Photos: Chewy.com
Has Chewy.com proven that online sales are going to the dogs?
Retailers sniffing around for online growth may find opportunities with pet owners (AKA pet parents, in some circles). Research conducted last year by Slice Intelligence found that online spending on pet supplies increased 67 percent between July 2015 and 2016.
Fifty-seven percent of online dollars for cats and dogs is spent on food and treats, according to Slice’s findings. The revenue generated by pet food and treat sales has grown 121 percent since the beginning of 2015.
Litter and housebreaking (9 percent); collars and leashes (7 percent); beds and furniture (5 percent) are among the pet segments contribution to overall online sales growth.
Research conducted by 1010data puts total online sales of pet care products at $1.5 billion for 2016. This is only a small fraction of total industry sales, which the American Pet Products Association estimated at $62.75 billion last year.
Pet care was second only to health supplements as the biggest consumer packed goods categories tracked by 1010data. As in the case of Slice Intelligence, 1010data’s research also pegged year-over-year growth at 67 percent.
The number one online seller of pet food and supplies today is Chewy.com, which has gone from $26 million in sales in the first year after it was founded (2012) to this year, in which it is expected to generate more than $2 billion in revenues. The company promises to ship orders placed by 4:00 p.m. the same day and one- to two-day delivery is free on orders of $49 or more. Chewy.com offers discounts on items in its Autoship & Save program.
Ryan Cohen, CEO of Chewy.com, told the Miami Herald that he and fellow co-founder Michael “Blake” Day, CTO of the company, initially intended to sell jewelry online before scrapping the idea to concentrate on pets.
“I always wanted to do something with pets, but I couldn’t figure out how to monetize it,” he told the Herald. “So, I was going to the pet store and realized the market online was really under-penetrated.”
Mr. Cohen said he and Mr. Day lacked passion when it came to jewelry, but not pets. “I understand the customer — because it’s myself,” he said. “So, we built the company.”
- National Dog Day Report: online spending on pet products is up 67 percent – Slice Intelligence
- 1010data Releases Industry Report: Consumer Packaged Goods Online Sales Surge 36% and Hit $10 Billion in 2016 Across Key Categories – 1010data
- Pet Industry Market Size & Ownership Statistics – American Pet Products Association
- Pet food retailer Chewy.com has seen fantastic growth. But can it keep up the pace? – Miami Herald
Discussion Questions
DISCUSSION QUESTIONS: Do you think there remains a great upside potential for pet products online? What does the move to online mean for retailers selling pet food and other products in stores?
Poll
BrainTrust
Bob Amster
Principal, Retail Technology Group
Paula Rosenblum
Co-founder, RSR Research
As I wrote in my post How to Find Strength In Being A Brick and Mortar Retail Store, I’m always shocked at the number of pet stores bemoaning how they lose dog food sales to online retailers. They don’t seem to understand that their customers don’t want to lug home a 30-pound bag every couple weeks.
If they established their physical store as their community’s source for pet food, then when pet owners came in to shop for something smaller they could build on that opportunity and set up an auto-shipment of dog food — and replace the online retailer.
At the time of this post there’s been only a couple of references to the auto-ship benefit. Currently we use a Chewy competitor, get free delivery and it’s easy to manage when the stuff is shipped. As you’d expect, they like to assume your dog eats twice as much as she actually does! I think they learned that early-ship trick from MLM companies!
There absolutely remains great upside potential for pet products online — as the article notes, despite breakneck year-over-year growth, only a fraction of all purchases are made online.
Pet owners value the convenience of delivery (especially for heavy bags of food), the superior selection some online retailers offer and competitive pricing. Product ratings and reviews are also trusted by shoppers who care deeply about their pets.
As in other categories migrating online, store-based retailers need to play to strengths in areas like service, expertise and proximity while retooling their stores and assortments to be competitive on fundamentals.
As a dog person who is going to pick up our new St. Bernard puppy next week, we’ve already used chewy.com. Pet products and food lend themselves perfectly to online sales. The same food staple on a regular basis — what could be easier? Given the service and experience that Chewy.com provides, it’s going to be very difficult for retailers to compete and maintain this category.
