all Millennials. Believe me, there are differences in their spending behavior.

While Generations share the same “world”, my research has shown that over a lifetime consumers reach key waypoints and go through “stages” which strongly affect their behavior. This is very noticeable in the developing years, as they are “setting the stage” and in the declining years as they approach and enter into retirement.

In 2015 the Millennials were definitely in various stages of development. With perfect timing, our friends at the US BLS produced a special, supplemental report to their Consumer Expenditure Survey. The report has a different division of age groups from their regular Age report. By melding the two reports together, I was able to generate base data and calculations for 3 distinct groups under age 35, covering all the Millennials. Specifically:

  • Under age 25
  • Age 25 to 29
  • Age 30 to 34

In some data you may note a slight difference from my earlier Generations report. This is primarily due to the fact that when you ask someone their current age, it depends on what time of the year you ask. Ex: Last week I was 67. This week I am 68. The difference in data between the 2 reports is 1.4% or less so it is not significant for our purposes. Let’s get started with each group’s share of the under 35 financially independent Consumer Units.

under-35-1

  • The two older groups are the largest, are about equal in size and account for 73.5% of all the CU’s in the under 35 (Millennial) age group.
  • The under 25 yrs group is exceptionally small and has the lowest share of total U.S. CU’s for this group in 31 years of record keeping. This mirrors recent years and may reflect the frequently mentioned Millennial trend….They have large numbers but are slow to gain financial independence from their parents. Now, let’s look at some demographic characteristics of these 3 groups which have been shown to impact pet spending.

First: Size of the CU, # of Earners, # of Children under 18…and of course Homeownership

under-35-2

  • CU Size – Overall the CU size of the total under age 35 group reflects the National average. However, it increases 50% in size by the time they reach their early 30’s due to…children. CU’s with 2+ members are more likely to have pets and spend more.
  • # Children under 18 – The number of children peaks in the 35-44 age group at 1.4 but by the time they reach their early 30’s the average CU has more than 1 child. Their 1.2 avg is triple the 0.4 in the <25 group. Families with children under 18 have traditionally spent the most on Pet Products. Although the 2015 surge to upgrade their pet food by the 51+ year old Baby Boomers changed that, at least temporarily.
  • # Earners – Most adults work in the under 35 age group. It’s simple. CU’s with 2 or more earners spend more on their Pets, both in Total Pet and in Pet Products (Food & Supplies Only).
  • Homeownership – Homeowners have consistently accounted for more than 80% of Pet Spending. As you can see, the homeownership rate of the 25>29 age group was double that of the <25 group and the 30>34 group was 3 ½ times as high. However, please note that the homeownership rate of the 30>34 group was still 20% below the national average and more than 50% of them still rent.

Now we’ll show you the money with income and spending.

under-35-3

  • Gross Income – The Under 25’s are making less than half of the National Average. Income moves up rapidly in the older groups but the 30>34 group still just barely exceeds the national average.
  • Net Income – Most of the whole group is paying taxes but even the older members are only paying about 11% because of growing mortgage and dependent deductions.
  • Spending – The under 25 group is “deficit spending”, even compared to their gross income. Although Income more than doubles by the early 30’s, spending does not quite keep pace. However, it is also important to note that over 90% of the net income for the whole 25>34 age group is already committed to regular expenditures. Therefore, additional, discretionary spending becomes less likely.
  • Pet Spending as a percentage of Total Expenditures – In 1984 Pet Spending was 0.48% of total expenditures. It grew through the years and has been near or even above 1.0% since 2007. Why? Three primary reasons.
    • Our companion animals have moved from being “pets” to integrated members of our family.
    • The sheer number and variety of pet products and services has grown exponentially…and beyond.
    • Pet Products and services are available in over 200,000 outlets and the internet. It’s easy to buy.

In 2015 the <25 group spent 0.64% of their total spending on their pets. This is 67% of the national average of 0.94% and is in line with the numbers over the last 30 years. That is not the case with the 25>34 group. There is good news with the 25>29 year olds. They appear to be adding pets to their households and spending in line with at least the Gen X group when they were this age. The 30>34 group is extraordinarily low and pulls the numbers down for the 25>34 group to 0.74%. This is 78% of the of the national pet share average. Gen X occupied all of the 25>34 age group for 10 years and averaged between 80>90% of the National average. Boomers actually exceeded the national average when they were in this group. Admittedly, this was the Millennials’ first year to occupy all slots in the 25>34 age group. We’ll have to see how they progress.

Now we’ll get Pet Specific with spending by industry segment.

under-35-4

  • The 30>34 age group has the highest income and spends the most on their pets even though it’s a smaller % of their total spending..
  • The 25>29 age group value shops for food but is committed to their pet family. They actually spent more on pets & supplies and pet services than the wealthier 30>34 group.
  • The <25 group prioritized their resources behind food, including upgrading the quality in 2015.
  • Vet spending grows with age and income but is still a lower priority.

Finally, here’s a look at the Performance of the 3 age groups in relation to each Industry Segment.

under-35-5

  • Under 25 – This group is short on money as their overall spending exceeds even their before tax income so it is not surprising that they under-perform in spending in every segment. However, pets are still a growing part of their lives. They focus their spending on Food & Supplies. In a somewhat surprising move, in 2015 they opted to upgrade their food, which reflects the importance that they place on quality and natural products.
  • 25 to 29 – This group is beginning their careers and establishing a base as homeownership doubles. They don’t have a lot of extra money but are no longer deficit spending. This is the time to think about a family and a new Pet family member is often a prelude to their people family. They value shop for Food so it is less than 1/3 of their Total Pet Spending. They are acquiring pets and “splurge” on the Supplies and Services to make sure they have all the “necessary” things to make their Pet Children happy and make Pet Parenting easier and more convenient. They spend more on Pets & Supplies than on Food and actually “over-perform” on spending in this segment . This is the only instance of this by any under 35 age group on any industry segment. They also begin to recognize the necessity of Veterinary Care.
  • 30 to 34 – Their income has gone up but is still just above the national average and is not necessarily keeping up with their rapidly growing responsibilities – a career, homeownership and now…2 young children. Subsequently, the Pet share of their total spending has fallen. Their Pet Spending priorities have become more uniform across most industry segments, about 75% of what it should be considering their number of CU’s. Supplies is a notable exception as their market share is on par. Pressed for money and time this group’s priorities are supplies and services. (Overall, Millennials are more focused on Pets & Supplies…And Services after age 25)

Millennials are defined by birth years and a shared “world experience”. However, their spending behavior, including pet, evolves as their life unfolds. A significant share have become Pet Parents. Their <25 group has been spending on par with earlier generations. Their first year of “controlling” the 25<34 group was not equal in performance to past generations. We’ll see if they improve. Age 35>44 has been a true “turning point” in Pet Spending. Prior to 2011, this age group always spent more than their “share” on Pets. With the youngest Gen Xers, it has fallen to 90+%. Millennials begin to enter this age group in 2016…

2015 U.S. PET SPENDING by GENERATION – BOOMERS STILL DOMINATE!

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U.S. Consumers spent $7.2 Trillion dollars in 2015, up 400B (+5.9%) from 2014.  Of this huge sum 0.944%, $67.75B was spent on our companion animals. Although overall the industry had a good year, the Pet Share of Total Spending actually fell very slightly from 0.948% in 2014.

