Archive for category: Pet Market

In 2016 Total Pet Spending in the U.S. was $67.29B, a $0.46B (0.7%) decrease from 2015. This was a marked contrast from the Total “Relevant” Retail Market (+3.6%) and the Top 100 U.S. retailers (+4.2%). However, the story gets a bit complex. In 2015, a $5.4B increase in Pet Food Spending, which came from a significant share of H/H’s upgrading to more premium products, drove a 5.3% total industry increase. However, to help pay for the increase, consumers cut back on Pet Supplies and Veterinary spending, -$2.6B. In 2016, consumers began value shopping for their expensive food and reduced Food spending by $2.99B. They spent most, but not all, of this “saved” money in other Industry segments.

• A big $2.99B (-10.1%) cut back on Food
• A 0.94B (+6.3%) comeback in Supplies
• A $1.01B (+5.9%) turnaround in Veterinary
• A business as usual $0.58 (+9.3%) gain in Services

Let’s see how these numbers blend together starting at the household level. In any given week, 27.1 Million U.S. Households (1/5) spend money on their Pets – food, supplies, services, veterinary or any combination.

In 2016, the average U.S. Household (pet & non-pet) spent a total of $519.57 on their Pets. This was a 1.6% decrease from the $528.17 spent in 2015. However, this doesn’t “add up” to a 0.7% decrease in Total Pet Spending. With additional data provided from the US BLS, here is what happened.

• 0.9% more H/H’s
• Spent 5.6% less $
• 3.6% more often

If 65% of U.S. H/H’s are pet parents, then their annual H/H Total Pet Spending is $799.34. Let’s look at the recent history of Total Pet Spending. The rolling chart below provides a good overview. (Note: All numbers in this report come from or are calculated by using data from the US BLS Consumer Expenditure Surveys – The 2016 Total includes Veterinary Numbers from the Interview survey, rather than the Diary survey due to high variation)

• In 2015, the Food upgrade began early and continued all year. The cut backs on Vet & Supplies spending happened immediately and were most noticeable in the first half while Food Spending was still building.
• In 2016, we have almost the opposite scenario. The consumers began value shopping for food and this behavior became widespread by yearend. Veterinary spending saw the biggest spending lift in the first half while the more discretionary Supplies Segment didn’t “catch on” until later in the Year.
  • 2016: 1^st Half ↑$0.55B;
  • 2016: 2^nd Half ↓$1.01B

Let’s look at some Demographics. First, 2016 Total Pet Spending by Income Group. The chart has these highlights:

• If outlined in green, sales were up in 2016
• If outlined in red, sales were down in 2016
• If highlighted in green, sales were up from 2014
• If highlighted in pink, sales were down from 2014

• < $70K – (63.0% of U.S. H/Hs); H/H Pet Spending: $346.68, (-3.7%);
  • Total Pet $ : $28.39B, ↓$1.45B (-4.8%) from…
    • Food ↓$2.05B
    • Supplies ↑$0.49B
    • Services ↑$0.40B
    • Veterinary ↓$0.29B 
  • A significant portion of this price sensitive group chose to upgrade their Pet Food in 2015. In 2016 they value shopped for food and some may even have backed away from the upgrade. Strong inflation is always an issue in their Veterinary spending. However, they did use a  portion of their food savings on Supplies & Services.
• >$70K – (37.0% of U.S. H/Hs); H/H Pet Spending: $816.00, (–2.3%);
  • Total Pet $: $38.9B, ↑$0.99B (+2.6%) from…
    • Food ↓$0.94B
    • Supplies ↑$0.46B
    • Services ↑$0.18B
    • Veterinary ↑$1.29B
  • This group is growing, up 4.8% in 2016. This is significant because although they spent less per H/H, their total Pet Spending $ went up. They do have higher incomes, but they still value shopped for Pet Food. They also spent the savings and more on other industry products and services. This group is obviously very important as it represents 37% of U.S. H/H’s but accounts for 57.8% of the Pet Industry’s total revenue.
• < $30K – (31.1% of U.S. H/Hs); H/H Pet Spending: $260.12, (-5.5%);
  • Total Pet $: $10.3B, ↓$1.02B (-9.0%) from…
    • Food ↓$0.45B
    • Supplies ↑$0.18B
    • Services ↓$0.01B
    • Veterinary ↓$0.73B
  • Two significant subsets in this group are H/Hs just getting started along with retirees. They saved money on food and spent it on Supplies. Service spending was unchanged. However, there was a huge drop in Veterinary Spending, largely from the older group. The strong inflation in this category affects lower incomes.
• $30>$70K – (31.9% of U.S. H/Hs); H/H Pet Spending: $427.85, (-3.4%);
  • Total Pet $: $18.1B, ↓$0.43B (-2.3%) from…
    • Food ↓$1.60B
    • Supplies ↑$0.31B
    • Services ↑$0.41B
    • Veterinary ↑$0.44B
  • This low to middle income group is by necessity price sensitive but is also committed to their pets. They saved a lot of $ on Food but spent most of this money in the other segments.
• $70>$99K – (14.0% of U.S. H/Hs); H/H Pet Spending: $617.43, (+3.0%);
  • Total Pet $: $11.5B, ↑$0.73B (+6.7%) from…
    • Food ↑$0.35B
    • Supplies ↑$0.48B
    • Services ↓$0.08B
    • Veterinary ↓$0.03B
  • This upper middle income group upgraded their Food and spent even more on Supplies. Spending in both of the Service Segments was basically unchanged. Their focus in 2016 was Pet Products.
• $100K>$149K– (12.5% of U.S. H/Hs); H/H Pet Spend: $736.62, (-14.4%);
  • Total Pet $: $11.7B, ↓$1.46B (-11.1%) from…
    • Food ↓$1.08B
    • Supplies ↓$0.30B
    • Services ↓$0.08B
    • Veterinary ↓$0.01B
  • In 2015, this group was the Star of the income groups. In 2016, they had the worst performance with decreased spending in every segment. It is another indication that price/value matters to virtually everyone.
• $150K> – (10.5% of U.S. H/Hs); H/H Pet Spending: $1184.71, (+2.4%);
  • Total Pet $: $15.7B, ↑$1.72B (+12.3%) from…
    • Food ↓$0.22B
    • Supplies ↑$0.28B
    • Services ↑$0.34B
    • Veterinary ↑$1.33B
  • Even these wealthiest Americans saved money on Food but they spent significantly more in all the other segments. Without the spending increase in 2016 from this group…
    • Veterinary spending would have been down -$0.32B, not up $1.01B
    • Total Pet Industry spending would have been down -$2.18B (-3.2%), not just -$0.46B (-0.7%)

Income Recap – There is a growing price sensitivity across America. In 2016, this was demonstrated by consumers across almost all income groups value shopping for Pet Food. This had a huge impact on Total Pet Spending.

Only 2 income groups increased their Pet Spending in 2016. The $70>99K group upgraded their Pet Food and increased their spending on Supplies. No other income group did that – a strong commitment. The Over $150K group saved money on Food but had a huge increase in the other segments – especially Veterinary!

Since 2014, the $30>99K income group – middle America, spent less, especially on Vet Services. The <$30K group, often the youngest and oldest H/Hs, increased their spending in all but Supplies. The $100K> group also had increases in all segments but Supplies. However, the big “heroes” are the $150K> group. In fact, without the $3.1B increase in spending by this highest income group, the Total Spending for the whole Pet Industry would have been down -$0.13B from 2014.

