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January 23, 2019

By: The Pet Business Professor

According to John Gibbons, president of A GPS for Pet Businesses, 2017 was different. It was a year of across the board value. Consumers reacted and spent significantly more in three industry segments, including supplies: +$2.74B, a 17.3% increase.

  • Race/Ethnic – White, not Hispanic (84.2%) down from (85.5%) This large group accounts for the vast majority of spending in every segment. Their performance rating was stable at 122.9%, but this category fell from #3 to #4 in terms of importance in supplies spending. The loss in rank was due to a big share gain by homeowners. Minority groups account for 31.5% of all CUs but spend only 15.8% of supplies money. This is primarily due to lower income for Hispanics and African Americans and a lower rate of pet ownership in African American and Asian American CUs.
  • Number in CU – 2+ people (82.8%) up from (81.2%) – Their overall supplies performance of 116.1% is relatively high because singles perform so poorly. Two people CUs dominate share and have the highest performance. However, performance in 2+ CUs only falls below 100% with 5+ people and even then, it is 97.4%. In supplies spending, it “just takes two.”
  • Housing – Homeowners (79.4%) up from (74.9%) – Homeownership is a major factor in pet ownership and spending in all industry segments. In 2017 it  had a major gain in share of supplies money and its 126.2% performance, moved it up to 3rd place from 5th in terms of importance for increased pet supplies spending. All homeowners spent more while renters spent less. However, the bulk of the spending lift – $2.1B (77%) came from homeowners with a mortgage.
  • Income Over $50K (71.3%) up from (69.3%) – With a performance rating of 138.8%, CU income is the single most important factor in increased pet supplies spending. The increased discretionary nature of much of supplies spending pushes the performance level slightly higher than that of pet food. However, it is still significantly below the service segments. Higher income still generally generates higher pet supply spending.
  • Occupation – All Wage & Salary Earners (63.4%) down from (63.8%) – The market share and performance of this group, 103.8%, remained relatively stable. The spending is still skewed towards the higher income, white collar workers. Also, the low performance shows that a lot of spending is done by the self-employed and retirees.
  • Age – 35>64 (64.1%) down from (64.2%) – Traditionally, supplies spending skews more towards the younger groups. The 35>64 group maintained their dominance even though their market share remained flat. Supplies spending was up in all age groups, but it was primarily driven by the 55>64-yr olds. The number of CUs in the 35>64 group fell by 800,000, all in the 35>54 age range. However, their individual CU spending on supplies had a strong increase. The result of this was that their performance level increased to 120.0% and they joined the 120% club in 6th place.
  • Education – Associates Degree or Higher (65.6%) up from (63.1%) – Unlike food, higher education actually gained market share. Income generally increases with education and we see the impact of this in supplies. Their performance level rose slightly from 122.0 to 122.2%, but they fell from 4th to 5th in importance for generating greater supplies spending. This drop in rank was also due to the spectacular spending year by homeowners.
  • CU Composition – Married Couples (64.2%) up from (59.9%) – Married couples are a big share of $ and perform at 120+% in all segments. They gained significantly in supplies spending share, as all segments spent more, especially couples only. Their performance grew spectacularly from 123.2% to 129.7% and they remain 2nd in importance.
  • Number of Earners – “Everyone Works” (62.5%) down from (67.0%) – In this group, all adults in the CU are employed. Income is important in supplies spending, but like food, the number of earners has grown markedly less important. Their performance is 109.1%, down from 116.4%. This is still higher than food but it reflects a great year by 2+ people CUs with only 1 earner. That group, along with retirees, spend a lot of money on supplies – 37.5% of total money.
  • Area – Suburban (63.0%) up from (62.0%) – Suburban CUs are the biggest spenders in every segment. They held their ground in supplies. A relatively high performance of 113.3% reflects the lower share of supplies money in central cities.

While pet food spending has shown a definite pattern, pet supplies have been on a roller coaster ride since 2009. Many supplies categories have become commoditized and react strongly to changes in the CPI. Prices go up and spending goes down…and vice versa. Supplies spending has also been reactive to big spending changes in food. Consumers spend more to upgrade their food, so they spend less on supplies – trading dollars. We saw this in 2015. Then in 2016 the situation reversed. Consumers value shopped for food, so they spent some of the “saved” money to increase their spending on supplies.

That brought us to 2017. It turns out that 2017 was to be significantly different. Both supplies and food prices deflated. At the same time the inflation rate in both of the services segments dropped to lows not seen in recent years or in the case of veterinary, not seen ever before. Value was the “word” and it was available across the market. One of the first things that we noted was the strong evidence that the upgrade to super premium significantly penetrated the consumer market with major lifts from unexpected demographics like blue-collar workers, HS grads w/some college, 1 earner- 2+ CUs and lower middle-income groups. This could have negatively impacted supplies spending. However, it didn’t. Supplies’ spending increased in these segments, but it also was very strong in the groups that we have come to expect to be the leaders – homeowners with mortgage, managers and professionals, college grads and married couples. With an increase in 94% of all segments, there was good news everywhere. We returned to a new “normal”, which far exceeded the old.

Among the demographic categories in which a consumer has some control, higher income, marriage, homeownership and higher education are still the biggest factors in increased supplies spending. Homeownership and marriage both increased significantly in importance and influence in 2017. While income remained firmly at the top of the list, there were other changes related to income which broadened the market for supplies. The number of earners became much less of a factor and there also were significant spending gains coming from lower middle-income groups.

Although it is not an absolute necessity like food, the spending behavior on pet supplies can also be a reflection of the percentage of pet ownership across a demographic category. In our analysis of food spending, we suggested that part of the spending increase in unexpected segments may have been derived from an increase in the CU percentage of pet ownership. While not as dramatic as the food increase, all these groups also increased supplies spending which would add support to the premise of more new pet parents.

The other trend that we saw in food spending was a “movement” for more space – rural areas and suburbs <2500. While not as dramatic as the lift in food, those two areas also had the biggest supplies spending lift in the category, +29%.

See the full report here.

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