Archive for category: Pet Market

According to the numbers from the American Pet Products Association (APPA), the total U.S. Pet Industry increased $6.47B (10.7%) in 2016. This was spectacular to say the least. However, about $4B came from a data reporting adjustment to Food $ales based upon information from the US BLS which indicated that previous years Food numbers were too conservative. What is most important is that this year’s numbers more accurately reflect the true strength of the industry, especially in the largest and critically important Food Segment. Even factoring in “Petflation”, the increase in the amount of goods and services sold was 9.2% and 85.9% of the industry’s growth was “real”. Less than 15% came from price increases.

In this post we’ll take a closer look at the performance of the total market and importantly, the individual segments. The report will cover 2016 but also put this year’s numbers into perspective for the period from 2009 to 2016, the time since the great recession.

Here are the details for 2016. Some key data is highlighted:

OBSERVATIONS

• Two consecutive years of deflation in the Food segment ended in 2016 with a reasonable CPI increase of 0.2%.
• Sale of Live Pets fell slightly for the third consecutive year, which is a concern.
• The Supply segment came up short of projected numbers but prices were flat so 97% of the growth was real.
• The Service segment hit their projected sales number but the inflation rate was relatively high so only 67.3% of the increase was real, down from 77.5% in 2015
• The Veterinary Segment also reached the projected number but the continuing high inflation rate resulted in Pet Parents actually buying less in terms of the amount of veterinary services for the second consecutive year.
• The Total Pet Market – up 10.73%…was primarily driven both by the performance and the reporting adjustment in the Food segment. The Food and Supplies segments, with minimal price increases pushed the real growth up to 85.9% – outstanding. The high inflation rate in the Vet Segment continues to depress consumer sales, affecting the entire industry’s numbers.

The Chart below may make it easier to compare the situation in the individual Segments

Now let’s take a look at the performance of the individual segments from 2009 through 2016 starting with Food.

OBSERVATIONS

• The adjustment to more accurately reflect the current sales of Pet Food made quite a difference in the average numbers for the period from 2009 to 2016
  • 7.02% Annual Growth Rate
  • Low average inflation – 0.82%
  • 6.15% CPI adjusted Growth Rate: 88% of the growth since 2009 has been “real” – That’s Outstanding!
• In the 7 years since 2009…
  • 3 were deflationary (-0.6%) Average
  • 4 were inflationary (1.9%) Average

Both deflation and strong inflation can be concerning. We have only had 4 deflationary years in Food (2000 was the other). 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 was a welcome break and brought a big positive response from the consumer and adjusted growth exceeded retail sales.

The years from 2011 to 2013 brought CPI increases in the 2+% range. This was a bit too high and dropped the percentage of real growth below 50%. In 2014-15, prices fell so the consumer paid less but “real” growth improved. The big concern with deflation is the impact on the supply and distribution channels and ultimately on the consumer… thru reduced choices. In 2016, prices moved into a healthier range. In the future, a positive inflation rate for Food that stays at or below 1% should produce the best results.

Here’s what the period from 2009 to 2016 looks like on a graph:

2017 Retail Food sales are projected to increase 5.2% to $29.69B. This seems very reasonable. In the chart you also see the big lift caused by the adjustment. It’s important to remember that the 2016 numbers are more accurate. If the APPA were to adjust the numbers from earlier years it would likely just straighten the growth line’s path to the top. It’s also a little too early to project the Pet Food CPI for 2017. February prices are up 0.1% from December and up 0.17% from a year ago. This is on track for a desirable low increase in the CPI.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

• Deflation
  • Cumulative
    • Prices are 4.87% below 2009 (and still about equal to what they were in April 2008)
    • Falling at an annual rate of -0.71%
  • Short Term – Stopped with very minor CPI increases in both 2015 and 2016
• Retail Sales – When deflation ended, the retail growth rate slowed as this category is now very price sensitive.
• Over the whole period, the Consumer bought more…and paid less!
  • Retail Sales annual growth rate is 4.24%
  • Price Adjusted annual growth rate is 4.99% – 18% 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 (over 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 and 2016 brought another pricing pause, similar to 2010. Overall Retail growth slowed to 2.5% and adjusted growth dropped from 4.6% in 2014 to 2.4% in 2016.The good news for the sellers is that this growth was 99% real and more profitable.

