Archive for category: Pet Market Segments

In our analysis of Pet Food spending, we saw that spending plummeted in the 1st half of 2021 compared to the panic buying at the beginning of the pandemic. Supplies took the opposite route. At the beginning of 2020, Supplies Spending was down due to Tarifflation. The pandemic caused consumers to focus on needs so Supplies $ continued its steady decline from its 2018 peak reaching a low point below 2016. In 2021, that all changed. Supplies Prices had been steadily deflating and Consumers finally responded. Mid-Year 2021 Pet Supplies spending was $17.42B, up $1.14B (+7.0%). The following chart should put the recent spending history of this segment into better perspective.

Here are this year’s specifics:

Mid Yr 2021: $17.42B; ↑$1.14B (+7.0%) from Mid Yr 2020.

The +$1.14B came from:

Jul > Dec 2020: ↓$1.12B        Jan > Jun 2021: ↑$2.26B

We should note that while the overall lift was relatively low, the lift in the 1^st half of 2021 was the biggest YOY 6 month increase in history. Like Pet Food, Pet Supplies spending has been on a roller coaster ride, but the driving force is much different. Pet Food is “need” spending and has been powered by a succession of “must have” trends and the emotional response to the Pandemic. Supplies spending is largely discretionary, so it has been impacted by 2 primary factors. The first is spending in other major segments. When consumers ramp up their spending in Pet Food, like upgrading to Super Premium, they often cut back on Supplies. However, it can go both ways. When they value shop for Premium Pet Food, they take some of the saved money and spend it on Supplies. The other factor is price. Before breaking the record in 2022, Pet Supplies prices reached their peak in September of 2009. Then they began deflating and in March 2018 were down -6.7% from 2009. Price inflation in this segment can retard sales, usually by reducing the frequency of purchase. On the other hand, price deflation generally drives Supplies spending up. Innovation can “trump” both of these influencers. If a new “must have” product is created, something that significantly improves the pet parenting experience, then consumers will spend their money. Unfortunately, we haven’t seen much significant innovation in the Supplies segment recently.

Recent history gives a perfect example of the Supplies roller coaster. In 2014 Supplies prices dropped sharply, while the movement to Super Premium Food was barely getting started – Supplies spending went up $2B. In 2015, consumers spent $5.4B more on Pet Food. At the same time, Pet Supplies prices went up 0.5%. This was a “killer” combination as Supplies spending fell $2.1B. In 2016 consumers value shopped for Food, saving $2.99B. Supplies spending stabilized by mid-year then increased by $1B in the second half when prices fell sharply. Consumers spent some of their “saved” money on Supplies. Supplies prices continued to deflate throughout 2017. Food spending increased $4.61B in 2017 but this came from a limited group, generally older CUs, less focused on Supplies. The result was a $2.74B increase in Supplies spending. This appeared to be somewhat of a break with the overall pattern of trading $ between segments.

In the first half of 2018 Pet Food spending slowed to +$0.25B. Supplies’ prices switched from deflation to inflation but were only up 0.1% versus the first half of 2017. During this period Supplies Spending increased by $1.23B. Prices began to climb in the second half of 2018 due to impending new tariffs in September. By June 2019 they were 3.4% higher than 2018. The impact of the tariffs on the Supplies segment was very clear. Spending became flat in the second half of 2018, then took a nosedive in the 1^st half of 2019, -$2.09B. Prices stayed high for the rest of 2019 and spending fell an additional -$0.9B. In 2020 prices turned up again through March before plummeting, -3.8% by June. However, due to the pandemic focus on “needs”, spending dropped an additional -$0.54B. The situation not only didn’t change in the 2^nd half, it worsened as the $ fell an additional -$1.12B. However, 2021 brought a new beginning as Supplies spending increased +$2.26B over the 1^st half of 2020 and reached a level above pre-pandemic yearend 2019.

Let’s take a closer look at the data, starting with two of the most popular demographic measures – age and income. The graphs that follow will show both the current and previous 12 months $ as well as 2020 yearend. This will allow you to track the spending changes between halves.

The first graph is for Income, which has been shown to be the single most important factor in increased Pet Spending, especially in Pet Supplies and both of the Service segments.

Here’s how you get the change for each half using the $70K>100K group as an example:

Mid-yr Total Spending Change: $2.76B – $2.65B = Up $0.11B (Note: green outline = increase; red outline = decrease)

• 2^nd half of 2020: Subtract Mid-20 ($2.65B) from Total 2020 ($2.32B) = Spending was down $0.33B in 2^nd half of 2020.
• 1^st half of 2021: Subtract Total 2020 ($2.32B) from Mid-21 ($2.76) = Spending was up $0.44B in 1^st half of 2021.

• Comparing the under/over $100K to the under/over $70K shows that the share of Supplies spending “flips” based upon the $70>$100K group. That means that the “halfway” dividing line is probably slightly above the average CU income of $84.7K. The Supplies $ of CUs with above average income, 33% is equal to the 67% of CUs below average.
• The spending patterns <$70K are mixed. For $70K> they are same, with a dip at yearend but a bounce back in 2021.
• The increase in Supplies Spending was widespread across income groups but the bulk of the lift came from lower incomes, especially <$30K and $50>70K. The two segments with decreases were an unlikely pair – $150K+ and $30>$50K. They had the only increases last year. In both cases the spending decrease was due to a big drop in Supplies $ in the 2^nd half of 2020.
• The spending movement is generally up but only 2 segments had increases in both halves, <$30K & $50>70K.
• Inflation/deflation has less impact on the $100K> group. The negative impact of the pandemic didn’t happen for them until the 2^nd half of 2020 but they largely recovered. The biggest positives came from the <$30K and the $50>$70K groups. In 2020, their spending fell -$1.43B, due to a reduced purchase frequency. In 2021 they increased frequency and spending as they returned to a near normal level. We’ll see if the lift continues in the 2^nd half of 2021.

Now let’s look at Pet Supplies spending by Age Group.

• There were 2 primary patterns. For 45> spending fell in the 2^nd half of 2020, then rebounded in 2021. For the 25>44 yr-olds, spending grew in both halves. The <25 group had a big drop in the # of CUs in 2020 which affected spending.
• The 25>34 year olds had strong growth in both halves.
• Spending by the 54>64 yr olds decreased the most in the 2^nd half of 2020 and their rebound fell a little short. They also fell from the top spot in Supplies spending to #3.
• The 65> group was the most stable. Spending fell slightly in the 2^nd half of 2020 but turned positive in 2021.

