Living the life of luxury

Wealthier pet owners are increasingly driving the dog and cat market, with pet-owning households with annual incomes of at least $70,000 now accounting for more than half (51 percent in 2005, compared to 35 percent in 2000 and 28 percent in 1995) the dollars spent on pet products and services ($47 billion), according to an August 2007 report from MarketResearch.com’s Packaged Facts division.

Between 1995 and 2005, the $70,000-plus households, which comprise less than one-third of overall pet-owning households, tripled their household expenditures from $5.2 billion to $18.6 billion and now account for more than half of spending for pet supplies, pet services and veterinary services, according to the Packaged Facts report “Market Trends: Premium Pet Demographics and Product Purchasing Preferences.” During that time, these households more than doubled their market share of overall pet supplies spending and now account for more than 60 percent of pet services bought. Those are three of four pet market categories tracked by the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey. These households also accounted for 42.7 percent of pet food expenditures, the fourth and largest category.

Although some of the growth in this segment’s market share can be attributed to a general increase in upper income households, it also signified the success of marketers tapping into the premium pet household’s willingness and ability to pamper their pets, Packaged Facts reported.

This shift ties directly, both as a cause and an effect, into trends toward more premium pet products and services, collectively described as “functional pampering” by Packaged Facts.

“Products for pets are being made to resemble those for humans,” said Tatjana Meerman, publisher of Packaged Facts. “Especially among aging Baby Boomers, empty nesters, DINKs [dual-income, no kids couples] and singles, humanization is fueling consumer demand for premium products and services, including those bearing familiar brand names crossing over from the human side.”

These trends include marketing pet humanization, an increase in products marketed as upscale, the growth of pet boutiques and upscale independent pet specialty shops, and an interest in upscale pet products by non-pet retailers.

Market Share by Category: $70,000-Plus Income Households

1995         2005

Pet Food              23.8%        42.7%

Pet Supplies        22.8%        50.1%

Pet Services        51.1%        61.7%

Sources: Packaged Facts, based on U.S. Bureau of Labor Statistics

The general humanization trend, both in the products themselves and their marketing pitches, attempts to “strike an emotion chord among pet owners, who are thinking in human terms as they shop for pet products and applying their own preferences to the products they select,” according to the report. This explains the appeal of many licensed products and terms such as “organic” and “functional.”

For example, “upscale” was the second most common new product claim (after “natural”) in 2006, according to Datamonitor’s Productscan Online service, which saw a 28 percent increase in the number of new products designated at upscale in 2006 (185 products) from those designated as upscale in 2005. More than half of all new pet food products in 2006 were designated upscale, up from 23 percent in 2002, and almost one-third of pet supply products were so designated (up from 14 percent).

By comparison, “natural” was the most common new product claim, with 191 new “natural” products hitting the market in 2006, up 30 percent in 2005. Including “organic,” the product count for 2006 hits 220, and nearly 1,000 natural or organic pet products hit the market between 2002 and 2006.

That trend is likely to continue as major marketers enter that market segment, forcing the smaller pioneers to scale up their offerings, moving increasing to the organic side of the equation and adding value-added claims such as human-grade, locally grown, all U.S.- sourced, fair trade, no cruelty and sustainable.

In a revised “Market Trends: Natural, Organic and ‘Eco-Friendly’ Pet Products” report due out this month, Packaged Facts will estimate that U.S. retail pet sales of natural pet products will top $1.1 billion by 2009, up from $728 million in 2006 and $338 million in 2001. Pet food will account for 71 percent of those sales, followed by cat litter at 20 percent and health products at 9 percent.

Supporting shifts toward humanization and pampering is the aging of American pets. The aging pet population “will soon emerge as the single most important pet market sales driver and marketing thrust,” according to Packaged Facts, estimating that nearly half of all dogs and cats are at least six years old.

Not only is this important in that as pets live longer, owners spend more to care for them and have more time to develop a stronger bond, but pets are aging along with Americans—which strengthens the emotional connection between pet and owner. The older pet owner, moreover, is more likely than a younger pet owner to be “highly dependent on this mutual, and increasingly primary, source of companionship.”  Conversely, pet ownership declines sharply beginning at age 65.

The premium pet product market has also attracted non-traditional retailers of pet products, including wholesale clubs, department stores, home furnishing and housewares stores, sporting goods stores and mail order businesses. These retailers are leading with gift and luxury products, including upscale collar and leash sets, jewelry, plush beds and indoor dog house décor, convenience-oriented products, licensed products and human cross-over brands such as Chanel, Burberry, Coach, Gucci, L.L. Bean, Nine West and Ralph Lauren, according to the report.

Packaged Facts predicts the nontraditional segment will grow by about 10 percent annually through 2010, when the segment will post pet product sales exceeding $4 billion, with Internet sales alone likely to top $1 billion within five years.

Online sales of pet products grew 30 percent in 2006, according to Forrester Research and Shop.org, reflecting that 30 percent of dog and cat owners reported they were “doing more Internet shopping than before,” compared to 26 percent of all U.S. adults.

Online shopping appeals more to affluent households, with households earning more than $150,000 being 48 percent more likely than average to buy pet products online.

"The general humanization trend, both in the products themselves and their marketing pitches, attempts to “strike an emotion chord among pet owners, who are thinking in human terms as they shop for pet products and applying their own preferences to the products they select."

The report designates one out of three dog- or cat-owning households as a premium pet household, defined as single-person households with annual incomes of at least $50,000, two-person households with annual incomes of at least $75,000 and three-plus-person households with annual incomes of at least $100,000.

The report also takes a detailed look, including product and brand preferences, into six subcategories within the premium pet household market, specifically affluents (household incomes greater than $150,000), specialty shoppers (households that buy pet products only through pet stores or the Internet), married with children households, empty nesters, DINKs and singles.

As market segments such as singles, empty nesters and DINKs grow more significant to the pet industry, children are losing status as pet market drivers, the report said, citing Simmons Market Research Bureau data that households without children grew from 58 percent to 61 percent of all pet-owning households from 2003 to 2006. Figures from the American Pet Products Manufacturers Assn. mirror the 61 percent figure.

Significantly, nearly four of five U.S. households had no children in 2000, according to the Census Bureau, which reported 26 percent of households were singles and 52 percent were families with no children living at home.

Packaged Facts estimates that 70 percent of pet products and services are now purchased by households without children, up from 45 percent in 2000.

The report speculates that people without children can buy more—and more expensive—pet products and services because they have more discretionary income and time. <HOME>