Archive for category: Pet Market

In June, the volatility in the Pet Market segments appeared to be calming down. All segments had moved up slightly for 2 consecutive months. This was expected for the Service Segments but represented a welcome change for Supplies and Food and put Total Pet back on Plus(+) side for the year.

In July we usually expect the Service Segment Prices to flattened out and prices to fall in Food and Supplies. The amount of this drop was critical. If it was less than last year, then the likely decline in Food prices for the year would be mitigated…and Supply Prices may actually turn positive…moving away from deflation.

Then in July the Food Prices went “off a cliff” with the biggest single monthly drop since they began keeping records in 1997 – down -1.95%. This also generated a record monthly drop in the Total Pet Industry of -0.64%.

Here’s what 2015 looks like so far…

SPECIFICS ON CPI CHANGES

Veterinary Services

• July – Up ↑ 0.19% (Last year July went Up 0.07% – basically flat)
• Year To Date: Up ↑3.23%

NonVet Services

• July – Up ↑ 0.23% (Last year July went Up 0.06% – basically flat)
• Year To Date: Up ↑1.89%

Pet Food

• July- Down ↓-1.95%% (Last year July went Down -0.63%. This year’s drop is 3 times bigger.)
• Year To Date: Down ↓-2.53%

Pets & Pet Supplies

• July- Down ↓-0.48% (Last year July went Down -0.86%. This year’s drop is only about 1/2 of that.)
• Year To Date: Down ↓-1.00%

Total Pet

• July- Down ↓ -0.64% (Last year July went Down -0.5% – This year’s drop is almost 30% greater.)
• Year To Date: Up ↑0.04%

OBSERVATIONS

• Food has been consistently down since December but the record drop in July was three times as big as the decline in July 2014.
• The expected drop in Supply prices was only half as steep as 2014.
• Veterinary and Non-Veterinary services are generally almost flat from June to July. This year they moved up 0.2%, which is small but only accelerates the inflation in these segments.
• The July drop in the Total Pet Market Prices was also the biggest single monthly drop since they began keeping records in 1997. The increase in the Service prices actually mitigated the impact of the precipitous drop in Food and kept the overall prices about even with December 2014.

Next, let’s look at the monthly history over the last 21 months to put this month’s data into perspective. July of 2015 and July of 2014 are outlined so you can see the journey over the last 12 months.

COMMENTS

July generally brings price decreases in food and supplies. However, the severity of the drop in Food was unprecedented. Overall we are about 1.0% above the pricing of July 2014. Food is the only segment with prices lower than a year ago. But…it is the largest segment, so it is a major “driver” in the total market.

Now, let’s take a slightly different look at the data. The chart below includes a comparison of the 2015 YTD CPI to the 2014 annual CPI and also includes an updated projection of the annual CPI change for 2015. August or September could produce another drop but if we get the normal Fall increase….

COMMENTS – BY INDUSTRY SEGMENT

Pet Food – This largest segment is the headline news. July produced the biggest single month price drop in history…-1.95%. Along with the -1.17% drop in January, prices are now down -2.53% for the year. Fall generally produces monthly increases in Pet Food prices but it seems unlikely that they can recover completely…plus December often brings a drop. Therefore, 2015 is projected to be the second consecutive year of falling food prices…down 0.42%. The competitive pressure is getting intense as today’s consumer actively searches for value.

Let’s put this price change in “historical” perspective. For most years since 1997 Food Prices have risen 1-3% annually. In 2007, a series of Pet Food recalls began. From June of 2007 to July of 2009 Pet Food prices rose 23%…yes, 23% in 25 months. It seems that the retail product mix and/or product make up was substantially changed during this time.

There were also other factors coming into play, as the U.S. was in the heart of the biggest recession since the “Great Depression” in the 1930’s. In Mid-2009 prices turned downward and the annual Pet Food CPI dropped -0.4% in 2010. The next 3 years saw moderate increases of 2%. Then in December of 2013 Food prices started down again and have not recovered. The current prices are roughly equal to those in the summer of 2012 – 3 years ago.

