Pet Market – Page 31 – Pet Business Professor

Spending, CPI, demographics of overall market

U.S. Retail Market – 2015 Midyear Update: The Race for the Consumers’ $$$?

September 10, 2015/in Pet Market/by John Gibbons

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!

Petflation Update: July 2015 – Food Drives Total Pet Prices Down in Record Drop↓

August 25, 2015/in Pet Market/by John Gibbons

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.

U.S. Top 100 Retailers – Who is up? Who is down? Who sells “Pet”?

August 13, 2015/in Pet Market/by John Gibbons

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]

Petflation Update: 2015 – 2nd Quarter – Bad Start…Strong Finish!

July 28, 2015/in Pet Market/by John Gibbons

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.

Petflation April Update: Food & Supplies Prices Falling – Driving Total Pet Prices Down

June 8, 2015/in Pet Market/by John Gibbons

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!

Pet Spending Update: Up ↑$3B – Vet and Supplies lead the way!

May 26, 2015/in Pet Market/by John Gibbons

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://petbusinessprofessor.com/wp-content/uploads/2015/05/Pet-Spending-Details-May-15.pdf” type=”icon” newwindow=”yes”] Download Data (PDF)[/button]

Petflation Update: 2015 – 1st Quarter – March saves the day!

May 5, 2015/in Pet Market/by John Gibbons

When we took a look at 2014 Pet Industry Sales in a recent post, we found a lot of overall positives – 83.1% of the growth was real and inflation was only 0.68%, the second lowest in history. However, when we looked a little closer, we found these “positive” numbers came from combining 2 potentially negative situations.

The service side of the business, especially Veterinary had a continuing high inflation rate which has limited growth in the actual amount of services sold over the last 5 years. While Supplies and now Food were showing deflation – usually a sign of commoditization and not a healthy situation for any segment.

December brought a surprise price increase in both Food and Supplies. Let’s take a look at what has happened since.

SPECIFICS ON CPI CHANGES

Veterinary Services

January – Up ↑0.69%; February – Up ↑0.49%; March – Up ↑ 0.39%
Year To Date: Up ↑1.58%

NonVet Services

January – Up ↑0.30%; February – Up ↑0.35%; March – Down ↓ -0.06%
Year To Date: Up ↑0.59%

Pet Food

January – Down ↓-1.14%; February – Down↓-0.06%; March- Up↑0.55%
Year To Date: Down ↓-0.66%

Pets & Pet Supplies

January- Down ↓-0.60%; February – Down ↓-0.15%; March- Up ↑0.08%
Year To Date: Down ↓-0.68%

Total Pet

January- Down↓-0.27%; February- Up ↑0.17%; March- Up 0.26%
Year To Date: Up ↑0.16%

OBSERVATIONS

The “normal” December drop in Food and Supplies got pushed to January this year.
The January drop of 1.1% in Food was the largest monthly price drop in this segment in 17 years and the second biggest drop in history.
Supplies continue to deflate.
Veterinary prices accelerate their increase.
The NonVet Service segment continues to increase in price but with some moderation.
The Total Pet Market Prices went positive in March due largely to increases in Food and Veterinary Services.

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. March of 2015 and March of 2014 are outlined so you can see the journey over the last 12 months.

COMMENTS

March of 2014 was the pricing “low point” for the industry in 2014. We are about 1.6% above that level this March. All segments are above the pricing of a year ago. There is also a little encouragement in the Food and Supplies segments. While the monthly pattern doesn’t exactly match a year ago and some monthly drops have been precipitous, the duration of the declines appears to be shorter.

Veterinary Services – One has to wonder when this segment will at least slow down in price increases. 2011 and 2012 showed actual decreases in the amount of Veterinary Services sold and the annual adjusted growth rate since 2010 has slowed to 0.9%. Yet the price increase from December to March this year actually exceeded last year. The continuing high prices increases in the Veterinary segment does seem to be having a positive impact – building the OTC Meds/Supplements category in the Supply segment.

NonVet Services – The price increases in this segment have been more moderate – in the range of 2-2.5% annually. So far this has not negatively impacted consumer purchases as the segment continues strong growth. In fact, it has become a big plus for the Pet Store Retail Channel.