In our recent posts, we have started to look at the key demographics behind “who” is spending the money. By looking deeper, all of the industry participants can better target their products and marketing efforts to maintain and gain retail sales…to keep the industry strong and growing.

In terms of demographics, nothing has a higher profile in the media and in our minds than comparing the actions between generations. How do the Millennials compare to the Baby Boomers? What about Generation X? These are valid questions and the Generation Demographic is the one measure that defines a very specific group of individuals for a lifetime. Emigration, immigration or death can change the mix and of course, marriage and divorce will affect the # of households. However, we can still track how aging, technological changes, economic events, in fact any change in society, affects the behavior of a specific set of individuals.

In this report we will compare the Pet Spending in 2015 vs 2014 by Generation. The “numbers” come from or are calculated from data in the US BLS Consumer Expenditure Survey. The Census Bureau handles the field work, gathering info from over 50,000 interviews and diaries. The US BLS then compiles the data into the final reports.

NOTE #1: In this report we use the term Consumer Unit (CU). This is often used interchangeably with Household. They are “close” in meaning. However, a CU indicates independent decision making on living expenditures. You can have more than one CU in a household – boarders, roommates…As a result, there are a few more CUs than H/Hs.

NOTE #2: In March of 2016, Millennials surpassed Baby Boomers in the number of individuals. However, this report deals with Financially Independent Consumer Units. The Millennials still have a lot of ground to make up!

Let’s get started by defining the generations….

  • Millennials: Born 1981 to 1997; In 2015, age 18 to 34
  • Gen X: Born 1965 to 1980; In 2015; age 35 to 50
  • Baby Boomers: Born 1946 to 1964; In 2015, age 51 to 69
  • Silent Generation: Born 1929 to 1945; In 2015, age 70 to 86
  • Greatest Generation: Born before 1928; In 2015, age 87+

…and then looking at their share of the Total U.S. CU’s:

gen2015-1

  • Baby Boomers are still the largest number of CU’s at 44+M and 34.4% of the total.
  • 3 Oldest Generations are losing CUs primarily due to death or movement to permanent care facilities.
  • Millennials and even some Gen Xers, are establishing New CU’s as they gain financial independence.
  • Immigration and unfortunately, divorce are also factors in the growing number of Gen X and Millennial CU’s.

Now let’s get to know the Generations a little better by looking at some key CU Characteristics.

gen2015-2

  • CU Size – CU’s with 2+ people spend more on their pets. The Millennials are already at the national average of 2.5, driven more by their older members. CU size peaks with the 35 to 50 year old Gen Xers and starts a general decline with the Boomers – who still are at 2+ people.
  • # Children under 18 – Children are the primary reason for an increased number of people in CU’s. Millennials are just getting started with a family. The presence of young children (and the associated responsibilities and expenses) peaks with the Gen Xers who average 1+ per CU. The number of children drops precipitously starting with the Boomers. However, remember Children over 18 and grandchildren can be a part of the older CU’s.
  • # Earners per CU – 2 earner CU’s also generally spend more on their pets. Gen X has the highest average at 1.7 per CU. However, both Millennials and Boomers average about 1.3 per CU. Retired people have also recently been a big pet spending factor so don’t count out the Silents and the older Boomers.
  • Homeownership – 80+% of Pet Spending comes from homeowners. A mortgage is also a substantial financial responsibility. Once again the Millennials are just getting started and the bulk of their homeowners are from the 25 to 34 age group. Homeownership doubles for the Gen Xers and they reach the national average. The percentage of Home Owners continues to grow with the Boomers and peaks with the Silent Generation. The oldest Americans, for convenience or necessity, make a substantial move to renting.
    • No Mortgage – A mortgage is a substantial financial responsibility over a long period. This weighs the heaviest on Gen Xers and Millennials. Boomers are the first to make a major dent in the Mortgage expense. However, the “real” reduction in this expense doesn’t occur until the 2 oldest generations.

Next we’ll compare them to the National Ave in Income, Spending, Pet Spending and Pet Share of Total $pending

CU National Averages: Income – $69,627; Total Spending – $55,978; Pet Spending – $528.17; Pet Share of Total Spending – 0.944%

gen2015-3

  • Income peaks with the Gen Xers then starts to decline, although the Boomers are still above average. The big decline starts with the Silents and continues with the Greatest. Both of these groups are 70+ and mostly retired.
  • Total Spending also peaks with the Gen Xers and is 50% more than the Millennials. Boomer spending declines about 10% but is again above the average. For the oldest groups, the decline in spending is slower than the drop in income. The Millennial Spending is relatively high considering their income level.
  • CU Pet Spending for the Gen Xers is 50% higher than the Millennials but this is not the peak and in fact, doesn’t quite meet the National Average (97%). The top award belongs to the Boomers, with a 43% increase over the Gen Xers and 39% above the National Average. Boomers are the only group spending more than the National average on their Pets. Once again, the spending drops off sharply with the Silents. However, they still spend 28% more than the Millennials. Pet Spending and ownership plummets with the Greatest Gen. (age 87+)
  • Pet Share of Total Spending….
    • Exceeds 1% with the Silent Generation and Peaks with the Boomers at 1.23%. The income of the Silent has dropped significantly, but so have their responsibilities in terms of children and mortgages. The Boomers have a similar story but their income is still high. Both are now more focused on their Pet “children”.
    • Is lowest with the Greatest Generation. However, some have a lifetime commitment to their pet family.
    • Is under 0.8% for both Millennials and Gen Xers. The Millennials are buying houses, starting families and careers while they are waiting for their income to “catch up”. There is definite “price pressure” in their decisions. The Gen Xers make and spend the most money. They are reaching the high point in responsibilities to their family and their career. Time and convenience are big issues. Also, even though the percentage of Pet Spending to their total expenditures is only 0.76%, their average CU spending is still the second highest and essentially equal to the national average.

