U.S. PET FOOD SPENDING $36.35B (↑$4.79B): MID-YEAR 2022 UPDATE

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The pandemic had a huge impact on consumers, including spending on Pet Food. We’ll do a more detailed historical review of recent years but at Mid-year in 2022 things finally seem to be returning to a more normal situation. Pet Food Spending for the 12 months ending June 30, 2022 was up $4.79B (+15.2%) from a year ago. Let’s put that into proper perspective. In pre-pandemic, Mid-2019 Pet Food spending was $28.90B. That means that the average annual growth rate from 2019>22 is +7.9%. This is 42% better than the average growth rate of +5.6% from 1984 to 2019. This industry segment is doing well. Of course, we’re starting to face what may be a new challenge – radically high inflation in Pet Food prices. Here’s what it was in mid-year 2022:

  • Mid-yr 22 vs 21: +4.0%
  • 2nd Half 21 vs 20: +1.6%
  • 1st Half 22 vs 21: +6.5%

You can see that the inflation rate in early 2022 was over 4 times higher than the rate in late 2021. It hit 10+% in June 2022 and continued at historic high levels. Prices in the 2nd half of 2022 were 14% higher than in 2021. Traditionally, “normal” inflation increases have had little impact on Pet Food spending. However, these increases are historic. We’ll get a better indication of their current impact when the 2022 yearend Pet Food spending numbers are released  in early September. I just wanted you to be aware of the situation as we review the mid-year data.

If inflation was 4.0% for Mid-Yr 2022, then 73.7% of the increase in Pet Food spending was real. Good, but not great. We’ll see what the situation looks like at yearend. Also, 59% of the $4.79B lift occurred when inflation was lower.

Now, let’s get started with our Pet Food spending update for Mid-Year 2022. As we stated earlier, Pet Food (& Treat) Annual Spending was $36.35B, up +$4.79B (+15.2%). 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 current numbers into historical perspective and truly show you the roller coaster ride that continues in Pet Food Spending.

Here are the current numbers:

Mid-Yr 2022: $36.39B; ↑$4.79B (+15.2%) from Mid-Yr 2021. The net gain of $4.79B came from

◦  Jul>Dec 2021: Up $2.85B from 2020.          ◦  Jan>Jun 2022: Up $1.94B from 2021.

Historical research has shown that Pet Food spending has been on a roller coaster since 2000, generally with 2 years up, followed by a flat or even declining year. This up and down “ride” was primarily driven by a succession of Food trends like Made in the USA, Natural and Super Premium”. The 2 yrs up then 1 yr flat/down pattern has been broken on a couple of occasions due to outside influences – the FDA grain free warning in 2018 and now the COVID pandemic in 2020. We may see another major influence on spending – recent skyrocketing inflation. The timing may be affected  but the Pet Food spending rollercoaster ride is likely to continue.

2013 was 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 were the leaders in Pet Food, both in spending and in adopting new products. Even in 2022, they still spend the most, but it turns out that the 25>34 yr-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 that 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 1st 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 1st half of 2020. Spending fell in the 2nd half of 2020 and plummeted in the 1st half of 2021. Pet Parents didn’t binge again, and some began using up the stockpile that they panic bought in the early days of COVID. In the 2nd half of 2021, the up/down impact of COVID was essentially over. Pet Parents were still committed to their children’s health which included Super Premium Foods and Medical Supplements, often in treat form. The internet also made this quality choice accessible to more households so Pet Food spending increased both in the 2nd half of 21 and the 1st half of 22. 59% of the lift occurred in the 2nd half of 2021 when inflation was still low. Was that a factor?

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 2021 yearend. This will allow you to track the spending changes between halves. The first graph is Income, which has been shown to be the single most important factor in increased Pet Spending and its influence continues to grow.

Here’s how you get the change for each half of the 21>22 mid-yr numbers using the over $100K group as an example:

$100K> Mid-yr Total Spending Change: $16.36B – $13.77B = Up $2.59B (green outline = increase; red outline = decrease)

    • 2nd half of 2021: Subtract Mid-21 ($13.77) from Total 2021 ($15.51B) = Spending was up $1.74B in 2nd half of 2021.
    • 1st half of 2022: Subtract Total 2021 ($15.51B) from Mid-22 ($16.36B) = Spending was up $0.85B in 1st half of 2022.
  • All increased spending for the year but there were 3 different patterns in the individual groups. #1. $150K> & $50>69K spent more in both halves. #2. <$30K & $70>99K spent less in the 1st half of 2022. #3. $30>49K & $100>149K spent less in the 2nd half of 2021. All but #2 have a high/low income mix. #2 has the lowest income and the middle income groups. Both are very price sensitive. Note: Their spending dropped during the highest inflation.
  • Perhaps the most obvious fact is the continued spending disparity due to income. Back in 2014, prior to the big lift due to Super Premium, $70K was the “halfway point” in Pet Food spending. The under $70K group accounted for 66.7% of CUs and 51.1% of Pet Food spending. 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%. They currently have a share of 62.0%. The halfway point in Pet Food spending is below $100K but still high at $91K, the 2nd highest in history.
  • < $70K > The Pet Food spending patterns for both big groups are similar with increases in both halves. However, in a bit of a surprise, the Fall 2021 lift is larger for $70K> while the early 2022 lift is larger for <$70K. Higher Inflation appears to not have grossly affected these big groups.
  • < $100K > The spending patterns of these 2 groups closely mirrors the Under/Over $70K pattern. The Fall 2021 spending lift for the $100K> group was 100% driven by $150> CUs. The Spring 2022 lift for <$100K was totally driven by CUs with an income of $30>69K. Again, not the result that you would expect based upon higher inflation.
  • <$30K – With a lift in the Fall and a drop in the Spring, spending for this lowest income group essentially remained stable vs last year. They may have been impacted by rising prices in 2022.
  • $30>49K – This low-income group also includes many Retirees. They are growing in number and are committed to their pets. However, their spending behavior timing often lags behind other groups which may explain the Spring lift.
  • $50>69K – This low income group was hit hard by the pandemic. With steady growth in both halves, they have finally surpassed their Pet Food spending in pre-pandemic 2019.
  • $70>99K –This middle-income group was the most negatively affected by the pandemic. However, they fully recovered in 2021. Then spending flattened in early 2022. They are very value conscious. We’ll see if the skyrocketing inflation in the 2nd half of 2022 affects their Pet Food spending.
  • $100K>149K – High income is increasingly becoming “where it’s at” in Pet Spending. This group led the way in Pet Food binge buying and the subsequent drop. Sales grew slightly in early 2022 so they remain above 2019 $.
  • $150K > Their Pet Food spending also fell in 2020, likely due to value shopping on the internet. They came back strong in 2021, 10% above 2019. $ are up slightly in 2022. Strong inflation and the resulting higher prices will likely cause them to spend more.