Next let’s look at the 2016 Total Pet Spending by Age Group

• <25 – (5.6% of U.S. H/Hs); H/H Pet Spending: $237.28, (+13.7%);
  • Total Pet $: $1.86B, ↑$0.18B (+10.5%) from…
    • Food ↓$0.005B
    • Supplies ↑$0.04B
    • Services ↑$0.02B
    • Veterinary ↑$0.13B
  • These young Millennials upgraded their Food in 2015. Now they are expanding their commitment.
• 25-34 – (16.1% of U.S. H/Hs); H/H Pet Spending: $420.02, (+9.5%);
  • Total Pet $: $8.89B, ↑$0.66B (+8.0%) from…
    • Food ↑$0.71B
    • Supplies ↓$0.56B
    • Services ↓$0.03B
    • Veterinary ↑$0.55B
  • These oldest Millennials are back on board with upgraded Food. Spending on Supplies suffered. However, they also demonstrated their commitment to their pets’ health with a big increase in Veterinary spending.
• 35-44 – (16.6% of U.S. H/Hs); H/H Pet Spending: $512.67, (+9.7%);
  • Total Pet $: $10.95B, ↑$1.03B (+10.4%) from…
    • Food ↓$0.22B
    • Supplies ↑$0.69B
    • Services ↓$0.29B
    • Veterinary ↑$0.86B
  • This group has the largest families and is in the middle of building their careers. This makes them very sensitive to value. Pet spending had been declining. In 2016, they value shopped for food but markedly increased their spending on Veterinary and Supplies. This lifted them to the biggest increase of any group.
• 45-54 – (18.6% of U.S. H/Hs); H/H Pet Spending: $620.10, (-3.9%);
  • Total Pet $: $14.88B, ↓$0.43B (-2.8%) from…
    • Food ↓$0.41B
    • Supplies ↑$0.19B
    • Services ↑$0.03B
    • Veterinary ↓$0.24
  • This age group has the highest income and a $1B spending increase in 2015.  In 2016, they value shopped for food and cut back on Vet spending. They spent more on Supplies but not enough to make up the difference.
• 55-64 – (19.0% of U.S. H/Hs); H/H Pet Spending: $714.51, (-6.4%);
  • Total Pet $: $17.37B, ↓$1.23B (-6.6%) from…
    • Food ↓$2.61B
    • Supplies ↓$0.01B
    • Services ↑$0.66B
    • Veterinary ↑$0.72B
  • These Baby Boomers spent an extra $5B to upgrade their Food in 2015. Spending in the other segments paid a big part of the price – down $2.5B. In 2016, they looked for and got the best price on Food and that Spending fell by 26%. They then used about half of this saved Food money to get back on track with Veterinary Services and to radically increase their use of Pet Services.
• 65-74 – (14.0% of U.S. H/Hs); H/H Pet Spending: $552.89, (-9.7%);
  • Total Pet $: $9.88B, ↓$0.41B (-3.9%) from…
    • Food ↓$0.80B
    • Supplies ↑$0.36B
    • Services ↑$0.29B
    • Veterinary ↓$0.25B
  • Many in this group are retired and about half are Baby Boomers. Like many other groups, they upgraded their Pet Food in 2015 but radically reduced this spending in 2016. They spent most of this saved money on Supplies and needed Pet Services. However, they are very price sensitive so they cut back on the rapidly inflating Veterinary Services.
• 75> – (10.0% of U.S. H/Hs); H/H Pet Spending: $266.61, (-10.4%);
  • Total Pet $: $3.46B, ↓$0.27B (-7.2%) from…
    • Food ↑$0.34B
    • Supplies ↑$0.23B
    • Services ↓$0.09B
    • Veterinary ↓$0.75B
  • These committed oldest Pet Parents upgraded their Food and increased their Supplies spending. They paid for this by radically reducing their Veterinary spending. There was little change in frequency. They just spent less.

Age Group Recap: In 2016, the <45 groups increased their spending by $1.87B. Most of this lift came from a $1.54B increase in Vet Spending. These younger H/H’s got onboard with the healthcare aspect of Pet Parenting. The 45> H/H’s spent $2.33B less overall. There were ups and downs by segment for each older age subgroup. However, the totals for 45> were: Food, Down -$3.51B; Veterinary, Down -$0.52B; Services had a big lift +$0.89B and Supplies went Up +$0.57B.

Since 2014, only the Service Segment had an increase in all groups. Veterinary spending fell in the older groups while it gained in importance with the younger Households. In terms of products – Food and Supplies, value shopping came to the forefront. Consumers looked for higher quality at the best price. The 25>34 year olds were the only group with decreased spending from 2014. Their drop came only in Food & Supplies. They are the best “connected” of any group. It’s possible that the decrease came because they were ahead of the curve in value shopping, especially on the internet.

Take a look at some Key Demographic “Movers” for 2016. It should give you a better picture of the situation.

Summary: In building my research database, I gathered Pet Spending information for 12 demographic categories with over 80 specific segments. Nothing, including the Pet Industry, is simple anymore. Total Pet Spending was down -$0.46B (-0.7%), but only one of the 80+ individual demographic segments had a decrease in all Industry segments – the $100>149K income group. (last year’s best performer) There were 3 segments that had across the board spending increases: H/H’s that lived in Central Cities, H/H’s with 2 or more unmarried adults and no children and H/H’s where the highest education level was an Associates’ Degree. These are certainly not the demographic stereotypes of the “ideal” U.S. Pet H/H’s. However, their increases along with the increased spending by Renters, 4 people H/H’s, 2 earner H/H’s and in fact, the whole Under 45 group, reinforced the “youthful” nature of the best pet spending performances in 2016.

On the downside, the biggest decreases came from groups that are the usual Pet Spending Winners – suburban & rural H/H’s, College Grads, Married couples only or those with a child over 18 and even the 55>64 year old “Boomers”.

2016 was definitely “different” in Pet Spending Behavior. The Key factor was the huge drop in Pet Food Spending – a $2.99B decrease after a record shattering $5.4B increase in 2015. The 2015 increase came from a big share of H/H’s opting to upgrade the quality of their Pet Food. However, the 2016 spending drop didn’t primarily come from these consumers reneging on this commitment. It came from them seriously shopping for the best price – in a store or on the internet. This value shopping phenomenon appears to have caught on across virtually all income groups and will undoubtedly affect the future spending behavior across all industry segments, not just products. The Service Segments, especially Veterinary, have been strongly inflating. Price matters and it can and will affect which services are purchased and/or the frequency.

There is also no doubt that strong spending trends, up or down, in one segment affect the spending in others. Whether or not this is a conscious decision by Pet Parents is not known. However, the correlation is there – time after time.

I will wrap this up by saying that there appears to be only one “sure” demographic bet in Total Pet spending. The households with incomes over $200K (5.6%) will continue to increase their spending on their Pet Children.

 

Non-Vet Pet Services is the smallest industry segment but it continues to grow and 2016 was another good year. Spending reached $6.84B, a 0.58B (9.3%) increase over 2015. However, you will see that, like the other Segments, consumer spending behavior is becoming increasingly more complex. (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 2016 was $52.77, up from $48.70 in 2015. (Note: A 2016 Pet H/H (65%) Spent $81.18) More specifically, the increase in total spending came as a result of:

• 0.9% more households
• Spending 6.8% more $
• 1.5% more often

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

The growth has been consistent since 2013 but the pattern changed in 2016. In 2014 & 2015, the strongest lift in spending occurred in the second half. In 2016, virtually all the growth came in the first 6 months as the second half was essentially “flat”. While prices didn’t drop, the inflation rate slowed markedly at mid-yr 2016. Price may be becoming more of a factor in this segment. Now let’s look at some specific spending demographics. First, by income group.