It’s time to look at actual Dollars Spent. We’ll review the Generational spending on Total Pet and each industry segment in terms of share of sales as well as the 2015 performance compared to 2014 starting with Total Pet…

gen2015-4

Ave CU Total Pet Spending: $528.17

  • The most significant thing regarding “share” is the Boomers’ dominance. Not only do they have the biggest piece of the Pet Industry “pie”, it is 15% larger than #2, Gen X and #3, Millennials combined.
  • It is also obvious that at 0.4%, the Greatest Generation is a welcome part of the industry but no longer a factor.
  • In terms of 2015 Performance, the Boomers generated 78.1% of the total $3.43B increase. However, every generation, except the Greatest showed an increase so it looks pretty “good” overall. Let’s get specific.
  • Boomers – Ave CU spent $733.08 (+$76.58);
    • 2015 Pet spending = $32.15B, Up $2.68B (+9.1%)
    • 2015 started off badly – Down $0.9B in the first half.
    • Then came a huge $3.58B “comeback” in the 2nd half.
  • Gen X – Ave CU spent $512.32 (-$9.02);
    • 2015 Pet Spending = $18.26B, Up $0.5B (+2.8%)
    • The 2015 $ increase came as a result of a 4.9% increase in CU’s.
    • 1st half Down $0.11B; 2nd half Up $0.61B
  • Silent Generation – Ave CU spent $433.60 (+$49.88);
    • 2015 Pet Spending = $7.37B, Up $0.5B (+7.3%)
    • Overcame a 9% drop in CU’s.
    • Basically, equal increases in both halves.
      • +$0.27B (1st) and +$0.23B (2nd)
  • Millennials – Ave CU spent $337.30 (-$22.75);
    • 2015 Pet Spending = $9.73B, Up $0.04B (+0.4%)
    • Without a 7.3% increase in CU’s, spending is down!
    • Sales in 1st half Up $0.21B; Down $0.17B in the 2nd 
  • Greatest Generation – Ave CU spent $107.04 (-$103.31);
    • 2015 Pet Spending= $0.24B, Down $0.29B (-54.3%)

The Total Spending increase came from Boomers, Gen X and the Silent Generation (ages 35 to 70) Now Pet Food..

gen2015-5

Ave CU Pet Food Spending: $230.06

  • Baby Boomers spend more on Pet Food (and treats) than all other Generations combined.
  • Gen X has 24% more CU’s than the Millennials but spent twice as much on Pet Food.
  • Millennials spent over $0.6B less on Food in 2015.
  • Boomers – Ave CU spent $355.98 (+$139.08);
    • 2015 Food spending= $15.57B, Up $5.83B (+59.9%)
    • Decision to upgrade Food drove both the Food and Industry increases.
    • 1st half (+$2.39B); 2nd half (+$3.44B)
  • Gen X – Ave CU spent $204.44 (-$0.44);
    • 2015 Food spending= $7.26B, Up $0.27B (+3.8%)
    • 2015 $ increase came solely from an 4.9% increase in CU’s.
    • 1st half ( -$0.13B); 2nd half (+0.4B)
  • Silent Generation – Ave CU spent $171.57 (+$11.30);
    • 2015 Food spending $2.91B, Up $0.03B (+1.0%)
    • 7% Increase in CU spending impacted by 4.9% drop in CU’s.
    • 1st half (+0.25B); 2nd half (-0.22B)
  • Millennials – Ave CU spent $126.57 (-$31.95);
    • 2015 Food Spending $3.64B, Down $0.64B (-15.0%)
    • Older members upgraded Food in late 2014, then pulled back in 2015.
    • 1st half (+0.27B); 2nd half (-$0.91B)
  • Greatest Generation – Ave CU spent $54.36 (-$16.60);
    • 2015 Food spending= $0.12B, Down $0.06B (-31.8%)

2015 Increase driven by Baby Boomers with a little help from Gen X and Silents (Ages 35-70) Now on to Supplies..

gen2015-6

Ave CU Pet Supplies Spending: $115.97

  • Boomers still have the largest share but the “race” with Gen X is much closer – only a 30% lead.
  • Millennials – Ave CU spent $111.19 (-$1.00);
    • 2015 Supplies spending= $3.23B, Up $0.2B (+6.3%)
    • Increase is from 7.9% more CU’s, but a rare bright spot for Supplies.
    • 1st half (-0.18B); 2nd half (+0.38B)
  • Baby Boomers – Ave CU spent $134.56 (-$13.70);
    • 2015 Supplies spending= $5.94B, Down $0.73B (-10.9%)
  • Gen X – Ave CU spent $127.47 (-$32.82);
    • 2015 Supplies spending= $4.57B, Down $0.91B (-16.6%)
  • Silent Generation – Ave CU spent $62.70 (-$31.51);
    • 2015 Supplies spending= $1.07B, Down $0.63B (-36.7%)
  • Greatest Generation – Ave CU spent $35.96 (-$5.68);
    • 2015 Supplies spending= $0.08B, Down $0.04B (-28.9%)

Comment: CU spending was down in every group. The only “lift” was due to more Millennial CU’s.  The trend was so pervasive that we can’t blame the increase in Food spending. We’ll see what happens in 2016. Next, Services…

gen2015-7

Ave CU Pet Services Spending: $48.70

  • Boomers have the largest share but the spending is evenly split between – age 50 and under /over 50.
  • Gen X – Ave CU spent $59.23 (+$12.79);
    • 2015 Services spending= $2.12B, Up $0.53B (+33.7%)
    • The biggest $ increase of any group.
    • 1st half ( +$0.29B); 2nd half (+$0.24B)
  • Millennials – Ave CU spent $35.02 (+$8.64);
    • 2015 Services spending $1.02B, Up $0.31B (+42.4%)
    • A 42% increase – Millennials got “on board” with Services in 2015.
    • 1st half (+0.08B); 2nd half (+$0.23B)
  • Boomers – Ave CU spent $55.98 (-$3.49);
    • 2015 Services spending= $2.47B, Down $0.21B (-7.6%)
    • A small decrease, primarily in the first half of 2015.
    • 1st half (-$0.17B); 2nd half (-$0.04B)
  • Silent Generation – Ave CU spent $35.93 (-$0.79);
    • 2015 Services spending $0.61B, Down $0.05B (-7.0%)
    • Most of the decrease came from 4.9% fewer CU’s.
    • 1st half (No Change); 2nd half (-0.05B)
  • Greatest Generation – Ave CU spent $12.15 (-$0.82);
    • 2015 Services spending= $0.03B, Down $0.01B (-22.9%)

The increase was completely driven by the Gen Xers and Millennials as they opted for the convenience that Pet Services brought to their hectic lives. The Over 50 crowd was down…slightly. The final segment is Veterinary…

gen2015-8

Ave CU Veterinary Services Spending: $133.44

  • Although they lost share, Boomers are still very dominant in this industry segment
  • Veterinary spending somewhat “mirrors” human medical spending. As we age, we become more conscious of the need for regular medical visits and usually require more services. We transfer this feeling to our companion animals. One result is that 64% of all Veterinary spending is done by the over 50 age group.
  • Boomers – Ave CU spent $186.56 (-$45.32);
    • 2015 Veterinary spending= $8.17B, Down $2.21B (-21.3%)
    • Decision to upgrade Food undoubtedly contributed to the $3B first half drop in spending. A big comeback in the second half may indicate that many services were just delayed.
    • 1st half (-$2.98B); 2nd half (+$0.77B)
  • Silent Generation – Ave CU spent $163.40 (+$70.88);
    • 2015 Veterinary spending $2.77B, Up $1.14B (+70.0%)
    • A $1.1B increase shows a lifetime commitment by these 70+ yr olds.
    • 1st half (+0.38B); 2nd half (+$0.76B)
  • Gen X – Ave CU spent $121.19 (+$11.45);
    • 2015 Veterinary spending= $4.31B, Up $0.61B (+16.4%)
    • Consistent, strong increase – a good sign for Gen Xers as Pet Parents.
    • 1st half ( +$0.19B); 2nd half (+0.42B)
  • Millennials – Ave CU spent $64.51 (+$1.55);
    • 2015 Veterinary Spending $1.85B, Up $0.18B (+11.0%)
    • An indication of a growing commitment to their Pet family.
    • 1st half (+0.04B); 2nd half (+$0.14B)
  • Greatest Generation– Ave CU spent $4.57 (-$80.22);
    • 2015 Veterinary spending= $0.01B, Down $0.19B (-94.8%)

Gen X, Millennials and the Silents all had strong increases, but they couldn’t overcome the $2.2B drop in Boomers’ spending. It appears that the Veterinary segment paid a price for the Boomers’ decision to upgrade their Pet Food.

