Archive for category: Pet Market

In our recent post on Pet Spending in the U.S. during 2014 we reported a 11.4% increase from 2013 to 2014 – $6.6B. The numbers were based upon the Consumer Expenditure Survey conducted in a cooperative effort by the USBLS and the Census Department. Here are the summary numbers:

The obvious question was, “Where did the $6+ Billion dollars come from?” Are there demographic groups that are buying more…and conversely, are there groups that are underperforming? The best way to maintain and increase growth is by targeting your efforts to build on strengths and to correct weaknesses.

Since we were looking at Pet Spending, the first thing to do is “follow the money”. The first demographic that we looked at was income level. As expected, it was a complex answer but there were 2 household income levels driving overall Pet Spending: $120K and above….and $30 > $70K

The $120K+ was no surprise but the $30>$70K group raised questions. An initial review showed a connection with another demographic…age. Two age groups, 25 to 34 and 65+ were showing exceptional increases in Pet spending. It’s worth a closer look at the consumer’s age in relation to Pet Spending.

First, let’s get an overview of the various age groups. The chart below shows how each age group compares to the U.S. average in terms of gross income, annual expenditures and pet spending.

Observations

• Income: Gross Income increases rapidly up to the 35>44 age group and peaks at 45>54. Then comes a gradual decline until age 75+, where it is about 19% higher than the under 25 group.
• Expenditures: The “under 25” group actually spends more than their gross income. Expenditures rise in a pattern which closely follows Income, peaking at age 45>54. The ensuing decline is not as steep as income. However, at age 75+ expenditures once again exceed income.
• Pet Expenditures: At age 25>34 Pet Expenditures “take off”, more than doubling. Pet Parents are “born”. Pet Expenditures begin 30 years of increases but peak at 55>64. This peak occurs when both income and total expenditures have started to decline. Pet Parents spend at a rate equal to or greater than the national average for 40 years. The big drop comes at 75+.

Let’s translate this into total $. Here’s how much each age group spent on their Pets in 2014.

Now, let’s put each group’s spending into perspective with their…

• Share of Households
• Share of Pet Spending
• Share of the $6B increase

Observations

• Age does matter as 71.3% of the increase is coming from consumers over 55 years of age. The 65>74 group is especially strong accounting for almost 40% of the growth.
• The 25>34 age group is generating 23% of the increase. Young people are including Pets as a part of their “startup” households which is important for the future of the industry.
• The largest pet spending group, 55>64 is showing a strong increase, accounting for 23.8% of the total increase. The second largest group, 45>54 is showing a decline largely due to 945K less H/H’s.
  Let’s take a look at spending by Industry Segment:

Observations

• Since Food spending is an absolute necessity for Pet ownership, it is obvious that the young people are “adopting” pets. It may also be an indication of their feelings in regard to higher quality brands.
• The drop in the 45>54 age group is huge. The reason is basically twofold – 945K fewer H/H’s combined with a drop in actual household food expenditures – probably due to value shopping.
• At age 55+ as their children start to “leave the nest”, older adults may turn their focus more to their Pets…spending more and even “adopting new family members”…up to age 75.

Next…Supplies

Observations

• The increase in supplies spending is almost universal across age groups, except for “under 25”.
• The 25>34 group is the leader again, but the over 65 consumers are not far behind.
• Significantly, the 45>54 group is showing a strong increase which is counter to their trend in Food.

On to Non-Vet Services…

Observations

• The Service segment appears to be driven by a combination of “need” and finances.
• The 35>54 group certainly can afford Pet Services but they are choosing to “do it themselves”.
• As consumer’s age, the need for Pet Services increases. In fact, 114.6% of the increase came from consumers 55 years old and older. Even the over 75 group had a significant increase despite their reduced resources.
• The “startup” Pet Parents, 25>34 also had a huge increase. Their “need” may not be “physical” but could come from a lack of time due to a more active lifestyle.

Finally, Veterinary Services…

Observations

• The largest share of Vet Spending comes from the 55>64 age group. Through personal experience, as consumers age they become even more “aware” of the medical necessities of life. This carries over to their pets. This group has the greatest resources and they spend whatever is needed on Veterinary Care for their pets.
• Almost all (97.8%) of the increase in Veterinary Spending comes from the over 55 group. The 65>74 group is the leader by far, accounting for 50.9% of the $3B increase.
• The 45>54 age group accounts for 20.8% of Veterinary spending but only 7.9% of the increase. They spent slightly more per H/H but the drop in the number of H/H’s minimized the increase.
• In a big change, the 25>34 group accounts for a relatively small share of Vet spending and it is decreasing. These new Pet Parents may not yet be aware of the value of regular Veterinary care.