Now let’s look at what happened in Supplies spending at the start of 2021 across the whole range of demographics. In our final chart we will list the biggest $ moves, up and down by individual segments in 12 demographic categories.

• It’s obvious that the biggest increases are radically larger than the biggest decreases, the complete opposite of 2020.
• The increase is widespread which is very apparent as all segments in 7 categories spent more. In 2020 there were 5 categories in which all segments spent less. This reinforces that the 1^st half of 2021 increase was the biggest ever.
• Most of the winners are the “usual suspects”, like Mgrs/Professionals & Adv College Degree but there are a couple of surprises – $50>69K & 2+ Adults, No Kids.
• In regard to the losers, African Americans & Center City are not unexpected but when all segments in 7 categories spent more there are very few true losers.
• The Age category is a great example of the widespread lift. The 2 groups with a decrease in spending from Mid-yr 2020, <25 and 55>64 both spent more in the 1^st half of 2021. Plus 55>64 had the biggest increase.
• The Housing category is also of particular interest. Not only did all segments spend more in the 1^st half of 2021, they all spent at least $0.5 billion more than they did in 2020.

The 24 month Spending winning streak for Supplies which began in the second half of 2016 came to an end in the second half of 2018. Pet Supplies increased $4.97B (+33.5%) and the lift was widespread. Only 1 of 82 demographic segments, spent less on Supplies – the Greatest Generation. This group is now too small to be accurately measured.

Since the Great Recession the Supplies segment has become commoditized and very sensitive to inflation/deflation. Plus, since most categories are discretionary, Supplies spending can be affected by spending changes in other segments as Pet Parents trade $. In 2018, the Pet Industry was introduced  to a new “game changer” – outside influence. The FDA warning on grain free dog food caused a big decrease in food spending but the government also radically increased tariffs which drove Supplies prices up and spending down, a record $2.98B.

However, we weren’t done yet. That brought us to 2020 and a new, totally unexpected outside influence, the COVID pandemic. This affected all facets of society, including the Pet Industry. Consumers, including Pet Parents, focused on needs rather than wants. In the Pet Industry, this meant that their attention was drawn to Food and Veterinary Services. This led to a huge lift in Pet Food $ due to binge buying but also a big increase in Veterinary spending. The more discretionary segments, Supplies and Services, suffered. Services had an extra handicap. Many outlets were not considered essential, so they were subject to restrictions and closures. Supplies were still available, but many were considered optional by consumers so spending continued to decline throughout 2020. By yearend, $ had reached the lowest level since 2015. This all happened while prices continued to deflate. That brought us to 2021. The retail economy had largely recovered and spending patterns were returning to “normal”. This was also true in Pet Supplies. Pet Parents opened their wallets and  bought the Pet Supplies that they had been holding back on for a year. The result was the biggest YOY 6 month increase in history. We don’t know what the 2^nd half will bring but Pet Supplies are back!

 

The pandemic had a huge impact on consumers. They stayed home and focused on needs, rather than wants. This behavior was very evident in the Pet Industry as the “needed” segments – Food and Veterinary Services, had big $ increases while the spending in the more discretionary segments – Supplies and Non-Vet Services fell. There were other factors that amplified these differences. Services outlets were often deemed non-essential, so they were subject to widespread restrictions and closures. Food had a completely different path. During the early stages of the pandemic, consumers often binge bought essential products to have a backup supply in case there were outages. This behavior applied to Pet Food, which is the only absolutely essential Pet Industry Segment. The result was a $6.8B increase in spending over the 1^st half of 2019. It should be noted that Pet Food spending was down in the 1^st half of 2019 because the segment was still feeling the impact of the “untrue” FDA warning on grain free dog food. However, the lift was still the biggest year over year increase in history.

Pet Parents maintained this extra supply of pet food throughout the balance of 2020. As we moved into 2021, there were still some outlets that were suffering but most channels had recovered, and the overall Retail Market was prospering. This caused a change in Pet Food spending. Pet Parents obviously didn’t binge again and, in a few situations, even had their pets start to “eat down” the extra supply of food to return to their previous level of home “inventory”. They also increasingly moved to internet purchasing with regular deliveries. As a result, Pet Food Spending fell -$6.4B (-16.9%) in the 12 month period ending 6/30/21 over the previous year and -$5.3B vs the 1^st 6 months of 2020.

As you know, the pandemic also caused problems in information gathering for the data collected by the US BLS for the annual Consumer Expenditure Survey (CEX), especially in the Diary method which is used for Pet Food. Those were resolved in 2020 and everything returned to a “new normal”.

Now, let’s get started with our Pet Food spending update for Mid-Year 2021. Pet Food (& Treat) Annual Spending was $31.56B, down -$6.40B (-16.9%). The following charts and observations were prepared from calculations based upon data from the current CEX report and earlier ones. The first chart will help put the $31.56B into historical perspective and truly show you the roller coaster ride that continues in Pet Food Spending.

Here are the current numbers:

        Mid 2021: $31.56B; ↓$6.40B (-16.9%) from Mid-2019. The net -$6.40B in Mid 2021 came from:

  ◦  Jul>Dec 2020: Down $1.12B from 2019.          ◦  Jan>Jun 2021: Down $5.29B from 2020.

Historical research has shown that Pet Food spending has been on a roller coaster since 2000, with 2 years up, followed by a flat or even declining year. This up and down “ride” has been driven by a succession of Food trends. The most recent were “Natural” in 2011 and “Super Premium” in 2014. Another factor was added in 2013 – deflation. As consumers opted for higher quality, more expensive pet food, competition became more intense, with the Internet now becoming a key player. 2013 was a definitely a game changer for this segment as it began an extended period of deflation which continued through 2018. Midway through 2018, Pet Food prices were still 2.3% lower than in 2013.