One last chart to compare the share of spending to the share of total CU’s. How did the generations perform?

gen2015-9

  • The Boomers “earned their space” in every Industry segment. Gen X was close in all but only made it in Supplies & Services. The Silents performed well in Vet. Millennials…close in Supplies, but are still getting “up to speed”.
  • Note: The older 2 generations’ best performance was in the “need” segments – Food and Veterinary. The 2 younger groups were at their best in the more “discretionary” segments – Supplies and Services. Curious…???

Comments

The Greatest Generation – They aren’t called the “Greatest” for no reason. They literally helped change the world. However, with their youngest member now 87 years old, their time as Pet Parents is inexorably coming to an end.

The Silent Generation – At 70+ years old, their lifetime commitment to their companion animals remains strong. This is immediately apparent when one sees their $1 billion dollar increase in Veterinary spending and the fact that they spend over 1% of their total expenditures on their pets – second only to the Baby Boomers.

Baby Boomers – They have been the consumer group most responsible for the spectacular growth of the Pet Industry. They were the first “Pet Parents” and that commitment remains as strong today as it was over 30 years ago. They are the leading spenders in every segment, especially those most associated with the wellbeing of our companion animals – Food and Veterinary. Even today, they are still making the informed, expensive decisions to do what is best for their pet family. In 2015 they made the choice to “upgrade” their Pet Food. The cost…over $5B. Admittedly, their spending in other segments suffered somewhat, but may already be bouncing back. Amazing!

Gen X – They currently make and spend the most money overall and their Pet Spending per CU is close to or above the national average in all segments. The next five years will be critical. Their children will begin to “leave the nest”, which usually results in additional focus and spending on their pet family, which is still at home. We’ll see.

Millennials – Their every move is subject to speculation. Everyone is concerned about the future and there is no doubt that they are the future. We tend to lump all Millennials together. However, life, including spending behavior, progresses in stages. A large percentage of this group is still in the earliest stages of “building” their lives. We need to provide them with the information, support and products to fulfill their wants and needs. Then…be patient. Count on the extraordinary appeal and allure of companion animals. In a phrase, “Bet on Pets!”

I welcome your questions and comments!

 

Top 3 U.S. Retail Channels…Where did they come from?

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In our report earlier this week we updated the race for the “Gold” by the Top 3 Retail Channels – Supermarkets, Internet/Mailorder and SuperCenters/Clubs. Over the past 20 years these Retail Channels have become increasingly important both to U.S. Retail and to the Pet Industry. In 2015 their combined sales were $1.46 Trillion, 45.8% of the total “Relevant” Retail U.S. Market (Less Restaurants, Auto and Gas Stations). In 2012 they accounted for 47.4% of all Pet Products sales in the U.S.

The retail marketplace is constantly evolving to better fulfill the wants and needs of the consumer. These key retail channels did not just magically appear fully formed in their current embodiment. They developed over the years, sometimes over decades or even over centuries. It is important to know their history to put their current standing into perspective and to speculate on the future. First, Supermarkets

grocery1

Supermarkets – A larger form of the traditional grocery store with a significantly wider variety of food and general merchandise items organized into aisles. They are generally located in residential areas with easy parking and extended shopping hours. They are also usually part of a chain of stores and feature relatively low prices due to volume purchasing.

In the U.S., Grocery Stores developed in the mid to late 1800’s, including A&P which was founded in 1859, but they all required a clerk to retrieve the consumers’ purchases. The first self-service grocery store was Piggly Wiggly, which opened in 1916. However, these early grocery stores did not sell fresh meats or produce. Combo stores were developed in the 1920’s. According to a study by the Food Marketing Institute in conjunction with the Smithsonian, the first Supermarket was King Kullens, opened on 8/4/1930 in Jamaica, Queens in New York City. A key feature was a separate parking lot, which made shopping more convenient. Other grocery store chains like Safeway and Kroger initially resisted the move to the supermarket format. However, the depression era consumers were looking for value and convenience so the supermarket format became the norm.

After World War II, automobile ownership proliferated and the “suburbs” were developed. Supermarkets followed their customers and rapidly expanded, usually as regional chains and generally located as the anchor store in “strip malls”.

In the late 70’s and early 80’s Supermarkets began broadening their appeal even more with the development of generic foods, which ultimately morphed into private label. They also radically expanded their selection of general merchandise items. This influx of higher margin items significantly helped their bottom line. Ultimately, they added food service, coffee shops, pharmacies and even bank branches to help fulfill the consumers’ desire for value, convenience and selection. Obviously, the store size also grew to accommodate these new features. Next SuperCenters…

supermkt

SuperCenters or Hypermarkets – These huge, high volume retail stores are basically a Supermarket combined with a Discount Department Store. The forerunner of this channel was Fred Meyer’s “one-stop shopping center” opened in Portland Oregon in 1931. Through the 30’s, 40’s and 50’s they kept adding departments and expanding the store size up to 70K square feet. The first modern sized Hypermarts, up to 160,000 square feet, opened in the 1960’s. Meijer, a Midwest chain opened the first “supercenter” in Grand Rapids, Michigan in June 1962 under the name Meijer’s Thrifty Acres.

In the late 1980s and early 1990’s the three major Discount Store Chains, Walmart, Target and Kmart “got on board”. Walmart opened Hypermart USA in 1987 which became Wal-Mart Supercenters in 1988. Target opened Greatland stores in 1990 which became the larger Super Targets in 1995. Kmart opened its first Super Center in 1991 which became Super Kmarts. By the mid 1990’s these Chains had firmly prioritized their efforts behind the SuperCenter one stop shopping format. Now Club Stores…

clubs

Warehouse Club Stores – These huge, no frills outlets offer a wide variety of grocery and general merchandise items at exceptionally low prices due to reduced margins. They appealed to both consumers and small business owners. Products are often packaged and sold in a larger quantity than in other outlets and all customers are required to pay an annual membership fee. The first Warehouse Club was Price Club, founded in 1976 in San Diego. 1983-84 was the true beginning for today’s major players in this channel with the 1983 founding of Costco, Kmart’s Pace (later sold to Sam’s Club) and Sam’s Club (Walmart). BJ’s Wholesale Club opened their doors in 1984.