Overview By Age Group

• Under 25 – Not yet a significant factor with only 6% of households and 2% of Pet Spending.
• 25>34 – This group, with 16% of the households and increasing income, is the future of the Pet Industry. Right now the future looks bright as they are showing significant increases in all Pet Segments except Veterinary.
• 35>44 – With 17.1% of Households and 16.9% of Pet Expenditures, this is the point where Pet Parents start “earning their share” of the Pet Business. Only the Service segment is “soft” in spending. Perhaps this healthy, active group is the least likely to need “help” with their Pet.
• 45>54 – This group is #2 in Pet Spending at 22.1% but they are actually showing a decrease. Their Pet Spending per Household actually increased slightly but there are 1,000,000 fewer households in this group. This is evidence of the “slump” after the “baby boom”. At this point, their income is high but so are their expenses, especially in regard to their human children. As a result, this group can be very value conscious in terms of Food and selective in their need for Non-Vet Services.
• 55>64 – At this age, income and total expenditures start to decline, but Pet Spending reaches its peak as consumers focus on their “pet children”. Both Service Segments become big factors in spending. Supplies are just “holding their own”, but Food spending significantly increased in a tough market.
• 65>74 – The average Pet Spending per household drops about 10% from the 55>64 group. However, they still spend 1.19% of all their expenditures on their Pets. Also, the number of households in this group increased 624,000 in 1 year. That produced a $2.6B jump in Pet Spending – 39.7% of the industry’s $6.6B total increase. This group is a major driving factor in the growth all segments of the industry.
• 75+ – With 541,000 more households, this is also a rapidly growing age group. Although their Pet Expenditures per household are only about 50% of the national average, the growth in the number of households produced significant increases in spending for all segments other than Food. Actually, 25.2% of the increase in Non-Vet Services came from the 75+ group, which represents only 9.9% of all U.S. households.
• 65+ – 23% of U.S. H/H’s; 1.1M more in 1 yr; Produced 47.5% of the total increase in Pet Spending.

A couple of Final Thoughts

1. The over 65 group is a fast growing segment and dedicated to their pets. Develop products and programs to make “continuing” their pet experience easier and more affordable.
2. There are a lot of “new” Pet Parents in the 25>34 age group. They need education and quality, affordable products to insure that their pet experience is rewarding…for a lifetime.

A 2 page detailed Appendix on Pet Spending by Age Group is available through the link below. Just click on the button to download and save the file as a PDF. If you would like this in Excel format, send me an e-mail request.

[button link=”https://petbusinessprofessor.com/wp-content/uploads/2015/11/Pet-Spending-by-Age-Group.pdf” type=”icon” newwindow=”yes”] Download Data (PDF)[/button]

The latest Consumer Expenditure Survey conducted by the U.S. Bureau of Labor and Statistics was published in September. Pet Expenditures by the average Consumer Unit (Household) jumped from $459.70 in 2013 to $507.14 in 2014…a 10.3% increase…twice the rate of increase in total consumer expenditures, which was 4.7%.

Here’s what it looks like with details per industry segment:

Let’s turn these “averages” into totals. It requires a special calculation because the data is gathered by 2 different methods but here’s what it looks like.

Observations

1. The number of Consumer Units also increased 1.06% to 127,006,000 so this means that the the total increase in Pet Spending was 11.4%
2. While all segments are up, Supplies and especially Veterinary Services are the “drivers”!
3. Pet Services and Food are not as far up as the other two, but both are radically better than they were at the mid-year update published in May.
4. In May Pet Food spending was Down -0.4%…Now Up 4.8%; Pet Services were Up only 0.9%…Now Up 7.6%
5. The second half of 2014 was exceptional for the entire industry. Also, remember there was no price drop in December in Food and Supplies…which helped. Let’s hope 2015 is as good or better!

The Graph below should help you appreciate just how important the the second half of 2014 was for the Food and Supplies Segments and really the whole Industry…turning a good year into a great year!

Right now I know there is still an unanswered question on everyone’s mind so let’s address it. “If the average U.S. household spends $507.14 annually on Pets, what do actual Pet Parents spend??”

If we assume that 65% of U.S. households have a pet(s), then their average annual expenditure on Pets, Pet Products and Services is $780.22.

Next, there are a lot of consumer demographics that impact Pet Spending but the one we always seem to look at first is…income. We often look at over $70K vs under $70K because that has become the midpoint in total pet spending. That is changing. To give a better view, I have divided the Consumer Units (H/H’s) into 4 income groups. U.S. consumers spent $64.3B on their Pets in 2014. Here’s who spent it:

Let’s put this spending into perspective.