• If outlined in green, sales were up in 2016
• If outlined in red, sales were down in 2016
• If highlighted in green, sales were up from 2014
• If highlighted in pink, sales were down from 2014

As you can see, the 2016 increase is being driven by 2 disparate groups – H/H’s just below the average income of $74K and the upper tier, those making over $150K per year. All incomes, except the $70>100K group, have increased spending on Services since 2014.

• $30>70K (31.9% of H/H’s) – $36.92 per H/H – $1.52B, Up $0.41B (+37.5%) – This group reduced food spending by $1.6B. It appears that they spent some of that savings on “needed” pet services and generated 70% of the total segment’s increase.
• $150K> (10.5% of H/H’s) – $184.62 per H/H – $2.51B, Up $0.33B (+15.4%) – Income has always been important because convenience is a big driver in this the segment and convenience costs money. In fact, the 23% of U.S. H/H’s that have an income of $100K> account for 53% of total Services’ spending. It gets even more pronounced as the over $200K group (5.6% of H/H’s) spend 24% of Services $.
• $70>100K (14.0% of H/H’s) – $50.22 per H/H – $0.91B, Down -$0.08B (-8.0%) – This group spent significantly more on Pet Products in 2016 and the spending on both of the Service segments suffered. They also have the only decrease in Services spending from 2014 which reflects the overall Pet spending behavior of these value shoppers.
• <30K (31.1% of H/H’s) – $18.78 per H/H – $0.76B, Down $0.01B (-1.3%) – The Services spending by this segment has grown since 2014 so the need is there. However, they generally don’t have the money to spare.

Now, let’s look at spending by Age Group.

The Age demographic reflects a more definite spending pattern than Income. Older Americans, especially those from 55>74, strongly increased spending on Services. The younger groups, particularly the 35>44 Gen Xers cut back. It should be noted that as the Baby Boomers age, the number of H/H’s over age 55 is growing. While the number under age 54 is currently shrinking. There are fewer Gen Xers. The Millennials have greater numbers but they are slower in establishing independent financial households than any group since 1880.

• 55>64 (19.0% of H/H’s) $76.69 per H/H – $1.89B – Up $0.66B (+54.0%) They spent $2.6B less on food in 2016 but used some of those savings to spend significantly more on Services. In fact, this group, which is all Baby Boomers, moved into the #1 spot in Services’ spending. They did it with 3% more H/H’s spending 35.7% more on Pet Services 11.0% more often.
• 65>74 (14.0% of H/H’s) – $65.35 per H/H – $1.17B – Up $0.28B (+32.2%). The need for Pet services by this group is growing as they age but they are just entering retirement, which impacts their ability to pay. In 2016 they also reduced their spending on Pet Food which freed up money to spend more on both Services and Supplies.
• 45>54 (18.6% of H/H’s) – $68.91 per H/H – $1.66B – Up $0.03B (+1.9%) This group has the highest income and for years has been the leader in Pet Services spending. Like many demographics, they spent less on Food in 2016. However, they did not use the savings to spend significantly more on Services.
• 35>44 (16.6% of H/H’s) – $42.00 per H/H – $0.9B – Down -$0.3B (-24.6%) The most significant drop in Services spending came from this group. In 2015 they were in a battle for 2^nd place in Pet Services Spending. After 2016, they were just barely holding on to 4^th place. Their Services’ spending behavior really showed an “across the board” decrease in spending and frequency. The group is slightly smaller -0.3%. They spent 14.7% less money and did it 11.4% less often.
• 25>34 (16.1% of H/H’s) – $41.97 per H/H – $0.88B – Down – $0.03B (-3.8%) Interestingly enough, the Pet Services Spending of these Millennials almost exactly matched that of the older 35>44 Gen Xers – In 2016, this group upgraded their Pet Food however the negative impact on Services spending was relatively small.
• <25 (5.6% of H/H’s) – $13.69 per H/H – $0.1B – Up $0.02B – (+19.1%) Pet Services is of minimal importance to these youngest Pet Parents but their spending has remained relatively consistent.
• 75> (10.0% of H/H’s) – $18.43 per H/H – $0.24B – Down -$0.09B (-16.5%) Taking care of our pets as we reach an advanced age is more difficult so Services can be important. However, money also becomes an issue. In 2016 this group chose to spend more on Food and Supplies

Finally, let’s take a look some other key demographic “movers” behind the 2016 Pet Services Spending increase.

Summary

Although some consumers definitely “need” the assistance of Pet Services, the spending in this segment is generally viewed as more discretionary than in any other. Convenience is often the key driver. Since convenience usually costs more money, income can make a significant difference in spending behavior. In 2016, households with incomes above $100k (20.5%) accounted for 53.3% of all Pet Services spending. This is up from 43.6% back in 2013 so the trend is actually becoming more pronounced. Not only current spending, but also the growth in the Services segment, is being driven by the over $100K households. Spending on Pet Services has increased $1.56B since 2013 and 86% of this gain came from the over $100K households.

With that being said, in 2016 there was also a window of growth in the lower middle income group, $30>69K. The effect of this can be seen in the small growth by a whole variety of demographic segments – married couples only, married couples with children of any age – as long as there were 4 or less in the total household, center city dwellers and those with an associates’ degree.

Age is also a big factor. The age groups from 45>74 are the only ones that spent more than the national average on Pet Services in 2016. They make up 51.6% of H/Hs and spent 69% of the total Services $, up from 63% in 2013. They also accounted for an incredible 90% of the Services’ spending increase since 2013. It should be noted that age and income go hand in hand with most of this group. The 45>54 group has the highest income and 55>64 ranks third. However, there is also an increasing need for Services in the 65>74 group, but with significantly reduced income. The 55>64 year old Baby Boomers saved some money in 2016 by value shopping for premium Pet Food. They spent some of this savings on additional services. The 65>74 group, with a growing number of boomers, did the same. You can see the impact of this older group in the increased spending by retirees, Homeowners with no mortgage and the 30>69K income group.

Service spending is driven both by convenience and need. The prices have been inflating at a 2.5% annual rate. With much of the spending coming from higher incomes, there has been little impact on spending. However, we have seen that price has become a major factor in the buying decisions made by virtually all Americans. In 2016 this could have finally impacted Services. While spending for those making over $200K went up $0.31B in 2016, the spending fell for the mid to upper income group making $70>149K per year. Also, the inflation rate fell to 1.5% in the second half of 2016 and has dropped even further to 1% in 2017. This is generally an indication of competitive pressure. Pet Services is the only Industry segment that has shown increased spending every year since 2011, with an average annual growth rate of 9.4%. We’ll see what 2017 brings.

The U.S. Pet Industry had basically a “flat” year in 2016. Spending fell slightly to $67.29B, down $0.46B (-0.7%). 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 segments. 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 2016, 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 start with the largest Segment, Pet Food (and Treats). In 2016 Pet Food Spending totaled $26.5B in the U.S. This is a $2.99B (-10.1%) decrease from 2015. For most of us, this is quite a shock coming after the spectacular $5B increase in 2015 which was attributed to consumers upgrading to Super Premium Foods. Doesn’t Pet Food Spending just increase every year? Isn’t that a sure bet? Well, as it turns out, the story is a little more complex than that. The following chart documents annual Pet Food Spending since 1997 in full Retail Dollars and adjusted for inflation.