The spending drops in 2013 and 2016 were driven by pet parents value shopping for their recently upgraded pet food. As it turns out, 2014 brought out yet another new factor in Pet Food spending. For over 30 years Baby Boomers have been the leaders in the Pet Food, both in spending and in adopting new products. They still spend the most, but it turns out that the 25>34 year old Millennials led the movement to Super Premium in late 2014. The older groups, especially Boomers followed in 2015 and spending rose $5.4B. At the same time, the Pet Food spending of the 25>34 yr olds dropped. At first, we thought they had rolled back their upgrade. However, it turns out they were leading the way in another element of the trend to Super Premium – value shopping. The Boomers once again followed their lead and spending fell -$2.99B in 2016. For consumers, the Super Premium upgrade movement consisted of 3 stages:

1. Trial – The consumer considers the benefits vs the high price and decides to try it out. Usually from a retail outlet.
2. Commitment – After a period of time, the consumer is satisfied and is committed to the food.
3. Value Shop – After commitment, the “driver” is to find a cheaper price! – The Internet, Mass Market, Private label

This brought us to 2017. Time for a new “must have” trend. That didn’t happen but the competitive pricing situation brought about another change. Recent food trends have been driven by the higher income and higher education demographics. However, the “value” of Super Premium was established and now more “available”. Blue Collar workers led a new wave of spending, +$4.6B, as Super Premium more deeply penetrated the market. After the big lift in 2017, 2018 started off slowly, +$0.25B. Then came the FDA warning on grain free dog food. Many of the recent Super Premium converts immediately rolled back their upgrade and spending fell -$2.51B. This 2018 decrease broke a 20 year spending pattern. In the 1^st half of 2019, Pet Food spending remained stable at the new lower level. In the second half of 2019 we started to see a recovery from the overreaction to the FDA warning and spending increased by $2.3B. Then came 2020. The recovery was continuing but a new outside influence was added which had a massive impact on U.S. consumers – the COVID-19 pandemic. In March nonessential businesses were closed. This also produced a wave of panic buying in some truly essential product categories. In the Pet Industry there is only 1 truly essential category – Pet Food. Coupled with the FDA “recovery” and the ongoing movement to Super Premium, this produced an incredible $6.76B lift in Pet Food Spending in the 1^st half of 2020. Spending fell in the 2^nd half of 2020 and plummeted in the 1^st half of 2021. Pet Parents didn’t binge again and some even began using up the stockpile that they panic bought in the early days of COVID.

Let’s look at Pet Food spending by the 2 most popular demographic measures – income & age group. They both show the current and previous 12 months $ as well as 2019 and 2020 yearend. This will allow you to track the spending changes between halves and to see where we started, in pre-pandemic yearend 2019. The first graph is Income, which has been shown to be the single most important factor in increased Pet Spending.

Here’s how you get the change for each half of the 20>21 mid-yr numbers using the under $100K group as an example:

• <$100K Mid-yr Total Spending Change: $17.79B – $17.35B = Up $0.44B (green outline = increase; red outline = decrease)
• 2^nd half of 2020: Subtract Mid-20 ($17.35) from Total 2020 ($16.53B) = Spending was down $.82B in 2^nd half of 2020.
• 1^st half of 2021: Subtract Total 2020 ($16.53B) from Mid-21 ($17.79B) = Spending was up $1.26B in 1^st half of 2021.

Note: The green/pink fill in the 20/21 numbers indicates if they are up/down vs Yearend 2019.

• We see 2 distinct spending patterns in the individual groups. The <$50K and the especially the $100>149K groups both binge bought Food in the pandemic so there was a steep spending drop in 2021. The middle income $50>99K and over $150K groups cut spending in the pandemic then began recovery in 2021.
• Perhaps the most obvious fact is the spending disparity due to income. Prior to the Super Premium era, $70K was the “halfway point” in Pet Food spending. In 2013 the under $70K group accounted for 67.8% of CUs and 51.3% of Pet Food spending. Due to the rise of Super Premium, they lost the lead in 2015 as $70K> spent 50.8% of Pet Food $. In 2020, the binge buying of Pet Food by $100>150K pushed the $100K> group to the top at 55.1%. Then the big drop in 2021 flipped $70K> back into the lead at 60.8%. The halfway point in Pet Food spending is still high but is again below $100K.
• < $70K > Surprisingly, the Pet Food spending patterns for both groups are the same, but the changes are more pronounced in the higher income group because they had the $ to finance more binge buying. Both show a 2020 COVID lift and a 2021 drop. Also, both groups returned to a spending level above 2019 yearend $.
• < $100K > The spending patterns of these 2 groups are different in every way. Spending for the <$100K group fell during 2020 then bounced back in 2021 but is slightly below 2019. The $100K> massively binge bought in 2020 so there was a huge decrease in the 1st half of 2021 but they still finished slightly ahead of 2019 $. Both are being driven by a pattern of one subgroup. For the <$100K group it is $50>99K income. For $100K> it is $100>149K.
• < $50K Both the <$30K and $30>49K have a pattern like the $100>149K but the binge buying was limited due to lower income. However, both did finish the 1^st half of 2021 slightly ahead of 2019. While income is the most important factor in Pet Food Spending, it is not the only factor.
• $50 > $100K – This income group was the most negatively affected by the pandemic. Spending dropped in 2020 for both the $50>69K and $70>99K groups. They bounced back a little in 2021 but didn’t reach the 2019 level. They are under financial pressure in normal times. COVID undoubtedly made things even tougher. The drops and even the failure to return to 2019 $ were probably largely due to value shopping, especially on the internet. However, some CUs may have downgraded their Food. The biggest swings occurred in the middle income $70>99K group.
• $100K>149K – High income is increasingly becoming “where it’s at” in Pet Spending. In the 1^st half of 2020 spending went through the roof. This group drove virtually all of the binge buying of Super Premium Foods. That also made them responsible for most of the current big drop. They did end up slightly above 2019 $.
• $150K > Their Pet Food spending also fell in 2020. It was most likely due to value shopping and moving to the internet as a primary source. Their spending came back strong in 2021, 10% above 2019. It’s likely that they broadened the range of food & treats purchased and may have upgraded to even more expensive food.

Now let’s look at Pet Food spending by Age Group.