For each of the 4 income groups this chart shows their respective % share of:

• Total U.S. Households
• Total U.S. Pet Industry Purchases
• The Total $6.6B increase from 2013 to 2014

Observations

1. A change in the number of H/H’s is also a factor. Overall U.S. gain is 1.3M households
   • Under $30K dropping down -0.6M
   • $30>$70K up 0.1M
   • $70K>$120K up 0.5M
   • $120K> up 1.3M…($150K> up 1.5M)
2. The vast majority of the growth in Pet $ is coming from the wealthiest households. The H/H Pet Spending for $120K> is strongly increasing (+27%) and they are growing in numbers (+8%).
3. It costs money to have a pet. The under $30K group is 1/3 of America but spends only 15% of total Pet $. This group is getting smaller as incomes rise but they are also “watching” their spending.
4. Another 1/3 of America is the $30>$70K group. The $2B increase from this group is a bit of a surprise and merits a closer look. At this point the <$70K income group represents 67% of American households but spends only 44.8% of the Total Pet $. However, sales in the upper half ($30>$70K) of this group are growing… primarily by increasing H/H spending….not by a big increase in the number of H/H’s.
5. $70>$120K – This includes much of the “Middle Class” that we hear so much about. It is also the first level in which the share of Pet $ exceeds the share of households. The big concern is that this 20% of America is showing almost no growth in Pet $. Here’s a tip. If you download the detailed spreadsheets that follow this post, you will see that the Pet Spending per household in this group is actually down 4%. The growth in this segment only comes from the fact that there are more households. This should be a major concern.(Note: the increase in H/H’s was at the upper end..the $100k>$120K range)

PET $ BY INDUSTRY SEGMENT AND INCOME LEVEL

2014 was a great year for the Pet Industry. However, we have seen that it was a little greater for some households, especially those with higher incomes. Let’s now take a brief look at the Individual Segments of the industry to see what effect the consumer’s household income level has on purchases.

For our review, we will divide the Industry into 2 groups – Products, which includes Pet Food and Supplies and Services, which includes Veterinary and A/O Pet Services. The specifics of the Total U.S. performance by Segment were included in charts on the first page. We will note the totals in a recap of each section below but the primary vehicle for comparison is the “share” chart that we used for the Total Industry.

PET PRODUCTS

Here are the “Share” Charts for Pet Food & Pet Supplies

Observations

• Pet Food 2014 – Total $24.1B; Up $1.1B (4.8%)…51% of the $ are done by under $70K H/H’s.
  • Pet Food made a tremendous comeback in the second half of the year. The “rolling” 12 months sales were actually down -$100M through June 2014.
  • The increase was driven by $120K AND the $30>$70K Group. The $120K> group had increases in spending and H/H’s. $30>$70K was due to increased H/H spending.
  • The Under $30K group had an increase in Food spending per household but was driven down by a decrease in the number of households.
  • The $70K to $120K had a significant increase in numbers but a big drop in household spending on Food. Since it is unlikely that there was a precipitous drop in the number of Pet Households, it is likely that this group began serious price shopping.
• Pets & Supplies 2014 – Total $17B; Up $2.03B (13.6%)…44% of the $ are from under $70K H/H’s.
  • Up 6.5% at midyear, prices moved up…but sales still accelerated in the second half.
  • Many supplies are considered “discretionary” purchases. Even with price deflation during 2014, the growth was almost totally driven by income groups over $70K as most of America shopped for value or just said “no”.
  • The Under $30K group had a slight increase but 84% of total supplies are done by over 30K H/H’s.

PET SERVICES

Here are the “share” charts for Veterinary and Pet Services

Observations

• Veterinary 2014 – Total $17.6B; Up $3.03B (20.8%)…40% by under $70K H/H’s.
  • As you can see the over $120K H/H’s are the big driver as Veterinary Prices continue to increase at a high rate. Most other income groups appear to be choosing to defer, delay or seek other options in terms of traditional Veterinary Services.
  • H/H Veterinary Spending plummeted in both low income and the “middle class”…down $1.7B
  • The one surprise is the $30>70K group. There must be other factors beyond income.
• Pet Services 2014 – Total $5.7B; Up $0.40B (7.6%)…Only 34% by under $70K H/H’s.
  • Once again the over $120K H/H’s are truly driving what is a below average increase in the industry. Inflation may be becoming an issue.
  • The $70K>$120K “middle class” is showing an increase. However, as with the Supply segment, the $30>$70K group is dialing back on spending on services…but still accounts for almost ¼ of the spending in this segment.