Pets and Pet Supplies – Prices are actually above the same period a year ago. However, before we celebrate too much, we should remember that they are still 3.9% below what they were in March 2009 – 6 years ago. The deflation in this segment is an ongoing issue, with no easy fix. It has not been a precipitous drop like what occurred in the Human Toy market years ago. However, with more and more categories becoming commoditized the decline is very real. Since the recession, U.S. consumers have become more value driven than ever before. We need to “make it better” if we expect them to pay more – Innovation!

Pet Food – This largest segment is perhaps the biggest concern. The huge price drop in January – the largest in 17 years – is a pretty good wakeup call. However, retail pet food prices in the last 18 months have largely been below the level of September 2013. Remember, the CPI numbers from the U.S. Government include both food and treats so deflation caused by commoditization is a bit more complex than if it were food alone.

Total Pet Market – Services Way Up – Food & Supplies Down. As we have said, put these 2 negative situations together and they give a somewhat “false positive” read for the overall market. We need moderation in the increases and innovation in the deflationary segments to turn them around. It’s a little early to guess the overall Petflation rate for 2015. However, if the current situation continues, it could very well be similar to 2014 at about 0.64%.

Finally, here’s a chart that compares our March numbers to recent history:

As you can see 2014 was a tough year in the industry from a pricing perspective. We’ll see what the balance of 2015 brings!

Pet Industry $ALES in 2014 – Taking a Closer Look

March 31, 2015/in Pet Market/by John Gibbons

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.

Pet Stores in the U.S. – A 25 year $ales history – 1987 to 2012

February 24, 2015/in Pet Market, Pet Market Distribution Channels/by John Gibbons

Pet Food and Supplies are sold seemingly everywhere today – 150,000 outlets of all kinds – clothing stores, supermarkets, even gas stations. However, when you look at the beginning of this colossal industry, you must think of the independent pet store as the foundation on which the massive “Pet Skyscraper” was built. We will take a look back to 1987 to see where this channel was and how it has evolved through the years.

The data in this report is courtesy of the U.S. Census Bureau – their Economic Census. The early years have only basic information but since 2002, more detailed information is readily available.

Let’s take a look at some data:

This little chart has a wealth of information but let’s make it a little easier. First with Total $ales:

Total Growth: ↑ $13.36B (+982.3%); Average annual growth rate = +10.0%
Real Growth: ↑ $6.83B (+502,2%): Average annual growth rate = +7.4%

Pet Food and Supply prices went up 79.8% from 1987 to 2012. This is an annual inflation rate of 2.4% which is lower than the overall U.S. inflation rate of 2.9%. However, this doesn’t tell the whole story. From 2007 to 2009 Pet Food and Supply prices increased an incredible 17.0%. (8.2% per year). Coming at the onset of the recession, this drove consumers to look for value. The result was that many consumers moved to other channels, resulting in a 15% drop in market share. Food and Supply prices have fallen or at least flattened out since 2009, but the rate of “real” sales growth in Pet Stores has slowed significantly.

No matter how you look at it, the overall sales growth since 1987 has been amazing! Let’s look at some key contributing factors to the retail $ales growth in Pet Stores.

1987 to 1992 – The Number of Pet Stores grows significantly – from 5475 to 7150 (30.8%). The number of employees per store is about the same. Superstores were just getting started so these were mostly traditional stores. The amount of sales per store increases 50% as American’s love for pets truly begins to show. The result – sales basically double in 5 years – to $2.7B.
1992 to 1997 – The initial rise of Superstores. Note the 37.1% increase in employees per store. They are being built and they generate significantly more volume per store – 76.6%. The result – sales more than double in 5 years and now total $5.5B.
1997 to 2002 – Superstores continue to rise but at a cost to the independents. The net result is 692 fewer outlets (-8.3%). The Sales per store increases 50.8% which reflects the higher percentage of superstores. The total channel sales growth slows markedly from the spectacular rate of the previous the 10 years. The result – sales reach $7.6B – an increase of 38.2%.
2002 to 2007 – The channel adds 1156 stores – a 15.2% increase – and reaches a record high number. Most of the new outlets are superstores. The per store sales volume goes up 30.5%, reflecting this change. The result – sales grow 50.3% to $11.4B.
2007 to 2012 – Huge price increases…plus a major recession in this time period. There is no growth in the number of stores, but an even higher percentage are superstores. Sales reach $14.7B. The increase is 29.9%. This is the smallest in 25 years and exactly mirrors the per store sales volume growth. Also consider:
- The overall pet food and supplies category (in all channels) grew 50% from 2007 to 2012
- Actual Pet Store Sales from 2007-2012 was only up 7.7% – (Factoring in the huge price increases)
- The result – Pet Store Sales grew but the channel had a rather a big loss (-15%) in market share.