Here’s the graph:

In 2017 Pets & Pet Supplies are projected to increase only 0.8% to $16.94 B. This reflects an expected $100M decrease in Live Animal Purchases and minimal growth in Supplies (1.5%). Many categories in the Supply segment have become commoditized and commodities are very price sensitive. February 2017 prices are down 0.9% from December and 0.7% from a year ago. If this continues, it could spur increased spending. However, innovation is the only real cure. Consumers will spend more for products that make Pet Parenting easier or better.

Now onto the Service Segments – First, NonVet Services.

OBSERVATIONS

• Growth
  • Annual Retail Growth rate 8.00% – The highest in the industry
  • Annual Inflation rate – a little high at 2.42% but appears to be slowing.
  • Years of inflation may be catching up to this segment as the spending increase in 2016 was about half of the increase in 2015.
  • 68.1% “real” growth – 75+% should be their target.

There are no big negatives regarding this segment. However, it is largely driven by discretionary spending so the consumers’ spending power is a big factor. That’s why years of relatively strong inflation could result in a consumer “push back” at some point. However, it has grown strongly and consistently in the improving economy since the recession, especially since 2011. In 2015 the growth even reached double digits at 11.8% but slowed to a more normal 6.5% in 2016. The impact on the industry is limited as it is by far the smallest segment, only accounting for 8.6% of total Pet Industry Sales…but that’s better than 7.4% back in 2009.

Here’s how the sales look on a graph:

2017 sales are projected to be $6.11B, up 6.1%. This increase is down a bit from last year’s 6.5% and 25% below the segment’s average annual growth rate. In regard to inflation, prices are up 0.2% since December and 1.4% from a year ago. Inflation is still ongoing in this segment. The big question is how much? If it stays near or below 2% then their real growth would be about the same as 2016 – 66%. Since price is increasingly a factor in spending, we’ll periodically update the CPI status for all segments during 2017.

Veterinary Services generate 23.9% of Total Pet Industry $ales.

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

OBSERVATIONS

• Retail Growth
  • Sales are Up 32.5% since 2009
  • Annual growth rate 4.10%
• Inflation is the problem
  • Annual average CPI increase 3.59%
• Price increases account for 88.1% of Retail growth!
• “Real Sales”
  • Consumers actually bought less in vet services in 2011, 2012, 2015 and 2016. They just paid more.
  • Sales have been stagnant since 2009 – average annual growth rate 0.49%
  • Even worse, 2016 “real” sales were about equal to 2010 (actually a little less). Consumers bought the same “amount” of Veterinary Services. They just paid almost $4B 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. Some NonPet Retailers are offering “no appointment” clinic days in their stores where Consumers can bring their pets for vaccinations and other procedures at radically discounted prices. 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 projected to reach $16.62 B in 2016, up 4.2%.That seems a bit high considering recent performance. Inflation continues unabated as the CPI in February is already up 1.2% since December and 2.5% from a year ago. If the Veterinary Segment can hit the projected Sales number then they will likely avoid a third consecutive year with a decrease in services. However price increases would probably still account for 80+% of the increase in sales.

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

OBSERVATIONS

• Retail Sales in 2016 ↑46.6% since 2009; Annual growth rate 5.62%
• Inflation: Only 10.57% since 2009; 1.45% annual CPI increase.
• “Real” Sales are 73.2% of the Total increase with an annual growth rate of 4.11%

The great Total Pet Retail numbers are a big reason why so many people are attracted to the industry. They look even better with the APPA’s adjustment in Food reporting to get a more accurate number, but the retail numbers are consistently good across all segments. However, as I’ve said so often, you need to look a little deeper into “petflation” and the actual amount of goods and services being sold. In recent years we have been struggling with deflation in Food and Supplies and inflation in the Veterinary Segment.