Pets are an undeniable favorite of consumers. The convenience of online shopping combined with an adjustable, automatic replenishment model will continue to grow the business, not just for Chewy.com, but for any retailer with stores, an e-commerce site and the capability to replenish and deliver.
I think this is a good lesson for all brick-and-mortar retailers but let’s look at pet products themselves.
The pet product retailers have been selling online for years. They should have had a price and a logistics advantage over any online retailer. But they have not scaled online and still have the bulk of their revenue coming from physical stores. They conceded this business to sites like Chewy.com. Why? Because Chewy is a better marketer to the customer. Chewy has formed a relationship with its customers and built loyalty. Chewy has made it easy to shop on their website and they understand how customers shop online and how to make their site easy and efficient.
This comparison should be a wake-up call to any physical store retailer. You need to invest in and understand e-commerce or startups like Chewy are going to chew your business up.
There is tremendous upside potential for pet products online, but now the brick-and-mortar brands who had an advantage five and 10 years ago will have to play catch-up and re-learn who their customer is.
Personally I am sure Amazon is doing fantastic business in this category, but I believe one factor why Chewy.com is doing so well is the user experience at Amazon. There, this category seems to be one of the richer sources of vendor advertising spend. On almost every site search at Amazon for pet goods, everything above the fold on results pages is sponsored, leaving many shoppers wondering what to choose. What’s more, the bright best seller banners are attached to many of the other items. I’m not sure if this is vendor-sponsored as well, but it contributes to the confusion in making choices. Chewy.com is much more straightforward in presenting items from website searches.
If the article is about dogs or horses I have to respond if only to be on record that I support any initiatives that bring benefit to these God-given gifts to humankind.
More than that, yes, there is still a huge upside for pet products. Most owners are more concerned about the source/quality of pet food and treats than they are for what they themselves eat! In addition there are still untapped pet categories, one of which I’m involved in. This article prompts me to reach out to Mr. Cohen and Mr. Day! If anyone can provide introductions, please let me know. They are great examples for how to find and act on your bliss.
Next to children, pets are one of the most important and beloved members of the family. People will go to incredible lengths to get the right food and products for their pets. Online is very appealing with all the choices and quality brands that may not be available at the local pet store.
If it comes down to a question of products at a better price with the convenience of delivery to your doorstep, online wins hands down and will continue to grow rapidly.
I agree with Bob Phibbs on this critical dimension. Pet stores MUST find ways to differentiate value to retain customer relationships — AND they must also be able to deliver staples like food to the customer’s home on a subscription-type basis.
You know, I have been getting ready to write about Chewy.com because I am so pleased with them. I stopped buying cat food by the case (I have three cats) at the big box players because I could not reliably find the flavors I wanted in stock.
Then I switched to Amazon. And while they are never out-of-stock, the packaging just wasn’t right. The flip side of Amazon shipping air so often is that when they can fill up an entire box, they do … without any padding. Too many crushed cans (since cat food cases are really “trays” with no box top, just shrink wrap.
Along comes Chewy.com, and they put their own corrugated toppers on the trays. So the cans are just about never bent at all. They’ve made a loyal customer out of me and, because I am buying once a month, I can deal with the extra day’s delivery time.
In other words, Chewy is not just in the pet food business — they do pet food RIGHT. I’m a fan.
I was an analyst during the Pets.com era and loved what Julie Wainwright, CEO of Pets.com had to say about the potential of the business. The consumer proposition is SO clear, but the economics are so hard (shipping 30 pound bags of things worth $50 or so). The top-line growth is there, so we know that it is possible to achieve scale. The big question is whether the shipping economics will work this time around. I’d LOVE to see trajectory of costs for Chewy. Are they indeed moving toward profitability?