Now that we have a good overall picture of the growth in the Pet Stores Segment, let’s open the door and go inside. We’ll look at the sales of some major product categories – number of stores, $ales, share of the stores’ total revenue. We’ll see if there is any “internal migration”. Detailed information is available since 1997 so that will be our major focus.

PET STORES: NAICS CATEGORY 45391

Let’s review each of these 6 product categories to see how they have fared from 1997 to 2012. To enhance the visual aspects of the analysis, we will divide them into 2 segments based upon sales volume – major and minor. Pet Foods and Supplies have always generated at least 80% of the receipts in Pet Stores. Here’s what their sales look like since 1997.

Pet Food became the largest category in 2007 and increased its lead in 2012.

Sales in 2012 were $6.72B; ↑$4.66B (226.2%) since 1997.

During the same timeframe, overall Pet Store sales were up 167.3% so Pet Food Sales was a major factor in the channel’s growth. The introduction of numerous premium foods probably helped this category take over and hold the number 1 position. Sales of the premium foods were also less likely to be poached by other retail channels.

Pet Supplies was the biggest dollar producing category until Food took over in 2007.

Sales in 2012 were $5.16B; ↑$3.1B (150.5%) since 1997.

The rate of growth for Pet Supplies is slightly below the overall channel rate, which is being pushed up by food sales. Growth is slowing in this product category because of the increased retail distribution in competitive channels – especially since the recession. Pet Supplies pricing has actually fallen since 2009, which indicates just how strong the competition is.

Next we’ll look at the “minor” volume product categories including Pets; Fish & Aquarium Products; Pet Care Services; All other NonPet Products. Book sales are bundled in with NonPet sales. Changing technology has depressed all Book Sales. Pet Book revenue in 2012 has actually fallen below 1992’s sales. In this section, changes in the number of outlets offering a product category may become significant.

Pet Sales – This “product” category is what the Pet Industry is all about. Although it should be noted that Dogs and Cats are by far the most popular companion animals and most are not acquired in Pet Stores.

Sales in 2012 were $0.36B; Essentially equal to 1997.

If you consider the increase in prices since 1997 (39.8%), the amount of pets being sold is actually down 27.0%. The number of outlets selling live pets has fluctuated up and down but is only down 5% from 1997. The only conclusion is that acquiring pets in pet stores is losing its popularity.

Fish & Aquarium Products – This too was a signature category. Aquariums have always been a mainstay of pet stores.

Sales in 2012 were $1.15B; ↑$0.37B (47.4%) since 1997.

Sales dropped sharply in 2002 primarily due to the radical drop in store count. This was a strong growth period for super stores and a lot of independents carrying fish went out of business. Store count and sales bounced back in 2007 but have virtually zero growth since then. Flat sales in a growing market indicate this category has turned downward.

NonPet Products – This category can encompass a lot of ground – clothes, gift cards, hardware…almost always with a pet theme or in some way relating to Pets.

Sales in 2012 were $0.2B; ↑$0.05B (33.3%) since 1997.

This is a very minor segment. Considering price increases, it has actually declined since 1997.

Pet Care Services – This puts a retail “face” on services, a fast growing segment of the total Pet Industry.

Sales in 2012 were $1.13B; ↑$1.02B (927%) since 1997.