An interesting pattern is immediately apparent. Retail Pet Food Spending increases for 2 consecutive years then reaches a plateau year or even drops. The pattern is repeated with one notable exception – the time from 2006 to 2010. As you recall, this was a tumultuous period for the entire retail marketplace. In 2009 the Great Recession caused the first drop in U.S. Retail Spending since 1956. The situation in Pet Food was even more complex with the Melamine recall in 2007. Pet Food Prices skyrocketed in 2008 and 2009 as consumers insisted on made in USA products …with USA ingredients. The CPI adjusted sales show that the first Recession related impact on Pet Food purchases occurred in 2009 but the full retail impact wasn’t felt until 2010.

Pet Food seems to be driven by short term trends. A new food trend “catches the consumers’ attention” and grows…for 2 years. Then sales plateau or even drop…and we’re on to the next “must have”. It is obviously more complicated than this simplistic explanation. However, it does appear that the big drop in Pet Food Spending in 2016 shouldn’t have been totally unexpected considering the spending history of this huge Industry segment

I’m not an expert on the Pet Food segment but I included my view of the more recognizable trends. Sales seem to have really taken off after 2003. That was the year that Iams went into the Mass Market and may have signaled the first phase of the premiumization of Pet Food. Then came “Made in USA” because of the melamine recall which was followed by “Natural”. Then in 2014, we got “Super Premium”. What is next? The indication is ever-increasing “humanization”.

Now, let’s look at some specifics. In 2016, the average U.S. Household (pet & non-pet) spent a total of $204.71 on Pet Food. This was an 11.0% decrease from the $230.06 spent in 2015. This doesn’t “add up” to a 10.1% decrease in total Food Spending. With additional data provided from the US BLS, here is what happened.

• 1.0% More U.S. households
• Spent 12.6% less $
• 1.8% more often

By the way, if 65% of U.S. H/H’s are pet parents then their annual Pet Food Spending is $314.94. Let’s look at a rolling history of Pet Food Spending over the course of the “Super Premium Cycle”.

Pet Food Spending dipped in the first half of 2014. This corresponds to the beginning of a 2 year deflationary period in this segment. During deflation, in a “need” category like Food, you don’t buy more, you just spend less. The spectacular lift in Pet Food Spending beginning in the second half of 2014 came from a fundamental change in spending behavior. Consumers began to buy more Super Premium Food and Med/Supplements in Treat form, all of which cost more.

Then spending began to fall in the first half of 2016 and the decline intensified in the second half. Does that mean that Pet Parents were giving up on Super Premium and going back to their “old ways”? In some cases…maybe. However, consider this fact about current U.S. Consumers…price is the biggest driver (75%) of their behavior.

Once a consumer has decided on a specific type of product or brand, there is only 1 priority. Where and how can I buy it cheaper? Consumers spent 12.6% less on their Pet Food purchases in 2016. Were discounts available?

1. Competition between manufacturers invariably generates lower prices. Let’s look at the number of exhibitors offering either Dog and/or Cat Food or treats at recent SuperZoos:
   • In 2014 there were 105 Companies offering Dog/Cat Food and 230 selling Dog/Cat Treats
   • In 2015 there were 107 with Food and 239 with treats – Not much change
   • In 2015 we had the huge lift in Food/Treat spending. By the time we reached SZ 2016 there were 134 companies offering Food – (up 27.6% from 2014) and 304 with Treats – (up 32.2%)
   • By 2017 there were 147 Food companies offering Pet Food (+40.0%) and 313 with Treats (+36.1%)

These new companies created and felt intense competitive pressure for the “upgrading” consumers. However, there was also intense pressure from “regular” food companies as they were actually losing consumers to the “upgrade”.

2. Competition between retailers and retail channels also is a price battleground.
   • There has always been a price war between Independent Pet Shops, Pet Chains and Mass Market Retailers. With the consumer price falling as a brand moves to Chain Pet, then Mass, the only way to protect the indies and pet chains is through strict channel product segregation. This lasts for a while but as brands grow they want to “reach” even more consumers, so….
   • The Internet is a new player in this Pet Food Game. With no brick ‘n mortar overhead, they can offer discounts of 10>15% or more and deliver it to the consumers doorstep.
     1. In fact Non-refrigerated, Premium Pet Food may be an ideal internet product
        • While consumers have a lot of choices for their own dinner – cook, sit down at a restaurant, grab fast food or have it delivered, their pet needs the same thing every day at the same time – without fail.
        • Pet Products (primarily food) ranks #3 on the consumers’ list of reasons they “need” to go shopping. Only milk and bread drive more trips to the store.
        • If you need the same amount of pet food every day, without fail, you can make a very strong case for auto delivery to your door. You save 15% or more. You save a lot of trips to the store and…your pet is always “covered” with the pet food quality/brand of your choice. This begins to look a lot like a “no brainer”, especially as people opt for higher quality food.
        • The big question for the future is, “Can you effectively introduce a new pet food product/trend solely through the internet?” Consumers can certainly read about the benefits on the internet but they can’t see it, touch it, try it out or have a personal conversation about it unless they are in a store. This personal “contact” has always been a key factor for consumers in their decisions about Pet Products.

I think that it is pretty safe to say that there were discounts available. In fact 2016 may have been one of the most price competitive Pet Food markets in history – across all of its segments. U.S. consumers were seeking and finding “deals”.

Now let’s look at some specific Pet Food Spending Demographics. First, we’ll look at income. We will do it a little differently as we will show the annual spending from 2013 through 2016 so you can see the trend for the whole cycle.

The 2016 numbers in this chart and the one on Age Groups are highlighted to give you a better visual “read”.

• If outlined in green, sales were up in 2016
• If outlined in red, sales were down in 2016
• If highlighted in green, sales were up since 2013
• If highlighted in pink, sales were down since 2013

The National Numbers were: 2015>16 – Down – $2.99B (-10.1%); 2013>2016 – Up $3.54B (+15.6%)

• Under $30K: In 2016 (31.1% of H/H’s) – $116.18 per H/H – $4.48B – down $0.45B (-9.2%). Obviously this group is very price sensitive. The group also continues to shrink in size, down -2.0% in 2016. Since 2013, it is the only income group spending less on Pet Food but it is only down $0.01B. (-0.2%). However, there were 6.5% fewer H/H’s (3M) in 2016 than in 2013 so H/H spending actually increased. This group still has an ongoing commitment to their pets.
• $30K>$70K: In 2016 (31.9% of H/H’s) – $182.68 per H/H – $7.99B – Down $1.59B (-20.0%). Income triples. Home ownership doubles. It is a more diverse group but the average H/H still spends more than their after tax income. The break-even point doesn’t happen until Gross Income reaches $57K. This group value shops but their decrease is so large that some members may have backed down from the upgrade. Since 2013, spending is up $0.38B (+9.2%)
• $70K>$99K: In 2016 (14.1% of H/H’s) – $258.40 per H/H – $4.98B – Up $0.35B (+7.7%). This group is near the top of the “middle income” but still value conscious. Perhaps the price “war” finally reached a retail where the higher quality food became appealing. Since 2013 spending is up $0.38B (+8.3%)
• $100K>$149K: In 2016 (12.5% of H/H’s) – $283.64 per H/H – $4.39B – Down $1.08B (-19.7%) This group has a high income but also has large families with the resulting responsibilities. They look for deals too. Also, since 81% have college degrees, it makes sense that they would excel at buying smart. Since 2013 spending is up $0.61B (+16.1%)
• $150K> (10.5% of H/H’s) – $375.45 per H/H – $4.66B – Down $0.22B (-4.5%). 92% of this group have college degrees so they certainly know how to save. However, they have reached an income level where price is not as important. Since 2013 spending is up $1.85B (+65.8%) – half of the national increase. Money certainly makes choices easier.