Internet/Mailorder Defined – This segment really encompasses retail sales done over the phone, by mail or through the internet. They all have common elements. Every sale takes place without an in person, face to face interaction and is not “rung out” through a cash register in a brick ‘n mortar store. One other common element is a visual presentation of the product in a catalog, on TV or on the internet. It all started with…

mailorder

Mail Order – Amazingly enough this “channel” traces its beginnings to 1498 in Italy with the first known catalog – selling books. 1667 saw the first seed catalog in England. Even Benjamin Franklin got into the fray in 1744 with the first catalog in Colonial America – selling scientific and academic books. However, the world’s first “true” modern mail order service was begun by Pryce-Jones in 1861 in England, selling flannel and rugs. By 1880 he had over 100,000 customers and was rewarded with a knighthood in 1887.

In the U.S., Hammacher Schlemmer  (1848) is the earliest still surviving mail order business. However, they didn’t publish their first catalog until 1881. Montgomery Wards produced its first mail order catalog in August of 1872 and became the leading player. Richard Sears began selling watches by catalog in 1888 but by 1894 he had expanded his catalog to 322 pages and began to dominate the industry. In 1933 Sears produced its first annual “Sears Christmas Wishbook”, perhaps the most famous catalog of all time. We generally champion the internet for its huge variety of products. However, we should remember that from 1908 to 1940 you could buy an entire pre-cut house from Sears by mail order. They sold 75,000 of them which were shipped by rail then delivered in truckloads to your lot to be assembled by your friends and family – amazing. Mail order continued to flourish as a small but integral part of the U.S. Retail market until technological changes altered the retail landscape –TV and then, the internet.

tv-1

Sales primarily through TV is a subset of Mail Order Sales and became a part of the retail marketplace with the development and proliferation of cable/satellite TV. As the number of channels grew, the need for funding/advertisers grew. Many companies looked upon this as an opportunity to directly “reach” their consumers, bypassing traditional distribution channels. Ultimately, it has expanded to dedicated time slots on many networks and even whole networks whose sole function is direct retail sales. Finally, the Internet…

internet1

Internet /E-Commerce – Perhaps the single biggest change in the U.S. and in fact, the world in the last 20 years has been the rise of the internet. It has altered virtually all aspects of our life and most certainly our spending behavior. There are many aspects of business which are now handled through the internet but in our report our primary focus was consumer online shopping.

The precursor to the internet was ARPANET which allowed networking between academic entities. In 1984 CompuServe launched the Electronic Mall, the first comprehensive e-commerce service. The first web browser, WorldWideWeb was developed in 1990. Netscape 1 was created and released in late 1994 which included the first secure encryption of transactions. In 1995 both Amazon and eBay were founded and the race truly began. 2000 was a down year as the dot-com bubble burst. However, in 2003 Amazon posted its first yearly profit and the segment began to grow. Continued developments in both software and hardware, along with intense competitive pressure have made this channel easier, more affordable and much more accessible to a greater number of Americans. This trend continues as every year both internet coverage and online shopping increase.

I hope this expanded narrative helps put the Retail Revenue numbers into better perspective.

Click here to view the earlier post with all the “numbers”.

2016 U.S. Retail Channel Update – Internet/Mail Order Makes a Move!

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Earlier this year we updated our ongoing study of the consumer “migration” between retail channels. When we eliminate Restaurants, Auto and Gas Stations, 3 “relevant” channels stood above the “pack”. In homage to the Olympics, for their 2015 performance we “awarded” the following medals:

  • Gold: Supermarkets – $588B
  • Silver: SuperCenters/Clubs – $440B
  • Bronze: Internet/Mailorder – $433B

Unlike the Olympics, this race is run every day and effectively has no finish line. In this report we will update the standings since the end of 2015. But first, we will put these “key” channels into perspective in terms of their historical sales growth and key waypoints. As we have said on numerous occasions, the retail marketplace is constantly evolving to better fulfill the wants and needs of the consumer. These three retail channels are currently at the top but it hasn’t always been that way. Plus, who knows what changes the future will bring?

The following chart tracks $ales for these channels from 1992 to 2015. The Data in this report comes from the U.S. Census Bureau – Specifically: Their Retail Trade Reports and The Economic Census.

channelct16-01

Observations

The 90’s – The foundation is laid for retail change.

  • Supermarkets show steady, if unspectacular growth over the period. This has been the general “rule” for this channel. The biggest share of their revenue comes from food, which is “need” driven.
  • SuperCtrs/Clubs – The major Club store chains – Costco, Sam’s & BJ’s were established in 1983-84. By 1994, the big three discount chains – Walmart, Target and Kmart – were fully committed to the SuperCenter format. By the last years of the century, 97-99, the consumer had begun to “buy into” both of these concepts and there were enough outlets to make a difference.
  • Internet/Mailorder – Remember that this group also includes sales through TV – from individual commercials to dedicated “sales only” channels. In the beginning there was no internet. However, by 1995, secure encryption had been developed for online transactions and Amazon was founded. The stage was being set but growth would require increased consumer technological coverage.

2000-2004 – An economic “slow down”

  • Spending slowed during this period. It began when the dotcom bubble burst in 2000 along with a slowed GDP in the second half of the year. While Consumer Spending didn’t decline, the increases were significantly smaller in 2001 and 2002. The recovery was then spread over 2003-2004.
  • Internet/Mailorder – The dotcom bust had an immediate impact in 2001 with flat sales. Full recovery happened in 2003, which incidentally is the first year that Amazon posted a profit.
  • Supermarkets – With “need” driven spending, consumers in this channel are both slower to react to a downturn and to recover. They had flat sales in 2002 and didn’t recover their momentum until 2004.
  • SuperCenters/Clubs – They didn’t miss a beat. With a growing store count, consumers turned their attention and their $pending to these “value” store formats.

2004 – 2008 – Good times until….

  • A period of strong growth until “the fall” in late 2008.
  • Supermarkets, SuperCenters and Clubs all registered strong growth through 2008.
  • Internet/Mailorder – From 2004 to 2007, the growth of the internet makes a major impact on this segment. Sales slowed markedly in 2008, a year earlier than other channels. With a high percentage of discretionary purchases, it appears that a slowdown in this channel may possibly provide “early warning” of impending drops in overall retail spending.

2009 – 2010...the recession and rebound.

  • U.S. Retail Spending fell 8.2% from 2008 to 2009, affecting most channels.
  • Supermarket Sales were flat in 2009 but SuperCenters/Clubs and Internet/Mailorder still posted small increases.
  • Once again, it took the Supermarkets an extra year to fully recover (2011). However, the recession firmly established “price” as the primary factor in buying decisions. As a result the sales in SuperCenters/Clubs and Internet/Mailorder responded immediately and strongly.

2011 – 2015 – the Recovery and aftermath.

  • Since 2010 Supermarkets have reverted to their previous pattern of slow growth – 3.3% per year. However, they are losing market share as this rate is lower than the growth rate of the overall market.
  • SuperCenters/Clubs rate of growth since 2009 is 3.6% which is lower than their pre-recession rate and they too have begun to lose overall market share.
  • Internet/Mailorder Sales have literally taken off since the recession – a 10.6% average annual growth.