Making pet care services available in Pet Stores makes “total sense” and obviously the consumers have responded. This category contributed 10.8% of Pet Stores’ total increase in sales from 1997 to 2012. Services in Pet Stores grew 54.7% between 2007 and 2012. This was greater than every other category including food and actually greater than the overall Pet Products growth in the entire retail market. Pet Stores lost 5.9 points of market share between 2007 and 2012. Without the strong appeal of in store pet services, the loss may have been greater.

Now let’s try to get a visual of all the movement. The best way to compare these different categories is by looking at their relative share of the total. The following graph shows the market share attained by year for each of the Pet Product categories that we have reviewed. Let’s take a look. Then recap our Pet Store observations.

Here’s where the categories are in 2012 and their change in market share since 1997:

Pet Food – 45.7% ↑8.6 pts
Pet Supplies – 35.0% ↓2.5 pts
Aquarium Fish/Products – 7.8% ↓6.5 pts
Pet Services – 7.7% ↑5.6 pts
Pets – 2.4% ↓4.0 pts
NonPet Products – 1.3% ↓0.8 pts

Summary – 1987 to 2012

The Pet Store Channel has grown spectacularly since 1987, becoming the #1 channel for Pet Products in 1997 and holding that position for over 10 years. Then the recession pushed many consumers to more value conscious channels. Some of the major events in this journey were:

Creation and proliferation of Super Stores (provided the broad product selection the consumer demanded)
Development of Premium Pet Foods (often limited distribution, helped Pet Stores gain & retain market share)
Growth of “in store” Pet Care Services (another “plus” in sales which helps attract consumers to pet stores)
Stagnated sales in the Aquarium Fish hobby (still a large category, but the growth seems to have stopped)
Decline in the purchases of live pets (Not the largest source of Dogs and Cats, but birds, reptiles and small animals)
Growth of the internet (provides an even better selection of pet items than stores…and at a better price)
Major Recession in 2008 – 2009. (which brought to the forefront the retail pricing in the channel)
Radically Increased Competition as Pet Products are available in Outlets doing 47% of total U.S. retail.

Pet Stores, with 33.8% of the market currently hold the #2 position behind the total of All General Merchandise Stores. However, they are still the single biggest individual retail channel segment, with a substantial lead over SuperCenter/Clubs at 24.1%.

What does the future look like for Pet Stores? They are not significantly adding outlets and they are being attacked on all sides by SuperCenters/Clubs, The Internet, Supermarkets and even $ Value stores, who provide varying benefits of value, convenience and in the case of the internet, even wider selection.

The key for Pet Stores is the “personal” nature of pets. People are called “pet parents” for a reason. Pet Stores can and should provide the most personal experience for their customers. How many other outlets allow you to bring your pet into the store…actually try on a harness…sample a treat? Where else can you find a knowledgeable person to talk to about any issues that you’re having? However, they must also respond to the competition…a website, with online ordering (and in store pickup option); take a hard look at margins; run strong, well timed promotions – bundled and/or cross segment; use displays; develop or maximize a loyalty program with consumer specific deals and other technological advances; conduct regular category management reviews to identify trends and maximize productivity; actively search for and add new products that give a “real” enhancement to the lives of Pets and their “parents”. It’s a battle for the consumer’s hearts and minds…and their Pet $. You must constantly fight hard to get and keep your share.

Pet Product Sales In U.S. Retail Channels – The “migration of pet parents”

February 24, 2015/in Pet Market, Pet Market Distribution Channels/by John Gibbons

Pets, Pet Food and Supplies sales have shown tremendous retail growth since 1992. According the Economic Census just published by the U.S. Census Bureau, retail sales totaled $40.47 Billion in 2012 – up from $8.2 Billion in 1992. The spectacular growth was fueled by Americans’ growing love and commitment to their pets. Over 60% of U.S. Households have a pet – twice as many as have a child under 18.
While the love was growing in our hearts, the sales of pet products were growing at retail. It was not a simple journey –straight to the top. It involved expansion to a variety of different outlets and consumer migration between channels driven by their search for value, convenience and selection.
In this report we will use detailed data from the Economic Census which is published in 5 year increments.
Here is a visual look at the growth since 1992. I have also included a line on the graph which is adjusted for “petflation” and gives us a better indication of the actual increase in the amount of product sold.