• Each group had a unique pattern but there is one basic difference. 55>74 binge bought Food. Everyone else didn’t.
• < 25 – Their spending fell in 2020 but then bounced back in 2021 but not to the 2019 level. The pandemic had a unique impact on them. The number of CUs fell by 2.1M in 2020 as many moved back home with their parents taking their pets with them. In 2021, 1.2M set up a separate H/H again but that’s still significantly less than pre-pandemic. Their movement also helped enhance the spending lift & drop by the 55>64 yr-olds.
• 25>34 – No binge buying. They value shopped but likely upgraded their food and even added pets to their family which produced the only steady growth since mid-year 2020.
• 35 > 44 – Their spending drop in 2020 was probably due to increased value shopping, especially on the internet. When things truly opened up in 2021, they opened their wallets and spending exceeded 2019 $ by 12%.
• 45 > 54 and – They have the highest income, so their spending pattern is somewhat unusual. Their Pet Food spending continued to drop throughout 2020. It turned up in 2021 but was still 15% below 2019. They are an unlikely group to downgrade. They probably focused on savings and convenience and turned to the internet.
• 55>64 – This group is mostly Boomers, the most emotional Pet Parents. Binge buying food was an emotional response to the pandemic. They have the highest income of any Boomer group so they had the will and means to drive the binge. The movement of their children to & from home also contributed. Ultimately, they are now down 19% from 2019.
• 65 > 74 – This group is mostly Boomers but with lower income. Their pattern has similar ups and downs to the 55>64 yr-olds but with far smaller swings. There is one difference. Their 2021 numbers exceed 2019.
• 75> – COVID had virtually no impact on spending. They are committed pet parents as they had a 30% $ lift over 2019.

That gives us the “big picture” for our 2021 Mid-year update of Pet Food spending. Now we’ll take a closer look at the start of 2021. However, rather than compare it to 1^st half of 2020 to see the big negative swings, we’ll compare it to the 1^st half of 2019 and document the biggest changes since then. This will show how close that we are to a “normal” year.

The first thing that you notice is that the biggest increases are generally much larger than the biggest increases. We should also note that all Housing segments spent more in 2021 than in 2019.

• There are a number of usual winners, like $150K>, Managers, White, Not Hispanic, BA/BS, 2 People and Gen X. There are also some surprises like No Earner 2+ CUs, Center City and the Northeast.
• When we look at the losers we see a few familiar names, African Americans, HS Grads & Singles. However, five of the big losers binge bought Food in 2020 so naturally they had a huge drop in 2021. They are Self-employed, 55>64, Areas <2500, Married, Oldest Child 18> and Boomers. They haven’t recovered as yet. Perhaps they will in the 2^nd half.
• It’s a good sign that despite the 2 radical swings we are still $1.5B ahead of the time before the pandemic turmoil began in 2020 and continued into early 2021.

The spending drop was huge in the 1^st half, but not unexpected. The huge lift in Pet Food $ in the 1st half of 2020 was an emotional reaction to the pandemic. The retail inventory of many “necessary” items like toilet paper and hand sanitizers was wiped out. Consumers wanted to ensure that they had them at home in case of supply chain issues. In the Pet Industry, there is no more necessary product than Pet Food. The lives of our Pet Children depend on it. With the widespread commitment to Super Premium Food, buying a safety stock produced a huge lift in $. It was clearly an emotional reaction. When it comes to emotion related to pets, there is one group that leads the way, Baby Boomers. In the 90s, they were the 1st group to be defined as Pet Parents and they have increasingly personified their Pet Children ever since. The huge lift was amplified by additional demographic factors. A high income of $100>149K drove the lift. The 55>64 yr-old Boomers have the highest income of their group. This gave them the means to buy the extra Food. Areas <2500 population generally have more pets but fewer retail outlets. This would increase their fear of product shortages. However, the pandemic increasingly came under control in 2021, bringing a desire to return to a new normal. No binge buying. Some began a return to more normal levels of backup, and many arranged regular deliveries. All of these contrbuted to the big drop in Pet Food spending in the 1^st half of 2021. I expect a strong lift in the 2^nd half. We’ll get the data in September.

Inflation continues to make headlines. There have been year over year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. In May the CPI was up 8.6% vs 2021, beating the previous high of 8.5% in March. Food at Home (groceries) prices continue to surge, up 11.9% over 2021. That’s 3 straight months of double-digit YOY monthly percentage increases. These are the first 10+% increases since 1981. As we have seen in recent years, even minor price fluctuations can affect consumer pet spending, especially in the more discretionary pet segments. With that in mind, we will continue to publish monthly reports to track petflation as it evolves in the marketplace.

Total Pet prices were 4.1% higher in December 2021 than in December 2020, while the overall CPI was up 7.0%. The gap narrowed in March & April as Petflation accelerated to 97.6% of the national rate. In May, Inflation in the overall market became stronger. However, thanks to a price drop in Veterinary, Petflation stabilized, and the gap widened – 8.1% for Pet vs 8.6% for the national rate. Let’s look a little deeper. This and future reports will include:

• A rolling 24 month tracking of the CPI for all pet segments and the national CPI. The base number will be pre-pandemic December 2019 in this and future reports, which will facilitate comparisons.
• Monthly comparisons of 22 vs 21 which will include Pet Segments and relevant Human spending categories. Plus
  1. CPI change from the previous month
  2. Inflation changes for recent years (20>21, 19>20, 18>19)
  3. Total Inflation for the current month in 2022 vs 2019
  4. Average annual Year Over Year inflation rate from 2019 to 2022
• YTD comparisons
  1. YTD numbers for the monthly comparisons #2>4 above

In our first graph we will track the monthly change in prices for the 24 months from May 2020 to May 2022. We will use December 2019 as a base number in this and future reports so we can track the progress from pre-pandemic times through an eventual recovery. Inflation is a complex issue. This chart is designed to give you a visual image of the flow of pricing. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The current numbers plus those from 12 and 24 months earlier are included as are the yr-end numbers for 2020 & 2021.This will give you some key waypoints for comparisons. (Note: the April Peak for Veterinary is also highlighted.)

