September 25, 2019

By: The Pet Business Professor

According to John Gibbons, president of A GPS for Pet Businesses, the U.S. pet industry had a 2018 that can best be described as a mixed bag. Total spending increased to $78.6B, up $1.47B (+1.9%). Supplies and veterinary had modest increases, while the services segment had the biggest growth in history. The big downside was that the food segment gave back half of the money gain made in 2017. Here are the specifics:

  • Pet Food – $28.85B; Down $2.27B (-7.3%)
  • Pets & Supplies – $19.80B; Up $1.22B (+6.6%)
  • Veterinary  $21.23B; Up $0.56B (+1.6%)
  • Pet Services  $8.72B; Up $1.95B (+28.9%)

The industry truly is a “sum” of its integral segments and each segment has very specific and often very different buying behavior from the many consumer demographic segments. For this reason, we’re going to analyze each of the industry segments first. This will put the final analysis of total pet spending into better perspective. Note: The numbers in this report come from or are calculated by using data from the current and past U.S. BLS Consumer Expenditure Surveys. In 2018, this was gathered by the U.S. Census Bureau from over 42,000 interviews and spending diaries. The final data were then compiled and published by the U.S. BLS.

We will start with the largest segment, pet food (and treats). In 2018 pet food spending totaled $28.85B in the U.S., a $2.27B (-7.3%) decrease from 2017. This was the second largest decrease in history, trailing only the –$2.99B drop in 2016. It’s interesting that the four greatest changes in money, up and down, have all occurred in the last four years. The current trend in high-priced, super premium foods magnifies the results of any changes in consumer purchasing behavior. As you recall, in earlier research we discovered a distinct, long-term pattern in pet food spending. In 2018 we broke that pattern.

Pet food seems to be driven by short-term trends. A new food trend “catches the consumers’ attention” and grows…for two years. Then sales plateau or even drop…and we’re on to the next “must have”. The increases have become more pronounced in recent years and the whole situation has gotten even more complicated since 2014. That was the year that food prices began an extended period of deflation due to an unprecedentedly competitive market. 

After consumers choose to upgrade to a more expensive pet food, their #1 priority becomes, “Where can I buy it for less?” The internet entered this battle in a big way and “value shopping” was a major contributing factor in the big spending drop in 2016, and its influence continues to grow.

In 2017, according to the 20-year pattern, we should have been beginning a new trend. There was the expected lift in pet food spending but what was the new “must have” type? There were some possible candidates, but nothing stood out. A deeper dive into the data showed that the $4B increase in pet food spending in 2017 didn’t come from a new trend. It came from a deeper demographic penetration of super premium foods. Value shopping in a highly competitive market, especially on the internet, had made super premium pet foods more accessible to a broad swath of consumers.

Like pet food, human behavior has changed over the years in regard to our pets. In the 90’s, pet owners became pet parents. Then, we took it a step further after the turn of the century and began truly humanizing our pets, especially our canine children. This movement is very accurately reflected in the evolution of pet food. We became increasingly more conscious of fulfilling the health needs of our pets, beginning with the first move to premium foods in 2004. This ramped up considerably after the Melamine scare in 2007. Now consumers read pet food labels, research ingredients and expect their pet foods to meet the same quality standards as the best human foods. We may have moved away from trends to a new standardan expectation of excellencenothing else will do.

Although the money didn’t show it, now it appears that we may have  broken the pet food trend pattern in 2017. We definitely broke it in 2018. Let’s look at some specifics. In 2018, the average U.S. household (pet and non-pet) spent a total of $219.92 on pet food. This was an 8.2% decrease from the $239.66 spent in 2017. This doesn’t exactly “add up” to the 7.3% decrease in total food spending. With additional data provided from the U.S. BLS, here is what happened:

  • 1.0% more U.S. households
  • Spent 4.0% less money 
  • 4.4% less often

By the way, if 67% of U.S. CU’s are pet parents then their annual pet food spending is $328.24. Pet food spending fell in 2013 and continued down in the first half of 2014. This corresponds to the beginning of a  general deflation which continued through 2018 in this segment. During deflation, in a “need” category like food, you don’t buy more, you just spend less. The spectacular lift in pet food spending beginning in the second half of 2014 came from a fundamental change in spending behavior. Consumers began to buy more super premium food and med/supplements in treat form, all of which cost more.

An increasing number of consumers chose to upgrade their pet food and spending peaked in 2015. Then spending began to fall in the first half of 2016 and the decline intensified in the second half. At first it appeared that consumers were backing down on the upgrade. As it turns out, they were just applying the #1 driver in their buying behavior since the great recessionprice (75%). They began shopping for value and there were plenty of bargains to be found.

In 2017 pet food spending registered the second largest increase in history. It was time to begin a new “trend”, but this big lift was unusual. Usually the biggest increase comes in the second year of a cycle. There also was no clear product focus.

Looking deeper into the data we discovered that it was not a new food trend. It was a deeper demographic penetration of super premium. Higher education and higher income have driven recent food trends. However, the highly price competitive market had made these high-priced foods more accessible to blue collar workers and those without college degrees. Baby boomers in these groups, with their strong commitment to their pets, responded in a big way, +$3.8B.

After such a big lift in year one, the 2018 increase was expected to be small and the first half started out that way, +$0.25B. Then the bottom dropped out in the second half of the year as spending fell -$2.51B, the biggest half year decrease in history. In July of 2018 the FDA issued a warning about the possible connection between DCM and grain free dog food. This was frightening and one suggestion was to move back to standard foods. A coincidence?

Let’s look at another source of industry informationGlobal Pet Expo and SuperZoo. The number and nature of the exhibitors at these shows reflects the trends in the overall market and can even foreshadow things to come. Let’s look at the average exhibitor count for three specific dog and cat product categories:

  1. Food – 2019; Avg: 145 Exhibitors, Up 35.5% since 2014.
  2. Treats – 2019; 369 Exhibitors, Up 55.7% since 2014. Now the #1 Product Category.
  3. Meds/Supplements & Therapeutic Devices – 2019; 278 Exhibitors, Up 102.9% since 2014. This category now ranks second. Plus, meds/supplements in treat form help drive treat to the top spot.

The growth of the food and treat categories reflects the rise of super premium. Many new companies joined into the fray, creating a very competitive market. Mergers/acquisitions stabilized the exhibitor count but it’s still competitive. The growth of the meds/supplements category has been spectacular. Together, these three categories reflect the pet parents’ absolute number one concernthe health and well-being of their pet children, which starts with the quality of their food.

There were multiple factors behind the drop in pet food spending in 2018. Here are three that were definitely impactful:

  1. The July 2018 warning by the FDA about a possible link between grain-free dog food and DCM. Although there is no definitive link, many pet parents, especially new converts to grain free, apparently switched back to foods with a standard mixture made by a well-established manufacturer.
  2. Value Shopping – This behavior is here to stay, and its impact is noticeably magnified by the internet.
  3. Millennials moving out – A Pew research study showed that 34% of 25+ yr old millennials still lived with their parents. In 2018, millennials began to move out, gaining over 2 million CU’s. They took their pets with them but now they are responsible for expenses. It wasn’t an equal money swap because they spent less …on the internet.

2018 was a complex and “trying” year in the pet food segment. We broke a spending pattern of 20 yrs. Let’s hope that the 25>34-year old’s record of predicting next year’s market stays true. If so, pet food spending will increase in 2019.

See the full report here.

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