Pet Market – Page 25 – Pet Business Professor

Spending, CPI, demographics of overall market

2015 U.S. PET SERVICES SPENDING $6.3B…UP ↑$0.6B

October 10, 2016/in Pet Market, Pet Market Segments/by John Gibbons

Although Non-Vet Pet Services is the smallest industry segment, it continues to grow and 2015 was another good year. Spending reached $6.26B, a 0.58B (10.2%) increase over 2014. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Pet Services Spending per H/H in 2015 was $48.70, up from $44.68 in 2014. (Note: A 2015 Pet H/H (65%) Spent $74.92) More specifically, the increase in total spending came as a result of:

1.2% more H/H’s
Spending 11.1% more $
…1.9% less often

The chart below gives a visual overview of recent spending on Pet Services.

The increase has been consistent since 2013 with a definite spending “lift” in the second half of both years. Now we’ll start “drilling down” to look at spending by demographic categories. First, by Income…

Observations

<$70K; >$70K – Although it looks like the entire increase comes from the >$70K group, it is not that simple.
$100K – This group is 21.5% of H/H’s and generated an increase of $0.78B – 132% of the total increase for the segment. If they were up this much, somebody had to be down…
$30K to <$100K – They had a $0.31B (-13%) decrease in spending. This mid-income group is 46.5% of U.S. H/H’s and was responsible for 42% of the Services Spending in 2014. They can be very price sensitive and Services are often considered discretionary spending. The $30>$70K group also spent $1.7B more on Food.
<$30K – It’s not all about $. This group (32% of H/H’s) had a $0.12B (18%) increase. This increase is not coming from the retired people in this group. It was generated by low income wage earners.

Now let’s look at spending by Age Group.

Observations

25>54 – (52.1% of H/H’s) – Service Spending is generally more discretionary in this group and they spent $0.75B more. They have the money to spend as they are the 1^st, 2^nd and 4^th highest income groups. Also remember, the 25>45 group spent $1.7B less on Food.
55>74 – (32.3% of H/H’s) – As consumers age, Pet Services often become more of a “need”. However, they spent slightly less -$0.14B. These are primarily Baby Boomers and they just spent $6.1B more on Pet Food.
<25 & >75 – (15.7% of H/H’s) Spending by these Age “Bookends” was basically flat. Each was down $0.01B.

Take a look at some Key Demographic “Movers” then we’ll wrap it up.

Summary

Overall, the increase in Services Spending was about convenience, rather than physical need, as it was driven by the younger crowd – Gen X and the older Millennials. The Boomers spent so much in upgrading their Pet Food that a small decline was not unexpected. Income was also important in order to afford the rising service prices. Whether the household consists of 1 or 2+ members, all the adults worked. College educated, managers or professionals accounted for the vast majority of the increase. Retired people had a big decrease.

It really didn’t matter in what region of the country that you lived, as long as it was in a city or the suburbs. Homeowner ship also wasn’t a big factor as both homeowners and renters had increases. The spending increase by Hispanics was good news. Singles had the biggest growth while the “traditional” married couple with one earner and 2 children was almost certain to spend less. Basically, the increase was driven by busy “younger” (25>54) groups who needed help with Pet Parenting and could afford to pay for it.

2015 U.S. PET SUPPLIES SPENDING $14.9B…DOWN ↓$2.1B

October 2, 2016/in Pet Market/by John Gibbons

Total Pet Spending increased $3.4B in 2015 to $67.75B. It was fueled by a $5.4B increase in Pet Food. In this report, we will discuss the biggest “downside” of 2015. Spending on Pets and Pet Supplies went from $17.0B in 2014 to $14.9B in 2015 – a -$2.1B drop (-12.4%). (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys)

Although the decrease makes for a much less pleasant investigation than our analysis of Pet Food, it is necessary. We’ll “drill down” into the data to try to determine what and who are “behind” this big change.

First, Supplies’ Spending per H/H in 2015 was $115.97, down from $133.83 in 2014. (Note: A 2015 Pet H/H (65%) Spent $178.42) However, reduced H/H Spending is not the whole story. It turns out that the $2.1B drop in spending came as a result of:

1.2% more H/H’s
Spending 4.1% less
…9.7% less often

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

As you can see, Supplies showed strong growth in 2014. Then in 2015 they started to decline. It began early in the year and was pretty steady – a drop of $1.15B in the first half and $0.95B in the second half vs 2014.

Let’s consider some relevant happenings in the overall Pet Market in 2015.

This segment has many categories which have become “commoditized”. A high percentage of the purchases are “discretionary”, rather than “need” based, like food. These products can be sensitive to price changes. The Consumer Price Index for Pet Supplies rose steadily for the first 9 months of 2015 then “plummeted” in October-November (a record drop). The drop may have been a result of retailers trying to make up for months of depressed sales. It may have helped …but wasn’t nearly enough.
Pet Food Spending was taking off like a rocket in 2015. Virtually all U.S. households have a spending “limit”. A radical increase in Food Spending may have caused Pet Parents, consciously or unconsciously, to cut back in spending in other segments – especially discretionary $ in Supplies.
Another factor in the Food Increase was the growth of Meds/Supplements in the form of Treats. If a Pet Parent switched from pills/powders to treats, this would move their dollars from Supplies to Food.
Innovation – One sure way to get consumers to spend more money is to produce new products that “make a difference” in their role as Pet Parents. If it is definitely better or easier, they will spend more. Based upon the spending, It doesn’t appear that there were many new “must haves” in the Segment.

These are some possible reasons behind the decline. Now let’s look at “who” spent less. First, by Income level.

Observations: Spending is down in all groups. It’s just a matter of how much. There is not a distinct pattern.

$30K>$99K (46.5% of H/H’s)- $6.33B, Down -$1.33B (-17.4%). This middle income, value conscious group seems to have been impacted the most as they were responsible for 63% of the spending drop.
No group was immune, as even the >$150K group was down $0.38B (-11.1%)
$100K>$149K (12.2% of H/H’s) – $3.09B, Down -$0.01B (-0.04%). This group has the only “almost positive” story in the income group demographic category, as their spending was essentially flat.

Let’s take a look at the spending by Age Group.

Observations: All groups spent less on Supplies. Here are some specifics starting with the biggest spenders:

45>54 (18.9% of H/H’s) $143.69 per H/H – $3.48B – Down -$0.65B (-15.6%) This group has the highest income and overall expenditures and…spends the most on Pet Supplies. They had a $1.73B increase in spending in the other Pet Segments which could be a factor in the drop in discretionary Supply spending. They bought supplies 13% less often.
35>45 (16.4% of H/H’s) $113.70 per H/H – $2.45B – Down -$0.59B (-19.4%) This group is second in income and overall expenditures. They also have the biggest families. Pet Spending is only 0.72% of their total expenditures, while the national average is 0.94%. It is a recipe for price sensitivity in their pet supplies buying decisions. They bought Supplies 15% less often.
25<34 (16.4% of H/H’s) $127.31per H/H – $2.68B – Down -$0.18B (-6.4%) They have price pressure – starting families and careers. They actually bought Supplies 8% more often but spent 16% less.
<25 (5.9% of H/H’s) $64.00 per H/H – $0.49B – Down -$0.02B (-4.1%) They are acquiring pets. They actually increased their H/H spending on Supplies. However, there were 9% fewer H/H’s.
55>64 (18.8% of H/H’s) $139.31 per H/H – $3.36B – Down -$0.2B (-5.7%) This group spent $5B more on Food so it’s not surprising that Supplies are down. However, these are “Boomers”. They actually spent 7% more…just 16% less often.
65>74 (13.5% of H/H’s) $109.05 per H/H – $1.89B – Down -$0.35B (15.7%). This group also spent a lot more on Food but with a bigger impact on Supplies. They spent 9% less on Supplies…10% less often.
75> (9.8% of H/H’s) $44.01 per H/H – $0.56B – Down -0.11B (-16.6%) They spent 10.8% less and 9% less often. They are still trying to hang on as Pet Parents. They actually doubled Veterinary Spending.

All groups spent less on Supplies in the Age and Income Categories. Take a look at other Key Segments:

Summary: The drop in Supply Spending is so pervasive across the U.S. that it is difficult to point to a specific “who” behind the behavior. Home owners, 2+ People H/H’s, Married Couples with children – these are the core of the Pet Industry and they are all down – big time. About the only H/H likely to be up in Supply spending was a single person, working as a Manager or Professional, renting an apartment in the Center City in the Western U.S. – not exactly what we have come to recognize as the “ideal” Pet Parent Spending Household.

Basically, this puts the “onus” on “what” to explain the decline. When you do that, you have to come back to money. While some demographic segments have greater “economic” pressure than others, price has become the #1 factor (75%) in the buying decisions in America. Also, almost everyone, at every income level, lives on a budget. If you spend more in one area, then less money is available for other spending.