The pandemic really hit home in April/May. Even the national CPI deflated for 2 months, but not the Services segments. There are 2 different patterns between the Services and the Products segments. Veterinary and Services prices generally inflated after mid-2020, a pattern similar to the overall CPI. Food and Supplies prices generally deflated until late 2021. After that time, inflation took off, but the patterns became mixed. Services paused in March and Veterinary dropped in May. Supplies prices have essentially plateaued while inflation in Food is accelerating. Here are some things to note:

• U.S. CPI – The inflation rate was below 2% through 2020. It turned up in January 2021 and continued to grow through May 2022. 65% of the overall 13.7% increase since 2019 occurred in the last 12 months.
• Pet Food – Prices stayed generally below December 2019 levels from April 2020 to September 2021, when they turned up. There was a sharp increase in December. 90% of the 8.4% increase has happened since November.
• Pet Supplies – Remember that Supplies prices were high in December 2019 due to the added tariffs. They had a “deflated” roller coaster ride until mid-2021 when they returned to December 2019 prices and essentially stayed there until 2022 when they turned sharply up reaching a new all-time pricing high in January, beating the 2009 record. Prices have essentially plateaued at this new, higher level since February.
• Pet Services – Normally inflation is 2+%. Perhaps due to closures, prices increased at a lower rate in 2020. In 2021 consumer demand increased but there were fewer outlets. Inflation grew in 2021 with the biggest lift in Jan>Apr. Inflation got stronger in 2022, slowed a little in March, turned up in April and then slowed a bit in May – basically an every other month pattern
• Veterinary – Inflation has been generally consistent in Veterinary. Prices began rising in March 2020 and increased through 2021. Then a pricing surge began in December which pushed them past the overall CPI with total inflation since 2019 reaching +15.5% in April. In May prices fell but they are still ahead of the National CPI.
• Total Pet – The blending of the segment patterns made the Pet Industry appear calm compared to the overall market. That ended in December 2021 as prices surged in all segments. In May inflation is slowing in all but Food.

Next, we’ll turn our attention to the Year over Year inflation rate change for the month of May and compare it to last month, last year and to previous years. We’ve added some human categories to put the pet numbers into perspective.

Overall, Prices vs 2021 were up 8.6% vs 2021 with the Grocery increase now hitting 11.9%. There are some small positives. Only 3 of 9 categories had increases over 1% from last month, the same as April but down from 5 in March…. And Veterinary Services prices actually fell 1.0% from April. There is a little hope.

• U.S. CPI – Prices are up 1.1% from last month. In April the increase was 0.6%. May Inflation was +8.6%. The targeted rate is <2%. We remain 4+ times higher than the “target”. Inflation is getting worse, and it accelerated again in May.
• Pet Food – Prices are up 1.6% vs April and 9.1% vs May 2021. The YOY increase is being measured against a deflationary year, but that increase is more than triple the pre-pandemic 2.8% increase from 2018 to 2019.
• Food at Home – Prices are up 1.3% from March. The increase from 2021 is 11.9%, which is the largest increase in any month since 12.3% in April 1979 and the largest May monthly increase since 16.6% in 1974. Inflation for this category since 2019 is the highest of any category on the chart and is 28% more than the national CPI.
• Pets & Supplies – Prices grew 0.1% from April but they are slightly below March’s record high. They now have the lowest monthly increase over 2021 of any industry segment, and the lowest increase since 2019.
• Veterinary Services – May prices fell 1.0% from April. They are up 7.4% from 2021 but now trail Pet Food in the Pet Industry. They also lost the lead in the increase since 2019 with 16.9% compared to Food at home at 18.1%.
• Medical Services – Prices sharply increased at the start of the pandemic in 2020 but then inflation slowed and returned to a more normal rate in 2021. It appears to be turning strongly up again in 2022.
• Pet Services – Inflation slowed in 2020 but began to grow in 2021 & 2022. Prices are up 0.5% from April and 7.4% from May 2021, beating the record 6.5% increase in February and double the rate of 2019 & 2020. However, we should note that a big part of the record May lift was due to a 0.9% drop in prices from April to May 2021.
• Haircuts & Other Personal Services – Prices are +0.5% from April and 6.2% from 2021. They are +15.6% since 2019.
• Total Pet – Inflation is strong and is 3+ times the rate of last year. Veterinary prices fell and Supplies prices plateaued which helped keep overall Petflation steady at +8.1%. In the past, inflation has caused a reduction in the frequency of purchase in Supplies, Services and Veterinary. Super Premium Food has been generally immune as consumers are used to paying big bucks and it is needed every day. We’ll see if consumers are willing to pay the new high prices for food and buy the more discretionary products/services at the same frequency as they did in the past.

Now here’s a look at Year-to-Date numbers. How does 2022 compare to previous years…so far?

The increase from 2021 to 2022 is the biggest for 7 of 9 categories. The average annual increase since 2019 is over 3% for all but Pet Food & Pet Supplies. This is due to deflation in 2021.

• U.S. CPI – The current increase is double the average increase from 2019>2022, but over 4 times the average annual increase from 2018>2021. Inflation is a big problem that started recently.
• Pet Food – Inflation is growing stronger, especially after deflation in 2021.
• Food at Home – The 2022 YTD inflation beat the U.S. CPI by 19.5%. You can see the impact of supply chain issues.
• Pets & Pet Supplies – Prices have plateaued at a new record level since February. Although the 2021>22 increase is being measured against a deflationary 2021, it is very significant and 2^nd to Veterinary in the Pet Industry segments.
• Veterinary Services – Has the most inflation since 2019 and is the only segment on the chart with a 3+% inflation rate each year throughout the pandemic and recovery. No matter what, just charge more.
• Medical Services – Prices went up significantly at the beginning of the pandemic, but the rate has slowed since and has now essentially returned to near pre-pandemic levels.
• Pet Services – February set a record for the biggest year over year monthly increase in history. The rate slowed in March, turned up again in April then set a new record in May. The current YTD increase of 6.1% remains 2^nd only to 6.4% in 2009. Demand has grown for Pet Services while the availability has decreased, a formula for inflation.
• Haircuts & Personal Services – The services segments, essential & non-essential were hit hardest by the pandemic. After a small decrease in March, prices turned up in April/May. The YTD rate is now down slightly from 2020>21 but still 79% more than 2018>19. Consumers are paying 14.9% more than in 2019. This usually reduces the frequency.
• Total Pet – When we first looked at the pandemic impact on Petflation. We saw basically two different patterns. Prices in the Services segments continued to increase, and the rate accelerated as we moved into 2021. The product segments – Food and Supplies, were on a different path. They generally deflated in 2020 and didn’t return to 2019 levels until mid-year 2021. Food prices began a slow increase, but Supplies remained stable until we neared yearend. In 2022, everything changed as Food and Supplies prices turned sharply up. Food prices continued to climb as Supplies pricing stabilized and Veterinary prices dropped. The net was a YTD CPI increase vs 2021 for Total Petflation of 6.7%, 82% of the extraordinarily high 8.2% overall rate. It was only 72.5% of the National rate in March.