Here’s what has happened since the end of 2015!

channeloct16-02

  • The Internet/Mailorder Channel passed the SuperCenters/Clubs in sales in March of 2016 (about the time of the GPE) and has continued to widen their lead. With the current Holiday forecast, expect the gap to grow even larger.

Supermarkets, Internet/Mailorder and SuperCenter/Clubs are the 3 largest “Pet relevant” channels in the U.S. Retail Marketplace. Just how important are they to the Pet Industry? The following chart shows their share of total retail Pet Products (Food & Supplies) sales from the last 5 Economic Census Reports. I took the liberty of including Pet Stores in this elite Pet Products Sales group.

channeloct16-03

Observations

  • In 1992 Supermarkets sold the most pet products. Consumers bought Pet where they did their grocery shopping. After falling precipitously for 15 years, Supermarkets rebounded after the recession. However, in 2012 they have basically 1/3 of the Pet Products market share that they enjoyed in 1992.
  • The rapid growth of Pet Chains in the early 90’s helped push Pet Stores to a peak 40% market share in 1997. They maintained this level until the Recession, when consumers started shopping for lower prices.
  • The SuperCenters & Clubs share of Pet Products went up sharply as these outlets grew both in number and popularity. Although their Pet Product growth has slowed somewhat in recent years, they are still a strong number 2 behind Pet Stores.
  • The first measurable Internet Pet Products sales showed up in 2002 – $70M. By 2012 that had grown to over $1B and the combined Internet/Mailorder channel accounted for 8.5% of all Pet Products sales.
  • These 4 Channels account for 80.9% of all Pet Products sales. 66.5% of all Pet Products sales come from outside the Pet Store Channel. These 3 Mass Market channels account for 47.4% of all Pet Products $.
  • In 2012 Supermarkets and SuperCenters/Clubs accounted for 38.9% of all Pet Products Sales. In 20 years the market has come “full circle”. In 2012, just like in 1992, Consumers bought the most pet products where they did their regular grocery shopping.

So these Retail Channels are obviously very important to the Pet Industry. What about the reverse? How important are Pet Products Sales to Supermarkets, SuperCenters/Clubs and Internet/Mailorder Retailers? In the next chart, we’ll look at the share of Pet Products Sales of the Total Revenue for each channel.

The percentages may seem low, but they represent Billions of dollars. Let’s put them into perspective. In 2015 Consumer spending on all four Pet Industry segments was about 0.94% of an average household’s total expenditures. Pet Products (Food & Supplies) spending accounted for 0.62%. In 2012 (the latest year on the chart) the numbers were 1.01% for Total Pet spending and 0.64% for Pet Products.

With these lower percentages in mind, now take a look!

channeloct16-04

Observations

  • Supermarkets – From 1992 to 2002 Pet products held at about 1% of total revenue, but their market share of Pet was radically falling as Pet Products’ distribution exploded across retail. They reached a low point in 2007 but have engineered a strong comeback through the recession and recovery.
  • Internet/Mailorder – Pet Products were relatively insignificant through 2002. Then the Internet started to take off in 2003 and the importance of Pet Products to the channel began to grow. It’s also important to note that unlike the other 2 channels, the bulk of the purchases were coming from the Supplies Segment, not food. When they turn their efforts to food…
  • SuperCenters/Clubs – When this Channel began to grow in the 90’s, Pet Products were an integral part of their plan and grew as their revenue increased. Since the recession, Pet Products have reached an incredible 2.4% of this huge channel’s total revenue. If overall sales flatten out in these stores, it could affect the overall revenue of the Pet Industry…unless the Internet picks up the slack.

We have reviewed the history and growth of the 3 largest Relevant Retail Channels, including a month by month look at 2016 YTD. We documented Internet/Mailorder passing the SuperCenters/Clubs to firmly take over the “silver” spot in the retail marathon. We validated the importance of these channels and Supermarkets to the Pet Industry. We have also confirmed that Pet Products are important in these retailers’ current and future Plans.

What’s next?

Let’s take a stab at predicting the future. In a final chart, we apply the annual growth rate of Supermarkets and Internet/Mailorder since the recession to project the outcome of the race for the “Gold” that has developed.

channeloct16-6

Too conservative? Mid 2020 for Internet/Mailorder to “grab the Gold” doesn’t take into consideration that for the first time, the Internet is specifically targeting Grocery products’ revenue.

Too optimistic?  Possible restrictive changes in trade agreements could drive up prices and reduce spending on many GM products (like Pet Supplies). This would slow sales in many retail channels, even the internet.

We’ll have to wait and see…

2015 U.S. TOTAL PET SPENDING $67.75B…UP $3.43B

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In 2015 Total Pet Spending in the U.S. reached $67.75B, a $3.43B (5.3%) increase over 2014. It was another good year as the percentage increase exceeded that of the Total “Relevant” Retail Market (+3.5%) and even the Top 100 U.S. retailers (+4.9%). However, the story was a bit more complex. The Total increase came from…

  • A spectacular $5.4B (22.5%) increase in Food $
  • A concerning -$2.1B (-12.5%) drop in Supplies $
  • A business as usual $0.6B (11.1%) gain in Services $
  • A less than expected -$0.5B (-3.9%) drop in Veterinary $

Let’s see how these numbers blend together starting at the household level. In any given week, 25.9 Million U.S. Households (1/5) spend money on their Pets – food, supplies, services, veterinary or any combination.

In 2015, the average U.S. Household (pet & non-pet) spent a total of $528.17 on their Pets. This was a 4.1% increase over the $507.14 spent in 2014. However, this doesn’t “add up” to a 5.3% increase in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

  • 1.2% more H/Hs
  • Spent 1.6% more $
  • 2.5% more often

By the way, if 65% of U.S. H/H’s are pet parents, then their annual Total Pet Spending is $812.57. Let’s look at the recent history of Total Pet Spending. The rolling chart below provides a good overview. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

2015-totpet-1

  • For an exact comparison you must compare like time frames. For example at midyear 2015 Total Pet was up $2.58B from the same period a year ago. Food was up sharply but the total increase was pulled down by drops in Veterinary & Supplies spending in the first half of 2015.
  • In the second half of 2015, Supplies spending continued to fall, while Food Spending grew even faster and Veterinary staged a $2B comeback. The result was a $3.43B (5.3%) increase in 2015 Total Pet $ over 2014

Now we’ll look at some Demographics. First, Total Pet Spending by Income Group

2015-totpet-2

As we drill further down into the demographics of 2015 Total Pet Spending, you will see that it can become complex and also generate some surprises, with the increases and drops sometimes coming from unexpected sources.

  • < $70K – (64.4% of U.S. Households); H/H Pet Spending: $359.90, +4.0%; Total $: $29.8B, ↑$1.01B (+3.5%) from…
    • Food ↑$2.21B
    • Supplies ↓$1.08B
    • Services ↓$0.04B
    • Vet ↓$0.08B

This low to middle income group represents 2/3 of U.S. H/Hs. A significant proportion of this price sensitive group chose to upgrade their Pet Food. There was a minimal impact on Veterinary and Services spending but the increase in money allocated to Food undoubtedly contributed to the $1B decrease in Supplies spending.