Total Growth 1992 to 2012
- Up $32.27 Billion (+394.8%)
- Average Annual Growth Rate = 8.3%
Real Growth 1992 to 2012 (Adjusted for price changes – Pet Food & Supplies CPI)
- Up $17.78 Billion (+216.8%)
- Average Annual Growth Rate = 5.9%

NOTE: Most of the growth (71.1%) in Pets, Pet Food and Supplies has been real growth. Pet Products Prices increased 55.8% in 20 years compared to an increase of 64.7% in the Total U.S. CPI and a 62.4% increase in Total Pet Pricing in JUST the last 15 years.

Increased Pricing in Pet Products was an issue from 2007 to 2009 when prices jumped 17% in just two years, in the heart of the recession. In the overall Retail Market, consumers bought less and started searching strongly for value. This was a key waypoint in the migration of Pet Product consumers.

We’ll stay with the total market and look at some key factors that have affected the overall growth since 1992

Here’s how each factor changed during the 4 – five year measurements since 1992.

1992 to 1997 – No growth in outlets or in retailers’ share of overall market. The big growth was increased store volume due to increased consumer product demand – which was filled by expanded departments and bigger pet stores.

1997 to 2002 – A 27% increase in number of outlets and a 15% increase in per store volume push sales up 45%. A huge increase in the representation of Pet in the overall market as it now is available in stores doing over 35% of total retail.

2002 to 2007 – Store count continues to grow – up 18% and the per/store volume goes up even faster – +21%. Sales are up 43%. The overall Retail Market Share of outlets selling products remains stable at 35%.

2007 to 2012 – Another 18,000 stores (+14%) and a huge increase in per store volume (+32.4%). Consumers have started shopping intensely for value since the recession…and they found it as sales increased 50%. It was also easier to find products in a store, as outlets doing 47% of the total U.S. Retail market stocked pet supplies in 2012.

1992 to 2012 – Sales Now $40 B; Up $32B (+394%)

148,000 “pet” outlets; Up 60,000 (+72.6%)
Outlets stocking “pet” do 47% of U.S. Retail
Pet Products do 3% of an outlet’s total sales
Pet Products now 1.4% of total Retail; 0.7% in 1992

These facts sound like a fairy tale. There is obviously a lot of success to go around. Let’s see how the consumers decided to divide it up. We’ll take a look at the share of pet products sales by retail channel.

PET PRODUCTS SALES AND MARKET SHARE BY RETAIL CHANNEL

The following chart shows the shows in detail the number of outlets, total pet product sales and market share of the retail channels and segments stocking pet products from 1992 to 2012. Use it as a reference point. Additional graphs and observations will follow.

99.1% of Pet Products Sales are done by 6 major Retail Channels. Let’s look at their market share from 1992 to 2012.

Observations

Drug and Health Stores – This is the smallest of the 6 channels – in Pet Product sales. In overall retail sales, the drug channel has consistently grown in market share. As far as pet products are concerned, their market share dropped steadily from 1992 to 2007. They made a bit of a comeback in 2012, more than doubling their sales and almost doubling their market share. The result – their 2012 market share is still less than half of 1992. In terms of Pet Products, the sales are basically impulse or convenience purchases.

Hardware and Farm – Early growth came from the Farm Store segment. Hardware jumped on board in 2002 and pushed the market share up to 5.4%, capturing 40% of this channel’s pet business. Between Hardware and Farm, there have been some ups and downs, but overall the market share has been basically flat since 2002.

Food and Beverage – Supermarkets account for 98% of the business in this channel. In 1992 Supermarkets were the #1 Pet channel, with 42.1% of the business. They increased their business 9.5% in 1997. Unfortunately for them, overall “Pet” sales took off – up 55%. Their market share fell 30%. Sales stagnated in 2002 and actually dropped in 2007. Needless to say their market share continued to plummet – down 73% from the 1992 high. Where did the business go? – just about everywhere else, but primarily to General Merchandise Stores and Pet Stores. Then from 2007 to 2012 they executed a remarkable turnaround. The number of Supermarkets carrying pet products increased by over 70%. They more than doubled their pet sales and gained back 3.6 points in market share.