Pet owners, aka pet parents, are passionate about their pets and the exponential growth in online sales is testimony to this phenomenon. I believe there still is room for growth online, particularly in the categories of treats and pet accessories. Large package orders of dog food represent a logistical opportunity and threat to brick-and-mortar as well as online retailers. For the store-based retailers there is a real opportunity to capitalize on the love of pet owners for their pets. Inviting veterinarians, groomers, trainers, pet clubs, etc. to engage with your customers either in-store or in the adjacent parking lot could represent a point of difference vis-a-vis other brick-and-mortar retailers as well as online competitors. Don’t forget to post the photos of your customers’ pets.
It’s all about convenience and great customer experience combined — Chewy.com has achieved this. Not only is it easy to order with quick delivery and good prices, the website offers auto-repeat orders and, when we signed up, sent a Thank You card through the mail to welcome us. Supporting local stores is important to most people, but those stores do need to find a way to stay relevant. Perhaps they can do that through offering regular educational events and looking for other products to offer that the online stores cannot easily provide.
Passion and pets go hand-in-hand. Pet owners love rewarding their precious dogs, cats, fish, birds, reptiles and horses. This is exactly what Chewy.com has tapped into with its online marketplace of pet supplies, food, treats and toys. Tremendous potential for growth exists as the U.S. pet specialty retail channel grows, with nutrition, aging, health and wellness and food safety as just a few emerging trends.
We are advising our clients that sell pet food and other products in-store to apply to become an available brand on Chewy.com and to invest in disruptive retail solutions to reach and reward consumers offline.
There is only upside potential to online EVERYTHING. Not just pet treats, food and supplies. This is still an immature market space but it is maturing at an incredible pace.
Expect logistics to keep up with product offerings. When free delivery is augmented by same-day delivery most every category of goods will migrate to online sales. Traditional retailing will be the exception rather than the rule. Not even grocery stores will be exempt.
This means that EVERYONE in traditional retail needs to be willing to redefine not only what they market but how they market.
For many, it will be a bitter pill to swallow because the business operations must change. Shedding of real estate will be the news of the day. Until everyone does it.
It is a sea change. No less pervasive than the shift from downtown shopping in the ’40s and ’50s to malls in the ’70s and ’80s. The downtown stores closed and malls replaced them. Online is doing the same to the market today.
Those that make the transition will survive and they will be different. Those that try to stop the tidal change will drown. But markets inevitably seek economies and the genie will never go back into the bottle.
Ken’s comment about Pets.com is spot on, and one of the biggest reasons that dot-com era e-commerce vendor failed — besides probably having far too big of an ad budget right out of the gate — was the logistics. While other brick-and-mortar retailers have put considerable resources into creating and maintaining an engaging and appealing online presence, pet stores like PetSmart still see online as just a secondary channel with very little emotional appeal. If Chewy.com can work out the logistics of free shipping, they will pose a significant threat to established brick-and-mortar pet retailers. There is a big upside to online in the entire pet retail segment, but Chewy.com’s functional but unemotional website could use an upgrade in order for it to tug at the heartstrings of pet owners.
There will always be an element of the online growth as Mills and Zs buy pets. The big need for the store side is a chance to speak in real life with the pros at the stores, use kennels and get product fast. The problem with this industry is that too many people get pets without knowing what pets really cost. The vet industry is short of vets, so prices rise there. And unless you know the pet game, pet prescriptions are super expensive. I get the human meds that are the same as pet meds but up to 10x cheaper. Hauling dog food from a car or a front porch makes no difference — price is the winner. Most Mills fall for the natural spin on expensive dog food. Totally un-needed for dogs or cats. Our one dog, blinded by a coyote attack, lived for a month off street scraps and mice and dead birds. Yes, natural — but free.
This is a category that begs brick and mortar retailers to transform their stores into a true destination for pet owners. They certainly have a great opportunity here with customers that will gladly buy products that make their pets lives better. Now, there also will be items that lend themselves to online buying and auto-replenishment — big bags of pet food come to mind here, and clearly retailers like chewy.com have figured out the right formula for this. I’d love to see Amazon figures for sales in this category for comparison but I suspect Chewy is delivering a more tailored experience to customers in this category. Pet retailers should have an easier time doing this than, say, apparel retailers, but it certainly feels that they’ve been treating their customers as a captive audience rather than a prized resource.