According to recent data, there are 60.2 million dogs, 4.7 million cats and 27 million other animals owned by households in the U.S. More than two-thirds of all households in America own a pet.
Consequently, there are large amounts of money spent on pets and pet supplies annually: Pet Food: 29.88 billion; Vet Care: 18.26 billion; Supplies/Medicine: 15.51 billion; Other Services: 6.47 Billion; Animal purchases: 2.01 billion (ref. WSJ, Feb. 21, 2019). And, yet, prominent pet stores like PetSmart and Petco struggle to make a profit as they face outsized competition from high-end pet food makers like Blue Buffalo who market their products through Walmart and Target and online companies like Amazon and Chewy who offer to ship pet food free to pet owners. Three years ago both PetSmart and Petco were acquired by private equity companies – PetSmart by BC Partners and Petco, by CDC Capital Partners/Canadian Pension Plan. This possibly explains why neither are doing well, as hedge funds and private equity have reputations of not being able to run companies well – cf. the story of Toys “R” Us in previous posts. The so-called management strategies of the two groups have been different, but with the same limited results. The owners of PetSmart decided on a strategy of going all-out for online product sales, purchasing Chewy for $8.7 billion. To date, Chewy is still unprofitable and sales growth has slowed even though the company has spent large sums on marketing. The Petco owners decided to try to expand foot traffic in their stores by expanding veterinary services and improving their grooming facilities to encourage customers to make more trips in. The company claims that its financial performance has improved. But in both cases, profit margins are thin, and sometimes nonexistent. Chewy/PetSmart has chosen to improve its margins by selling a wider variety of products, including prescription medication via the online pet pharmacy it launched last year and encouraging customers to sign up for automatic refill shipments. Amazon, however, has a distinct advantage in their ability to bundle a range of products, in addition to pet supplies, in the same shipment to offset the high cost of shipping large bags of pet food. The company also introduced its own brand of pet food, Wag, in 2018.
ALL THE MOVING PARTS: Clearly the challenge is to assure that all the moving parts of a company work in harmony and move together toward the overall goal. Thus, far, Amazon has proven itself to excel at this ability; time will tell if the other companies can manage to do the same. Perhaps, the private equity groups should sell to those who know better how to manage issues related to organizational change management.
CHANGE STRATEGISTS is partnering with the private operating foundation, ANIMAL OWNERS RIGHTS, to assist pet owners to better manage their pets’ health and well-being. There are homeopathic vets who work with the group – check out the website at: www.animalownersrights.com.