In 2015, every income group except $70K>$99K increased its spending. With the spending drop in 2016, the positions were exactly reversed. This strongly suggests that there was a universal factor at work. It appears to be a competitive price war between manufacturers and retailers over the consumer’s Pet Food $. Since 2013, all segments but the <$30K group have increased total Pet Food Spending, although 52% of the national increase came from the over $150K group.

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

Again, the National Numbers were: 2015>16 – Down – $2.99B (-10.1%); 2013>2016 – Up $3.54B (+15.6%)

In 2016 Pet Food Spending, it was both ends against the middle. Under 34 and over 75 were up while 35>74 was down.

• 55>64 (19.0% of H/H’s) – $310.48 per H/H – $7.41B – Down $2.61B (-26.0%). This group was the key to the huge 2015 increase in Food Spending and also to last year’s drop. They have the 3^rd highest income and they are all Baby Boomers so naturally, 1.1% of their total spending is on their pets. Although some probably “rolled back” the upgrade, many more found deals on the product they wanted and spent less. They doubled their pet food spending in 2015 and 75% of that increase “stayed put.” Since 2013 spending is up $2.64B (+55.3%)
• 65>74 (14.0% of H/H’s) – $217.86 per H/H – $3.79B – Down $0.8B (-17.5%). Much of this group is retired, with lower income, so searching for “discounts” is the norm. Some “upgraders” probably fell by the wayside but there are a growing number of Baby Boomers in the group and 1.0% of their total expenditures was on their Pets, just slightly behind the 55>64, all Boomer Group. Since 2013 spending is up +0.78B (+25.9%)
• 75> (10.0% of H/H’s) – $114.62 per H/H – $1.48B – Up $0.33B (+29.3%). Both the effort and the expense of Pet Parenting become issues as we reach 75+. However, it appears that the discounted prices got this group “back on track”. Since 2013 spending is up +0.02B (+1.4%) – essentially flat.
• 45>54 (18.6% of H/H’s) – $228.78 per H/H – $5.47B – Down $0.4B (-6.9%) This group has the highest income and the most in Total H/H expenditures. Up until 2015 they were #1 in Pet Food spending. They buy premium food but didn’t fully participate in the 2015 upgrade. They did take advantage of the 2016 discounts and spend less. The number of Boomers in this group is declining, replaced by Gen X. Since 2013 spending is down -$0.51B (-8.5%)
• 35<44 (16.6% of H/H’s) – $181.15 per H/H – $3.84B – Down -$0.21B (-5.3%) They are 2^nd in income and expenditures but have the biggest families. Searching for Value is a way of life. Since 2013 spending is down -$0.45B (-10.5%). These Gen Xers just haven’t kept pace with the trends in Pet Food
• 25>34 (16.1% of H/H’s) – $171.16 per H/H – $3.70B –Up $0.71B (+23.8%) Their income is growing but so is spending. With 90% of their after tax income committed, they have strong financial pressures. In late 2014 they opted to upgrade their food. However, they backed down in 2015. The competitive pricing in 2016 must have “struck the right chord” as these older Millennials came racing back. Since 2013 spending is up +$0.89B (+31.7%).
• <25 (5.6% of H/H’s) – $95.34 per H/H – $0.82B – Flat $0.0B (+0.0%) These youngest Millennials continue getting started as Pet Parents, maintaining 2015 spending levels. Since 2013 spending is up +$0.18B (+28.1%).

The chart below has some other key demographic “movers” behind the 2016 Pet Food Spending decrease. Take a look.

Summary

In the current “deflated”, highly price competitive market, it is difficult to get to the bottom of the decrease in spending. There certainly was no drop in pet ownership. So, did the decrease in $ come because consumers backed down from their 2015 upgrade to Super Premium foods or are they just taking advantage of the price competition to buy the products that they want for a cheaper price?  The answer is some of both. A certain percentage of lower income and price sensitive groups, like Retirees may very well have switched back to regular food. However, it appears that the bulk of the decrease comes from value shopping across a wide range of households.

Make no mistake. Price matters to U.S. consumers, especially on products that they buy on a regular basis. Consider that 50% of U.S. households spend more than their after tax income – a total deficit of -$550B. In fact, if you start from the lowest income group and work your way up, the total after tax income of the “bottom” 90% of U.S. households is only $2.2B more than their total expenditures (0.04%). Virtually every U.S. household compares products and prices before they buy. This process and for that matter, the actual buying, has gotten significantly easier in our internet world.

The biggest spending drops came from College Educated, Suburban, Homeowners. These are the smart pet parents that first saw the benefit of the upgraded food. It’s a good bet that they figured out how to buy what they want… cheaper.

On the flip side, the demographic groups showing spending increases in today’s market are definitely upgrading their food and/or adding pets to their families. The 25>34 year old Millennials are a prime example. Their $0.7B increase is reflected in and supported by increases for 4 person households, married couples with their oldest child under 6 and Technical workers. There also were increases by renters and Center City residents, which is more good news.

Probably the most concerning data is from the 35>54 age group, which is largely Gen Xers. Overall, they make and spend the most money of any age group. Their Pet Food spending in 2016 was down but they were also the only age group to show decreased spending in this segment from 2013. We’ll take a better look at this situation when we see the generation reports.

One of the key things that we learned in this analysis is that Pet Food spending doesn’t just go up every year. It appears to flow in 3 year cycles, corresponding with market trends. Two years of increases is followed by a plateau year or even a spending drop. Then consumers move on to the next “must buy”. Looking at this history, the 2016 drop fits the pattern. If history continues to repeat itself, we should have a flat first half of 2017. Then spending should turn sharply upward as the consumers respond to the continued “humanization” of our Pet Food. However, we’ll just have to wait and see.

 

The U.S. Retail market reached $5.5 Trillion in 2016 from all sources – Auto Dealers, Supercenters, Restaurants, Online retailers, even Pet Stores. This year’s increase of $172B was more than 2015’s $118B as the decline in Gas Station revenue slowed. (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 2016 vs 2015…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 Retail Market grew $172.4B in 2016 – Up 3.2%, considerably better than the 2.3% growth in 2015.
  • The Top 100 grew $70.8B (+3.5%), better than the overall market but down from (+4.9%) in 2015.
  • The Top 100 accounts generate $2.1T in revenue, 37.6% of the total U.S. retail 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 $3.3 Trillion. – about 60% of the total market.
  • Removing the Restaurant & Gas Station sales from the Top 100 numbers – at $1.91T, they still account 34.7% of the Total U.S. Market and…
  • 58% of the $3.3 Trillion target retail market.

The Top 100 is obviously critically important, and it’s still outperforming the overall market…barely. We need to remember that the “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 2016:

• 4 Supermarkets from the 2015 list were “combined” into 2 in 2016 – Kroger acquired Roundys and Ahold bought Delhaize (Food Lion). In these cases, I combined the historical sales to give a better picture of the actual growth.
• We also lost 2 companies from the list due to declining sales – Barnes & Noble and Chipotle.
• That left space for 4 new additions:
  • Ulta Salon – a cosmetics and fragrance retailer that is “taking business” from traditional department stores.
  • Petco – We now have 2 Pet Chains in the Top 100 U.S. Retailers!
  • Sprouts – A natural grocery store chain
  • CKE Restaurants ( Carl’s Jr, Hardees)

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.

