Are Pet Food Sales on the Decline?
People love to spend money on their pets. In fact, pet owners shelled out a total of $78.6 billion in 2018 for their non-human friends, up $1.47 billion from 2017, according to market analyst John Gibbons, who runs the website Pet Business Professor.
The largest segment of that total was spending on pet food and treats. While spending in this category is high, it still dropped 7.3 percent in 2018, according to Gibbons’ recent market analysis. Specifically, pet food spending totaled $28.85 billion in 2018, down $2.27 billion from total pet food sales in 2017, which was $31.11 billion.
“This was the second largest decrease in history, trailing only the $2.99 billion drop in 2016,” Gibbons said. “It’s interesting that the four greatest changes in spending, up and down, have all occurred in the last four years.”
The numbers in Gibbons’ report come from or are calculated by using data from the current and past U.S. Bureau of Labor Statistics (BLS) Consumer Expenditure Surveys, which collects information from the nation’s households and families on their buying habits, income and household characteristics. In 2018, the U.S. Census Bureau gathered this information from more than 42,000 interviews and spending diaries, according to Gibbons. The final data was then compiled and published by BLS.
“The pet industry is solid but complex,” Gibbons said. “You have to look beneath the surface numbers to find out what is truly happening.”
Gibbons pointed to multiple factors behind the drop in pet food spending in 2018: The July 2018 warning by the U.S. Food and Drug Administration (FDA) about a possible link between grain-free dog food and dilated cardiomyopathy (DCM); value shopping; and the adoption of thrifty spending practices by millennials who’ve moved out on their own and taken the family pet with them.
While statistics work well for an overall picture, food sales among individual retail stores vary. With that in mind, Pet Product News reached out to four pet specialty retailers with stores in different regions of the U.S. to get their take on consumer spending and company sales in the pet food market:
Michael Levy, founder of Pet Food Express in Oakland, Calif., which has more than 60 retail stores throughout the state.
“Pet Food Express’s food sales grew in 2018 and continue to grow in 2019. It’s important to note that there have been a number of challenges for indies this year. These include key indie food brands moving to Petco and Amazon, a huge continuing acquisition spend by Chewy and the [FDA’s] mid-year release regarding DCM.
“DCM is changing some customers’ perspectives on kibble feeding, and they are moving off grain-free brands. The long-running industry focus on grain free has shifted somewhat to grain-in. However, grain free still remains strong. Grain-in brands, such as Nature’s Logic and First Mate Grain Friendly have gained velocity from well-established grain-free brands and grown significantly. Additionally, other food options such as dehydrated, frozen raw diets and gently cooked whole-food diets continue to grow at Pet Food Express.
“Overall, based on our experiences, we are very positive on the outlook for proactive indies.”
Melissa Whitton, president of Most Valuable Pets in Lexington, Ky.
“2019 looks to be stable with 2018 in dog/cat food sales, although 2018 was a huge drop from 2016 and 2017 … Dog food was growing at such a phenomenal rate and now it’s slowed to an average. What we are seeing is people’s perception of what is a ‘good’ food. Veterinarians have gone back to recommending Purina, Science Diet, Iams and Royal Canin. They are not recommending grain free anymore. They are recommending indiscriminate grains. Manufacturers are doing big pushes with veterinarians because they know they carry the most clout and their recommendations will drive sales. We try to offer choices, but we only have so much space. Internet sales are really affecting brick-and-mortar stores. My prediction for the future is that we will see further decline of some brands that continue internet sales, while seeing stability of brands sold as the same price on all channels, and growth of brands not found on the internet.”
Addie Schuhle, buyer/office manager at Pet Food Depot, which has two locations in Arizona
“I am not sure where the market is going. The economy seems good and the average sale seems higher. But with that said, it is tough to get an accurate projection since a large 50-store chain of independent retail pet recently went out of business in the Phoenix area. We are seeing an influx of their customers right now. We were up in 2018 and continue to be up in 2019 but nowhere near where our store was before the recession hit in 2008. I do believe that pet food companies need to beware of their pricing. I feel like they have hit the ceiling of pricing; $90 bags of food are not sustainable.”
Brad Payne, director of sales at CountryMax, which has 17 retail stores in New York
“We are certainly feeling the squeeze in our stores as e-commerce continues to eat away at the brick-and-mortar retailers. It’s never been easier to get your pet food delivered outside traditional retailers than now, and as long as the Chewys and Amazons of the world can continue to sell pet food without making a profit, brick-and-mortar will continue to fight an uncertain future. Our pet food sales are declining in some locations, and in others they are flat, which given the rising costs of pet food means sales are dropping there as well.
“We’re more than a pet specialty store, so the impact on our business may be slightly less than retailers with only pet specialty products, but the impact is dramatic even for us. Pet food is a year-round traffic driver you can’t replace, and to watch it head out the door to the e-commerce giants threatens us all in brick-and-mortar. The fact that the pet food manufacturers are, at best, simply watching it happen, is a sobering thing.
“We’re past the point of the pet food manufacturers caring about brick-and-mortar, no matter what lip service they give to our business. There is a glaring, giant elephant in the room when everyone in the pet industry stands around wringing their hands about the state of brick-and-mortar pet retailers competing with the internet retailers, and that’s the fact that the manufacturers, and to an extent the distributors, don’t care where the volume comes from. If they did, they would be able to very simply tweak the business model by allowing retailers that have a ‘physical store’ presence to circumvent the MAP [minimum advertised pricing] and IMAP [internet minimum advertised pricing] restrictions.
“A very under-the-radar topic in the pet food world is the fact that IMAP pricing hurts brick-and-mortar retailers by removing our ability to advertise the prices we want to advertise—and the reason we’re able to offer that price is because we do not have the overhead of shipping expenses added in.
“Think about it: If retailer X and internet retailer Y and paying similar, or even several dollars different, prices for their food, who wins when there is an inflated margin that is required by the manufacturer? The brick-and-mortar retailer who has controlled expenses and a margin structure that ‘does not’ need to add in shipping cost, or the internet retailer who must offer free or reduced shipping for a product?
“The IMAP pricing structure allows the internet retailers to have the extra margin baked into the artificially high IMAP price and to take that margin and apply it to shipping. As brick-and-mortar retailers, that should be something we are able to use ‘and advertise online and in print’ to our advantage, yet in the name of ‘protecting brick-and-mortar,’ the manufacturers have completely missed the mark.
“We believe that most of our peers in the retailing world have been slow to realize this advantage that IMAP pricing offers internet retailers, and have simply accepted the reasoning that MAP or IMAP pricing is designed to protect us when it does not, and in most cases, does the exact opposite. Until this business model is changed by the large pet food manufacturers, there will continue to be a slow death of brick-and-mortar pet food retailers in the U.S.”