Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Squeezing the Pet Care Industry
Transcript
- Lucas: So Luna, this morning I was looking at the latest CPI data — May's reading came in at 334.0, up from 332.41 in April. That's about 4.3 percent annualized. Luna: Yeah, and real GDP growth is barely above 1.6 percent annualized. That is the textbook definition of stagflation. Lucas: Exactly. We've talked about how that squeeze hits chocolate, gold, home insurance — but there's one industry I think we've overlooked completely: pet care. Luna: Pets? I mean, people love their pets. Is that really discretionary? Lucas: It's more discretionary than you'd think. And the data is starting to show it — in a big way. Luna: Alright, walk me through it. Lucas: So here's the headline number: premium pet food sales are down 17 percent since January 2026, according to Nielsen scanner data. That's the steepest drop since the 2008 recession. Luna: Wow. And those are the higher-margin products, right? Lucas: Right. The raw, freeze-dried, grain-free stuff that was flying off shelves a couple years ago. People are trading down to store-brand kibble. It's the same pattern we saw in the restaurant industry — premium gets squeezed first. Luna: And this is across the board, or concentrated in certain regions? Lucas: It's national, but it's worse in states with higher unemployment. Nevada, for example — headline unemployment is still above the national average. And just last week there was a CNBC piece on how Nevada is one of the hardest places to find a job right now. Luna: Yeah, I saw that. 'Struggling to find a job? Try looking in Nevada.' So if you're unemployed and you have a pet, something has to give. Lucas: Exactly. And it's not just food. Veterinary visits for routine care are down about 12 percent year-over-year. Emergency vet visits are down too — people are delaying treatment. Luna: That's worrying. Delaying vet care can turn a minor issue into a major expense later. Lucas: It does. And that's part of the stagflation trap. People can't afford the preventative care now, so the animal gets sicker, and then the bill is even bigger. Luna: Right. And if you can't pay that big bill, what then? Lucas: You surrender the pet. Shelters in high-unemployment areas are reporting a 30 percent increase in owner-surrendered animals since Q4 of last year. Luna: That's heartbreaking. And it's a direct consequence of the macro environment. Lucas: It is. And speaking of consequences — one thing we've noticed is that episodes like this, where we connect the macro data to real human decisions, are exactly why we keep this show ad-free. We don't run ads because we want to be able to talk about anything without worrying about a sponsor's reaction. Luna: Yeah, and that includes tough topics like pet surrenders or premium food declines. No one's telling us to soften the language. Lucas: Right. So if that kind of independent analysis is valuable to you, the simplest way to support it is at buy me a coffee dot com slash fexingo. No subscription, no commitment — just a one-time gesture if the show helps you think clearly about the economy. Luna: And it genuinely keeps us going. Anyway — back to the numbers. You mentioned pet insurance earlier? Lucas: Yes. Pet insurance premiums have jumped 22 percent year-over-year. That's way above the overall inflation rate. Luna: So even if you want to protect yourself against a big vet bill, the insurance itself has become a lot more expensive. Lucas: Exactly. And that creates a two-tier system. Wealthy owners can still afford comprehensive plans and premium food. Everyone else is cutting back or dropping coverage entirely. Luna: So we're seeing a divergence in pet care quality, much like we see in human healthcare. Lucas: Exactly. And the data backs it up. The share of pet owners with insurance actually declined slightly in Q1 2026 — the first drop since the market took off around 2020. Luna: That's a significant inflection point. Let's talk about the broader implications. What does this mean for the pet industry as a whole? Lucas: Well, the total addressable market is still huge — Americans spent over $150 billion on pets last year. But growth is slowing. The compound annual growth rate has dropped from about 6 percent pre-stagflation to maybe 2 to 3 percent now. Luna: And that's nominal growth. In real terms, it's probably flat or negative. Lucas: Right. Because if inflation is 4 percent and your revenue is only up 3 percent, you're actually shrinking in real terms. Luna: So which segments are holding up? Is there any bright spot? Lucas: Actually, yes. Low-cost, high-value items are doing fine. Basic kibble, generic flea and tick treatments, standard vaccines — those are still selling. And the big-box retailers like Walmart and Costco are gaining share because they can offer lower prices. Luna: So it's a barbell effect. Premium and ultra-budget both exist, but the middle is getting squeezed. Lucas: Exactly. The mid-tier specialty pet food brands are the ones getting crushed. They can't compete on price with the big boxes, and they don't have the cachet of the super-premium raw brands. Luna: And I suppose the M&A activity reflects that. Are we seeing consolidation? Lucas: We are. There have been three notable acquisitions in the pet food space just in the last six months. Larger players buying distressed smaller brands at discounted valuations. Luna: That's typical in a stagflation environment — the strong buy the weak at bargain prices. Lucas: Exactly. And the same is happening in veterinary services. The large corporate chains — Banfield, VCA, BluePearl — they're acquiring independent clinics that are struggling with cash flow. Luna: So the independent vet, the family-owned pet store, the boutique food brand — all under pressure from both inflation and slow growth. Lucas: Precisely. And the question is: when — or if — the economy normalizes, will those independent players come back? Or will the market structure have permanently changed? Luna: That's the million-dollar question. I think history suggests that once you lose that independent infrastructure, it's hard to rebuild. Lucas: I think you're right. Look at what happened in the grocery industry after the 2008 recession — the independent grocers never really recovered. The same pattern could play out in pet care. Luna: And that would ultimately reduce choice for consumers, especially in terms of price competition. Lucas: Right. Fewer independent players means fewer price wars, and over time that could mean higher prices even after inflation cools. Luna: So stagflation isn't just a temporary squeeze — it can permanently reshape an industry's structure. Lucas: Exactly. And that's why we keep drilling into these specific sectors. The aggregate numbers — CPI, GDP — they tell you the weather. But stories like pet care tell you how the climate is changing. Luna: Well said. And on that note, I think we've covered a lot of ground. Next episode we might look at another overlooked sector. Any hints? Lucas: Let's just say I've been looking at the number of job openings per unemployed worker. JOLTS came in at 7.6 million openings in April — up from 6.9 million in March. That's a surprising resilience in the labor market, but the composition is shifting. More on that next time. Luna: Looking forward to it. Until then, thanks for joining us.