Nonstore Retailers – This channel includes both mail order and the internet. Their share of pet sales in this channel almost exactly mirrors their share of total retail market sales. However, the increases in pet have been truly astronomical. Sales in 2012 are 40 times what they were in 1992. Market share is up 745%. Since 2007 most of the growth is being fueled by the internet – sales have tripled. There seems to be no direction but up.

Pet Stores – In 1992 Pet Stores were the second largest retail channel selling pet products. The category caught fire. Big Box Pet Super Stores were developed and built to offer the consumer the wider selection that they sought. In 1997 Pet Stores moved into the #1 position with a 40.5% share of the business. The proliferation of Super Stores resulted in the closing of a number of smaller Independents so the number of stores and market share dipped slightly to 38.0% in 2002. They were still #1 but now they were being strongly pursued by General Merchandise Stores – not Supermarkets. More Super Stores, along with a continued high consumer demand, brought their market share back up to 39.0% in 2007. They had maintained the #1 status with a market share of 38 – 40% for over 10 years. Then…the recession happened and consumers became focused on value. Their store count was the same and sales grew but their market share fell 5.9 points (-15.1%). On the surface, it appears that the bulk of the business went to Grocery and Internet/Mail-order but almost every major channel and a few minor players got a piece of their lost share.

Minor Players – Although their combined market share is under 1%, the widespread appeal of Pets has brought in retailers from a variety of other “Specialty” channels – Home Goods (Furniture), Value Clothing Stores, Toys, Sporting Goods, Gift…to name a few. Although their selection is generally limited, they do broaden the consumer availability of certain pet product categories in the overall U.S. Retail Market. The success or failure of their venture into the Pet Products world is usually dependent upon the overall success of the individual retailer. If they are attracting consumers and their business is growing, then they may have some success with Pet. After all it appeals to 60+% of U.S. households.

General Merchandise Stores – Currently the #1 Channel in Pet Products sales. It enjoyed strong to spectacular growth from 1992 to 2007. The number of outlets grew from 10K to 37K (+250%); sales grew $8B to $9.5B (+533%); market share grew from 19.1% to 35.3% (+83.9%). From 2007 to 2012, the number of outlets continued to grow and sales increased to $14.2B (+49.5%) but their market share actually fell 0.1%…Yet, they still took over the #1 position in Pet…by just matching the overall market increase. This is a large and complex channel and deserves a closer look.

Traditional Department Stores – Although they do 10% of this channel’s overall business, they are basically a nonentity in Pet Products. These stores have consistently loss market share as they have done little to meet the consumer’s changing “needs” – including failing to recognize and embrace the Pet Phenomenon in the U.S.

Discount Department Stores – This segment is the one that started the decline in traditional Department Stores. In terms of Pet Market Share, these stores were at their peak in 1992. The commitment to SuperCenters and the rise of Club Stores started their decline. Sales continued to increase until 2002 and there was even a little uptick in market share between 2002 and 2007. Since then, retail sales have basically been flat and the number of outlets has fallen. In 2012 they were surpassed by the Dollar/Value stores in Pet Products’ market share.

SuperCenters & Warehouse Club Stores – This segment has shown consistent, even spectacular growth and in every measuring period has surpassed even the impressive growth of the overall Pet Products market. They rank#2 behind Pet Stores in sales. While their overall Retail Market Share has flattened out, their Pet business has continued to go up.

$ Stores/Value Retailers – This channel was originally occupied by 5&10¢ Stores. They faded and were replaced by these Value Retailers. Since 1997, the store count and Pet Product sales have gone up dramatically. Their appeal and their share of the total market has grown markedly since the recession. In Pet, their store count is second only to Supermarkets and their sales and market share just passed Discount Department stores. Expect continued growth.

One Last Chart before the recap – Take a look at the chart below and think about this. In 1992 the largest share of Pet Products was bought by consumers where they shopped for groceries. In 2012, have we come full circle?