The recent recession is widely regarded as a “turning point” in the behavior of the U.S. consumer, with value becoming THE major factor in their purchase decisions. This invariably produces competitive pricing pressure which we are seeing in this major Pet Industry segment. Unlike other segments, “buying” Pet Food is not discretionary. It’s a necessity. Therefore, most consumers are going to be greatly influenced by retail price.

Pets and Pet Supplies –  Since I first began writing about Petflation, the lead story has invariably been the “deflation” of Supplies due to increased commoditization of product categories. With July’s price drop only being one half of last year’s, it seems increasingly probable that supply prices will increase this year for the first time since 2011 and only the second time since the recession…Up 0.45%.

It’s not a sure thing. We should see another price drop in either August or September and possibly one in December. The results in December may be critical for a positive year…then we need to string a few positive years in a row…which hasn’t happened since the recession in 2009.

NonVet Services – July’s price jump was a bit of a surprise. Increases in this segment have been moderating. We now expect prices to increase 2.02%, which is slightly below 2014 and significantly below other recent years. There is an indication from the Consumer Expenditure survey that the years of large increases have started to slow real growth in this segment, specifically limiting it to households with an income of over $120K.

Veterinary Services – The Veterinary Petflation rate is on track for another year over 3%…Up 3.32%. The continued high inflation rate has substantially reduced the rate of increase in the amount of Veterinary services and limited the growth to households over $120K in income. Households under $50K were actually showing a substantial decrease in spending according to the U.S. Consumer Expenditure survey.

Total Pet Market – Driven by Food and Supplies, July produced the biggest single month price drop since 1997. However, the projection for 2015 is still Up 1.09%. This looks pretty good…on the surface. However, when you look beneath, it is being generated by 2 big negative, but opposite situations in Veterinary and Pet Food. Supplies and Services seem to be “coming around” to more acceptable levels but we need the other two to respond for a healthy Pet Industry

This last chart should help put the recent, relative performance of each segment into perspective:

You can readily see the reduced inflation rate for Services and the turnaround for Supplies. You can also see where the big problems lie…in accelerating inflation in the Veterinary side and the substantial deflation in the Pet Food Segment. We’ll keep you up to date in the critical last months of 2015.

We last looked at “Petflation” in April. That month produced another drop in Food & Supplies pricing which resulted in the second monthly decrease in the Total Pet Industry Prices since December.  In fact, for 3 of the first 4 months of 2015 the Total Pet CPI was below December 2014.

Then came May and June, which brought CPI increases in all segments. The Total Pet CPI went positive and stayed there. We also found a “hidden” pleasant surprise from the Supply Segment.

But first, let’s take a look at the specifics of what has happened since December.

SPECIFICS ON CPI CHANGES

Veterinary Services

• April – Up ↑0.40%; May – Up ↑0.74%; June – Up ↑ 0.27%
• Year To Date: Up ↑3.03%

NonVet Services

• April – Up ↑0.42%; May – Up ↑0.32%; June – Up ↑ 0.33%
• Year To Date: Up ↑1.66%

Pet Food

• April – Down ↓-0.65%; May – Up↑0.37%; June- Up↑0.36%
• Year To Date: Down ↓-0.59%

Pets & Pet Supplies

• April- Down ↓-0.42%; May – Up ↑0.40%; June- Up ↑0.17%
• Year To Date: Down ↓-0.52%

Total Pet

• April- Down↓-0.27%; May- Up ↑0.45%; June- Up 0.34%
• Year To Date: Up ↑0.68%

OBSERVATIONS

• 3 of the first six months in 2015 produced drops in Food and Supplies prices.
• The price changes in Food and Supplies have a similar pattern. However, Food is showing more volatility than Supplies
• Average Supplies Prices are actually 4.3% higher than the same period in 2014.
• Veterinary prices are increasing at a high rate.
• The NonVet Service segment continues to increase in price but with some moderation.
• The Total Pet Market Prices wasn’t positive for 2 months in row until the “across the board” increases in all segments in May and June.