The Supply Segment is different from Food. While some Supplies are necessities, a lot are discretionary and impulse can also be a big factor. The CPI on Supplies rose for the first 9 months of 2015. This invariably depresses sales for “commoditized”, discretionary items. At the same time, Pet Food Spending took off and Veterinary Spending went up $2B in the Second Half of 2015. These are both “need” expenditures and can depress spending on discretionary items. A truly key fact that came out in the investigation was the drop in frequency of Supplies Spending. Pet Parents spent 4% less but…they bought 10% less often –that’s a big deal.

So what can be done? The surest “fix” is innovation. Consumers will spend more if a product is demonstrably better or makes Pet Parenting easier. However, this takes a lot of thought and effort. Are you ready to get started? What about the “Boomers”? They are 34.4% of the H/H’s. They spent 48.5% of the total Food & Supply $…and they’ll pay for better! How can you make life easier for this huge group of aging Pet Parents?

2015 U.S. PET FOOD SPENDING $29.5B…UP $5.4B

September 19, 2016/in Pet Market/by John Gibbons

The U.S. Pet Industry had a good year in 2015. Spending reached $67.75B, up $3.43B (5.3%). However, as we have learned, the industry truly is a “sum” of its integral segments. Each segment has very specific and often very different buying behavior from the many consumer demographic groups. For this reason, we’re going to analyze each of the segments first. This will put the final analysis of Total Pet Spending into better perspective. Note: The numbers in this report come from or are calculated by using data from the current and past US BLS Consumer Expenditure Surveys. In 2015, this was gathered by the U.S. Census Bureau from over 40,000 interviews and spending diaries. The final data was then compiled and published by the US BLS.

We will begin with the largest Segment, Pet Food (and Treats). In 2015 Pet Food Spending reached $29.49B in the U.S. This is a $5.43B (22.5%) increase over 2014. Quite frankly, this is amazing. How amazing? In 2015 Pet Food accounted for 43.5% of the Pet Industry’s revenue. In 2014 it was only 37.4%. This is the highest level since 1998 – 44.9%. Something is definitely “happening” in this segment. Let’s see if we can determine what and who are behind this increase.

We’ll start at the household level. In any given week, 22,000,000 U.S. Households (1/6) buy Pet Food.

In 2015, the average U.S. Household (pet & non-pet) spent a total of $230.06 on Pet Food. This was a 21.1% increase over the $189.91 spent in 2014. However, this doesn’t “add up” to a 22.5% increase in total Food Spending. With additional data provided from the US BLS, here is what happened.

1.1% More U.S. households
Spent 17.2% more $
3.4% more often

By the way, if 65% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $353.94. Let’s look at the recent history of Pet Food Spending. This “rolling” chart provides a good overview.

Pet Food Spending dipped in the first half of 2014. This corresponds to the final days of a yearlong deflationary period in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. When prices increased slightly in Mid-2014, Spending turned upward. However, stable or slightly increasing prices are not enough to explain the spectacular growth in 2015.

An initial clue is provided in the H/H spending numbers provided by the US BLS. The increase in H/H’s is pretty normal. The increased frequency of purchases seems relatively small but the increase in spending is huge. There is no getting around it. You also need to remember that these are national numbers. There was no huge gain in the number of Pets or Pet Owning Households, so these changes in frequency and spending numbers are likely to be the result of significant changes in the Pet Food purchasing behavior by specific demographic segments. First, let’s consider what might generate this radical increase in spending.

As an industry participant and observer for 27+ years and an adult consumer for 50 years, I can’t help but notice the “Pet” happenings around me – in the retail marketplace – in the media – in friend’s homes. Another venue to view what is happening in “Pet” is at an industry trade show – GPE & SuperZoo. The exhibitors and their product offerings generally reflect the current retail marketplace and in fact, can be harbingers of the future.

Between 2015 and 2014, the combined exhibitors at GPE & SuperZoo increased 5.9%. Here are some changes in the product category “numbers” during that time frame which are relevant to the Food Segment:

The total number of exhibitors in the “Natural” Section increased 30.7%. This parallels the strong “Natural” trend in the overall U.S. consumer market.
Exhibitors selling dog and/or cat treats were the most numerous category at all the shows – 1 in every 4 booths – and there were 9.1% more in 2015.
The number of Food booths was up only slightly 0.5%.
However, 16% of First Time Exhibitors were selling dog and/or cat food or treats.
Meds/Supplements – The Exhibitor count was up 16.8% and this continues to be the fastest growing product category. Remember, many of these items are sold in the form of “easy to dose” treats.

It appears that the increase in H/H spending on Pet Food came mainly as a result of:

Pet Parents upgrading their Pet Food: SuperPremium, Natural, raw, organic…all have distinct nutritional benefits for our companion animals…and they all cost more.
Buying more and higher quality treats. Although treats have always been popular, much of this behavior can be traced to the radical increase in the Meds/Supplement category. This has been driven by strong inflation in the Veterinary Segment. Since many of these supplements are produced in treat form, this would increase Pet Food spending.

The “What” behind the spending increase would seem to require

an educated group to fully appreciate the benefits of the upgraded or medicinal products…
with enough extra money to spend…
or an unwavering “spend whatever is needed” attitude towards their Pet “children.”

Let’s look at some Food Spending Demographics to see if we can locate the “Who” behind the big increase.

First, here is the Pet Food Spending by Income Group.

Observations

Actually, there was an increase in per H/H Food spending in every income group. The only Total Food spending decrease came as a result of reduced number of H/H’s in the $70>$99K group.

Under $30K (32.0% of H/H’s) – $120.30 per H/H – $4.93B – Up $0.49B (+11.0%). Significant shares of this group are <25, >75, Retired or African American. The group is -3.3% smaller in size, so some are definitely spending much more on Food.
$30K>$70K (32.4% of H/H’s) – $228.34 per H/H – $9.58B – Up $1.71B (+21.7%). Income triples. Expenditures increase 63%. Home ownership doubles. A more diverse group which closely matches the national average.
$70K>$99K (14.1% of H/H’s) – $257.97 per H/H – $4.63B – Down $60M (-1.3%). This group is near the top of the “middle income”. They had a small 4.8% increase in H/H spending but the number of H/H’s fell by 5+%.
>$100K (21.5% of H/H’s) – $379.50 per H/H – $10.35B – Up $3.29B (+46.6%). Obviously, income does matter in this situation as 21.5% of U.S. H/H’s generated 60% of the $5.4B increase.

While income is a major factor in the increase, it is not the only one. The $30>$70K group also had a strong year. Also note: For the first time, the >$70K group accounted for more than 50% of total Food Spending (50.8%).

Now let’s take a look at another Key Demographic Category – Age

Observations

There is obviously a lot more disparity in the spending by age groups than in the income groups.

55>64 (18.8% of H/H’s) – $409.47 per H/H – $10.02B – Up $5.02B (+100.5%). This group is perhaps the key to the huge increase in Food Spending. They are 100% Baby Boomers. Their income is well above the mean but not in the highest tier. 1.3% of their total spending is on their pets. They have small H/H’s – 2.2 people. 76% own their own home – 35% w/o mortgage. Drilling deeper, here is where the increase comes from:
- 4.6% More households
- Who Spent 65.8% more $
- 15.6% more often

65>74 (13.5% of H/H’s) – $276.18 per H/H – $4.59B – Up $1.13B (+32.7%). – A big increase. Much of this group is retired. Their income is reduced but they still spend a lot on their pets – 1.24% of total expenditures. They have only 1.8 people per H/H. 80% are homeowners – 51% w/no mtge. – A Growing number of Baby Boomers
75> (9.8% of H/H’s) – $91.75 per H/H – $1.15B – Down -$0.27B (-19.0%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. As a result, pet ownership begins to decline. This was a sharp drop. The huge “Boomer” group will start turning 75 in 2021. We should be looking for solutions.
45>54 (18.9% of H/H’s) – $250.49 per H/H – $5.87B – Up $0.81B (+16.2%) This group has the highest income and the most in Total H/H expenditures. Last year they were #1 in Pet Food spending. Their H/H spending went up about 17% but they fell to number 2 in Total Food $…by $4B. – The percentage of Baby Boomers is declining.
35<44 (16.8% of H/H’s) – $192.48 per H/H – $4.05B – Down -$0.45B (-10.1%) They are second in income and expenditures. However, they have the biggest families – averaging 1.4 children under 18 per H/H. Both their H/H spending and number of households declined slightly in 2015 resulting in the $0.45B drop total Food $.
25>34 (16.4% of H/H’s) – $137.01 per H/H – $2.99B – Down -$1.23B (-29.2%) Their income is growing but so is spending – acquiring their first home (39%), starting a family – an average of 1 child per H/H. With over 91% of their after tax income committed, they have financial pressures. In the second half of 2014 this group had a huge increase in Food Spending. With their “Millennial view” of “natural,” they likely “opted in” early for “upgraded” pet foods. In the second half of 2015 financial pressures and bargain prices on “regular” food may have convinced them to “cut back” to more normal fare.
<25 (5.9% of H/H’s) – $99.17 per H/H – $0.82B – Up $0.42B (+99.2%) These youngest Millennials are getting started as Pet Parents. It looks like they are acquiring pets and choosing the “high quality” food segment.