Overview by Income Group (See Data Download for details)

• $30K or less – Pet Spending down -$0.98B. This is driven by a large (-653K) drop in the number of H/H’s and a slight drop in H/H Pet spending to $237.82. H/H spending ever so slightly up for Food, Supplies and Services. The big drop came in H/H Vet Spending -32%, which drove the Veterinary Segment down -$1B. This income group is obviously price sensitive and the ever inflating Veterinary Prices are having an impact.
• $30K>$70K – Pet Spending up $2.02B. The increase in this segment is due to a 11.8% increase in H/H Pet spending to $447.78. There was also a 0.4% increase in the number of H/H’s (+147K). The increase in $ was not just across the board in every segment. They spent about -3% less per household on Supplies and Services which produced a drop of about -$0.13B. However, each H/H spent 8% more on food which generated a $0.6B increase. (The only other increase in Food spending came from the $120K> group.) The big dollars came from a 42% jump in H/H Veterinary spending producing $1.6B increase.
  • This $30>$70K group is obviously conscious of their spending as the two somewhat discretionary segments were essentially flat but the “necessities” of Food and timely Veterinary care were up…a lot. This is a significant change for this income group.
• $70K>$120K – Pet Spending up $160M. This segment is growing in numbers (+482K) but Pet H/H spending is down -4% to $651.85. Like the $30k>$70K segment, results are mixed…but exactly opposite. There is increased H/H spending on Supplies and Services while spending on Food and Veterinary are down. The biggest changes are in Veterinary, down -$0.64B and Supplies, up $0.87. The changes in the other segments are slight. Food is down -$0.13B and Services are up only $0.06B.
  • With income above the National average of $67K, this group has always been a prime focus for our industry so the relative lack of performance is a concern. When you look at the income ranges within this group, you see that the drops in spending in Veterinary and Food occur across all income values. We have noted that most Americans have become more value conscious. It appears that a certain percentage of this group started “shopping around” or delayed some services.
• $120K> – Pet Spending up $5.37B. What can you say? This is the fastest growing segment in number of households (+1.332K). The total H/H increase for the country was (+1,336K) so the net increase for all groups below $120K was (+4). Combine that with a 27% increase in Pet H/H spending to $1067.08 and you get a fairy tale. All segments are up. Veterinary and Supplies have the biggest increases with $3.1B and $1.2B respectively. Although Food at +$0.71B and Services at +$0.35B are also the biggest increases for any income group. Currently, this is the biggest opportunity in the industry. They shop at a variety of retail channels…Pet Specialty, Clubs, even Value Stores but also remember… that 94.5% of them have high speed internet service!

A Final Note

Up $6.6B! The “Headline” news for the industry is spectacularly good. However, as usual when you start looking at the details you find pluses and minuses. That’s not bad. Even the negatives are usually opportunities that, if properly handled, can generate unanticipated growth.

The Demographics of Pet Spending gives different ways to look at the market…. We looked at income. How about age, H/H composition, occupation, race/ethnic background, education, home tenure…? The USBLS has provided Pet Spending for these demographics and more. Here are a few interesting demographic “headlines” about Pet spending in the U.S. that we may address in future posts:

• Married Couples up $8.2B; Singles down -$1.6B
• African Americans up $1B; Hispanics down -$1B
• Own your home up $3.5B; Renters up $2.7B (27%)
• Over age 65 up $3.1B…”Retired” up $1.9B

Let’s take another look at that last headline. It may have given us a clue to the somewhat unusual spending patterns in the $30K>$70K group…“Baby Boomers” are generally given a lot of credit for the fabulous growth of the Pet Industry…but we/they are getting old. What is happening…what will happen? Let’s look closer…

• Age 65+: H/H’s up 1,165K; Income $45K; Pet Spending Up $3.1B; Spend 1.02% on Pets
• Retirees: H/H’s up 653K; Income $39K; Pet up $1.9B; Spend 1.0% on Pets; Also spend 21% of Total Service $

Well, that seems to make the performance of the $30K>$70K group a little clearer, but what action should be taken? Aging causes changes. Money becomes a concern and formerly easy tasks become harder…but you don’t want to give up the things that make life worthwhile…like your pets. Retailers and service providers could offer a Senior Discount…say 10% off for age 65 and older. This should be affordable and definitely make it easier for Senior Pet Parents, a fast growing demographic, to continue the benefits of having Pets.

One last bit of info….The 25>34 age group has an average income of $61K and their Pet Spending is up $1.5B!  It turns out that the Pet spending in the $30K>$70K is being driven by both ends of the Age Spectrum. It reinforces that Pets are a lifetime commitment and bodes well for the industry!

As promised, a 2 page detailed Appendix on Pet Spending by Income Group is available through the link below. Just click on the button to download and save the file as a PDF. If you would like this in Excel format, send me an e-mail request.

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How much is the U.S. Retail business up through June? Yes, the question is not if…but how much? Since 1992 only 2009 generated a decline over the previous year in the first half and in the annual numbers. Here is another question…which part of the Retail Market is most relevant to our industry?  Take a look:

• Restaurants (Food Service) – are having a good year, up↑8.97%. However, they are not really relevant. They are 12% of the Total and removing them lowers the increase to 1.2%, almost half.
• Automobile Sales – are also doing well, up↑7.43%. These big ticket items are also not very relevant in the Consumer Packaged Goods business and they are 21% of the total. When you remove Auto and Food…the numbers go negative! Down ↓0.65%. What is driving this Drop?
• Gas Stations – ↓Down 20.7% from a year ago. Motor Fuels account for over 80% of the total revenue of gas stations. Gas prices are down 29% from the first half. The oversupply is a conscious effort to reduce competition from alternate sources. Gas Stations are also not really relevant to our industry. That leaves us with…
• Retail, Less Food, Auto and Gas – Up 3.1% to $1.5 Trillion in the first half of 2015. This is 58.4% of the total U.S. Retail market and it is growing 50% faster than the Total…and Very Relevant!