  • >$70K – (35.6% of U.S. Households); H/H Pet Spending: $835.18, +2.1%; Total $: $37.9B, ↑$2.42B (+6.8%) from…
    • Food ↑$3.22B
    • Supplies ↓$1.02B
    • Services ↑$0.62B
    • Vet ↓$0.39B

This group represents about 1/3 of U.S. H/Hs. Their lowest income is above the U.S. average and $15K above the Median so they have money to spend on their pets. In fact, they are responsible for 56% of the industry’s revenue. They also upgraded their Food Purchases plus spent more on Services. However, there must be some significant price sensitivity in some subgroups as both Supplies & Veterinary Spending fell sharply.

  • < $30K – (32% of U.S. Households); H/H Pet Spending: $275.31, +15.8%; Total $: $11.3B, ↑$1.67B (+17.3%) from…
    • Food ↑$0.49B
    • Supplies ↓$0.37B
    • Services ↑$0.12B
    • Vet ↑$1.42B

Two significant subsets in this group are H/Hs just getting started along with retirees. There is obviously a commitment to their companion animals by this lowest income group. The lift in food is very significant – new pet parents along with upgrades. However, the increase in Veterinary spending is amazing. Without this group, Vet Spending would be down almost $2B.

  • $30>$70K – (32.4% of U.S. Households); H/H Pet Spending: $442.85, -1.1%; Total $: $18.5B, ↓$0.66B (-3.5%) from…
    • Food ↑$1.71B
    • Supplies ↓$0.71B
    • Services ↓$0.16B
    • Vet ↓$1.51B

This low to middle income group is by necessity price sensitive. Many of them  committed to upgrading their Pet Food. However, the other segments “paid the price”, especially Veterinary and Supplies.

  • $70>$99K – (14.1% of U.S. Households); H/H Pet Spending: $599.19, -8.7%; Total $: $10.8B, ↓$1.13B (-9.4%) from…
    • Food ↓$0.06B
    • Supplies ↓$0.62B
    • Services ↓$0.15B
    • Vet ↓$0.29B

This upper middle income group demonstrates that price has become a priority in purchase decisions across the U.S. No upgrade in Food. They just spent less in every industry segment.

  • $100K>$149K– (12.2% of U.S. Households); H/H Pet Spend: $860.31, +13.9%; Total $: $13.2B, ↑$2.17B (+19.8%) from..
    • Food ↑$1.84
    • Supplies ↓$0.01B
    • Services ↑$0.18B
    • Vet ↑$0.17B

This group was the Star of the income groups. They upgraded their Pet Food but still had enough money available to spend more on Veterinary & Services. Only a small drop in Supplies prevented a sweep!

  • $150K> – (9.3% of U.S. Households); H/H Pet Spending: $1157.04, -1.4%; Total $14.0B, ↑$1.40B (+11.1%) from…
    • Food ↑$1.45B
    • Supplies ↓$0.38B
    • Services ↑$0.59B
    • Vet ↓$0.27B

These wealthiest Americans opted for upgrading their Food and more convenience in Services. However, the drop in Veterinary showed that they are not immune to inflation and the decrease in Supplies is a good indicator that there are definite problems in this industry segment.

Income Recap – 2015 showed that money matters but that a commitment to your companion animals is also a major factor. The Income Group “Team” that produced the $3.4B increase in Total Pet Spending was made up of the opposite ends of the spectrum – those making $100K+, along with those making less than $30K.

The opposite side was “manned” by those making $30K to $99K. This middle income group represents 46.5% of U.S. H/H’s and they are definitely price driven. Although the $30>$70K group “bought into” to upgrading their Pet Food, the Veterinary & Supply segments had to “pay for it”. The $70>$99K group has the money, but spending still dropped in all segments, including Food. A major overall concern revealed by this analysis  is the fact that Supplies’ Spending decreased in every income group.

Next let’s look at the Total Pet Spending by Age Group

2015-totpet-3

  • Under 25 – (5.9% of U.S. Households); H/H Pet Spending: $208.62, +32.4%; Total $: $1.7B, ↑$0.34B (+25.8%) from…
    • Food ↑$0.41B
    • Supplies ↓$0.02B
    • Services ↓$0.003B
    • Vet ↓$0.04B

These young Millennials bought into the Food upgrade but paid for it – in part with small drops in other areas.

  • 25-34 – (16.4% of U.S. Households); H/H Pet Spending: $383.65, -13.0%; Total $: $8.2B, ↓$1.02B (-11.1%) from…
    • Food ↓$1.23B
    • Supplies ↓$0.18B
    • Services ↑$0.15B
    • Vet ↑$0.24B

These oldest Millennials had a huge drop in Food. This follows a huge increase in the second half of 2014. It’s possible that they opted to upgrade their Pet Food early in the cycle, but decided that the price was too high. Their increases in Veterinary and Services spending show their commitment to their Pets and to convenience.

  • 35-44 – (16.8% of U.S. Households); H/H Pet Spending: $467.33, -7.4%; Total $: $9.9B, ↓$0.97B (-8.9%) from…
    • Food ↓$0.45B
    • Supplies ↓$0.59B
    • Services ↑$0.34B
    • Vet ↓$0.27B

This group has the largest families and is in the middle of building their careers. This makes them both price and time sensitive. Price and Convenience are their “Watchwords”. The result of this is that their spending declined in all segments but Services.

  • 45-54 – (18.9% of U.S. Households); H/H Pet Spending: $645.43, +7.6%; Total $: $15.3B, ↑$1.09B (+7.7%) from…
    • Food ↑$0.82B
    • Supplies ↓$0.64B
    • Services ↑$0.26B
    • Vet ↑$0.66

This age group has the highest income and the second largest Total Pet increase – +$1.1B. However, even they did not spend more across the board. In fact, they had the biggest drop in Supplies spending which is seriously concerning for this segment.

  • 55-64 – (18.8% of U.S. Households); H/H Pet Spending: $762.98, +14.1%; Total $: $18.6B, ↑$2.94B (+18.8%) from…
    • Food ↑$5.02B
    • Supplies ↓$0.20B
    • Services ↓$0.08B
    • Vet ↓$1.80B

These Baby Boomers committed to upgrading their Pet Food. Their Spending drove the big increase in the Food segment as well as much of the overall Industry increase, but the other segments were impacted. In fact, their cut back in Veterinary spending was the single biggest factor in the spending decline in this segment.

  • 65-74 – (13.5% of U.S. Households); H/H Pet Spending: $612.54, +2.7%; Total $: $10.3B, ↑$0.56B (+5.8%) from…
    • Food ↑$1.13B
    • Supplies ↓$0.35B
    • Services ↓$0.07B
    • Vet ↓$0.15B

Many in this group are retired and about half are Baby Boomers. They also upgraded their Pet Food and spending declined in other segments. However,  the drop in Veterinary was not as great as the 55-64 group.