• Regular & Online Retailers have 58.6% of the stores but account for over 92% of the business.
• All of the $ growth is coming from Regular & Online Retailers as restaurants are down -3.5% (a big turnaround from 2015 when restaurants led the way with a 6.4% increase)
  • Reg/Online Rtlrs had a +3.7% increase in $ales – $69B (Much lower than last year’s +4.8%; +84.7B)
  • +1.7% growth in stores – also a significant drop from +2.9% in 2015 and + 6.9% in 2014.

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, 66 are selling some mixture of Pet Products in stores and/or online.
  • Their Total Retail Sales of all products is $1.8 Trillion which is…
    • 93% of the total business for Regular & Online Retailers in the Top 100
    • 32% of the Entire $5.5T U.S. Retail market – from 66 Companies who sell Pet Products.
  • 54 Cos., doing $1.6T in sales are selling pet products off the retail shelf in 138,000 stores – 3800 more than 2015.
  • Online only is another Story –
    • Amazon accounts for $15.4B (97.7%) of the entire online only increase.
    • Many Traditional Retailers who only sell Pet Products online are closing stores and losing ground in the total Retail “race”. Not carrying Pet Products could be another indication that they are “out of tune” with America

Sales for Retailers with pet products remain strong. Also note that the store count totals are only for the Top 100 and include only 2 Pet Chains 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 that there are 200,000 outlets selling pet products in the U.S. plus… the internet.

Before we analyze the whole list in greater detail let’s take a quick look at the Top 10 retailers in the U.S.

• They do $1 Trillion in Sales
  • 51.5% of the Top 100’s Revenue
  • 19.5% of the Total U.S. Retail Market
• It’s the same list as 2015 although 6 changed rank
• Target had the only negative performance
• 8 Retailers produced 29.2% of the increase for Total U.S. Retail

In the next part of the report we will look at the detailed list of the top 100. First, we’ll sort it by retail channel with subtotals in key columns. Then we’ll 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 ’16 & ‘15 – a “1” with an orange highlight indicates that products are only sold online
• Rank Columns – Change in rank from 2015: (Remember 4 from 2015’s list were consolidated into 2 in 2016. There were also other acquisitions of companies not in the Top 100 which can cause a big improvement in rank)
  • Up 4-5 spots = Lt Blue; Up 6 or more = Dk Green
  • Down 4-5 Spots = Yellow; Down 6 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. The Walgreens and Rite Aid merger fell apart but CVS acquired Omnicare and the pharmacies in Target Stores.
• The Traditional Department store segment overall continues its decline. There are a couple of exceptions in some “high end” stores. However for most, the trend is down.
  • Sears (includes Kmart) and Macy’s remain the 2 big “red flags” and more store closings are planned.
  • Although many carry a few pet items, generally online, this channel has never fully embraced Pet Products.
• Much of the growth in the Convenience Store Chains in the Top 100 in recent years has come through acquisitions. In 2016 there was a reduction in store count so overall sales were basically flat.
• Military Commissaries have added locations in recent years. Sales are finally catching up with a 9.1% increase.
• The Auto Parts Stores are a mixed bag, with all chains opening new stores. Only Advance is underperforming in sales. With the continued growth of the Pet Travel product category, it is somewhat surprising that everyone’s offering of Pet items continues to be so small. This could be an opportunity.
• Among Apparel retailers, the value outlets continue to show strong growth. All three of these chains carry pet products. The big increase at Ascena came solely from the acquisition of Ann Taylor and Loft.

Observations

• Want proof of the evolving face of U.S. Retail? – Amazon sales are up 91.3% in 3 years!
  • The Phone People – Verizon and Apple, continue to grow. However, not a good year for AT&T.
  • Barnes & Noble dropped off the list in 2016. Best Buy, Toys R Us and Gamestop continue to decline.
• Signet Jewelry made the list in 2014 by acquiring Zales. After an initial drop in sales, they rebounded – up 10.7%.
• Mass Merchants’ growth percentage is subpar and is being driven by Wal-Mart and Costco.
  • Wal-Mart is the “big dog” and their 2.7% increase in 2016 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 down almost $4B. Sales have been flat in the last 2 years, but in 2016 turned down – sharply.
  • Costco continues its spectacular growth. BJ’s revenue fell $2B. They are seeking help to improve online sales.
• Home Improvement/Hardware is showing continued strong growth by all “players”. The big guys are doing especially well with a $9B combined increase from Home Depot and Lowe’s – both are Top 10 retailers.
• Home Goods sales were flat except for Ikea, whose spectacular growth came as a result of corporate restructuring.
• Tractor Supply continued their strong growth (+8.9%). Their average annual growth rate is 9.5% since 2013.

Observations

• Supermarkets – $389B in Sales; 17 Companies; Over 16,500 stores; All Selling Pet Products. This is a very important group for the Pet Industry. With the highest frequency of consumer visits of any channel, the competition is fierce. The mergers and acquisitions continue as companies try to strengthen themselves for the daily battle. This year we saw 4 of 2015’s Top 100 Retailers become 2 as Kroger acquired Roundy’s and Ahold acquired Delhaize.
  • The % increase is below average. However, all but 2 cos. are showing sales growth. Kroger’s +$2B leads the pack.
  • With only Sprouts joining the Top 100, the number of Supermarket chains dropped to 17, but the store count still increased by 400 over the 2015 group.
• Small Format Value Stores: Overall, this retail channel does more business than Traditional Department Stores.
  • Dollar General continues as the top performer, up 7.9%, matching their average annual growth rate since 2013.
  • Dollar Tree’s 2015 acquisition of Family Dollar Stores seems to still be producing.
  • Only Big Lots performance is subpar, but they have 2 consecutive years with increases after 2 years of declines.
  • This retail channel continues to grow in numbers and popularity. They are committed to Pet Products and their focus on value appeals to today’s ever more price conscious consumers. Plus, they are easy to shop.
• Pet Stores – PetSmart’s growth is 3.4%, slightly better than last year’s 3.2%. However, the big news is Petco’s entry into the Top 100. This provides further evidence of the strength of the U.S. Pet Industry.
• Office Supply Stores – This channel is under siege. As store closings continue, retailers are turning to online ordering.
• Sporting Goods – Sports Authority closed in 2016 but the 2 remaining retailers, Dick’s and Academy, continue to show strong growth in both store count and sales.

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.

• Last year Restaurants had a 6.4% increase, driving the Top 100 $ up. This year’s -3.5% is a big turnaround. However, this is somewhat deceptive. Although sales at Yum are suffering, the big drop is due to a business re-structuring of their franchisees. Without Yum, Top 100 restaurant sales are up 3.4%, basically on par with regular retailers.

Wrapping it up!

The Top 100 got there by producing big numbers so it’s not surprising that their performance exceeds the overall market. Although in 2016, their increase (+3.5%) was only 10% better. In 2015 it was more than double – 4.9% to 2.3%

Pet Products are an important part of the success of the Top 100. Sixty-six companies on the list sell Pet Food and/or Supplies in 138,000 stores and/or online. If we drill down a bit, we get to 54 retailers who stock pet in their stores. This group generated $1.6T in sales. Now, let’s “Do the math”. If we take out the $10B done by PetSmart and Petco and the remaining companies generated only 1.5% of their sales from Pet, we’re looking at $23B in Pet Products sales from only 52 “non-pet store” sources! By the way, the 1.5% estimated share for Pet items is low based on data from the U.S. Economic Census.