Before we look at individual channels, let’s look at recent overall 1^st half performance:

Regardless of how you look at it, the first half of 2015 was not as robust as the past two years. In the “best” case in the graph, the rate of relevant U.S. Retail growth is 14% less than in 2014. However, the graph does give us a benchmark to measure the performance of specific retail segments. If their growth exceeds 3.1%, then they are gaining market share. If it is less than 3.1%, they are losing market share…even if sales are up! Let’s look at how the major retail segments are doing.

These are large slices of the U.S. Retail pie. Three divisions – General Merchandise Stores, Food and Beverage and Non-Store account for 58.3% of the total market. If you look back at our post on the channel migration of Pet Products Sales, you will see that in the 2012 these divisions produced 59.7% of total Pet Products sales. Consumers spend a lot of money in Pet Specialty Stores but Pet Products are also “on the shopping list” in the outlets where they spend most of their money.

Major Divisions of the market generally don’t show much movement in market share in just one year so the change in the General Merchandise Stores and Non-Store “Divisions” is very significant. Each of the major divisions includes a number of subsegments. General Merchandise includes Traditional Department Stores, Discount Department Stores, Supercenters and Clubs as well as $ and Value Stores. These specific retail channels often have far greater movement in share because this is the level that the consumer “views” in making their initial shopping choice.

Enough “overview”! Let’s look at the first half performance of some of the specifically “Pet Relevant” Channels to see which are doing the best…and worst in gaining consumer spending. We will use 2 separate graphs to illustrate the situation in these 12 Channels. The first will show the % change in sales in 2015 vs 2014. The next will “show us the money” by translating the % into $ gained or lost.

Then we will wrap it up with some observations by channel.

This first graph shows the percentage change in the first 6 months sales of 2015 versus the same period in 2014. Remember, we determined the “norm” to be an increase of 3.1%

The leader is no surprise. It just reinforces what we all “thought”. Now, as promised, I’ll “show you the money!” For a reference, the Total increase from all Retail Channels –Food, Auto & Gas was $45B

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

 OBSERVATIONS

• Internet/Mailorder – $188.8B, Up $18.9B (+11.1%). 42% of the total increase for the $1.5T Retail Market (1^st Half Total) came from Internet/Mailorder. The Consumer Migration to this channel noted in a post documented earlier this year…is accelerating – gaining 0.9% in Total Market Share in just a year.
• Super Markets – $287.2B, Up $8.2B (+2.9%) This largest subsegment is barely holding its own as it lost 0.1% in Market Share. Right now the major competition is from SuperCenters/Clubs. We’ll see if the Internet becomes a factor.
• Department Stores – $25.7B, Down $0.5B (-3.3%). This segment is not particularly relevant to Pet but I included them as they are part of the best “visual” example of the channel migration of the U.S. consumer. 50 years ago they “ruled” the GM category. Then they started to slide as they failed to adapt to the changing wants and needs of the consumer. One small example of this is their failure to address America’s growing relationship with our companion animals.
• Discount Department Stores – $48.4B, Down $0.8B (-1.5%). The rise of this segment started the downhill slide of Department Stores but their tenure at the top was brief as the SuperCenters/Clubs offered true 1 stop shopping.
• SuperCenter/Club Stores – $208.4B, Up $1B, (+0.5%). These outlets with their broad mixture of grocery and general merchandise…at great prices quickly became a dominant force in the retail market. They are second only to Supermarkets in Retail Market Share. However, they “needed” to be up $6B in the first half of 2015. They lost 0.37% in Market Share, one of the biggest drops of all the U.S. Retail Channels.
• $ & Value Stores – $32.4B, Up $1.7B, (+5.4%). – A Great Value and easy to shop. The growth in this segment is visible proof that American consumers want Value AND Convenience.
• Drug Stores – $128.4B, Up $5.7B, (+4.6%). 60+% of revenue comes from Rx Drugs. The growth in this segment is largely due to a 5.4% Increase in Rx Prices over the same period in 2014.
• Sporting Goods – $20.7B, Up $2.3B, (+6.2%). A minor player in Pet, this segment enjoyed a strong first half in 2015.
• Home Centers – $122.5B, Up $5.5B, (+4.0%). These “project driven” outlets have never done a significant Pet Business. Their growth is tangible evidence of the recovery from the recession.
• Hardware – $12.0B, Up $0.8B, (+7.1%). Exceptional strength in this minor Pet segment. Once again evidence of ongoing economic recovery.
• Farm and Garden Stores – $25.2B, Down-0.1B, (-0.5%). This segment had been showing growing strength in both Pet and Total sales. Spring is their largest “lift” season. We’ll have to wait until yearend to see if this year’s drop was an anomaly or reflective of an overall trend.
• A/O Miscellaneous Stores $34.0B, Up $2.2B, (+6.6%). Florists, Pet Stores, Art Dealers…there are several segments bundled into this group. Based upon detailed data from the 2012 Economic Census, Pet Stores probably account for about 25% of this segment. With few large “chains”, this growth speaks well for “smaller” U.S. Retail Businesses…at least in the first half of 2015.