  • 75> – (9.8% of U.S. Households); H/H Pet Spending: $297.57, +12.6%; Total $: $3.7B, ↑$0.48B (+14.8%) from…
    • Food ↓$0.27B
    • Supplies ↓$0.11B
    • Services ↓$0.02B
    • Vet ↑$0.88B

It definitely becomes both physically and monetarily more difficult to care for a companion animal once you reach an advanced age. The huge increase in Veterinary spending shows that their commitment is still strong.

Age Group Recap: Once again, the team that produced the $3.4B spending increase is made up of the opposite ends of this Demographic -the over 45 age group and the under 25 households. However, the “Starting Lineup” was clearly the over 45 crowd while the under 25 was on “Special teams”. The all-purpose “Running Back” wore #45-54, but the quarterback was #55-64, chosen because of his ability to make the “big play”.

On the downside, the other team is truly “family America” – the age group from 25 to 44. They are the 2nd and 4th highest income groups but they also have the largest families. Extra spending money and time are often in short supply. They search for bargains and anything that makes life’s tasks a little more convenient. Finally, just like the situation with the income groups, Supplies Spending fell in every age segment.

Take a look at some Key Demographic “Movers”. It should give you a better picture of the situation.

2015-totpet-4

Summary

In building my research database, I gathered Pet Spending information for 12 demographic categories with over 80 specific segments. Nothing, including the Pet Industry, is simple anymore. Total Pet Spending was up $3.4B (+5.3%), a strong increase but not one of the 80+ individual demographic segments had an across the board increase in all Industry segments. However, there were 2 segments that had across the board spending decreases: H/H’s with an Income from $70K>$99K were down $1.1B and Married Couples whose oldest child was from 6 to 17 years old spent over $2.1B less on their Pets. These are usually big winners in Pet Spending.

On the upside, it appears that “opposites attract”: 2 earner H/H’s and Retired people; Income Over $100K and Income Under $30K; Over 45 years old & under 25. Other “positive” groups were just “stand alone” unusual: 1 or 2 person H/Hs; No kids H/Hs – whether single, married or unmarried; Homeowners without a Mortgage.

On the downside, there were “losers” in 2015, who usually are winners: Self-employed; 4+ people; Married couples with kids under 18; the 25 to 44 yr age group. Also, the difference between the spending by College Grads and those without a degree was very extreme.

2015 was a “mixed bag”. 80 of the 82 demographic segments had a mixture of up and down spending on the various industry segments. There is no doubt that the big increase in Food spending was primarily responsible for the overall increase in Total Spending. However, it also left less “available” resources for spending in the other segments. This big lift in Food was largely driven by the Baby Boomers, especially the 55 to 64 age group. Their spending in all other segments declined and their big drop in Vet spending turned the whole segment negative.

Regardless of income level, there is definitely increased consumer pricing sensitivity across the entire U.S. retail market. However, product quality and a commitment to the well-being of our companion animals still rank high in the decision making process as was evidenced by the upgrading of Food by the under $30K group and the big increase in Veterinary spending by those over 75. In 2016, we’ll see if the increase in food spending holds on or even expands to more demographics and…if the Supplies segment can make a comeback.

2015 U.S. VETERINARY SPENDING $17.1B…DOWN ↓$0.5B

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Veterinary Services is the second largest Pet Industry segment. A high inflation rate has put spending on a rollercoaster ride with today’s more price sensitive consumers. In 2015, spending was $17.11B – down -$0.47B (-2.7%) from 2014. In this report, we’ll try to determine the demographic drivers of the decrease. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Veterinary Spending per H/H in 2015 was $133.44, down from $138.72 in 2014. (Note: A 2015 Pet H/H (65%) Spent $205.29) More specifically, the decrease in total spending came as a result of:

  • 2% more H/H’s
  • Spending 0.9% less $
  • …2.9% less often

We’ll need to take a closer look. But first, the chart below gives an overview of recent Veterinary Spending.2015-vet-1

You can see the rollercoaster. The $2.1B “lift” in the second half was not enough to overcome the precipitous $2.6B drop in spending that occurred in the first half of 2015. Let’s look at spending by Income group.

2015-vet-2

Observations

  • <$70K & >$70K – Both were negative. However, the drop was larger in the higher income group.
  • <$30K (32% of H/H’s) – Up $1.42B (+81.3%). This was a huge increase and a great comeback from a -$1.0B drop from 2013 to 2014. This group is a “mixed bag” with a lot of people just getting started and retirees.
  • $30K to $100K – (46.5% of H/H’s) – Down -$1.8B (-21.2%). As we have seen, this is a price sensitive group. The $30K to $70K group had a $1.7B increase in Food and the $70K>$100K group spent less in all segments.
  • >$100K (21.5% of H/Hs) Down -$0.1B (-1.3%) Bought $2.3B more food, but only $150K> spent less on Vet.

Next, Veterinary Spending by Age Group

2015-vet-3

Observations

  • <25 (5.9% of H/Hs) –Down $0.04B (-12.8%) They bought a lot more food but less in all other segments.
  • 25>34 (16.4% of H/Hs) -Up $0.24B (+16.9%) Spent much less on products but more on services.
    • 7% more H/Hs
    • Spent 2.1% more $
    • …11.6% more often
  • 35>44 (16.8% of H/H’s) –Down $0.27B (-10.7%) Price vs convenience – only increased on Non-Vet services
    • 8% fewer H/Hs
    • Spent 1.7% more $
    • …10.5% less often
  • 45>54 (18.9% of H/Hs) -Up $0.67B (+18.2%) Here’s how the wealthiest group spent their Veterinary $$..
    • 4% fewer H/Hs
    • Spent 18.3% more $
    • …1.1% more often
  • 55>74 (32.3% of H/Hs) –Down $1.94B (-28.1%) Spent $6B more Food. The key is the 55-64 group with…
    • 6% more H/Hs
    • Spent 21.7% less $
    • …15.9% less often
  • 75> (9.8% of H/Hs) -Up $0.88B (106.3%) Any doubts about their commitment to pets? Look right here!

Here are some key Demographic “Movers” in Veterinary Spending. Take a look then we’ll wrap it up.

2015-vet-4

Summary

The H/Hs that bought more are in 2 groups – the oldest Americans, many are retired and have paid off their home, but make less than $30K and the $100>$150K income group – Both with only 1 or 2 in their H/H.

The drop in Veterinary Spending comes largely from “Middle America” – H/Hs with incomes from $50>$100K, married couples, 2 earners who work as managers or professionals, homeowners with a mortgage, living in a city or suburb . These are the some of the biggest spending demographic groups in the entire Pet industry. However, these consumers who have bought the most in the past, cut their Veterinary spending in 2015.

The single demographic segment most responsible for the overall decline in Veterinary Spending was the 55-64 age group, with a $1.8B decrease. The $5B increase in Pet Food Spending by these “Boomers” had to be a big factor in this decision to cut back. Without such a huge drop in this one segment, Veterinary sales would be up. However, you can’t ignore the fact that a continuing high inflation rate affects the spending of today’s value (price) conscious consumers across a wide spectrum of demographics.