Summary

In the case of Pet Products consumers, “migration” is not truly the best description. Pets improve the health and quality of life of their “parents”. They bring hours of enjoyment. The love of Pets in America and in fact, worldwide is “contagious”. It has reached “epidemic” proportions with pets residing in over 60% of U.S. Households.

Why should the retail trade be immune? They too caught the “pet fever” early and it has spread – rapidly. In 1992, Pet Products were carried in 80,000 outlets doing 26% of the total U.S. Business. In 2012…it was 150,000…and 47%. Not only are Pet Products more widely available, but their importance has grown. In 1992 Pet Products represented 0.7% of Total U.S. Retail sales. In 2012 it was double…1.4%.

In terms of “big” migrations between channels over the period, there are really only two.

The big move from Supermarkets to General Merchandise and Pet Stores which occurred from 1992 to 2007. (Note: Supermarkets bounced back in 2012, recapturing some of their lost share)
The meteoric rise of internet/mail-order –recently driven primarily by the internet

Here’s the 2012 market share by Channel: (Arrows show if they are up ↑, down ↓and by how much in share from 2007)

GM Strs – 35.2% ↓0.1
Pet Stores – 33.1% ↓5.9
Food & Bev (Groc) – 15% ↑3.4
Internet/Mailorder – 9.5% ↑1.7
Hdwe & Farm – 5.3% ↑0.4
A/O Incl. Drug – 1.9% ↑0.5

From 2007-12, the only real loser was Pet Stores and their share was picked up primarily by Grocery and the Internet.

Now let’s look at the individual segments in terms of 2012: (Same rules as above)

Pet Stores – 33.1% ↓5.9
SuperCtrs/Club – 24.1% ↑1.9
Supermkts – 14.7% ↑3.6
$ Value Strs – 5.6% ↑1.1
Disc Dept Strs – 5.5% ↓3.0
Mail-order – 5.4% ↓0.4
Internet – 3.9% ↑2.1
Farm – 3.1% ↓1.1
Hardware – 2.2% ↑1.5
Drug – 1.0% ↑0.4
Gas/Convenience – 0.8% ↓0.3
Furniture/Home – 0.3% ↑0.3

As you can see, the story is a bit more complex. There are ups and downs within major channels. The big losers are Pet Stores and Discount Department stores. Their market share is being picked up by Supermarkets, the Internet, SuperCenters/Clubs and the $ Value Stores. The loss in Farm was picked up by Hardware, in the same Channel.

Value, Convenience and Selection – Sorry for the redundancy, but these are the drivers of the U.S. consumer…and since the recession, Value has moved strongly to the forefront.

Pet Super Stores grew rapidly because they offered an unparalleled, broad selection of products in a category that was exploding. They had sales and frequent buyer clubs, but quite frankly some of the highest gross margins in U.S. retail. When the recession hit, price became a big issue and many consumers looked elsewhere.

Where did they go? What commodity does the consumer shop for most often and as regular as clockwork – groceries. They went to the Super Centers and Supermarkets. Both of these channels are very competitive for value, have expanded their pet section and offer the convenience of getting your pet needs while doing your regular grocery shopping. Note: Club Stores don’t have the selection but they do have great everyday pricing and a full grocery section.

Want a bigger selection…. Go on line. No one can build a store big enough to stock the selection of products available on line…and with no brick and mortar overhead…you can get great value. Plus, you can shop for the best price and get what you want without ever leaving your easy chair…talk about convenient. The only downside is immediate need. However, they are working deals on same day and next day delivery, possibly even delivery by drones. This segment will grow.

Want your product now at a great price but don’t feel like fighting the crowds, $/Value Stores are the answer. Great everyday prices plus brand name “close outs” in a small footprint store that is easy to navigate. This segment has “caught on” with the U.S. consumer and is gaining market share in pet and in the overall retail market.

At this point, Pet Products have spread across the U.S. retail landscape. There is no wholesale mass migration. However, there is definite movement between channels and segments. Moreover, there are individual retail winners and losers in every segment. It is totally dependent upon how well they are filling the consumers’ needs, which we all know are….

In our final post in this series: we’ll look at sales in Pet Stores from 1987 to 2012.