Next, let’s take a look at the monthly history over the last 21 months to get a better feel for the rollercoaster ride in Food and Supplies as well as the striking rise in Veterinary prices. June of 2015 and June of 2014 are outlined so you can see the journey over the last 12 months.

COMMENTS

The late Spring Months generally bring price increases in all segments. 2015 was no exception. Overall we are about 1.1% above the pricing of June 2014. Only Food is below the prices of a year ago. Since it is the largest segment, this is obviously a concern.

Now, let’s take a slightly different look at the data. The chart below includes a comparison of the 2015 YTD CPI to the 2014 annual CPI and also includes an initial projection of the annual CPI change for 2015. Take a look. You will find a surprise!

COMMENTS – BY INDUSTRY SEGMENT

Pets and Pet Supplies – December was the “high point” of 2014 Supplies prices. This is very unusual considering the pattern of recent years. The result is that although Supply Prices are down from December, the first six months are actually above the same period a year ago. Of course, they are still 4.2% below what they were in June 2009 – 6 years ago.

Here’s the big news! For the first time since I began tracking “Petflation” a year ago, Pet Supplies are projecting a CPI increase for the year…UP ↑0.43%. This may not seem like much. However, except for a miniscule increase of 0.05% in 2011, Supplies prices have been deflating consistently since 2009. The deflation came as a result of the commoditization of more and more product categories and put ever increasing pressure on manufacturers and retailers.

Believe me, this increase is not a “done deal”. Price drops traditionally occur in this segment in the July to September quarter, as well as in December.  Last year saw a precipitous drop in July and August (1.75%) but an unusual increase in December. It would take a combined drop of over 2% in these months to overcome expected increases in the Fall months …and deflate prices in 2015. We’ll just have to wait and see.

NonVet Services – The price increases in this segment have been moderating – in the range of 2-2.5% annually. Recently we have started to see slowed growth in purchases. The sales growth in this segment is coming from households with income over $120K. Price increases should slow in the second half producing an annual CPI increase of 1.99%

Veterinary Services – The Veterinary Petflation rate of over 3% is exceptionally high compared to the other segments. However, it has actually moderated in recent years. From 1999 to 2009 the average annual Veterinary price increase was 6.0%. The cumulative effect of these increases in conjunction with the recession was that 2011 and 2012 produced actual decreases in the amount of Veterinary Services sold and the annual adjusted growth rate since 2010 has slowed to 0.9%. Like the Service Segment, the growth is limited to high income households over $120K. Based upon recent years, prices should almost flatten out for the balance of 2015 producing an annual CPI increase of approximately 3.24%

Pet Food – This largest segment has become the biggest concern. Prices rose in December of 2014 but then came the huge price drop in January – the largest in 17 years. However, it goes beyond that. Retail pet food prices have actually been flat to trending down since March of 2013. In 2014 the annual Food CPI decreased 0.3% from 2013. The only other annual decrease in history occurred in 2010 as a result of the recession.

As of June, the Food segment has regained about ½ of the CPI that it lost in the first 4 months. However, it is still projected to be down ↓-0.2% for the year. Remember, the CPI numbers from the U.S. Government include both food and treats so deflation is a bit more complex than if it were food alone.

Last year there was a big drop in July while all the other second half months were up or stable in price. December is also a big “if” this year. Last year’s December increase was unusual. We really do have to “wait and see” until yearend on this segment.

Total Pet Market – Services, especially Veterinary, increase their upward spiral. There may be some moderation – at least in NonVet Services. The Supply segment is showing some positive trends for the first time since 2009. That leaves only Food to “turn around”. The projected increase in the Total Pet CPI for 2015 is 1.11%.