The chart below has some other key demographic “movers” in 2015 Pet Food Spending. Take a look! These should help to paint a much clearer picture of the “who” behind the $5.4B increase.

Summary

There is no doubt that older Americans drove this big increase, especially 55>74 year olds. They are married couples alone or with one child over 18 still at home. They live in a suburban environment in their own home, which they just paid off. Either both of them work as managers, professionals or in their own business….or no one works…the joy of retirement. It is really the same educated group, just in 2 different life stages.

On the flip side, the drop in spending affects 1/3 of U.S. Households. Much of the decline is coming from what used to be considered the “traditional” American Family – A Married Couple, 25 to 44 years of age. Only one of them works because the other needs to stay home to take care of their 2 young kids. This makes spending pretty tight so they always look for a good price.

While the “journey” has been complicated, the conclusion seems to be rather simple. The big increase in Food Spending was driven by the “Baby Boomers.” They upgraded the quality of their Pet Food and treats and began using the new medicinal supplements available in Treat form. Note: They have been the leaders in Veterinary Spending so they would recognize the “value” in these decisions. This still leaves us with an unanswered question…

How much will the huge increase in food spending affect the spending in other segments?

U.S. Retail Trade – 2015 $ales Update by Channel – Going for the Gold!

September 7, 2016/in Pet Market, Pet Market Distribution Channels/by John Gibbons

The Total U.S. Retail Market in 2015 reached $5.3 Trillion dollars – up $119B (+2.3%). The Market was significantly slowed by a precipitous drop in Gasoline prices resulting in a -$103B decline in revenue. For this report we will concentrate on the “Relevant Retail” Total – removing Restaurants, Auto and Gas Stations. This still leaves us with $3.2 Trillion to “divvy up”.

In a recent report we reviewed the 2015 sales performance of the Top 100 U.S. Retailers. That covered the “Headliners” but everyone can’t be a headliner. How are specific Retail Channels performing? We’ll start with a market overview and then work our way down. (Base Data is from the U.S. Census Bureau Retail Trade Report)

First, Please Take Note: As you are reviewing this detailed data and wondering exactly how does all this relate to Pet Products sales, consider these 2 facts from the 2012 U.S. Economic Census:

Retailers other than Pet Stores generated 66.5% of all the Pet Products revenue in the U.S.
Pet Products, on average, generated 2% of the total revenue of all non-pet stores that chose to stock them.

Restaurants (Food Service) – 12% of Total Retail – had an exceptional year, up↑8.1%.
Automobile Sales – 20% of the Total – also did well, up↑6.5%.
Gas Stations – 8% of the Total – ↓Down 19.2% from a year ago. Motor Fuels account for over 80% of the total revenue of gas stations. Gas prices are down 27% from 2014. (CPI from USBLS)
Retail, Less Food, Auto and Gas – Up 3.5% to $3.2 Trillion. This is 59.8% of the total U.S. Retail market and it is growing 50% faster than the Total but at only half the rate of Restaurants and Auto.

To put this year into perspective, let’s look at the overall performance in recent years.

Gas prices had a huge impact on the overall market. The Auto and Restaurant segments have maintained strong growth rates. In fact restaurant sales growth is accelerating. In our “Relevant Retail” Segment, growth has slowed by 19% to 3.5%. This is also significantly below the 4.8% growth rate of the Top 100 Retailers. As we look at the individual channels, the 3.5% growth rate will serve as a benchmark. – Above 3.5%, a channel is gaining market share; Below 3.5%, they are losing share.

Now, we’ll slice up the U.S. “Relevant Retail” Channel “Pie”.

These are large slices of the U.S. Relevant Retail pie. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 58.6% of the total. If you look back at our post on the channel migration of Pet Products Sales, you will see that in the 2012 these three divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores but Pet Products are also “on their shopping list” in the outlets where they spend most of their money.

Because they are so huge, major Divisions of the market generally don’t show much movement in market share in just one year so the changes in the General Merchandise Stores and Non-Store “Divisions” are very significant. Each of the major divisions includes a number of subsegments. For example, General Merchandise includes Traditional Department Stores, Discount Department Stores, Supercenters and Clubs as well as $ and Value Stores. These specific retail channels can have greater movement in share because this is the level that the consumer “views” when making their initial shopping choice. Change at this level is where any ongoing consumer migration first becomes apparent.

Here is the Market Share change “Rule” for 2015: To gain 0.1% in Market Share your $ increase must exceed the amount generated by a 3.5% sales increase PLUS an additional $3.2B. Example: If a channel did $100B in 2014, they need to do $100 +$3.5 + $3.2 = $106.7B to gain just 0.1% in 2015 share. It’s not easy!

Enough “overview”! Let’s look at the 2015 performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. Eleven of the twelve made the list by generating at least 1% of the Total Pet Products (food & supplies) spending in the last Economic Census. Traditional Department Stores are also included although they have never embraced Pet Products. They have long been a fixture in the U.S. Retail Marketplace. Their slow fade, as the consumers migrated to outlets which better fit their needs, has profoundly affected U.S. shopping as generally they were the “anchor” stores for the Shopping Malls across America.

We will use 2 separate graphs to illustrate the situation in these Pet Relevant Channels. The first will show the % change in sales in 2015 vs 2014. The next will “show us the money” by translating the % into $ gained or lost.

Remember, you must be up at least 3.5% or you’re losing market share!

The leader comes as no surprise. However, there are some huge channels that are losing ground. Now, I’ll “show you the money!” For your reference, the Total increase for the “Relevant Retail” Market was $108B and you must be up 3.5% PLUS $3.2B to gain just 0.1%!

The growth in the Internet/Mail Order is even more pronounced when you look at the change in $ spent!

OBSERVATIONS BY CHANNEL

Look for: (% of Total Business from Pet Products for stores that stock Pet – 2012 Economic Census)

Internet/Mailorder – $432B, Up $46.6B (+12.1%) – 43% of the total increase for the $3.2T Retail Market came from Internet/Mailorder. The Consumer Migration to this channel is accelerating – gaining 1.1% in Market Share in just a year. (1.2% Pet)
Super Markets – $588.3B, Up $14.4B (+2.5%) This largest subsegment is barely holding its ground as it lost over 0.1% in Market Share. Right now the major competition is from SuperCenters/Clubs. However, the Internet is positioning itself to also become a factor. (1.6% Pet)
Department Stores – $58.4B, Down $2.2B (-3.6%). As stated, this segment is not particularly relevant to Pet but they are part of the best “visual” example of the channel migration of the U.S. consumer. 50 years ago they “ruled” the GM category. Then they started to slide as they failed to adapt to the changing wants and needs of the consumer. One small example of this is their failure to address America’s growing relationship with our companion animals. (N/A Pet)
Discount Department Stores – $106.3B, Down $1.2B (-1.1%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top of GM was relatively brief as the SuperCenters/Clubs offered true 1 stop shopping. (2.3% Pet)
SuperCenter/Club Stores – $440.1B, Up $6.8B, (+1.6%). These outlets with their broad mixture of grocery and general merchandise…at great prices quickly became a dominant force in the retail market. They are second only to Supermarkets in Market Share. However, they “needed” to be up $15B in 2015. A Sales increase of $7B and they lost -0.3% in Market Share. (2.4% Pet)
$ & Value Stores – $68.8B, Up $3.3B, (+5.0%). – A Great Value and easy to shop. The recent steady growth in this segment is proof that American consumers want Value AND Convenience. (4.3% Pet)
Drug Stores – $263.3B, Up $11.5B, (+4.6%). 60+% of the revenue comes from Rx Drugs. The growth in this segment mirrors a 4.6% Increase in Rx Prices over 2014. (0.3% Pet)
Sporting Goods – $47.1B, Up $2.4B, (+5.4%). Minor player in Pet, had a strong first ½ in 2015.(N/A Pet)
Home Centers – $254.0B, Up $13.4B, (+5.6%). These “project driven” outlets have never done a significant Pet Business for their size. Two Top 10 U.S. Retailers are driving the growth. (0.6% Pet)
Hardware – $23.4B, Up $0.8B, (+3.5%). A strong first half – up 7.1%, then flat in the second half – the result – no gain…or loss in market share. (2.6% Pet)
Farm and Garden Stores – $44.6B, Up 0.4B, (+0.8%). This segment has been growing in recent years in both overall sales and in Pet. However, in 2015 it appears that 100% of the segment’s small sales growth came from Tractor Supply who reported a $0.4B increase in our Top 100 Post. (8.9% Pet)
A/O Miscellaneous Stores $70.4B, Up $3.6B, (+5.4%). Florists, Pet Stores, Art Dealers…are segments bundled into this group. Based upon the 2012 Economic Census data, Pet Stores probably account for almost 25% of this segment. In 2015, they held their ground against the big segments. (Pet Stores: 91% of Total revenue is from the sale of Pets & Pet Products)

The chart below puts the Market Share of each of these segments for 2015 & 2014 in a visual format so that it is easier to appreciate the relative sizes. Growth in share is indicated by a green box, a decline is boxed in red.

