John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, has been continuing his examination of spending in the pet industry. In his recent analysis of pet food spending, he noted that spending plummeted in the first half of 2021 compared to the panic buying at the beginning of the pandemic.
According to Gibbons, pet 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 spending 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 $17.42 billion, up $1.14 billion (+7.0 percent).
The following chart should put the recent spending history of this segment into better perspective.
Here are the 2020/2021 specifics:
Mid-Year 2021: $17.42 billion; +$1.14 billion (+7.0 percent) from mid-year 2020.
The +$1.14 billion came from:
July > December 2020: –$1.12 billion
January > June 2021: +$2.26 billion
Gibbons notes that while the overall lift was relatively low, the lift in the first half of 2021 was the biggest year-over-year six-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 two 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 consumers 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 2009. Then they began deflating and in March 2018 were down -6.7 percent 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 $2 billion. In 2015, consumers spent $5.4 billion more on pet food. At the same time, pet supplies prices went up 0.5 percent. This was a killer combination as supplies spending fell $2.1 billion.
In 2016, consumers value shopped for food, saving $2.99 billion. Supplies spending stabilized by mid-year then increased by $1 billion 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 $4.61 billion in 2017, but this came from a limited group – generally older consumer units (CUs), less focused on supplies. The result was a $2.74 billion increase in supplies spending. This appeared to be somewhat of a break with the overall pattern of trading spending between segments.
In the first half of 2018, pet food spending slowed to +$0.25 billion. Supplies’ prices switched from deflation to inflation but were only up 0.1 percent versus the first half of 2017. During this period, supplies spending increased by $1.23 billion. Prices began to climb in the second half of 2018 due to impending new tariffs in September. By June 2019, they were 3.4 percent 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 first half of 2019, -$2.09 billion. Prices stayed high for the rest of 2019 and spending fell an additional -$0.9 billion. In 2020, prices turned up again through March before plummeting -3.8 percent by June. However, due to the pandemic focus on needs, spending dropped an additional -$0.54 billion. The situation not only didn’t change in the second half, it worsened as spending fell an additional -$1.12 billion.
However, 2021 brought a new beginning as supplies spending increased +$2.26 billion over the first half of 2020 and reached a level above pre-pandemic year-end 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 spending as well as 2020 year-end. 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-year Total Spending Change: $2.76 billion – $2.65 billion = Up $0.11 billion
(Note: green outline = increase; red outline = decrease)
- Second half of 2020: Subtract Mid-20 ($2.65 billion) from Total 2020 ($2.32 billion) = Spending was down $0.33 billion in second half of 2020.
- First half of 2021: Subtract Total 2020 ($2.32 billion) from Mid-21 ($2.76 billion) = Spending was up $0.44 billion in first 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 spending of CUs with above average income, 33 percent is equal to the 67 percent of CUs below average.
- The spending patterns <$70K are mixed. For $70K> they are same, with a dip at year-end 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 spending in the second half of 2020.
- The spending movement is generally up but only two 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 second half of 2020 but they largely recovered. The biggest positives came from the <$30K and the $50>$70K groups. In 2020, their spending fell -$1.43 billion, 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 second half of 2021.
Now let’s look at Pet Supplies spending by Age Group.
- There were two primary patterns. For 45-year-olds> spending fell in the second half of 2020, then rebounded in 2021. For the 25>44-year-olds, spending grew in both halves. The <25-year-olds group had a big drop in the number of CUs in 2020, which affected spending.
- The 25>34-year-olds had strong growth in both halves.
- Spending by the 54>64-year-olds decreased the most in the second half of 2020, and their rebound fell a little short. They also fell from the top spot in supplies spending to No. 3.
- The 65-year-olds> group was the most stable. Spending fell slightly in the second half of 2020 but turned positive in 2021.
Gibbons also has reviewed what happened in supplies spending at the start of 2021 across the entire range of demographics. In his final chart, he lists the biggest spending 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, which is the complete opposite of 2020.
- The increase is widespread, which is very apparent as all segments in seven categories spent more. In 2020, there were five categories in which all segments spent less. This reinforces that the first half of 2021 increase was the biggest ever.
- Most of the winners are the “usual suspects,” like Managers/Professionals and Advanced College Degree but there are a couple of surprises – $50>69K & 2+ Adults, No Kids.
- In regard to the losers, African Americans and Center City are not unexpected but when all segments in seven categories spent more, there are very few true losers.
- The Age category is a great example of the widespread lift. The two groups with a decrease in spending from mid-yr 2020, <25-year-olds and 55>64-year-olds both spent more in the first half of 2021. Plus 55>64-year-olds had the biggest increase.
- The Housing category is also of particular interest. Not only did all segments spend more in the first 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 $4.97 billion (+33.5 percent) and the lift was widespread. Only one 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. 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 $2.98 billion.
However, Gibbons says 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 spending 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 the year’s end, spending 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 sarents opened their wallets and bought the pet supplies that they had been holding back on for a year. The result was the biggest year-over-year, six-month increase in history. What the second half will bring is anyone’s guess, but pet supplies are back.