If Food prices can get back to the positive side and Veterinary price increases drop below 3.0% the result would be a truly healthy Total Pet Industry with an average CPI increase in the range of 1.3 to 1.5%.

One Last Chart – that compares our June numbers to recent history:

2013 and 2014 were a tough years from a pricing perspective. 2015 is shaping up to be a little better. There are some critical waypoints approaching. We’ll keep you up to date.

As you may recall from a Post that I did last Fall, Pet now has its own listing in the Consumer Expenditure Survey conducted by the U.S. Bureau of Labor and Statistics.
Recently, they published a mid-year update. This is a “rolling” report covering the 12 months ending June 2014. The full year for 2014 will be published in September, which will give us the first opportunity for a direct year to year comparison. However, this update also covers 12 mos and shows us the market direction.
In conversations with the personnel who conduct the survey I found out that there is more detailed data which is not published but available if you know what to ask for and who to ask. So here’s what I got:
Total Pet expenditures per household (published) plus 4 subsets:

• Pet Food
• Pets & Supplies
• Non-Vet Pet Services
• Veterinary Services

They provided details for income groupings of $5-20K each from less than $5K to over $150K so the data can be broken in a huge variety of groups.
Their data is only published in terms of expenditures per household – Pet & NonPet together. They also don’t generate total Retail $. Getting these Retail totals is more complex. You must consider how the information was gathered – by quarterly interview or weekly diary. With this knowledge, I developed a formula to turn their annual expenditure numbers into Total Retail $ per category for each product and income segment.
The specifics for Consumer Pet Spending for the 12 months ending June 2014 are in the table below. WARNING: This is going to get somewhat complex. We’ll try to simplify it somewhat with some basic graphs and charts and some “smoking gun” observations. At the end we will provide you with additional detailed data including:

• 2013 Annual numbers
• Actual difference between midyear 2014 and 2013
• % difference between midyear 2014 and 2013

You can then make your own comparisons in the specific areas that are of interest to your business.

Right now, Consumer expenditures on Pet are $60.8B – up $3.05B! Let’s see where it comes from!

Here are the overall numbers and the change between Midyear 2014 and the 2013 Full year report. 

The difference in the percentages between Households and the total market is due to the increase in the number of households. For this analysis we will focus on the spending in the total market and more specifically the changes. Here’s where the $3.05B comes from in terms of category.

Observations

• Huge growth in Veterinary – ↑$2.12B – Even more than simple price inflation would explain.
• Food is falling slightly. ↓$86M to be “exact”. There was strong price deflation in food from Nov 2013 to Mar 2014. Remember, Food is a need based purchase. You don’t buy more because prices are down. You just spend less.
• Pets, Supplies and Medications strongly up. ↑$970M. This is a bit more complicated. Like food, supplies have also had deflationary pressure. However, much of the supply segment is “discretionary” spending. When prices are down, you are likely to buy more. The USBLS also includes Prescription Pet Medications in this segment. Prescription prices for Pets and People have been sharply rising.
• Pet Services are up slightly ↑$50M but at 0.9% their $ growth is essentially flat. In fact, with the inflation in this segment the amount of services is actually down.
• In the total Pet Market, the growth comes from Veterinary Services and Supplies.

Income matters.<$70K /$70K> has been the breakpoint for 50% of Pet Spending. Here are the numbers:

Once again, let’s focus on the $ change…for each income segment.

 Here’s what it looks like side by side on a graph:

Observations

• Veterinary Sales is still the big driver. Although 90% is coming from the over %70K households!
• Food is falling slightly in both income segments. The drop is close to equal. Of note: The under $70K has maintained the exact same share of total food sales at 51.3%
• Pet Supplies shows a big change from the overall market. The over $70K group is up over $1B while the under $70K is actually down about $60M. Apparently the reduced supply prices aren’t driving increased purchases in the lower income group.
• Pet Services are basically flat in $ for both segments. Considering inflation, the amount of services is definitely slightly down for the under $70K group.
• Total Pet – 94% of the increase is coming from the over $70K.The under $70K group is now 68% of U.S. households up slightly from 67.8% in 2013. Their share of the total pet business has fallen from 48.1% to 46.0% in just 6 months.