Inflation is strong in the Pet Market. Will it impact spending? Let’s put it into perspective. The 6.7% YTD increase in Total Pet is far below the 9.6% record set in 2009 but 4 times larger than the 1.5% avg since then. Although pet spending continues to move to higher income groups, the impact of inflation varies by segment. Supplies is the most affected as many categories are price sensitive. Super Premium Food has become widespread because the perceived value has grown. Higher prices just push people to value shop. Veterinary prices have strongly inflated for years, resulting in a reduction in visit frequency. Spending in the Services segment is driven by higher incomes, so inflation is less impactful. Hopefully, Supplies prices will stabilize and begin to deflate. Eliminating the special tariffs implemented in September 2018 would be a big help. However, we’ll just have to wait and see the impact of the continued strong Petflation.

Next, we will look at Pet Services. It is by far the smallest Segment and after a $1.73B, 20.1% decrease, it got a lot smaller and returned to the level of 2016 – 2017. After the great recession, Services’ annual spending slowly but steadily increased. During this time, the number of outlets offering Services strongly grew as brick ‘n mortar retailers looked for a way to combat the growing influence of online outlets. After all, you can certainly buy products, but you can’t get your dog groomed on the Internet. This created a highly price competitive market for Pet Services. In 2017 there was a slight increase in visit frequency, but Pet Parents just paid less. This resulted in a 1.0% decrease in Services spending. In 2018 consumer behavior changed as a significant number decided to take advantage of the increased availability and convenience of Pet Services and spending literally took off, +$1.95B (+28.9%), by far the biggest increase in history. In 2019 Pet Parents, especially the younger ones, value shopped, and spending turned down $0.10B. That brought us to 2020 and the onset of the pandemic. Because Services outlets were often deemed nonessential, they were subject to restrictions and closures. This drove the huge drop in spending.

We’ve seen that the pandemic caused binge buying in Food, while it slowed the more discretionary Supplies segment. Services  spending is arguably the most discretionary of any Pet Expenditure. Let’s look deeper into 2020 demographics.

Let’s start by identifying the groups most responsible for the bulk of Services spending in 2020 and the $1.73B decrease. The first chart details the biggest Pet Services spenders for each of 10 demographic categories. It shows their share of CU’s, share of Services spending and their spending performance (Share of spending/share of CU’s). In order to better target the bulk of the spending we had to alter the groups in two categories – education and area. The performance level should also be noted as 5 of 10 groups have a performance level above 120%. This is the same as Supplies and Total Pet but less than the 6 for Veterinary and far less than the 8 for Food. Last year they also had only 5 over 120%, down from their peak of 7 in 2018. This indicates that there continues to be a little less disparity between the best and worst performing segments in 2020. Although performance is down from 2019, Income is still the biggest factor in Services Spending. The categories are presented in the order that reflects their share of Total Pet $ which highlights the differences of the 8 matching groups. One big difference is that higher education is a much bigger factor in Services $.

1. Race/Ethnic – White, not Hispanic (87.9%) up from 87.3%.This big group accounts for the vast majority of spending in every segment. Services Spending became slightly less diverse in terms of race and ethnicity in 2020 as their performance grew from 127.4% to 128.5% and they remained in 4th place in terms of importance.
2. Housing – Homeowners (78.3%) down from 84.5%. Homeownership is a big factor in spending in all industry segments. The Homeowners’ share of Services fell to the lowest level of any segment in 2020. Their performance plummeted from 132.6% to 119.3% and they dropped out of the 120+% club. Plus, Renters spent 10.5% more.
3. # in CU – 2+ people (78.3%) up from 75.9% The share for 2+ CU’s is over 75% for all segments and Services is now 2^nd to Food’s 82.5%. Their performance also increased from 108.7% to 111.6% and they moved up to 8^th from 9^th in importance. Only 4 person CUs spent more. 2+ CUs primarily gained ground because Singles had a 50% bigger drop.
4. Area – City/Suburbs >2500 (83.3%) down from 87.1% in share, while performance fell from 106.9% to 102.7%, last place. Services is an Urban Segment so it makes sense that they would be the most impacted by pandemic related restrictions and closures. Led by Rural, the areas under 2500 population actually spent more on Services.
5. # Earners – “Everyone Works” (69.9%) up from (67.6%) All adults in the CU are employed. Income is important so a high market share is expected. Their performance grew to 122.0% from 115.6% and they rejoined the 120% club at #5. Only CUs with 3+ Earners spent more. However, when all adults in a CU work, Services become more needed.
6. CU Composition – Married Couples (62.8%) up from 61.4%. Married couples are a big share of $ and have 120+% performance in all segments. Their performance increased to 129.4% from 125.7% and they moved up from 5th to 3rd in terms of importance to Services spending. In 2020, kids were the key. Only Married Couples with children over 6 and Single Parents spent more.
7. Income – Over $70K (69.2%) down from 75.0% This group’s performance rating is 159.2%, down markedly from 180.7%. However, CU income is still the single most important factor in increased Pet Services Spending. Only the $50>69K and $150>199K income groups spent more. With a $ drop due to closures and restrictions, it’s to be expected that the group that spent the most pre-pandemic would shoulder the brunt of the negative impact.
8. Age – 35>64 (62.5%) up from 61.2%. Their performance grew minimally from 117.0% to 117.1% All age groups spent less. The <35 group had the smallest drop, -$0.06B. The 35>64 yr-olds spent -$0.97B less and the $ for 65+ fell -$0.70. The big drop by the oldsters combined with the small drop by the youngsters kept things on par with 2019.
9. Education – College Grads (68.5%) down from 72.2% Income generally increases with education. Services spending moves up with each increasing level of education. College Grads spend the most so they were most impacted by the pandemic. Performance fell from 162.6% to 146.6% but a college education is still the 2nd most important factor.
10. Occupation– All Wage & Salaried (66.8%) down from 69.8% – Only Self-Employed spent more. All white and blue collar work groups along with Retirees had a 20+% drop in Services’ spending. As expected, the high income Managers & Professionals who regularly spend the most on Services had the biggest drop, -$0.76B. All Wage & Salaried workers’ performance rating decreased from 114.5% to 108.7%. Services spending became a little more balanced in terms of Occupation but for the wrong reason.

