Glenn Polyn//February 15, 2022//
Glenn Polyn //February 15, 2022//
Inflation has made a lot of headlines recently. According to John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, there have been year-over-year increases in the monthly Consumer Price Index (CPI) larger than we have seen in decades. In December 2021, overall prices were up 7.0 percent over December of 2020. Food for home consumption was up 6.5 percent and Gasoline prices went through the roof at +49.6 percent. That raises the obvious question: “What is happening in the pet industry?” The simple answer is that prices for Total Pet Products & Services were 4.1 percent higher in December 2021 than in December 2020. That’s high, but still considerably better than the overall CPI increase. However, as usual, the answer is considerably more complex. We will look at the numbers in greater detail, including:
We will do this for Total Pet and all industry segments. We can now do this for all segments because on 2/11 the U.S. BLS started reporting the CPI for Pet Services again. They had discontinued it at the start of 2021 because of problems caused by COVID. Upon learning of the discontinuation, we made the case for reversing this policy. We used their consumer spending data to craft a rationale to demonstrate the importance of the Pet Industry to U.S. Retail and the strong growth of the Services segment in recent years. We also pointed out the importance of Pets to U.S. families – 2/3 of U.S. H/Hs have a pet, twice as many as have a child under 18. They agreed with us and not only began publishing again but filled in all the missing monthly data for 2021. With that being said, let’s get started.
In our first graph we track the monthly change in prices from December 2019 to December 2021. This will give you a visual image of the flow of pricing from the beginning of the pandemic through the retail recovery in 2021. You can see the similarities and differences in patterns between segments and compare them to the overall U.S. CPI. The end numbers, compared to December 2019 and some other key waypoints, like December 2021 are included.
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You immediately see a distinct difference in patterns between the 2 Services segments and the 2 Products segments. While there were some dips and differences, Veterinary and Services prices generally inflated during the whole 2-year period with an accelerated rate in 2021, a pattern similar to the overall CPI. Food and Supplies were generally deflated below December 2019 prices until mid-year 2021 when they turned slowly up. Here are some things to note:
We’ve seen the overall CPI patterns by month over two years. Now, let’s turn our attention to the annual CPI. We will use pre-COVID 2019 as our primary base year and we’ll add in Human Food for comparison. We will show these CPI changes:
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The two Pet Services segments are driving recent inflation in the Pet Industry. This is usually the norm. Prior to the pandemic Pet Food & Supplies were going through an unusual period of inflation. In Pet Food the FDA, warning was a factor and Supplies were suffering from Tariffs. The Services Segment is the closest match to the overall CPI pattern.
Next, we’ll turn our attention to the headlines, which largely focus on the inflation rate from December 2020 to December 2021. We’re going to look a little deeper to see how the recent numbers compare to the past, including:
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One thing is certain. The inflation rate from December 2020 was huge for every group in the chart, providing most, and in some cases, all of the price lift since pre-pandemic 2019.
That wraps it up for this Petflation update. Price matters to everyone. Combined with quality, it defines value, which is the top driver in consumer spending behavior. Inflation/deflation can discourage/encourage spending, especially in the more discretionary categories, like Pet Supplies. Overall, pricing in the Total Pet Industry appears to be faring reasonably well. 20/21 data for Total Pet is lower than the data for the total U.S. CPI in virtually all inflation measurements. However, as I have always said, look beneath the surface to see what is truly happening. When we do that, we see pricing trends that basically divide the segments into two groups – Services and Products. Prices in the Services group, Non-Vet and Veterinary have strongly inflated, especially in 2021. In the Products group – Food and Supplies, prices were high before the pandemic. The result was that prices stayed near or below the 2019 level until mid-year 2021. Then they turned up but not as much as in the Services Group. The Product group accounts for over 60 percent of industry spending so their trend was very influential in keeping Total Pet inflation at a more reasonable level.
The media was right about one thing. December was a terrible month for inflation. Prices in every pet segment turned sharply up. Of note, inflation continued in all segments in January 2022 with Supplies prices passing their previous record high set in September 2009.