• Deflation in the Supplies Segment has now paused for 2 consecutive years. Commoditization, channel migration, consumer value shopping and lack of innovation had created extreme competitive pressure which deflated prices. Consumers were buying more… but paying less. Recent small increases in the CPI have slowed the growth of retail sales slightly. We’ll see if deflation begins again or if this segment has truly reached a turning point.
• After 2 years of deflation in the Food segment, prices rose slightly in 2016. However, the big news is the significant consumer move to Super Premium foods, which offer superior nutritional benefits at a higher price.
• The Veterinary segment has the opposite pricing problem. Years of inflation have caught up. Consumers bought less in 4 of the last 7 yrs. 88% of growth is from price increases and 2016 “real” sales are slightly below 2010.

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

In 2017 the Total Industry is expected to increase 3.9% to $69.36B. This could be a little low if the Super Premium Food trend continues and expands and Supplies bounce back with improved growth. In terms of CPI Inflation, the 2016 rate of 1.39% seems to be a reasonable estimate. Recent years have seen real sales growth at about 3%. Combined with the CPI this would produce a Total Industry Increase of 4.4% to $69.7B. We’ll just have to wait and see what happens.

One last thought – Always look beneath the surface in your business numbers. The headlines may not tell the whole story!

Pets, Food and Supplies account for 65.5% of Total Pet Spending and are often grouped as Pet Products. They do have many similarities in their spending demographics and they are certainly different from the Services group. However, there are also some distinct differences. We will take a closer look and compare the spending demographics of Food vs Supplies. Most of this final part of the report will be in the form of graphs which should make it easier to “see” the differences…and similarities. Plus, we will add some brief observations along the way. (Note: At the end of this post we will provide a link to download a full report on the Demographics of Pet Products Spending – a PDF file which combines all 3 parts into 1)

First, let’s put the 2 Industry Segments into perspective. Remember, overall Product Spending was $44.4B; Up $3.3B (+8.1%)

Pet Food (& Treats) – 2015 $29.5B; Up $5.4B (+22.5%);

• Share of Pet Products $ – 66.4%; Share of Total Pet $ – 43.5%
• This largest segment of the industry is truly “needed” spending for every Pet Parent. Of course, many treats are “discretionary” and you can exercise discretion in the price you pay. However, if you have a pet you must buy food.

Pet Supplies (& Pets) – 2015 $14.9B; Down $2.1B (-12.4%);

• Share of Products $ – 33.6%; Share of Total Pet $ – 22.0%
• This is the 3^rd largest industry segment. While many Supplies are “needed”, many more are “discretionary. Also their “usage” rate is generally lower than Food items. A spending drop may just be the result of reduced purchase frequency.

Let’s first compare where most Food & Supplies Spending comes from…in the 2 charts that follow.

• In all but 2 of the categories, the same demographic group generates 60+% of the $ for both Supplies & Food.
• In the Age Group, Boomers, with their upgrade in Food are having a big impact. However, supplies perform better with all the younger groups and spending performance drops off markedly for age 55 and older.
• In the Occupation category, All Wage & Salary Earners doesn’t quite reach our 60% minimum for Food. This occurs because Retired people and No Earner CU’s have a large share of pets. Their spending on Food is necessary. Supplies is more discretionary. Income does matter but “how you make it”, not as much.
• Yes, Income does matter, especially to Supplies. Higher income is obviously important to both Food and Supplies. However, please note how the share of Supplies Spending increases both in the Income category and in those categories directly related to income, like # Earners, Education and Occupation. Income matters a lot to Supplies.