Now we’ll wrap it up with a brief summary and a detailed chart for future reference.

SUMMARY

Pet Stores are still #1 for Pet Products. In the Overall Market, there are 3 Olympic Medalists. There is no change for the Gold. Supermarkets remain the largest Retail Channel. However, the race for the Silver is heating up. SuperCenters & Club Stores are growing….but losing Market Share. The Internet/Mailorder segment is growing even faster than anticipated. Gaining 1.1% in Market Share in a $3T annual market in 1 year is definitely fast. In an upcoming report we’ll revisit and update this race between these three…which right now is focused on the Silver. However, you have to wonder what will happen when the internet turns its attention to grocery items.

Overall, 2015 was somewhat disappointing. The $ales increase was 19% less than in 2014 and without the incredible increase by the Internet/Mail Order Channel, there was little excitement or growth. There were a couple of good small points that relate to the Pet Industry – the continued growth of the $/Value Stores and the better than average increase in the A/O Miscellaneous Channel. (Pet Stores included).

Bottom Line: The U.S. Retail Market is growing and evolving as the consumer migrates to the channels which best fulfill their current wants and needs. Today, the “Channel of Choice” seems to be Internet/Mail Order and the movement is accelerating. As always, to survive and prosper, you must identify consumer needs and adapt.

Finally, the Chart below contains Detailed 2015 Sales Performance Data for over 30 U.S. Retail Channels.

2015 Top 100 U.S. Retailers; $+4.9% 134,800 Stores with Pet Products…plus the internet!

August 23, 2016/in Pet Market/by John Gibbons

The U.S. Retail market reached $5.3 Trillion in 2015 from all sources – Supercenters, Restaurants, Online retailers, even Pet Stores. This year’s increase of $118B was less than 2014’s $196B and was driven down by a 19% drop in total Gas Station revenue. (Data courtesy of the Census Bureau’s Monthly Retail Trade report)

In this post we will try to narrow the focus to the top 100 Retailers in the U.S. Market – the headliners. These 100 companies account for 38% of the total retail market! How did they perform in 2015 vs 2014…and of course, which ones sell Pet Products? Remember, according to the 2012 Economic Census, over 2/3 of the Pet Products in the U.S. are sold outside of Pet Stores. The Top 100 group accounts for a huge share of these sales. This report is crammed with data, but we’ll try to break it into smaller pieces with regular observations. All of the base data on the Top 100 comes from Kantar Research and was published by the National Retail Federation (NRF).

Let’s start with an overview:

Observations

The Total Market grew $118.5B in 2014 – Up 2.3%
- The Top 100 grew $94.6B and the growth rate of 4.9% far exceeded the overall market.
- The Top 100 accounts for 37.6% of the total market.
Let’s pare it down a bit. If you take out Auto, Restaurant and Gas Station sales, the “target” retail market for our industry is $3.2 Trillion. – about 60% of the total market.
- Removing the Restaurant & Gas Station sales from the Top 100 numbers – at $1.84T they are still 34.5% of the Total U.S. Market and…
- 57.8% of the $3.2 Trillion target market.

The Top 100 is obviously critically important, and as expected it’s outperforming the overall market. We need to remember that this “Top 100 club” is in fact a contest. Every year companies drop out and new ones replace them. This can be the result of mergers, acquisitions or simply slumping sales. Changes of note in 2015:

6 companies on the 2014 list were “combined” into 3 in 2015 – Albertsons + Safeway = Albertsons; Dollar Tree acquired Family Dollar Stores; Aldi & Trader Joe’s are now combined under Aldi.
We also lost 2 old friends from the list – Dell sales continued to decline, but A&P shut down after 156 years.
3 Major Gas Stations made the list. Fuel sales are only counted in their numbers when they are less than 50% of Total Revenue. Obviously, the gas price drop had a far reaching impact.

Now let’s start “drilling down” on the Top 100. Here’s a summary of Regular and Online Retailers versus the bundled total for Restaurants & Gas Stations

Observations

Biggest note may be that the Regular Retailers have 58% of the stores but account for 92% of the business.
90% of the $ growth is coming from Regular & Online Retailers, but their percentage growth is lagging behind restaurants at 6.4% (a big turnaround from 2014 when restaurants were only up 2%)
- +4.8% increase in $ales – $84.7B (Last year it was +$81.5B)
- +2.8% in stores – Slowed markedly from 2014 (+6.9%) but better performance in store.

Now that we have an overview of the Top 100, let’s take a look at the “targeted” retailer segment. There are 82 total companies. How many are buying and selling Pet Products? This will reinforce how Pets have become an integral part of the American Household and how fierce that the competition for the Pet Parents’ $ has become.

Of 82 possible companies, 67 are selling some mixture of Pet Products in stores and/or online.
- Their Total Retail Sales of all products is $1.7 Trillion which is…
  - 93% of the total business for Regular & Online Retailers in the Top 100
  - 32% of the Entire $5.3 Trillion U.S. Retail market – from 67 Companies who are in tune with America and all sell pet products – amazing!
- 134,802 Stores (75%) are stocking and selling pet products on the retail shelf – 6300 more than 2014
- Online only is another Story –
  - Amazon & QVC account for $13.9B of the $14.7B “online only” increase.
  - Many Traditional Retailers who only sell Pet Products online are closing stores and losing ground in the total Retail “race”. Perhaps, they are slightly “out of tune” with America.

The Business for retailers selling pet products remains strong. We also should remember that these store count totals are only for the Top 100 and include only 1 Pet Chain and 1 Farm Store Chain, as they were the only companies to make the list. Pet Products are sold in thousands of other retail outlets – 20,000 more grocery stores, 10,000 more pet stores, 16,000 Vet Clinics plus…. A reasonable estimate would be 200,000 outlets selling pet products.

In the next segment we will look at the detailed list of the top 100. We’ll sort it by retail channel with subtotals in key columns. We’ll then break it into smaller sections for comments. At the end of the post there will be a download link for an Excel file with the data. This will allow you to sort it as you choose…by rank, alpha, pet/nonpet…it’s your call.

I have not done a lot of highlighting however:

Pet Columns ’15 & ‘14 – a “1” with an orange highlight indicates that products are only sold online
Rank Columns – Change in rank from 2014: (Remember 6 from 2014’s list were consolidated into 3 in 2015)
- Up 5-6 spots = Lt Blue; Up 7 or more = Dk Green
- Down 5-6 Spots = Yellow; Down 7 or more = Dk Pink

Let’s get started. Remember online sales are included in the sales of all companies.

Observations

Drug is still strong. However, acquisitions are a big factor. Awaiting approval is a Walgreens and Rite Aid merger, which would create a $100B company and move Walgreens to #3 on the Top 100 list.
The Traditional Department store segment overall continues its decline. There are a few exceptions in some “high end” stores. However for most, the trend is down.
- Sears (includes Kmart) and Macy’s are the 2 big “red flags” and more store closings are planned.
- Although many carry a few pet items, generally online, they have never embraced Pet – strange.
Convenience is still a key “driver” for Americans so convenience stores are doing well. However, much of the growth in the Top 100 is coming from acquisitions.
Military Commissary sales are falling despite additional locations.
The Auto Parts Stores are a mixed bag, with all chains opening new stores. Only Advance is underperforming in sales. With the ever increasing focus on the Pet Travel product category, it is somewhat surprising that everyone’s offering of Pet items is so sparse – A possible opportunity?
The Apparel retailers are showing surprising strength, especially from value outlets. The three chains that carry pet products are contributing more than half of both the total sales…and the total increase.