Now let’s wrap it up with a brief summary…and provide you with the detailed data for future reference.

SUMMARY 

There is no change at the top. Supermarkets remain the largest Retail Channel, followed by SuperCenters & Club Stores. The Internet/Mailorder segment is growing even faster than anticipated. Gaining 0.9% in Market Share in a $3T annual market in 1 year is definitely fast. However, this is just the first half. We’ll see if this Channel can maintain this pace for the whole year. If the current trends do continue, Internet/Mailorder could take over the #2 position in the U.S. Retail economy in as little as 2 years. You also have to wonder what will happen when the internet turns its attention to grocery items.

There are other notable points that relate to the Pet Industry  – the continued growth of the $/Value Stores and the unexpected strength in the A/O Miscellaneous Channel.

Bottom Line: The U.S. Retail Market is evolving as the consumer migrates to the channels which best fulfill their current wants and needs. To survive and prosper, you must identify those needs and adapt.

Here are the details:

Contact me if you would like an Excel version of this detailed data!

The U.S. Retail market is impressive to say the least. In 2014, the total retail sales were over $5 Trillion. This total comes from retailers of every size and type – from Super Centers to individually owned pet shops. Yes, it also includes online retailers. You don’t have to have a “brick ‘n mortar” store to be a retailer in today’s world.

In this post we will try to narrow the focus to the top 100 Retailers in the U.S. Market. These 100 companies account for 1/3 of the total retail market! How did they perform in 2014 vs 2013…and of course, which ones sell Pet Products? I will warn you that it is crammed with data but we’ll try to break it into smaller pieces with regular observations. All of the base data was done by Kantar Research and published by the National Retail Federation (NRF).

An important reminder: Remember you can click on the data charts to get a better view. On some of the more detailed charts you can even expand this enhanced image by clicking on the button that appears in the upper right corner. This makes the details very clear and easy to read. I have also included a download link to an excel file at the end of the post so you can sort and print all of the individual company data on the Top 100.

Now, let’s get started with an overview:

Observations

• The Total Market grew $200B in 2014 – Up 3.9%
  • The Top 100 grew $83B and the growth rate of 4.5% exceeded the overall market.
  • The Top 100 accounts for 36% of the total market.
• Let’s pare it down a bit. If you take out Auto, Restaurant and Gas Station sales, the “target” retail market for our industry is $3 Trillion. – about 59% of the total market.
  • Removing the restaurant sales from the Top 100 numbers – at $1.76T they are still 1/3 of the Total U.S. Market and…
  • 57% of the target market.

The Top 100 is obviously critically important, and right now it’s outperforming the overall market. We need to remember that this “Top 100 club” is in fact a contest. Every year companies drop out and new ones replace them. This can be the result of acquisitions or simply slumping sales. You’ll see the new additions during the course of the report. Dropping out of the Top 100 in 2014 were: Harris Teeter Groc. and Office Max – (both acquired); Ingles Markets, Roundy’s Suprmkt, Brinker Intrnlt (Chilli’s,Maggianos) and Bloomin’ Brands (Outback, Carrabas) – all with slowed sales.

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

Observations

• Biggest note may be that the Retailers have 60% of the stores but 92% of the business.
• The growth in Retailers is driving the top 100.
  • 4.9% in sales – twice the increase rate of restaurants (30 times greater in $)
  • 6.9% in stores – over 4 times the rate of restaurants. Cautionary note: The % increase in sales is not matching the % increase of sales.

Now that we have an overview of the Top 100, we’ll take a look at the “targeted” retailer segment. There are 85 total companies. How many are buying and selling Pet Products? Here’s where we can specifically see how Pets have become an integral part of the American Household and how fierce is the competition for the Pet Parents’ $.

• Of 85 possible companies, 69 are selling some mixture of Pet Products in stores and/or online.
  • Total Retail Sales of all products $1.6 Trillion
  • 128,467 Stores are stocking and selling pet products
  • Growing strongly in outlets 7% and Sales $4.6%

These totals are only for the Top 100 and include only 1 Pet Chain and 1 Farm Store Chain as they were the only companies to make the list. Pet Products are sold in thousands of other outlets. The data from the 2012 U.S. Economic Census detailed over 150,000 retail stores selling Pet Items. With only moderate growth in store numbers (5%), the total would exceed 165,000 in 2014.