In the next 2 charts we’ll compare Food & Supplies in terms of the best and worst performing segments in 11 Demographic Categories. The similarities become immediately apparent. Although the performance may differ, the Best or Worst performing segment is the same for both Food & Supplies over 70% of the time.

• Income jumps right to the forefront again. It is important to both but more important to Supplies. Note the Over performance by Supplies in Income & Occupation “Best” and under performance in the “worst”. Note in Age “Best”: 45>54 is the highest income group.
• It is no surprise that Homeowners with a mortgage and rural/suburban areas are the best performers. Owning your own space and having a little more room to share with companion animals has always been a key to spending.
• Center City, Renters, Over 75, Singles and Single Parents are also traditionally low performing groups. However, we should note the improving performance, especially by Supplies in the Rental and Center City environments.
• You can see the impact of the Baby Boomer Food upgrade in the performances of 55>64 and Married Couples only.

• Most of these best and worst performers reflect the points already made. However, the performance of the Adv. Degree segment speaks for more than just income. It is also knowledge to see the true value in the Food Upgrade.
• The 2+ People winner for Supplies is interesting. After you reach 2 people in Supplies spending, all sizes of CU’s perform well and within 2 percentage points of one another. In Supplies Spending, it literally just takes 2.

Next, we’ll finally “show you the money.”

The Winners and Losers in Spending $ in 2015 – The Biggest $ changes

In the final section of this comparison, we will identify the segments that had the biggest gains and losses or smallest gains in spending $ for Pet Food and Pet Supplies. This is where specific differences come to the forefront. Only 30% of the winners or losers occupy the same “position” for both Food and Supplies. In fact, some are the winner in one and the loser in the other. For that reason, we will present Food and Supplies in separate charts. I have indicated the “dual” winners or losers by “boxing them in”. Take a look at both charts. Then we’ll wrap it up with some closing observations.

Overall, Food had a great year with a $5.3B increase and 6 categories with no negative segments. Supplies was the opposite story with a $2.1B decrease that seemed to affect everyone. I was surprised that I found 8 segments with  positive numbers. Here are the impacting trends that we have seen reflected in this and earlier Demographic Analyses:

• The Baby Boomer Food upgrade – a huge impact. However, there were also increases in regular food spending.
• The <25 Millennials are becoming Pet Parents and even opting for upgraded food.
• The big drop in Food spending in the 25>34 group – probably a Food upgrade roll back due to financial pressures.
• The Overall drop in both Food and Supplies for the 25>44 age group. They are the traditional American H/H’s and affect a wide number of Demographic Categories. Like most drops, it was undoubtedly due to financial concern.
• Speaking of age, we also discovered that the younger groups are more “into” supplies than their older counterparts.
• We know that Income is an important factor in spending, especially for supplies, but “commitment” and education have also come to the forefront with the Food Spending Performance by Retired People and College Grads.
• All Racial/Ethnic groups bought more Food and Hispanics had an increase in both Food and Supplies spending.
• Renters and Center City both had increases in Food & Supplies. Pet Parenting is gaining in two normally slow areas.

We are truly “done”… for now. We have seen what happened in 2015. And as always, it raises big questions for the next year, like… Will the Boomers “stick with” their upgraded Food and will this trend become widespread across other demographics? Will the Supplies Segment rebound after a tough year? We’ll start to get answers in May with the release of the US BLS mid-year update.

Below is the link to download the complete 3 part report on the Demographics of Pet Products Spending.

(To save the PDF to your computer Right Click the download link and select “Save Link As…”)

 [button link=”https://pmud8a.a2cdn1.secureserver.net/wp-content/uploads/2017/02/2015-PetProductsSpendingDemographics-FullReport.pdf” type=”icon” newwindow=”yes”] Download Full Report (PDF)[/button]

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”

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 6^th in terms of winning percentage. Last year it was 10^th.
  • # 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 2^nd biggest influence of any category. In 2014 it was ranked 9^th.
  • 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.

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.

• 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

• 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.

• 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.

• 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 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…