This huge difference in performance suggests a deeper analysis. Let’s look at some details in the under $70K group:

• Food – The under $30K group actually spent $200M more. The big drop is coming in $50>$70K.
• Supplies – The $60M decrease is totally due to a $120M drop in spending by the $50>$70K group.
• Services – In this case the $30K>$40K segment has a $80M increase. Above and below are down.
• Veterinary – The $50K>$70K are spending their $ here – up $1.4B. Under $50K is DOWN $1.14B.
• Total Pet – The $1.B increase in Vet Spending is fueling the entire increase in the under $70K group.

Since 94+% of all the growth is coming from households with income above $70K. We definitely need to take a closer look at the spending at higher income levels.

In reviewing the detailed data, one fact can’t be ignored 109.2% of the overall $3.05B increase came from households with income above $120K. 12.9% of U.S. households are driving the increase in Pet Spending. Let’s follow the money and set up a new income division Over/Under $120K.

Pet Spending in <$120K/>$120K H/H’s Here are the numbers.

Next…the $ change…for each of this new division’s income segments.

Here’s what they look like side by side on a graph:

Observations

• Veterinary Sales is an even bigger driver. The households under $120K are spending $440M less.
• Food finally looks up. +$120M in the over $120K group. They actually spent less money per household on Food but a significant increase in the number of households over $150K generated this gain.
• Pet Supplies – The $970M gain is evenly divided between the over/under $120K groups.
• Pet Services – Like Veterinary and Food, the entire increase was “funded” by the over $120K group.
• Total Pet – 109.2% of the increase is coming from the over $120K group. The spending from 116M households (87.1%) is down $280M.

Overall Commentary

• Veterinary – $2B – 69.5% of the total increase comes from Veterinary Services. The $120K, high income group, is spending whatever is necessary, regardless of the cost. In fact, they account for 35.3% of all Veterinary expenditures. Most other groups are spending less. Of special concern is the under $50K segment. Their spending is down over $1B – in spite of and perhaps because of continuing high price increases. The result is a big reduction in veterinary visits.
• Food is down $85M primarily to deflation from November 2013 through March 2014. It is significant that the under $70K group maintained its 51.3% share of Pet Food spending. This indicates that Pets are still a major part of households across all income levels. As in supplies, deflation causes extreme competitive pressure for the manufacturers. However, unlike Supplies, lower prices do not generate increased purchases. Let’s hope the Pet Food CPI begins a gradual increase.
• Pet Supplies – The ongoing low prices are undoubtedly helping to push sales. The $1B increase is specifically being driven by 2 income groups – $70K>$120K and $150K>. More after tax income helps spur increased discretionary purchases. The problem comes for the manufacturers in trying to profitably maintain competitive pricing so they don’t lose their overall appeal across all the income groups. The current increase in spending by the higher income groups also indicates that there is an ongoing and future market for high end products.
• Pet Service prices primarily appeal to higher income households. In fact 63.6% of purchases come from 32.1% of households – those over $70K in income. 35.6% of purchases are from the 12.9% of households with an income over $120K. With a 3+% inflation rate and a 0.9% increase in sales, the amount of services is actually down from 2013
• Pet is now 0.93% of all consumer spending – up from 0.9%. It is near 0.9% for most income groups. However, 109.2% of the overall increase comes from the over $120K group. 71% of the increase comes from households with an income of $150K or more – the only income group with increases in spending in all segments. 7.9% of households now generate 18.3% of all Pet Spending. Considering these high income facts, one has to wonder if the growth in the industry is moving from “upscale” households to “elite” households.

Thanks for your patience in “wading” through this complex subject!

As promised, a 2 page detailed Appendix is available through the link below. Just click on the button to download and save the file as a PDF.