Whether you are a manufacturer, a distributor or a competing retailer, monitoring the Top 100 group is important. What happens in this group reflects the evolution of the overall retail market. We see the continuing decline of Department Stores coinciding with the growing popularity of Value outlets. Nothing demonstrates the growing influence of the internet better than Amazon’s continued spectacular growth. The competition in the market is clearly shown in Supermarkets, where 8 Top 100 retailers became 4 in just 2 years through mergers/acquisitions. In business, like in biology, you must adapt to a changing environment or face extinction.

Don’t forget to download the 2016 Top 100 Retailer Excel file to do your own analysis

[button link=”https://petbusinessprofessor.com/wp-content/uploads/2017/08/Top100-US-Retlrs-2016-Ranked.xlsx” type=”icon” newwindow=”no”] Download 2016 Top 100 U.S. Retailers List(Excel)[/button]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pet Products spending totaled $43.46B for the 12 month period ending 6/30/16. This was an increase of $0.93B (+2.2%). Total U.S. spending for the period totaled $7.26 Trillion, up $230B (+3.3%). For this 12 month period, Pet Products are not quite keeping up the pace. However, they still account for almost 2/3rds of all Pet Spending and 0.6% of Total U.S. consumer spending – not insignificant numbers.

In this report we will update Pet Products Spending for perhaps today’s most popular demographic measurement – by Generation. Are the Baby Boomers still spending like they used to? What about Gen X? They are next in line. And the Millennials, the hope for the future, are they making progress to eventually lead the way? The numbers come from or are calculated from Data in the US BLS Consumer Expenditure Survey.

First let’s define each generation and look at their share of U.S. Financially Independent Consumer Units (H/H’s)

Generations Defined                                      

Millennials: Born 1981 and after: In 2016, age 18 to 35

Gen X: Born 1965 to 1980: In 2016, age 36 to 51

Baby Boomers: Born 1946 to 1964: In 2016, age 52 to 70

Silent Generation: Born 1929 to 1945: In 2016, age 71 to 87

Greatest Generation: Born before 1929: In 2016, age 88 and over

• In terms of Financially Independent Consumer Units, Boomers are still the largest group with 44M (34.4%)
• The two oldest generations are significantly losing numbers, primarily due to death and movement to assisted living facilities. The Greatest Generation will soon be too small to be a viable, measureable separate spending group.
• Gen X, while it gets little publicity, is currently the second largest CU group, balanced between the Boomers and Millennials, who both have more total members.
• Millennials now are the largest generation in sheer numbers, but are developing financial independence more slowly than past generations. Ultimately, they will “grow up”, which will move them into the #1 spot in CU’s. They will also get the biggest lift from immigration. As their marriage rate increases, the CU count will fall slightly.

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

• It just takes 2. Households with 2 or more people account for 81.5% of all Pet Products Spending
• The size of the CU and number of children is all about Family responsibility and all the financial pressures that this generates. As you can see, it is beginning to slowly ramp up with the Millennials but is at its peak with the 36 to 51 year old Gen Xers.
  • Married couples with children (especially over 6 yrs old) have always been an important segment in Pet Products spending, especially for Supplies.
  • However, the recent move to upgrade to Super Premium Food by the Boomers has changed the dynamics of this somewhat and brought Food even more strongly to the forefront of Products Spending.
• Boomers still average 2+ people in the CU. However, they are much less likely to have children <18 at home. As their human children leave home, they turn their attention and spending to their Pet Children who are still with them.
• Pet Products spending is also tied to the number of earners in a CU. 2 Earner CUs annually spend 38% more on Pet Products than 1 Earner CUs. As you can see the “earning” is being done in America by Gen Xers, Millennials and Boomers with Gen Xers at the top, as to be expected.
• Homeownership – Owning and controlling your own space has always been a key to increased Pet Ownership and spending. Homeowners currently account for 79.3% of all Pet Products Spending. In fact, the Pet Products Spending by Homeowners with mortgages is up $1.2B through 6/30/16.
  • The Gen Xers have reached the national average and homeownership continues to increase until we reach the oldest Americans – 88+ years old.
  • The Millennials are obviously lagging behind. The first big lift in Homeownership occurs from age 25>34. Right now 39% of these older Millennials own a home. When Gen Xers and Boomers were the same age 48% of them owned homes – over 20% more.

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

In Income, Spending, Pet Products Spending and Pet Products Share of Total $pending

CU National Avg: Income – $72,990; Total Spending – $56,258; Pet Products Spending – $336.98; Pet Share – 0.60%

• Income – The 35>51 year old Gen Xers lead the way. The Boomers earn about 15% less and their income will continue to fall as they age. The big drop occurs with the Silents as retirement becomes almost universal. The Millennials income is over 20% less than the Boomers and only about 2/3rds of the Gen Xers.
• Total Spending – The Gen Xers make the most and spend the most but it’s not out of line with their income. Boomers also spend more than the average but once again their income can support it. Spending doesn’t fall as fast as income with the older generations. In fact, they are actually deficit spending in relation to their after tax The Millennials under 25 are also in an after tax income deficit spending situation. However, the rising income from the 25>35 group makes up the difference and brings overall generational spending in line with income.
• Avg CU Pet Products Spending – The Gen Xers spend 33% more than the Millennials but still slightly less than the National Average (97%). The Boomers spend 42% more than Gen X and is the only group spending above the National Avg. on Pet Products. However, it hasn’t always been this way. In 2014 Gen X and Boomers spent exactly the same amount annually on Pet Products (within 1 cent) which was 113% of the National Average. The Boomers’ upgrade to Super Premium resulted in a huge increase in the national average and left the Boomers alone at the top.
• Pet Products Share of Total Spending – One measure of the level of commitment to their Pets.
  • Only Boomers exceed the National Average but The Silent Generation comes in 2^nd, demonstrating a lifetime commitment to their Pets. It also should be noted that these older generations have a much stronger commitment to higher quality, higher priced Foods.
  • Gen Xers overall make and spend the most money. They are also second in actual Pet Products Spending. Two things stand out – they are probably not opting for Super Premium Foods and Supplies are much more important to them than to the older generations.
  • Millennials are in third place but their percentage is a definite indication of commitment to their Pets. They are definitely value shopping for Foods but Supplies are extremely important to this group with Spending nearly matching Food.
  • The Greatest Generation at 87+ is still hanging on and you can see that the necessity of Food is of primary importance in their Pet Products Spending behavior.
• It’s time to look at actual $ Spent by Generation on Total Pet Products as well as Food and Supplies in terms of share of sales as well as the Mid-Year 2016 performance compared to the previous year starting with Total Pet Products…

