How ‘Petflation’ Affects Consumers’ Spending Behavior

September 5, 2018

Now more so than ever (thanks in large part to the internet), retailers and manufacturers are fighting hard to convince consumers to spend money in their stores or on their products. The companies have to balance consumers’ demand for convenience, quality and, of course, price.

According to John Gibbons, president of A GPS for Pet Businesses, it is this last facet that is most important to a majority of consumers when selecting what to purchase.

“Currently, [price] is the primary factor in 75 percent of all consumer buying decisions—and household income is the most influential demographic in pet spending—so I think that we can safely say that price matters [in the pet industry].”

Because price can have such an effect on an owner’s buying decision, it’s imperative that business owners keep track of the industry’s consumer price index (CPI). In his most recent report, “Price Matters: Petflation Update – Mid-Year 2018,” Gibbons highlights the change in CPI the pet industry has experienced over the past 24 months and how that in/deflation compares to years past.

Here are his findings:

Total Pet – Like the overall CPI, total pet prices have turned upward in the past 24 months. However the big change for pet occurred in 2018, which produced 92 percent of the overall price inflation.

Pet Food – The deflation really shows up in this short term look. Now pet food, not pet supplies, is the outlier in the group. Even though pet food prices have turned upward in 2018, pet food pricing most definitely does not correlate to the situation in the “human” food and beverage segment.

Pet Supplies – If an outside observer was looking at this, they would probably think that the recent inflation rate for pet supplies looks reasonable, perhaps even good. However, taken into the context of a -5.1 percent CPI since 2009 and demonstrated hyper price sensitivity, alarm bells start going off. The pet supplies CPI went from -1.0 percent to +1.3 percent with a 2.1 percent increase in the second quarter of 2018. Even small price increases have decreased sales. This does not bode well for supplies sales in the first half of 2018.

Veterinary – [I] have noted that inflation in this segment has slowed. This short term look truly puts that statement into context. Take note of this date. You are seeing a true rarity. The inflation rate over the past 24 months for vet services is 15 percent below the rate for human medical services. Indications are that the vet rate is moving back up to more “normal” levels but for a brief time it was in synch with the overall market.

Pet Services – The 2.3 percent looks pretty normal for this category. However, once again, appearances can be deceiving. After a year of radically slowed inflation from competitive pressures, the bulk of the total increase came from a 2.5 percent lift in prices in May of 2018. We should also note another unusual circumstance. The increase in the CPI for pet services over the past 24 months actually exceeds that of veterinary services. This is not normal.

Taking these pricing fluctuations into consideration, Gibbons closes the report with a final note and question:

“[I] have noted some unusual pricing trends in recent months. However, the most significant one may be what has happened in the first half of 2018. Prices in every segment increased, especially in the second quarter. This included spectacular increases in supplies and services. How will this affect consumer spending? Will we see a significant drop as consumers cut back on spending or frequency? We’ll just have to wait and see.”

See the full report and its graphs here.

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