In the next segment we will look at the detailed list of the top 100. We’ll sort it by retail channel with subtotals in key columns. We’ll then break it into smaller sections for comments. Remember, 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 Column – a “1” with an orange highlight indicates that products are only sold online
• Rank Columns – Change in rank from 2013:
  • Up 3 or 4 spots = Lt Green; Up 5 or more = Dk Green
  • Down 3 or 4 Spots = Lt Pink; Down 5 or more = Dk Pink

Remember online sales are included in the sales of all companies.

Observations

• Drug still showing steady, slow growth overall. It is being driven by the Big 3.
• The Department store segment overall is declining. This particular group is showing some growth, even with a reduced store count.
  • 3 companies started carrying pet (limited skus) – all online only. Penney’s moved some items to retail.
  • Sears (includes Kmart) is dropping in sales and especially store count.
• Americans are still driven by convenience so these convenience stores are doing well.
• The drop in Military Commissary sales is slight but somewhat surprising.
• The Auto Parts Stores are showing strength, especially O’Reilly at +8.5%
  • Considering how much our pets accompany us in the car, it is somewhat surprising that their offering of Pet items is sparse.
• Three of the Apparel Value retailers are showing the largest growth and they all have Pet Products merchandised at retail.

Observations

• Headline: Amazon sales are only up 55.9% in 2 years!
  • The Phone People – ATT, Verizon and Apple are growing faster than sending a text.
  • Toys R Us continues its decline as does Barnes & Noble
• Signet Jewelry’s spectacular growth comes from acquiring Zales. Last year neither were on the list. Now, together they are. Some of the other huge numbers are from similar acquisition situations.
• Mass Merchants growth is subpar.
  • Wal-Mart is the “big dog”, but in 2yrs they have increased store count 11.8%..sales 4.5%.
  • Target sales are up slightly.
  • Big Gainers are the Clubs – Since 2012 Costco is up 12.2%, BJ’s is up 11.7%.
• Home Improvement/Hardware is showing growth from each of the “players”.
• Home Goods sales growth is slow but steady.
• Farm Stores: Tractor Supply deserves recognition – in 2 years, store count up 17%, sales up 25%

Observations

• Supermarkets: Overall these stores are doing reasonably well.
  • Some problems with some of some long time companies – In 2 years time, Safeway down 6.8%, Food Lion down 9.2% and A&P down 12.2%
  • Some high enders like Whole Foods and Trader Joes are performing well.
  • Some of Kroger’s growth comes from the acquisition of Harris Teeter.
  • Bi-Lo, HEB, Wegman’s and Winco are all performing above the average.
• Small Format Value Stores: This segment does more business than Traditional Department Stores.
  • Family Dollar Stores is the only one underperforming and they were just acquired by Dollar Tree.
  • Dollar Tree is performing best at +9.4%. Now they will be operating with 13,000 stores.
  • Dollar General is also doing great at +8%
  • Big Lots is actually down 0.4% over 2 years.
• PetSmart – Acquired Pet 360 but the combined growth is slightly below par at 2.4%
• Office Supply Stores – Sales Continue down. Seems similar to what happened to Toy Superstores,
• Dick’s Sporting Goods is expanding in store count and sales – up 9.6%

Restaurant Observations

Although restaurants aren’t relevant in terms of Pet Products Sales, they are relevant in our daily lives. Almost all of the companies on this list are “fast food” or coffee.

• Chic-fil-A Starbucks and Chipotle are leading the pack.
• Of the big three, McDonalds, Burger King and Wendy’s, only Wendy’s is showing + numbers.

Wrapping it up!

There is a lot of detailed data here. I encourage you to use the link below to download the Top 100 data file in Excel. It is in ranked order but you can sort it however you like. This group of stores accounts for 37% of the entire $5.2 Trillion U.S. Retail Market and is gaining ground. It’s probably worth a second look.

As I was preparing this post, it brought to mind the ongoing migration of the U.S. Consumer. When you see facts about specific retailers, it seems to drive home the point that the market is constantly evolving. A few that really “hit home” with me are:

• Amazon Sales Up 55.9% in 2 years.
• Tractor Supply Up 24.7% in 2 years…as we Americans tend to our suburban “farms”.
• Best Buy, Barnes & Noble, Office Depot, Staples and Toys R Us…all continue down. The age of the Superstore appears to truly be ending

Take a look at the details to see what “hits home” with you…and let me know. I would love to hear your feedback.

[button link=”https://petbusinessprofessor.com/wp-content/uploads/2015/08/PostTop100-US-Retlrs.xlsx” type=”icon” newwindow=”no”] Download Top 100 (Excel)[/button]

 

In April, Pet Food and Supplies prices got back on the roller coaster, falling sharply from March. Like the situation in January, despite rising prices in Veterinary and Service segments, the April drop in Food and Supplies segments was enough to pull the Total Pet Prices down for the month and the year to date. Food was the big “driver” giving back all and more of the ground that it had regained in March.