Observations

Headline: Amazon sales are only up 94.7% in 3 years!
- The Phone People – especially Verizon and Apple, continue their extraordinary growth.
- QVC also made a big move – jumping up 15 places to #55 on the list.
- Barnes & Noble and Toys R Us continue to decline. Barnes & Noble may drop off the list in 2016.
Signet Jewelry got on the list in 2014 by acquiring Zales. This year…sales are down 5.5%
Mass Merchants’ growth percentage is subpar, but all companies are up and a $14.8B increase is impressive.
- Wal-Mart is the “big dog” and their 2.8% increase in 2015 is slightly above recent years. Sales in SuperCenters continue to grow but “regular” Discount Department Stores are losing market share. This impacts the overall business in both Wal-Mart and Target.
- Target sales are up – barely. Their annual growth rate since 2012 is only 0.6%.
- Clubs continue to have the highest growth rate. Both Costco and BJ’s are up 17% since 2012.
- This is a huge Market segment for Pet Products and we’re seeing growth from all the “players”.
Home Improvement/Hardware is showing continued strong growth – especially Home Depot and Lowe’s.
Home Goods sales growth slowed in 2015 but all companies had increases.
Tractor Supply’s growth slowed in 2015, +7%, down from +12.7% in 2014. Annual growth rate is still 10.1%.

Observations

Supermarkets – $376B in Sales; 18 Companies; Over 16,000 stores; All Selling Pet Products. This is another important group for the Pet Industry. With the highest frequency of consumer visits of any channel, the competition is fierce. We have seen a series of mergers and acquisitions as companies try to strengthen themselves for the daily battle. We saw A & P cease operations after 156 years in business. From 1915 to 1965 they were the largest retailer of any kind in the United States. In a changing environment, you must adapt to survive.
- Although the total increase is below average, all but one are showing increases. Last year, 5 were down.
- Mergers and the loss of A&P dropped the companies from 21 to 18, but store count is only down 280.
Small Format Value Stores: Overall this segment does more business than Traditional Department Stores.
- Dollar Tree’s acquisition of Family Dollar Stores seems to be working.
- Dollar General is performing best, up 7.7% with an average annual increase rate of 8.3% since 2012.
- Only Big Lots performance is subpar. However, they are up slightly after 2 years of declining numbers.
- This segment is growing in numbers and popularity. They are committed to Pet Products and their focus on value appeals to today’s ever more price conscious consumers.
PetSmart – Although PetSmart’s growth is only 3.2%, it is better than last year’s 2.4%
Office Supply Stores – Mergers, store closings – a lot of turmoil. The increase is a bit of a surprise.
Sporting Goods – Some turmoil in this category as Sports Authority faded in 2015. (Closing in 2016) However:
- Dick’s continued to expand both in store count and sales – up 6.5%
- Academy is a newcomer to the Top 100 list, entering strongly at #88, after a 16.9% sales increase.

Restaurants & Gas Stations and the Grand Total

Restaurant & Gas Station Observations

Although restaurants & gas stations aren’t relevant in terms of Pet Products Sales, they are relevant in our daily lives. Most of these restaurants are fast food…plus coffee shops. Also, remember that when fuel sales at Gas Stations are more than 50% of the total, they are not counted in qualifying for a Top 100 sales

Last year Restaurants had a 2% increase, pulling the Top 100 down. This year’s 6.4% is just the opposite.
Kudos to Burger King for a big comeback after a bad 2014 and to Starbucks for continued strong growth

Wrapping it up!

Retailers earn their spot in the Top 100 by producing big numbers so it’s not surprising that their overall performance was strong, +4.9% compared to +2.3% for Total U.S. Retail.

Pet Products are an important part of the success of the Top 100. Sixty-seven companies on the list sell Pet Food and/or Supplies. Their Total sales exceed $1.7T in 134,800 stores and online. Obviously, this is a hugely important group to our industry whether you are a manufacturer trying to capitalize on their consumer appeal or a retailer trying to succeed in a very competitive marketplace. Do the math. If we take out PetSmart’s $6B and the remaining companies generate only 1% of their sales from Pet, we’re looking at $17B in Pet Products sales from only 66 sources…and 1% is low for this group.

The Top 100 is also evolving, just as we are seeing in the Pet Industry. Acquisitions, mergers, everyone is trying to find a formula for success in a highly competitive environment. To survive and prosper you must adapt.

We’ll wrap up this report with a few “Funtastic Facts” about the performance of the 2015 Top 100:

The Top 10 Retailers accounted for 51% of all Top 100 Sales and 48% of the increase.
The Top 10 Brick ‘n Mortar Retailers plus Amazon accounted for 20% of the sales of the ENTIRE U.S. RETAIL MARKET.
The 5 Retailers with the biggest sales gains accounted for 33% of the net increase for TOTAL U.S. RETAIL.

Now, I suggest that you take a closer look at the Top 100 Excel file, find your own “funtastic facts” and see what is relevant to your business.

[button link=”https://pmud8a.a2cdn1.secureserver.net/wp-content/uploads/2016/08/Top100-US-Retlrs15-14-Ranked.xlsx” type=”icon” newwindow=”no”] Download 2015 Top 100 U.S. Retailers List(Excel)[/button]

BUYING PET PRODUCTS? – PRICE MATTERS!: “PETFLATION” UPDATE AND MORE!

June 26, 2016/in Pet Market/by John Gibbons

Since the great recession, price has become perhaps THE critical factor in the buying behavior of U.S. Consumers. In our recent reviews of Consumer Pet Spending we saw that inflation and deflation can affect retail spending. However, there is not a universal rule. Price changes, up or down can have a different impact on the different Pet Industry Segments. Deflation can spur spending in a “discretionary” segment but retard it in a “need” segment. Moderate inflation is normal and expected by consumers. However, when it gets out of hand, it can negatively affect sales.

In this report we’ll update the changes in the CPI (from the USBLS) since December, both for total Pet and the individual segments. However, before we get to that, let’s do some “pricing” groundwork. We’ll take a look at some relevant facts from a study on The Shopping Habits of American Women done by Blackhawk Engagement Solutions and presented in a webinar by Retailing Today.

First, what matters most in the shopping decision?

Obviously, price matters most in today’s world. However when you consider Price + Quality = Value, then Value is also twice as important as brand – a big change from pre-recession days.

If Price is so important, then how does the shopper compare prices? With 71% of shoppers owning and using a smartphone daily, it’s not surprising that retail websites and other online sources, like Amazon and Google are usually the first choices. However, preference does vary by product category.

Here’s how consumers price shop for pet products. You may be surprised by what is #1.

For Pet Products, the # 1 place for checking prices is…in the retail store. The study covered a variety of product categories including clothing, furniture, sporting goods, toys and more. Only 2 categories had retail stores as the consumer’s first choice – Pet Products and Grocery. Grocery is certainly not surprising, with fresh food being such an important share of the category’s business.

The preference for “in store” price checking doesn’t say that you don’t need an effective web presence (with a store pickup option) or that shoppers don’t use their smartphones to price check pet products when they are standing in the retail aisles. Perhaps, it just “speaks to” the personal nature of our relationship with our companion animals.

Retail price and “value” are more important than ever in the consumer products business and the Pet Industry is no exception. Let’s see what has happened with the Pet Consumer Price Indices since last December.

This chart shows the change from December 2015 to May 2016 and how the average for the first five months of 2016 compares to the same period last year.

Observations

Veterinary – Prices in this segment are up over 4% vs the same period last year. This is exceptionally high but in fact, the inflation may still be accelerating. With a 2.2% increase just since December, it could reach 5% by yearend. One result of the prolonged high inflation rate is a reduction in the amount of Veterinary Services across a broad spectrum of demographic groups. There is a plus side…for the Supply segment, as there has been exceptional consumer demand for OTC treatments, meds and supplements.
Pet Services – Although not as high as the Veterinary Segment, Pet Services pricing has been inflating over a prolonged period. So far there have been no major consequences in terms of consumer spending. The chart above shows that the inflation rate is starting to slow down, especially since December.
Pet Supplies – Supply pricing is up 1.9% since December. This is a bit deceptive as the pricing is still recovering from the biggest drop in history last Oct-Nov. YTD prices are slightly below a year ago.
Pet Food – Food prices have been gradually recovering from their record drop in Jul-Aug and are up slightly since December. However, they are below the same period in 2015. We’ll have to see which of these 2 opposing factors has the most impact on the consumer.
Total Pet – Both increases are moderate, although somewhat higher than recent history. The 1.4% increase since December is unusual because it reflects increased prices in every segment. The 1.3% increase versus a year ago is more in tune with recent activity because it comes from decreases in both Food & Supplies which were overcome by increases in the Services…especially Veterinary.

To understand and appreciate what is happening, you need to see it. Take a look at the monthly flow.

Veterinary shows an unbroken string of increases and is even accelerating. The increase in the Service segment has clearly moderated beginning in September of last year. The product segments are on rollercoaster(s). Look at those record drops in the second half of 2015…but both Food & Supplies seem to be slowly recovering.

One last chart: This is simply a snapshot in time. May 2016 vs 1, 2 and 3 years ago

Vet Services: Up about 4% per yr & increasing

Pet Services: Increasing about 2.3% per year but moderating.