We changed 2 of the groups for Services – Education and Area, to better target the biggest spenders. We should also note that Income is still more important to spending in Services than in any other segment but # Earners was the only income related category to gain in importance. Marriage also grew in importance but spending became a little more balanced in most categories with gains by renters and larger CUs.

Now, we’ll look at 2020’s best and worst performing Pet Services spending segments in each category.

Most of the best and worst performers are not a surprise. There are 7 that are different from 2019 – 3 of the best and 4 of the worst, the same as last year. The 3 new winners are more family oriented. The high income Gen Xers, including 45>54 yr-olds stayed on top but you can see a move away from the oldest Americans. 75+ yr-olds, those Born before 1946 and No Earner, singles all moved to the bottom. Changes from 2019 are “boxed”. We should note:

• Income is even more important to Pet Services. While the 283.8% Performance by the $150K> group is about the same as last year’s 284.3%, it is still the best performance by any group in any Industry segment.
• # Earners – Winner and loser are new. They are the segments with the highest and lowest incomes. Not a surprise.
• Generation – Gen X retained Top Spot and the oldest group, born before 1946 replaced Millennials at the bottom. Gen X had the only 100+% performance but the younger groups all improved while the older groups lost ground.
• Age – 45>54, the highest income group. is by far the best performer. All groups from 25>64 perform at 100+%. The lowest performers were at both ends of the age spectrum.
• Area –Suburbs 2500> kept the lead in $ and performance. Services is an Urban segment but the gap narrowed a bit in 2020. Suburbs 2500> performed at 109.3, up from 106.9%. Areas <2500 performed at 88.3%, up from 69.6%.
• CU Composition – Children mattered in 2020. Married couples with children and even Single Parents spent more on Services. Marriage is the key. Married Couples only and those with children of any age all perform over 100%.

In Pet Services spending performance, income is still the major factor. After the youth movement in 2018, spending skewed towards older groups in 2019. This was reversed in 2020 as the younger groups basically held their ground while the older CUs drove the big decrease.

It’s time to “Show you the money”. Here are segments with the biggest $ changes in Pet Services Spending.

The pandemic closures and restrictions drove Pet Services Spending down $1.73B. In this chart you immediately see a difference from last year. In 2020 there were 3 categories in which all segments spent less on Services. In 2019, there were none. In 2019 the changes by the winner and loser tended to cancel the other out. In 2020, the changes by the losers were radically larger than the winners. The tumult that began in 2019 continued in 2020. Again, there were only 2 repeats and 8 of 24 segments switched from first to last or vice versa. In 2019 there were 9 flips. Here are the specifics:

• # in CU – Both the winner and loser are new.
  • Winner – 4 People – Pet Services Spending: $1.19B; Up $0.15B (+14.2%)                                  2019: 5+ People
  • Loser – 2 People – Pet Services Spending: $2.49B; Down $1.10B (-30.6%)                                2019: 3 People
  • Comment: The winners in both 2019 and 2020 reflect the growing strength of the younger generations.
• CU Composition – Married, oldest child 6>17 kept their spot at the top.
  • Winner – Married, Oldest Child 6>17 – Services: $1.31B; Up $0.15B (+12.5%)                       2019: Married, Oldest Child 6>17
  • Loser – Married, Couple Only – Services: $1.80B; Down $0.95B (-34.6%)                                2019: Married, Oldest Child <6
  • Comment – This reflects the strength of the 25>54 year olds. It also demonstrates the importance of “family”, especially children. All married groups with children over 6 spent more. The loser was more likely to be older.
• Housing – Renters flipped from last to first and were the only segment to spend more.
  • Winner – Renter – Services: $1.48B; Up $0.14B (+10.5%)                                                                  2019: Homeowner w/o Mtge
  • Loser – Homeowner w/Mtge – Services: $3.80B; Down $1.16B (-23.4%)                                      2019: Renter
  • Comment – Homeowners w/mtge spend the most so they have the most to lose and they did.
• Occupation – Mgrs & Professionals, the biggest Services spenders were again the group with the biggest decrease.
  • Winner–– Self-Employed – Pet Services Spending: $0.71B; Up $0.14B (+24.3%)                          2019: Retired
  • Loser – Mgrs & Professionals – Pet Services Spending: $2.79B; Down $0.76B (-21.4%)             2019: Mgrs & Profess.
  • Comment – The highest income Self-Employed group spent more in every industry segment.
• Area Type – Big Suburbs flipped from 1^st to last. It’s the 1^st time since 2016 that Center City didn’t either win or lose.
  • Winner – Rural – Pet Services Spending: $0.38B; Up $0.13B (+50.7%)                                            2019: Suburbs 2500>
  • Loser – Suburbs 2500> – Pet Services Spending: $3.33B; Down $0.95B (-22.2%)                        2019: Center City
  • Comment – Rural was the only group to spend more on Services but they increased spending in all segments.
• Income – The winner flipped from last to first.
  • Winner – $50 to $69K – Pet Services Spending: $0.74B; Up $0.12B (+18.6%)                                2019: $30>39K
  • Loser – $100 to $149K – Pet Services Spending: $1.19B; Down $0.79B (-40.0%)                            2019: $50 to $69K
  • Comment – Last year we had an up/down spending rollercoaster in income groups. In 2020 only $50>69K & $150>199K spent more. The winning $50>69K group only spent more on Services. The losing group cut back on the more discretionary Supplies and Services to help fund their $9.6B increase in Food & Veterinary.
• Generation – Gen Z is a surprise, but they had an increase because many are just beginning as Pet Parents.
  • Winner – Gen Z – Services: $0.13B; Up $0.07B (+118.8%)                                                                    2019: Born <1946
  • Loser – Boomers – Services: $2.19B; Down $0.59B (-21.3%)                                                                2019: Gen X
  • Comment – Boomers had the biggest decrease, but it was only slightly larger than Gen X or those born before 1946. Gen Z spent more but the drop by Millennials was minimal, only -$0.16B, 9% of the total decrease.
• Education – College Degree flipped from 1^st to last.
  • Winner – HS Grads – Pet Services Spending: $3.30B; Up $0.05B (+8.9%)                                        2019: Adv. College Degree
  • Loser – Adv. College Degree – Services Spending: $0.93B; Down $1.04B (-31.7%)                        2019: HS Grad w/some College
  • Comment – Only those with no college courses, including those w/o a high school diploma spent more. They only account for 10.6% of Services $ but that’s up significantly from 7.4% in 2019.
• # Earners– Like the Occupation category, the 2 highest income groups provided both the winner and the loser.
  • Winner – 3+ Earners – Pet Services Spending: $0.57B; Up $0.04B (+56.0%)                                  2019: No Earner, Single
  • Loser – 2 Earners – Pet Services Spending: $2.25B; Down $0.85B (-14.4%)                                     2019: 1 Earner, Single
  • Comment – All but 3+ Earner CUs spent less. No Earner, Singles had the biggest % decrease, -44.7%.
• Race/Ethnic – Both the 2019 winner and loser flipped.
  • Winner – Hispanic – Services: $0.52B; Down $0.01B (-2.6%)                                                            2019: White, Not Hispanic
  • Loser – White, Not Hispanic – Services: $6.06B; Down $1.47B (-19.6%)                                        2019: Hispanic
  • Comment– All groups spent less. Hispanics are 2^nd in spending but the total minority share of Services $ is 12.1%.
• Age – The 75+ yr olds flipped from 1^st to last.
  • Winner – <25 yrs – Pet Services Spending: $0.16B; Down $0.03B (-14.3%)                                     2019: 75+ yrs
  • Loser – 75+ yrs – Pet Services Spending: $0.34B; Down $0.42B (-55.1%)                                           2019: 35>44 yrs
  • Comment: In 2018, all age groups spent more on Services. In 2019 all groups under 45 yrs old spent less, while all groups over 45 spent more. In 2020 all age groups spent less but the <35 group was down only -$0.06B while the 35>64 yr olds were -$0.97B and the 65+ group spent -$0.7B less.
• Region – The Midwest lost and has now flipped for three consecutive years.
  • Winner – South – Pet Services Spending: $2.65B; Down $0.30B (-10.2%)                                       2019: Midwest
  • Loser – Midwest – Pet Services Spending: $1.23B; Down $0.59B (-32.5%)                                       2019: Northeast
  • Comment – In 2018 all regions spent more. In 2019 it was only the Midwest and West. In 2020 all spent less.

