Inflation Nation: Pet Market Sees Prices Climbing, Sales Dropping
This is part one of a two-part series on inflation in the pet market. Part one explores pet inflation in three key categories: pet food, pet services and pet supplies. In part two, we will explore inflation in veterinary services.
From treats and toys to food and medical services, the price tag for Sparky and Cleo just got a little more expensive. Inflation is driving up the cost of goods and services including pet food, veterinary care, pet services and pet supplies.
What a Pet Wants, What a Pet Needs
Price sensitivity increases for commodities, and this puts some pet supplies in a precarious position as inflation continues. John Gibbons, the Pet Business Professor and president of A GPS for Pet Businesses, has been tracking pet inflation, or “petflation,” since 2014.
Inflation is tracked with the Consumer Price Index (CPI), the measure of the average change over time in prices paid by urban consumers for a market basket of consumer goods and services. The Federal Reserve has not established a formal inflation target, but policymakers generally believe that an acceptable inflation rate is around 2% or a bit below.
The U.S. Bureau of Labor Statistics (BLS) has been reporting the CPI for all four pet industry segments — pet food, pet supplies, pet services and veterinary — and total pet sector monthly since 1997, and they have been reporting the data for pet products i.e., pets, food and supplies since 1977.
In March, U.S. inflation was the worst since 1981. In April, petflation was up 8.1%, 97.6% of the national inflation rate. While petflation stabilized in May, by June the products segment surged, and prices increased to 8.8% above 2021. Petflation officially surpassed the national CPI in June with the national CPI at 8.5% and petflation reaching 9.1%. The chart below shows the total U.S. CPI against pet-specific categories:
“There are two different patterns between the services and the products segments,” Gibbons writes in his blog. “Veterinary and services prices generally inflated after mid-2020, a pattern similar to the overall CPI. Food and supplies prices generally deflated until late 2021. After that time, inflation took off. In March, the rate of increase over the prior month slowed for services and supplies but accelerated for food and veterinary. In April, supplies deflated but the others grew.”
Pet Food: A Volatile COVID Tale
Pet owners binge bought pet food at the beginning of COVID, Gibbons says, just as we saw in the regular grocery market. But after a deflation in 2021, inflation in pet food began to grow and appears to be accelerating in this category.
Across demographic groups, people are pretty well committed to more expensive pet food, Gibbons says. So if the price goes up, they will often just pay it.
Gibbons says pet owners often make their initial buying decision on pet products in person. The only product category higher than pet products for in-person purchasing is fresh groceries. This is one reason brick-and-mortar pet stores continue to thrive. But once Americans identify a food they like, they will look for ways to buy it online cheaper.
“Super-premium pet food is probably the perfect internet product because you need the same amount every day come hell or high water. And so, why wouldn’t you order from the internet, have it delivered to your door and pay 20% or 30% less?” he asks.
On the pet supplies category, Gibbons says, since 2009, he’s shown that when there was inflation in pet supplies, small changes such as half a percent would drive sales down. The pet products category has become very price sensitive because it’s become commoditized. So pet owners may opt to buy cheaper pet toys, for example, and buy them less frequently.
“Pet owners generally don’t stop buying, they just reduce the frequency of purchase. Instead of buying a new dog toy every 60 days, they buy it every 66 days,” he says. “That difference in one year could make a significant difference in sales, just moving the purchase frequency back six days. That’s huge.”
COVID had other potential impacts on sales as well with an increase in dog ownership and people walking dogs. On the other hand, Gibbons says products like crate sales may have dropped. After all, with fewer pet owners leaving the house, many were less likely to crate their dogs.
Could Pet Product Popularity Predict a Recession?
In April, Yahoo News anchor Brian Sozzi postulated pet owner spending might be a predictor for the health of the economy, an idea that’s been labeled The Fluffy Puppy Indicator. Specifically, pet owners are spending less on discretionary pet supplies, such as dog accessories, pet beds and grooming.
Gibbons reminds us not all categories of pet spending are equal. For example, at the beginning of the pandemic, pet owners were binge buying pet food, just as they binge bought groceries. And veterinary services also remained strong, because pet owners worried about the availability of procedures and wanted to protect the health of their furred, feathered and scaled friends. There are different spending patterns in each of the segments of pet spending.
Bottom line: While a drop in pet discretionary spending might forecast a recession it’s probably part of a broader issue, and we should potentially look at discretionary spending as a whole.
Consumers have recognized price increases in a number of categories within and outside of the pet marketplace. Companies in the pet industry can respond to necessary price increases with clear and transparent communication on social media, through PR efforts and with messaging to their retailers and consumers.
In the next blog in this series, we’ll explore the rising veterinary costs and how they’re impacting veterinary visits.
Portia Stewart is a senior consultant at Curious Plot, focusing on the companion animal market. She is a former team channel director for dvm360 and former editor of Firstline magazine, part of a nearly 20-year career working in companion animal health media.