Food & Supplies: Deflation slowing – Moving towards “Flat”

Total Pet: Being pushed up ”↑” by services while products move to flat “↔”

Pricing in the Summer and Fall of 2015 was very volatile with record CPI drops in Products. We’ll see what 2016 brings.

PET INDUSTRY $ALES IN 2015: $60.3B – TAKING A CLOSER LOOK

June 14, 2016/in Pet Market/by John Gibbons

According to the numbers from the APPA, the total U.S. Pet Industry increased $2.24B (3.86%) in 2015. This was not quite the projected 4.4% increase and slightly less than recent years. If you factor in “Petflation”, the increase in the amount of goods and services sold was 2.86%. However, this means that 74.1% of the industry’s growth was “real”. Only 25.9% came from price increases. This is less than last year’s 83% real growth…but still very good.

In this post we’ll take a closer look at the performance of the total market and importantly, the individual segments. We’ll see which segments are “driving” or “retarding” the industry’s growth. The report will cover 2015 and also put this year’s numbers into perspective for the period from 2009 to 2015, the time since the great recession.

Here are the details for 2015. Some key data is highlighted:

Key Observations

The ongoing deflation in the Food segment got markedly worse in 2015 (-1.03%).
- Good News – The consumer actually bought even more product at the deflated prices.
- Bad News – The deflation increases the competitive pressure on manufacturers, distributors and retailers.
The Supply segment came within 1% of hitting the projected retail number and…prices were flat (a pause in the deflationary spiral) so 99% of the growth was real!
The Service segment exceeded projected sales and while inflation was relatively high, 78% of the increase was real.
The Veterinary Segment retail increase was only 55% of the projection and the high inflation rate resulted in Pet Parents actually buying less in terms of the amount of veterinary services in 2015!
The Total Pet Market performance – up 3.9%…with 74% % of this being “real” looks pretty good. However, the high inflation rate in the Vet Segment has reached the point where it is depressing consumer sales, affecting the entire industry’s numbers. Food prices have been deflating for 2 consecutive years. Time for a change in these segments.

The Chart below may make it easier to visualize the situation…especially in the Vet & Food Segments

Now let’s take a look at the performance of the individual segments from 2009 to 2015 starting with Food!

OBSERVATIONS

When you look at the cumulative Pet Food Sales since 2009, it looks pretty good.
- 4.64% Annual Growth Rate
- Low average inflation – 1.02%
- 68% CPI adjusted Growth Rate: 79% of the growth since 2009 has been “real”.
In the 6 years since 2009…
- 3 were deflationary (-0.6%) Average
- 3 were inflationary (2.5%) Average

The deflationary years are the most concerning. We have only had 4 deflationary years in Food (2000 was the other) and now we’ve had 2 in a row. The 2010 deflation came after a combined 20% Food CPI increase from 2007 to 2009 – in the heart of the recession and real growth ceased. The decrease in 2010 brought a positive response from the consumer – adjusted growth exceeded retail sales.

The years from 2011 to 2013 brought CPI increases in the 2+% range. The increases dropped the percentage of real growth below 50%. In 2014 & 2015, prices fell so the consumer paid less but the actual growth rate improved. The big concern with deflation is the impact on the supply and distribution channels and ultimately on the consumer… thru reduced choices.

Here’s what it looks like on a graph:

2016 Retail Food sales are projected to increase 4.2% to $24.01B. This may be a little high. The 3.5% range seems more likely unless we have a turnaround in pricing. I haven’t projected the CPI for this segment or others. It’s a little too early, especially with the volatility in Food and Supplies. Recently, the December and January Pet Food CPIs were up. February and March were down. Remember prices were pretty stable for the first half of 2015…then we had the biggest drop in history. If prices can stabilize or even turn up 0.5% in 2016, then the 4.2% increase in revenue becomes more likely.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

DEFLATION
- Prices are 4.94% below 2009 (and about equal to what they were in April 2008)
- Falling at an annual rate of -0.84%
Consumer is still buying more
- Retail Sales annual growth rate is 4.53%
- Price Adjusted annual growth rate is 5.42% – 20% higher than the retail rate

In Supplies the first deflationary year was 2010. However, we should remember that inflation has generally not been a big issue in this segment. From 1997 to 2004 Pet Supplies increased in prices at an annual rate of under 0.5%. Then in 2005 and continuing through 2009, the CPI increased an average of 2.75% per year. This doesn’t sound like much but remember it was 5 times the rate of the previous 7 years and 2 of the biggest increases (+3.0%) came in 2008 and 2009, in the heart of the recession. The consumer reacted – and bought less.

Prices fell 1.7% in 2010 and the consumer bought more. The prices briefly stabilized in 2011 and then began moving downward. The consumer’s reaction was to buy more. 2015 brought another pricing pause, almost exactly equal to 2010. Overall Retail growth slowed slightly to 3.1% and adjusted growth dropped from 4.6% to 3.1%. The good news for the sellers is that this growth was 99% real and more profitable, exactly the same consumer reaction as in 2011.

Here’s the graph:

In 2016 Pet Supplies are projected to increase 4.2% to $17.09 B. That seems a bit high. 3.5% may be closer. In 2015 there was some indication that this segment might be truly pulling out of the deflationary spiral. However, a record CPI drop in the second half produced a year similar to 2011. Remember, 3 years of deflation followed that year. However, January through March of 2016 have seen moderate monthly increases in the Supply CPI. I’ll update you throughout the year.

Now onto the Service Segments – First, NonVet Services.

OBSERVATIONS

Growth
- Annual Growth rate 8.26% – Amazing!
- Inflation – a little high at 2.48%, but doesn’t seem to be significantly slowing consumer purchasing
- 68.3% “real” growth
If price increases continue or accelerate, eventually the consumer will “push back”, but it hasn’t happened yet. Right now, a 2.5% inflation rate seems to be acceptable to the consumer.

There are no real negatives regarding this segment. It is growing strongly and consistently, especially since 2011. Last year the growth even reached double digits at 11.8%. However, it is a small segment, only accounting for 9.0% of the total market…but that’s better than 8.3% in 2014.

Here’s how the sales look on a graph:

2015 sales are projected to be $5.73 B, a 5.9% increase. This may even be a bit low. Based upon recent history 7-8% seems more likely. In regard to inflation rate, the average annual rate of 2.5% seems like a reasonable estimate for 2016. This would produce a “real” growth rate of 3.4% (42.4% of growth from price increases). The 2016 adjusted sales would be $4.83B.

The final individual segment is Veterinary Services. This segment accounts for over 25% of the Total Pet Market.

Let’s take a closer look at the Veterinary Service Segment.

OBSERVATIONS

Retail Growth
- Up 28.1% since 2009
- Annual growth rate 4.21%
Inflation is the problem
- Annual average CPI increase 3.58%
Price increases account for 85.6% of Veterinary Retail growth!
“Real Sales”
- Consumers actually bought less in vet services in 2011, 2012 and 2015. They just paid more.
- Sales have been stagnant since 2009 – average annual growth rate 0.6%
- Even worse, 2015 sales were about equal to 2010. Consumers bought the same “amount”. They just paid almost $3B more,

Regular veterinary visits are generally viewed as a “need” not a “want”. The high inflation rate over the years finally generated a consumer response in 2011…they cut back on veterinary services. Consumers have turned to OTC medicines, supplements, treatments and home testing whenever possible. Pet Health Insurance is growing and there may be fundamental changes in Veterinary Clinics – more chains and groups. Major medical procedures and emergency care will always be needed but it seems steps should be taken to make regular veterinary care more affordable.

Here’s the graph of sales since 2009:

Veterinary Services are expected to hit $15.92 B in 2016, a 3.2% increase. If that happens, we will probably have another decrease in the amount of services. Prices are already up 1.7% from December and we’re only through April.

Now in our final section we’ll go back to the total pet market.

OBSERVATIONS

Retail Growth expected to reach $62.75B in 2016
- ↑32.4% since 2009; Annual growth rate 4.79%
Inflation: Only 9.1% since 2009; 1.45% annual CPI increase.
“Real” Sales are 68.6% of Total Cumulative increase – a 3.28% annual growth rate.

The great Total Pet numbers are a big reason why so many people are attracted to the Pet Industry. The retail numbers are also consistently good across the segments. However, as I’ve said so often, when you look a little deeper into “petflation” and the actual amount of goods and services sold, you find that the total industry numbers are generated by two undesirable situations that tend to counteract each other when the numbers are combined. Specifically:

Deflation in the Supplies Segment, which has paused after 5 yrs. We’ll see if it begins again or if we have reached a turning point. Commoditization, channel migration, consumer value shopping and lack of innovation have created extreme competitive pressure. Consumers have been buying more… but paying less.
We now have had 2 consecutive years of deflation in the Food segment, including an all-time record monthly price drop in July of 2015. This is a big concern in the industry’s largest category. What will 2016 bring?
The Veterinary segment has the exact opposite problem. Years of inflation have caught up. Consumers bought less in 3 of the last 6 yrs. 85% of growth is from price increases and 2015 “real” sales are equal to 2010.