• Regarding share, Boomers continue to dominate largely due to their Food upgrade in 2015. Not only do they have the biggest piece of the Pet Products “pie” (47.5%), it is 11% larger than #2, Gen X and #3, Millennials combined.
• The Greatest Generation is a welcome part of the industry but at 0.4% share they are no longer a factor.
• In terms of 2016 Mid-Yr Performance, it was all Boomers. They were up $2.02B in Pet Products spending. Every other generation spent less…a total of $1.1B less. Let’s get specific.
• Boomers – Ave CU spent $464.15 (+$43.56); 2016 Mid-Yr Pet Products spending = $20.63B, Up $2.02B (+10.9%)
  • The increase came entirely from the 1^st 6 months. Ave CU spent $327.34 (-$12.09); 2016 Mid-Yr Pet Products Spending = $11.59B, Down $0.26B (-2.2%)ths. – Jul>Dec 15, Up $2.9B; Jan>Jun 16, Down $0.88B.
• Gen X – Ave CU spent $327.34 (-$12.09); 2016 Mid-Yr Pet Products Spending = $11.59B, Down $0.26B (-2.2%)
  • Almost all of the decrease came in 2016. – Jul>Dec 15, Down $0.02B; Jan>Jun 16, Down $0.24B
• Millennials – Ave CU spent $247.02 (-$14.41); 2016 Mid-Yr Pet Products Spending = $7.04B, Down $0.34B (-4.6%)
  • Sales bounced back in 2016. – Jul>Dec 15, Down $0.52B; Jan>Jun 16, Up $0.18B.
• Silent Gen. – Ave CU spent $228.12 (-$27.85); 2016 Mid-Yr Pet Products Spending = $4.02B, Down $0.44B (-9.9%)
  • All of the drop came in 1^st 6 months. Jul>Dec 15, Down -$0.48B; Jan>Jun 16, Up $0.04B – a slight increase.
• Greatest Gen.– Ave CU spent $90.86 (-$5.47); 2016 Mid-Yr Pet Products Spending= $0.17B, Down $0.06B (-26.1%)

The Total Spending increase was all due to Boomers. Now let’s look at individual segments. First, Pet Food..

• Since their 2015 Upgrade, Boomers continue to spend more on Food/Treats than all other Generations combined.
• Gen X has 24% more CU’s than the Millennials but spent 78% more on Pet Food.
• Millennials spent $0.59B less on Food Mid-Yr 2016 versus the previous 12 months.
• Boomers – Ave CU spent $332.75 (+$59.36); 2016 Mid-Yr Food spending= $14.73B, Up $2.66B (+22.0%)
  • July>Dec 15 (+$3.5B) – Reflects Food Upgrade; Jan>Jun 2016 (-$0.84B) – Looks like they pulled back a bit.
• Gen X – Ave CU spent $199.66 (+3.65); 2016 Mid-Yr Food spending= $7.03B, Up $0.21B (+3.1%)
  • The lift came entirely in Jul>Dec 15 ( +0.44B); In Jan>Jun 16 they gave half of the Fall increase back (-0.23B)
• Silent Generation – Ave CU spent $159.46 (-$19.94); 2016 Mid-Yr Food spending $2.8B, Down $0.32B (-10.3%)
  • Spending fell in both halves. Jul>Dec 15 (-0.21B); Jan>Jun 16 (-0.11B)
• Millennials – Ave CU spent $138.90 (-$21.87); 2016 Mid-Yr Food Spending $3.94B, Down $0.59B (-13.0%)
  • Age 25>34 upgraded Food in late 2014, then pulled back in 2015. Dec 15 (-0.89B); However, they showed some resiliency as they bounced back in Jan>Jun 16 (+$0.3B)
• Greatest Gen. – Ave CU spent $63.73 (+$4.63); 2016 Mid-Yr Food spending= $0.12B, ↓ $0.02B (-14.3%)(less CUs)

We are still seeing the residual effect of the Boomers 2015 Upgrade. 2016 is not starting off well as there is some pull back on the upgrade and only Millennials are showing plus numbers for the 1^st half. Now on to the Supplies Segment.

• Boomers still have the largest share but unlike Food, the Younger Groups – Gen X and Millennials control 51.6%.
• Millennials – Ave CU spent $108.12 (+$7.46); 2016 Mid-Yr Supplies spending= $3.11B, Up $0.26B (+9.1%)
  • FINALLY, a bright spot for Supplies. Jul>Dec 15 (+$0.38B); Jan>Jun 16 (-$0.12B) But it faded a bit in 2016.
• Baby Boomers – Ave CU spent $131.40 (-$15.80); 2016 Mid-Yr Supplies spending= $5.90B, Down $0.64B (-9.8%)
  • In 2016 the Spending decline basically stops. Spending Jul>Dec 15 (-$0.6B); Jan>Jun 16 (-$0.04B)
• Gen X – Ave CU spent $127.68 (-$15.74); 2016 Mid-Yr Supplies spending= $4.56B, Down $0.47B (-9.3%)
  • The same story as the Boomers. Spending decline turns flat in 2016. Jul>Dec 2015 (-$0.43B); Jan>Jun 16 (-$0.01B)
• Silent Generation – Ave CU spent $68.66 (-$7.90); 2016 Mid-Yr Supplies spending= $1.22B, Down $0.12B (-9.0%)
  • Spending in the 1^st half of 2016 actually increased. (+$0.15B). However, not enough as Jul>Dec 15 was (-$0.27B)

• Greatest Gen. – Ave CU spent $27.13 (-$10.11); 2016 Mid-Yr Supplies spending= $0.05B, Down $0.04B (-44.4%)

It appears that the steep drop in spending during 2015 could be coming to an end. Sales in the first 6 months of 2016 were down only $0.06B and essentially were flat versus the same period in 2015. Boomers and Gen X, which account for 70.5% of all Supplies Spending, both mirrored this trend. We’ll see what the 2nd half of 2016 brings.

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

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

• Silent Generation Performance – Pet Products: 66.7%; Pet Food: 71.0%; Pet Supplies: 59.4%
  • This group ranges in age from 71 to 87. Pet ownership is more difficult after age 75 and this is reflected in the low share of Pet Products spending. However, the desire and the commitment is still there. This is evident in the 71% performance on Pet Food. While they don’t “earn their share”, their performance is better than the Millennials.
• Baby Boomers Performance – Pet Products: 136.5%; Pet Food: 148.0%; Pet Supplies: 114.4%
  • The Boomers led the way in building the industry and they are still doing it. They are earning their share and in fact, the spending leader in both Food and Supplies. Ultimately, this will fade as they age but based upon their history, they will continue to perform for many more years, well into old age.
• Gen X Performance – Pet Products: 96.4%; Pet Food: 88.8%; Pet Supplies: 110.8%
  • Next in line and next in performance to the Boomers, the Gen Xers are the only other generation to “earn their share” in spending on a Pet Product segment – Supplies. Spending on Supplies is a much higher priority for the younger groups. Gen Xers range in age from 36 to 51. As they reach the 50 to 54 age group, their children will start to move away from home and their focus will turn to their Pet Children. Expect their performance to surpass the 100% level within the next 5 years as they move to take over the #1 spot from the Boomers.
• Millennials Performance – Pet Products: 72.6%; Pet Food: 61.9%; Pet Supplies: 93.7%
  • The Millennials are widely touted as the future of the industry. This is ultimately true, but the future is still a ways off. The Millennials are currently 18 to 35 years old. They have pets, a lot of them, but their responsibilities are growing and money is still in short supply. They spend a lot on Supplies as they are establishing Pet households and actively seek products that make Pet Parenting easier. However, value shopping is still the rule. They initially bought into the food upgrade in 2014 but pulled back in 2015. They are 20 years away from occupying the highest income group. Also, since they are having children later, the spending lift from children leaving will undoubtedly be delayed. We’ll keep a close eye on them, but realistically, they are 20 years away from being the dominant force in Pet Spending.