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

  • 25>34 yr olds had a steady decline. All other groups spent more but 75> had a spending dip in early 2022.
  • <25 – Their spending had a huge increase and they are back above $1B. It’s likely that more moved out of their parents’ home and many added pets to their household.
  • 25>34 – A -$1.35B drop after last year’s $1.77B increase. This group, especially those with families, are under a lot of financial pressure. Overall inflation likely caused many CUs to cut back on spending and even rescind Food upgrades.
  • 35 > 44 – Spending fell in 2020 likely because they turned to the internet. They are 2nd in income and their spending has smaller fluctuations. Their biggest lift occurred in the 1st half of 2022 and they exceeded $6B for the 1st time.
  • 45 > 54 and – They have the highest income, so their annual up/down spending pattern is not expected. Their Pet Food $ dropped throughout 2020 but it has increased in every half since then. However, it is still below the $7.09B peak in 2019. Value Shopping & downgrades/upgrades are all likely to be factors in a complicated pattern.
  • 55>64 – This group is still mostly Boomers, the most emotional Pet Parents. In 2020 they led the way in Pet Food binge buying. They also had the biggest 2021 drop. With growth in both halves, including a $0.77B lift in 2022 they have now returned to their pre-pandemic 2019 spending level.
  • 65 > 74 – This group is all Boomers but with lower income. Spending grew in both halves. They are committed to their pets. Even though the members change, they are the only age group with steady annual growth since 2016.
  • 75> – COVID had little impact on spending. In 2021 they upgraded, +$1.76B. Spending fell slightly in the 1st half of 22.

That gives us the “big picture” for our 2022 Mid-year update of Pet Food spending. Now we’ll take a closer look at the start of 2022. We’ll compare it to the 1st half of 2021 and document the biggest changes since then.

  • The biggest increases are much larger than the biggest decreases in 10 categories. They are almost equal in Age, but the drop is larger in CU Composition. In Housing and CU Size, all segments spent more in 2022 than in 2021.
  • There are a number of usual winners, Managers, White, Not Hisp., Boomers, 55>64, Big Suburbs, Homeowners w/Mtges and 3+ Earners. There are also some surprises like $30>49K, 2+ Unmarried Adults and HS Grads.
  • When we look at the losers, we also see some familiar names, <$30K, Born <1946, 1 Earner Single and Center City. However, there are 2 big surprises – Adv. College Deg. and 25>34 yr olds.
  • Pet Food spending in the 1st half of 2022 was $1.94B ahead of the 1st half of 2021 but $3.44B ahead of 2019. In fact, 68 of 82 demographic segments (83%) spent more in 2022 than in 2021. The pandemic turmoil appears to be over.

The spending lift was relatively large in the 1st half, but not unexpected, after the huge drop in Pet Food $ in the 1st half of 2021 following the buying binge in 2020. It appears that the steep pandemic roller coaster may have ended in 2021 and we might be back on a more normal path of consistent growth. Pet Food spending in mid-yr 2022 was $36.35B. This is $1.57B below the binge peak of $37.96B in mid-2020 but $7.49B more than the $28.90 in pre-pandemic mid-yr 2019. If we ignore the pandemic turmoil, then Pet Food spending has grown 25.9% in 3 years. That’s an annual growth rate of +7.9%, which is 41% higher than the +5.6% rate from 1984 to 2019. That’s real proof that the Pet Food segment is back and doing even better than usual. Unfortunately, we may be facing a new challenge – runaway inflation. It started slowly at the end of 2021, then continued to grow in 2022, hitting 10+% in June and has stayed in double digits. Past periods of Pet Food inflation just caused Pet Parents to spend more. Pets must have food. However, this price increase is at record levels. We should note that the pandemic is also a factor in inflation because supply chain issues related to COVID had a big impact on prices. Overall inflation has lessened but there has been little improvement in Pet Food. All pet spending has been moving towards higher incomes. Households with a lot of financial pressure could cut back on more discretionary pet spending, reduce purchase frequency, and even downgrade their pet food. We have seen little evidence of a negative impact on Pet Food in early 2022. We’ll see what happens in the 2nd half of 2022 when inflation took off. We’ll get that data in September.