In 2016 the Total Industry is expected to increase 4.1% to $62.75B. If the deflation and inflation both improve, we could see an inflation rate of perhaps 1.25%. This would generate a “real” increase of 2.85% and 2016 adjusted sales of $56.9B in the chart above. Bottom Line: We need moderation in the CPI trends for Pet Food and Veterinary Services.

Finally, always look beneath the surface in your business numbers. The headlines may not tell the whole story!

U.S. TOTAL PET SPENDING $63.4B…UP $2.6B: MID-YEAR UPDATE

June 1, 2016/in Pet Market/by John Gibbons

In a reversal of the normal flow, we first looked at the performance of each of the 4 Pet Industry Segments in the Consumer Spending Survey conducted by the USBLS. We saw a definite disparity between the segments, both in the overall performance and in the demographics of consumer spending behavior. Now let’s put these different parts together to get the Industry Total covering the period 7/1/2014 to 6/30/2015.

Total Pet Spending is now $63.38 B. Let’s put that into perspective with recent history.

After strong growth in 2014, spending in the first half of 2015 was down. Let’s compare like time frames:

2014 vs 2013: Sales up $6.6B (+11.4%)
- By Half Year vs previous year: Jan>Jun 14 up $3.05B; July>Dec 14 up $3.52B
Mid-Year 2015 vs Mid-Year 2014: Sales up $2.6B (+4.2%)
- By Half Year vs previous year: July>Dec 14 up $3.52B; Jan>Jun 15 down –$0.94B

Now, let’s look at the numbers by Industry Segment:

Observations

Food is driving the entire increase…with a little help from Services.
It’s not a 12 month issue…Total Sales were up $6.6B in 2014 and the Jul>Dec 14 $ are included in both the annual and mid-year reports. Let’s look closer.

In this chart we look at $ change by segment overall and by 6 month time periods.

Observations – Does Price Matter?

July to December of 2014 was a “dream” half year. All 4 segments were up…3 for about a $ Billion each.
January to June of 2015 brought a different story. Retail pricing is likely a factor:
- Supply Prices were up versus a year ago…sales fell $1 Billion.
- Food Prices were up…slightly for the entire 12 months which countered the recent deflation and contributed to the huge increase. Notice the different behavior in these 2 product segments.
- Services saw their growth slow in the first half of 2015 as inflation reached 3.2%.
- Veterinary Services had a precipitous, inflation driven drop in virtually all age and income demographic groups. Only the Over 65 and Under 25 age groups and the Under $30K income group showed increases. Note: 65> and <25 make up a big portion of the Under $30K group.

Total Pet Spending increased $2.58B in the 12 months ending June 30, 2015 versus the same period a year earlier. Two segments were up and two were down. In the next chart we’ll “Show you the money”! We’ll identify the specific segments within each demographic category with the biggest gain or loss in Total Pet $pending.

Income Winner – Over $100K. Money does matter. These high income households, 21% of the total number, generated 137% of the Total Pet Spending increase…so the remaining 79% of U.S. H/H’s were down a total of –$.95B. Although even the over $100K group had a drop in Veterinary Spending, -$0.2B.
- Income Loser – Middle Income America – The $50>$80K group had a $0.4B increase in Food but spending fell in every other segment, including a -$2.9B drop in Veterinary.
Age Winner – The 65>74 group, primarily aging “Boomers”, spent 1.29% of their total H/H expenditures on their pets and had increased spending in every segment.
- Age Loser – The 45>54 age group has the highest income, but their spending still decreased slightly in every segment except Services which was up $0.2B.
Occupation Winner – Self Employed had a spending increase in every segment but Supplies, which was down –$0.2B. Most of their increase was due to a $1.2B increase in Veterinary spending.
- Occupation Loser – Managers and Professional increased spending in 3 segments, including a $1B increase in Food. However, this was not enough to overcome a -$3.7B drop in Veterinary spending.
Race/Ethnic Winner – The White, not Hispanic group generated 192% of the Industry’s total increase but even they were down -$0.3B in Supplies.
- Race/Ethnic – African-Americans actually had increased spending in Supplies and Services but decreases in Food and especially Veterinary, -$1.3B pushed them negative. Hispanic and Asian Groups were also down in Total Pet Spending by -$1B.
Education Winner – The group with Less than a College Degree had the largest Total increase, including even a $0.1B increase in Veterinary spending. Although their spending on Supplies was down -$0.2B.
- Education Loser – The Advanced Degree group was the only education level with a decrease in Total Pet Spending and it was only -$0.05B. Pet Parenting crosses every level of Education.
H/H Size Winner – 2 People only was the big winner with increases in everything but Services. Although every H/H size of 2 or more people had an increase in Total Pet spending.
- H/H Size Loser – 1 Person H/H Spending was driven down by decreases in Supplies and Veterinary.
H/H Composition Winner – With increases in all segments, Married Couple Only H/H’s had the biggest gain.
- H/H Composition Loser – Single and All/Other Households – No surprise here.
Region Winner – Midwest: A big increase in Food and Services; Flat in Vet and down -$0.5B in Supplies.
- Region Loser – West had increases in 3 Segments but a -$2.3B drop in Veterinary made the difference.
Area Type Winner – Rural areas with <2500 Population and not within a Metropolitan Area are surprisingly the biggest winner with increases in every segment but Supplies, which was down -$0.2B. Never fear, The Urban areas outside the Central City are also up $1B, despite a -$1.1B decrease in Veterinary spending.
- Area Type Loser – A decrease of –$1.1B in Veterinary Spending made the Central City negative…slightly.
Housing Tenure Winner – Homeowners without a mortgage is a bit unexpected. They are down slightly in Supplies and Services – a total of only -$0.06B. Food & Veterinary are up an incredible $3.6B.
- Housing Tenure Loser – Another surprise. Homeowners with Mortgages were up $1.9B in Food and Services but down -$0.1B in Supplies and -$3.1B in Veterinary. Even Renters were up $0.4B overall.

Comments

Without the spectacular performance by Pet Food, this would be a completely different report. Food was the positive “Driver” across almost all demographic segments. Some of the winners and losers were the “usual suspects” – High income and White, not Hispanic were big gainers. Central City and Singles lost ground. However, there were some groups that are new to the chart. Among the winners were the 65>74 age group, 2 person H/H’s, Married Couple Only and Homeowners without a mortgage. Actually these 4 groups all reflect many demographic characteristics of older Baby Boomer H/H’s. The under 25 group also had a good showing and are also more likely to be 2 person households. Unusual losers were Homeowners with mortgages and Mgrs/Professionals. In September, we’ll see how the second half of 2015 matches up against the “dream” second half of 2014.

U.S. TOTAL PET SERVICES SPENDING (Vet & Pet) – $20.85B

May 17, 2016/in Pet Market/by John Gibbons

The spending on Total Pet Services in the U.S. is $20.85B. This is down -$1.15B (-5.2%) from a year ago. These figures are based upon data published in the USBLS Mid-year Update of their Consumer Expenditure Survey. As we saw in the Pet Products update, the story is complex. We will take a closer look at each of the two Service Segments – Veterinary and Pet (Non-Veterinary). Let’s start with the good news.

Pet Services Spending $5.86B – Up $0.54B (10.1%)

This chart should put that number in perspective with recent history:

Flat…then trending up. This chart gives a good overview. Let’s do some direct comparisons of like time periods.

2014 vs 2013: Sales up $0.39B (+7.4%)
- By Half Year vs previous year: Jan>Jun 14 up $0.04B; July>Dec 14 up $0.35B
Mid Yr 2015 vs Mid Yr 2014: Sales up $0.54B (+10.1%)
- By Half Year vs previous year: July>Dec 14 up $0.35B; Jan>Jun 15 up $0.19B
We have seen extreme price sensitivity in the Supply segment but thus far Services have been relatively immune. However, it should be noted that the CPI in Jan>Jun 2014 was up over 3.2% from 2013 and sales flattened out. The CPI increase from July 2014 through June 2015 dropped below 2.5% and sales increased. Perhaps 2.5% is the limit?

Let’s take a look at the Services spending numbers by Age Group:

Age Group Observations

There is no clear pattern here. The “Boomers” and the “Millennials are contributing to the growth. The younger Gen X group shows the only decline. The number of 35>44 year old households was essentially equal. Their annual H/H spending on Pet services fell 3.6%…but only $1.80 per H/H. Let’s look at Income.