Veterinary continues its usual pattern of strong inflation early in the year (0.5% per month). Services are also on a relatively normal track with a low inflation rate over the first 3 months, then turning sharply upward in the April. If the usual pattern continues, both segments should see continued increases through the Spring, flattening out in the Summer months – starting in July.

Remember, last December Food & Supplies had a price increase rather than the “drop” which had become the norm in recent years. The “drop” occurred in January so December 2014 was a little higher than we would have expected.

Here’s what has happened in each segment since then.

SPECIFICS ON CPI CHANGES

Veterinary Services

• January – Up ↑0.69%; February – Up ↑0.49%; March – Up ↑ 0.39%; April- Up↑0.40%
• Year To Date: Up ↑1.99%

NonVet Services

• January – Up ↑0.30%; February – Up ↑0.35%; March – Down ↓ -0.06%; April- Up↑0.42%
• Year To Date: Up ↑1.01%

Pet Food

• January – Down ↓-1.14%; February – Down↓-0.06%; March- Up↑0.55%; April– Down↓-0.65%
• Year To Date: Down ↓-1.31%

Pets & Pet Supplies

• January- Down ↓-0.60%; February – Down ↓-0.15%; March- Up ↑0.08%; April- Down↓-0.42%
• Year To Date: Down ↓-1.09%

Total Pet

• January- Down↓-0.27%; February- Up ↑0.17%; March- Up↑ 0.26%; April- Down↓ -0.27%
• Year To Date: Down ↓-0.12%

OBSERVATIONS

• In 2014 February had an increase followed by a drop in March. In 2015 the increase and subsequent drop occurred a month later – in March and April.
• Food – April drop was significant…so is down 1.31% for the year to date.
• Supplies – prices continue to slowly fall.
• Veterinary prices continue their normal winter/spring increase.
• The NonVet Service segment continues to increase in price but at about half the rate of Veterinary.
• The Total Pet Market Prices rose in March due largely to increases in Food and Veterinary Services – the same “drivers” as in the February 2014 increase.

Let’s take a look at the monthly history over the last 18 months to get a better feel for the “rollercoaster” ride in Food and Supplies.  April of 2015 and April of 2014 are outlined so you can see where we were at this time last year.

COMMENTS

As we have noted, March was the pricing “low point” for the total industry in 2014. We are about 0.7% above that level this April. All segments but Food are above the pricing of a year ago. Even Supplies are up, primarily due to the residual effect of 4 months of continual increases from September through December. The big question is what will happen with food – the largest segment?

COMMENTS – BY INDUSTRY SEGMENT

Veterinary Services – Once again the price increase from December to April this year actually exceeded last year – up 2.06% in just 4 months. In our consumer expenditure analysis we saw that veterinary spending increased significantly – for the highest incomes. However, it dropped $1B for the <$50K group. Obviously, there is a cost associated with strong inflation beyond just price.

NonVet Services – The price increases in this segment have been regular but more moderate than the Veterinary segment. It appeared that this had not affected consumer purchases. However, the recent Consumer Expenditure survey indicated an overall flattening in spending on Services. Flat spending in conjunction with increased prices indicates a reduction in the amount of services purchased.

Pets and Pet Supplies – Prices are actually 0.5% above April a year ago. However, they are still 3.8% below what they were in April 2009 – 6 years ago. The deflation in this segment is a slow, ongoing and painful issue, with no easy fix. I know that you are all tired of hearing me “preach” about this. However, long term deflation is a serious issue and in many ways harder to handle than inflation. When popular categories become commoditized, price competition drives down prices and ultimately drives out some manufacturers. The only real cure is to innovate – make it better – that’s how you can get today’s value conscious consumer to spend more.

Pet Food – This largest segment is becoming a serious concern. January saw the largest price drop in 17 years. March brought a strong uptick in prices. Then another big drop in April took away the ground regained in March…and more. The Consumer Expenditure survey indicated recent Pet Food Spending is down about $80M. With the deflating prices, the actual amount of food purchased remains at 99.9% of the previous measuring period. It’s a complex story. The >$120K households are spending more on Food. Everyone else is looking for a value and spending less.

Total Pet Market – It’s a “bipolar” situation. Veterinary and Service segments keep going up. Supplies and especially food are trending down. History says all segments should have increasing prices through June. Then Total Services flatten out and Food & Supplies drop in the summer, dragging the Total Market down. We’ll see…We seem to be on track for an overall CPI increase of about 0.66% for 2015.

Here’s a chart that compares our April numbers to recent history

The Food & Supplies segments are still on a pricing Roller Coaster ride. We’ll keep you up to date!