We’ve seen the winners and losers in terms of change in Services Spending $ for 12 Demographic Categories. Income still matters and the younger groups, especially those with children have come to the forefront. Spending has become more balanced but for the wrong reasons. Here’s some data which shows the monumental change from the 2018 peak.

• Sales:
  • 2018: $8.72B
  • 2019: $8.62B
  • 2020: $6.89B
• % Segments Spending More:
  • 2018: 88%
  • 2019: 49%
  • 2020: 21%
• Avg Biggest Increase:
  • 2018: $1.04B
  • 2019: $0.25B
  • 2020: $0.05B
• Avg Biggest Decrease:
  • 2018: -$0.02B
  • 2019: -$0.27B
  • 2020: -$0.89B

We found the winners in performance and $, but there were others who performed well but didn’t win. They deserve….

HONORABLE MENTION

As you see on the chart, sometimes we had to include both 2^nd and the 3^rd place finishers to reach our 6 positive segment goal. Higher income is important, but the results were mixed in 2020. The $50>69K group won but there were also positive performances by the $150>199K and $30>39K groups. In a reversal from last year, CUs with kids spent more unless you were married and your oldest child was under 6. This also included single parents. The only area spending increase came from Rural areas but urban areas with a population of 100>249K also posted an increase. A College Degree is more important in Services Spending than in any other industry segment. In 2020 those with only a High School diploma and those who didn’t finish high school were the only 2 education segments to spend more on Services. Only 21% of all demographic segments spent more on Services so our choices for Honorable Mention were limited.

Summary

For years, Services’ spending slowly but steadily increased. However, the number of outlets offering Services was radically increasing. In 2017, this competitive pressure caused Pet Parents to shop for value and spending fell 1%. In 2018, the abundance of outlets and competitive prices finally had their intended impact. Many more consumers took advantage of the convenience of Pet Services and spending literally took off. In 2019 Consumers held their ground at the new higher level but we saw turmoil similar to 2017. Again, value shopping likely contributed to the small decrease.

2020 brought the pandemic and Services outlets were often deemed nonessential so they were subject to restrictions and closures. Services are definitely needed by some groups. However, for most demographics, Services are a convenience and spending is very discretionary in nature. The reduced availability and the pandemic driven focus on the “needed” segments – Food and Veterinary caused a 20% drop in Services $. High Income is still important in Services spending, but we saw mixed results in 2020. However, the $70K> group still has its highest performance in Services.

Performance is an important measurement. There were 5 categories with high performing big groups, the same as 2019. This is equal to Supplies, but less than Veterinary (6) & Food (8). This indicates a little less disparity in Services Spending.

1. Income
2. Higher Education
3. CU Composition
4. Race/Ethnicity
5. # Earners

The Housing category dropped out and was replaced by # of Earners. These changes were caused by the spending again skewing a little younger. The younger crowd is more likely to have all adults in the CU working. They also are more like to rent than own their home. Renters had the only increase in the Housing segment and pushed Homeownership below the 120% marker. While Spending did move a little younger, Gen X and Boomers are still the top 2 spenders.

A radical increase in the number of outlets caused a competitive market which broadened the appeal of Services and drove a record increase in 2018. Value shopping caused a small decrease in 2019 but Services stayed at the new “normal” level. The pandemic changed all that. Outlets closed and people stayed home so DIY became the new trend even in Pet Services. Services did become more demographically balanced, but it was due to the huge drop in spending by those who normally spent the most, not by any big increases. As Retail America recovers from the 2020 pandemic, we assume that many services outlets will re-open. However, to get back to the previous high level of spending, Pet Parents will also have to move away from DIY and back to “I need help with my pet children, and I have the money to pay for it.” Services were hit the hardest by the pandemic in 2020. We’ll see what happens in 2021.

At Last – The “Ultimate” Pet Services Spending Consumer Unit consists of 4 people – a married couple with 2 kids. The oldest child is 6>17. They are White, but not of Hispanic origin. At least one of them has an advanced College Degree. They are 45 to 54 years old and both work in their own business which generates an income of over $200K. They live in a large suburb of a metropolitan area of 2.5>5 MM in the Western U.S. and are still paying off their mortgage.