Income Observations

With the $30>$70K group showing the only decrease, and the under $30K showing an increase, it appears that income is a factor, but it’s not “clear cut”. Time to pull out the “master database” and look deeper.
Driving the increase, we find the “usual suspects” – college educated, managers or professionals, who live in an “urban” setting, own their own home (with a mortgage) and make over $100K per year. We also need to include the over 65 crew, who make less money but have an increased need for pet services.
Now let’s look at who makes $30>$70K. On the decrease side we find a whole group of occupations – technical & clerical workers, operators & laborers, construction workers & mechanics. The drop is actually by far the greatest in households of 2 or more people with one earner (-0.34B). It’s also focused on incomes ranging from $50K>$80K, not the low end. There is not a hypersensitivity to price but these groups are definitely watching their budgets.

Non-Vet Pet Services Comment

Pet Service Spending can be a convenience or as in the case of aging Pet Parents, a growing need. The bulk of the spending in this segment is discretionary. Therefore Income is a big factor. In fact 34.9% of the H/H’s, those over $70K in income, account for 68.1% of the spending. Moreover, the over $120K income group, 14.4% of H/H’s spend 37.4% of Total Pet Services $.

Although prices have increased in this segment considerably above the national CPI average for years, thus far the consumer demand has been largely unaffected. This could be because the bulk of the business is coming from high income groups and the increases were relatively insignificant in terms of their overall spending. However, we saw a significantly smaller increase in spending in the first half of 2015, when prices increased by more than 3% for the first time in 3 years. We also saw a decrease in spending from $50K>$80K income group in the Mid-year numbers. These could be anomalies or it could be that the increasingly price conscious U.S. consumers were sending a first message. “There are limits.”

NOW ON TO THE VETERINARY SEGMENT!

U.S. VETERINARY SERVICES SPENDING $14.98B – Down $-1.69B (-10.1%)

Veterinary Spending turned sharply downward in the first half of 2015, after a huge increase in 2014. This chart should help put these trends into perspective.

A rapid climb that slowed, then a steep drop. Let’s compare like time periods.

2014 vs 2013: Sales up $3.03B (+20.8%) Incredible!
- By Half Year vs previous year: Jan>Jun 14 up $2.12B; July>Dec 14 up $0.91B
Mid Yr 2015 vs Mid Yr 2014: Sales down –$1.69B (-10.1%)
- By Half Year vs previous year: July>Dec 14 up $0.91B; Jan>Jun 15 down –$2.60B

The prices of Veterinary Services have been increasing at an extraordinary annual rate – 5% since 1997. This has recently slowed, but is still 3.5% since the recession. Inflation has affected the spending of most lower income groups. The big spending increase in 2014 came primarily from two demographics – over $120K H/H income and the 55>74 age group. The Jan>Jun 2015 drop was huge -$2.6B. Let’s look a little deeper. First, by Age Group

Age Group Observations

It is apparent that the mid-year spending decrease was widespread across U.S. H/H’s. Every age group from 25 to 64 spent less – a Total of -$3.58B. This group includes over 90M H/H’s, 70.6% of the U.S. total.
The over 65 group had a substantial increase, $1.51B, with more than half, $0.8B coming from Retirees.
There is also good news from under 25 group. Their spending was up $0.38B. Remember, they had a 30% increase in Food spending. These numbers indicate that more in this group are becoming pet parents.

Let’s take a look at Veterinary Spending by Income Group

Income Observations

The drop is evident in every income level over $30K…even the $120K> group. This includes 86M H/H’s – 67.2% of the U.S. total.
The < $30K group is surprisingly showing an increase of $0.83B. This is primarily driven by Retirees and the under 25 age group, who together had a $1.1B increase.

Veterinary Services Comment

We generally consider most Veterinary expenditures as “need” rather than discretionary spending. Regular Veterinary care for their companion animals is a responsibility of Pet Parents. However, non-emergency services may be becoming more discretionary to the consumer. The extraordinarily increases in Veterinary prices over a number of years has caused many of the lower income groups to delay or even forgo services. This was evident in 2014 when an overall $3B increase included a $1B drop from H/H’s with income less than $50K.

Households with incomes over $70K (34.9%) account for 57.8% of Veterinary Spending. However, there are other patterns in Veterinary Spending. The over 65 and under 25 age groups have generally lower incomes but are both showing significant increases in Veterinary Spending. The older group is generally more aware of the importance of their own medical care and this translates into increased awareness of the importance of Veterinary Care for their companion animals. In the Under 25 group the increased spending comes from new “pet parents”

Overall Pet Services Comment

It appears that we have 2 opposite trends in the overall Services group. Pet Services spending, which has generally been considered discretionary and very dependent on income, is showing increased spending based upon “need” with the aging of the huge group of Baby Boomer Pet parents. Veterinary Services, at least the non-emergency portion, which has been considered “need” spending is moving to a more discretionary nature due to years of extraordinarily high inflation and the increasing price consciousness of U.S. consumers.

U.S. PET SUPPLIES SPENDING $15.85B: MID-YEAR UPDATE

May 10, 2016/in Pet Market/by John Gibbons

The USBLS just released their Mid-Year Update of the Consumer Expenditure Survey covering the period 7/1/2014 to 6/30/2015. As you remember from an earlier post, Pet Food had a great year $26.7B…up $3.8B, but what about the other “Pet Products Partner”…Pet Supplies? Pet Products account for 67.1% of Total Pet $. What happened in the Supplies segment?

This most recent report shows Pet Supplies Annual spending at $15.85 B, down slightly from a year ago (-$80M). The first chart will help put this decline into perspective with recent history.

The rolling 12 month totals gives a good overview of the recent up and down trend in Pet Supplies Spending. However, for the best comparison, we should look at like time frames:

2014 vs 2013: Sales up $2.04B (+13.6%)
- By Half Year vs previous year: Jan>Jun 14 up $.97B; July>Dec 14 up $1.07B
Mid Yr 2015 vs Mid Yr 2014: Sales down -$0.08B (-0.5%) – basically flat.
- H/H’s increased by 1.4M (1.1%), but Supplies Spending per H/H actually decreased -1.5%
- By Half Year vs previous year: July>Dec 14 up $1.07B; Jan>Jun 15 down -$1.14B
Prices in the both halves of 2014 were down 1% from 2013. This drove the spending increase in 2014.
Prices rose 0.4% in the first half of 2015 vs the same period in 2014…and spending dropped -$1.14B. This pattern of spending hypersensitivity to price may indicate Supplies is truly becoming commoditized.
Prices fell -0.3% in Jul>Dec 2015. However, prices were up 1% until the record -2+% drop in November. We’ll have to wait until September to find out if the big price drop in the peak season was enough to pull out an increase or at least a flat year.

Let’s take a closer look at the latest numbers. Here’s what they look like by age group:

Age Group Observations

Supplies’spending is down slightly in every age group from 25 to 54, 52% of U.S. H/H’s. The $.7B increase in the spending of the 55>74 group (primarily Boomers) is the only thing keeping supplies’ $ close to even.
The H/H Supplies spending for the 75> decreased -5% but the number of H/H’s increased by 600,000, +5% so spending was flat. This is a lot better than their 58% drop in Food spending.
The <25 group increased slightly, which is better than a drop but nothing like their 30% increase in Food $.

Does money matter? Here’s a look at Pet Supplies Spending by Major Income Groups:

Income Group Observations

The over $70K group now accounts for more than 55% of Pet Supplies spending. Last year it was 53%. Remember they are only 34.8% of U.S. Households.
It’s pretty simple. Only the over $120K income group is showing an increase (13.9%). The <25 & >75 age groups are helping to keep the low income <$30K close to even

The look at Supplies Spending by Income Group seems to validate our observation of extreme price sensitivity in this segment. Let’s take a look at this on these two correlating charts.

Pet Supplies Comment

This is a small sample. More research is needed and like almost everything we look at, I’m sure that the situation is more complex than it appears on the surface. However, this segment has been deflating since 2009 and this is a strong indication that a growing number of categories in the supply segment are becoming commodities. A recent report by Blackhawk Engagement Solutions of U.S. women’s shopping behavior found price (75%) as the #1 factor in purchase decisions, followed by quality (55%) and brand (31%). It appears that the Pet Supply segment is reflecting these National trends.

Pet Products (Food & Supplies) Observation

Inflation and deflation have the opposite effects on Food & Supplies. Slight inflation generates more Food Spending. If prices fall, people just spend less. On the other hand, Supplies have become so commoditized, that even small price increases seem to depress spending. On Supplies, Consumer’s want a deal! It is definitely a complicated situation!

NOTE : I have consolidated this report with the earlier one on Food into a PET PRODUCTS SPENDING UPDATE. If you would like an electronic copy, just send an e-mail request.