[button link=”https://pmud8a.a2cdn1.secureserver.net/wp-content/uploads/2015/05/Pet-Spending-Details-May-15.pdf” type=”icon” newwindow=”yes”] Download Data (PDF)[/button]

2014 brought a 4.16% increase in the total U.S. Pet Industry. This was not quite the projected 5% increase, but even factoring in “Petflation” the increase in the amount of goods and services sold was 3.46%. This means that overall an outstanding 83.1% of the growth was “real”.

In this post we’ll take a closer look at the performance of the total market and its individual segments in terms of Retail Growth and Adjusted Growth, which factors in inflation (The CPI). We will cover 2014 and also put it into perspective for the period from 2009 to 2015.

Here are the details for 2014. Some key data is highlighted:

Key Observations

• Deflation in BOTH Food (-0.3%) and Supplies (-1.06%)
  • The Good News is that the amount of goods sold is actually greater than indicated by retail $
  • The Bad News is that deflation intensifies the competitive pressure on manufacturers and retailers. Long term it is not a healthy situation.
• Inflation in the service segments – NonVet (2.88%) and Vet (3.53%)
  • Good News – Consumer purchases in NonVet services seem to be unaffected – 68.5% of growth is real!
  • Bad News – The Vet Segment didn’t make the projected number but more importantly…76.6% of the growth was from Price Increases!!
• This means that total Market performance – a 4.2% increase…with 83% of this being “real” due to the second lowest inflation rate in history…was actually produced by a combination of unhealthy inflation & deflation in 3 segments.

The Bar Chart below may make it easier to visualize the situation…especially in the Vet Segment.

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

OBSERVATIONS

• When you look at the cumulative, it looks pretty good.
  • 63% Annual Growth
  • Low average inflation – 1.02%
  • 75% “real” Growth
• However there have only been basically 2 types of years for Food since 2009
  • half are deflation (-0.4%);
  • half are inflation (2.5%)

The deflation years are the most concerning. 2014 was only the third year with a CPI decrease in Pet Food – 2000 and 2010 were the other two. I don’t know the situation in 2000 but the 2010 deflation came after a combined 20% Food CPI increase from 2007 to 2009 – in the heart of the recession. Real growth ceased. The decrease in 2010 brought a positive response from the consumer – adjusted growth exceeded retail sales.

The years from 2011 to 2013 brought CPI increases in the 2+% range. Interestingly enough it looks like the consumer accepted the initial year of the increases but a 2.8% increase in 2012 and the cumulative effect of the increases dropped the percentage of real increase below 50%.

Here’s what it looks like on a graph:

2015 Retail Food sales are projected to increase 3.5% to $23.04B. My initial “petflation” projection for 2015 is (-0.5%). No one, including me likes this. However the Pet Food CPI has only dropped in January 3 times since 1997 (including lastYear) and in both January and February only twice. It has done both in 2015 and the January drop was over 1.1% -twice  as much as either of the other 2 years. Things can change but right now it looks similar or even more extreme than 2014.

Let’s turn next to Pets & Supplies.

OBSERVATIONS

• DEFLATION
  • Prices are 5.7% below 2009
  • Falling at an annual rate of -0.8%
• Consumer is still buying more
  • Retail Sales annual growth rate is 4.72%
  • Price Adjusted annual growth rate is 5.76% – 22% higher than the retail rate

Like the Food Segment, the first deflationary year was 2010. However, the story is a little different. From 1997 to 2004 Pet Supplies increased in prices at an annual rate of under 0.5%. Starting in 2005 and continuing through 2009, the CPI increased an average of 2.75% per year. This doesn’t sound like much but remember it was 5 times the rate of the previous 7 years and 2 of the biggest increases (+3.0%) came in 2008 and 2009, the heart of the recession. The consumer reacted – and bought less.

Prices fell almost 2% in 2010 and the consumer bought more. However, unlike Food, the prices briefly stabilized then generally began moving consistently downward.

Here’s the graph:

Please note that the price adjusted numbers are always above actual Retail. In terms of 2015, Pet Supplies are projected to increase 4.3% to $16.58 B. At the end of 2014 there was some indication that this segment might be pulling out of the deflationary spiral. However, 2015 has drops in both January and February CPIs. The decrease was a little less than in 2014 so I mitigated my projection to -0.8%.

Now onto the Service Segments – First NonVet Services.

OBSERVATIONS

• Growth
  • Annual Growth rate 7.69%
  • Inflation – a little high, but doesn’t seem to be slowing consumer purchasing
  • 66% “real” growth
• If price increases continue or accelerate, eventually the consumer will “push back”, but it hasn’t happened yet.

There are no real negatives regarding this segment. It is growing strongly and consistently, especially since 2011. However, it is a small segment, only accounting for 8.6% of the total market.

Here’s how the sales look on a graph:

2015 sales are projected to be $5.24 B, an 8.3% increase. This seems eminently attainable. In regard to inflation rate, the average annual rate of 2.5% seems like a reasonable estimate for 2015.

The final individual segment is Veterinary Services. This segment accounts for over 25% of the Pet Market and has had strong retail growth but there is one overriding issue.

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

OBSERVATIONS

• Retail Growth
  • Up 30.6% since 2009
  • Annual growth rate 4.55%
• Inflation is the problem
  • Annual average CPI increase 3.45%
• Price increases account for 75.8% of Retail growth!
• “Real Sales”
  • Consumers actually bought less in vet services in 2011 and 2012…they just paid more.
  • Sales have been stagnant since 2009 – average annual growth rate 1.07%
  • Even worse since 2010 – average annual growth rate 0.45%

We certainly think of regular veterinary visits as a “need” not a “want”. The extreme inflation over the years finally generated a consumer response in 2011…they cut back on veterinary services, turned to OTC medicines, supplements, treatments and home testing. Pet Health Insurance is growing and there may be fundamental changes in Veterinary Clinics – more chains and groups. Major medical procedures and emergency care will always be needed but steps should be taken within the industry to make regular veterinary care more affordable.

Here’s the graph of sales since 2009:

Veterinary Services are expected to hit $15.73 B in 2015, a 4.7% increase. Price increases should continue to be the major share of growth. I projected a CPI increase of 3.0%, slightly less than 2014. However, this may be wishful thinking, as prices in February 2015 were already up 1.2% since December 2014.

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

OBSERVATIONS

• Retail Growth expected to reach $60.59B in 2015
  • ↑33.1% since 2009; Annual growth rate 4.88%
• Inflation: Only 8.6% since 2009; 1.38% annual increase.
• “Real” Sales are 67% of Total increase

These are the kind of great numbers which attract so many people to the Pet Industry. The retail numbers are also consistently good across the segments. However, when you look a little deeper into “petflation” and the actual amount of goods and services sold, you find that the total industry numbers are generated by two undesirable situations that tend to counteract each other when the numbers are combined. Specifically:

• Deflation in the Supplies Segment continues. Commoditization, channel migration, consumer value shopping and lack of innovation have created extreme competitive pressure. Consumers are buying more; paying less.
• Deflation is also now a concern in the Food segment which looks to be on track to have a second consecutive year of falling prices.
• The Veterinary segment has the exact opposite problem. Years of inflation finally caught up as consumers actually bought less in 2011 & 2012. Overall actual sales have been essentially flat for 5 years and 75% of the increase in Full Retail Sales is due to Price Increases.

In 2015 the Total Industry is expected to increase 4.2% to $60.59B. It appears that deflation may be even stronger in 2015, possibly producing the lowest CPI increase in history. We need both the deflating and inflating segments to start moving to the middle…..

Finally, to me, the researching and writing of this post certainly reinforced the need for everyone to look below the surface in their business…to understand where the business is coming from and where it may be going.