Will Chewy.com help PetSmart gobble up the online pet market?

Discussion
Photo: Chewy.com/Facebook
Apr 19, 2017
George Anderson

PetSmart announced yesterday that it has reached a definitive agreement to acquire the online pet products retailer, Chewy.com. In making the deal, PetSmart, which operates 1,500 stores, acquires a major online player that has achieved significant growth since its founding in 2011.

Chewy grew to the second largest online seller of pet products in the U.S. during the first quarter with a 24.9 percent share of the category, according to Slice Intelligence. Amazon is the largest online seller of pet products with a market share of 57 percent. PetSmart, with a 1.7 percent share, is ranked fifth among online sellers of pet products.

“We are focused on improving our customers’ experience in-store and online as we continue to execute against our long-term strategic initiatives,” said Michael Massey, president and chief executive officer of PetSmart. “Chewy’s high-touch customer e-commerce service model and culture centered around a love of pets is the ideal complement to PetSmart’s store footprint and diverse offerings.”

“Since we started Chewy, we have been dedicated to understanding and satisfying the evolving needs of our customers to deliver the highest quality pet products and customer service,” said Ryan Cohen, co-founder and CEO of Chewy. “Combining our strong e-commerce expertise with PetSmart’s best-in-class infrastructure, footprint and breadth of offerings including services will help us ‘wow’ our customers even more.”

Mr. Cohen will continue to lead Chewy once the deal with PetSmart has been finalized. The company will operate as an independent subsidiary of PetSmart. Both companies will share capabilities and product offerings to better serve customers.

DISCUSSION QUESTIONS: What will PetSmart’s acquisition of Chewy mean for pet product retailers and their rivals? What will PetSmart and Chewy need to do to make this deal a success?

Braintrust
"PetSmart would be wise not to mess with the Chewy model, rather they should keep the brand and support it."
"The key here is that PetSmart really understands how meaningful it is that Mr. Chewy has a “high-touch” model with its shoppers. "
"I’m wondering if Amazon will roll out a dedicated pet products Pop Up Store in response."

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14 Comments on "Will Chewy.com help PetSmart gobble up the online pet market?"

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Max Goldberg
BrainTrust

The acquisition makes a lot of sense for PetSmart, who has not been able to gain much e-commerce traction. It also makes sense for Chewy investors, who come out of the deal with piles of cash. The question is, how will consumers fare now that Chewy is no longer a stand-alone e-commerce retailer? As a loyal Chewy customer, I hope that PetSmart will not do anything to hurt the customer service culture that makes dealing with Chewy such a pleasure.

Lesley Everett
BrainTrust

Chewy.com has an excellent customer service model — PetSmart will need to ensure that theirs is of an equivalent standard by providing a high level of training to frontline employees and creating an engaged employee culture. Failure to do this will create an inconsistency in the two brands that could have significant negative effects.

Ken Lonyai
BrainTrust

PetSmart would be wise not to mess with the Chewy model, rather they should keep the brand and support it.

For an independent, the company has done extremely well. To kill the brand and absorb it, would potentially destroy the gains the acquisition provides. Although Amazon is bigger, I do not believe they have the same product mix and pet owners often prefer a more focused seller (as the market share numbers support) for their beloveds. Chewy’s prices are probably better as well.

Petco is the one that should be most worried. They have to battle on every front and what PetSmart loses/lacks in-store is now instantly propped up by this acquisition — a fallback Petco does not have.

Paula Rosenblum
BrainTrust

I’m a little upset over this, since Chewy has become my favorite pet supply retailer (WAY better than Amazon, packaging-wise). If PetSmart doesn’t jigger with the formula, life will be grand. If they decide they have clever ways to save money, I’ll be depressed and Chewy will lose its edge. No one comes close to the way they package trays of wet pet food. No one.

Bob Amster
BrainTrust

The acquisition of an e-commerce pure-play by a primarily brick-and-mortar retailer is a trend we have been seeing with a number other mergers, most recently with Walmart. This is an opportunity for PetSmart to gain e-commerce expertise and a large number of customers loyal to Chewy.com. It represents increased competition for PetSmart’s rivals and an almost instant opportunity for PetSmart to improve its online presence without necessarily disrupting Chewy’s brand. PetSmart should be careful not to destroy the brand value of Chewy.com in the process of acquiring it and its expertise.

Adrian Weidmann
BrainTrust

As a pet owner, I am a customer of Chewy.com. Their customer service and attention to details are impressive. While this is a smart acquisition for PetSmart, I can only hope that the high level of customer service that Chewy has been able to maintain is not lost or abandoned by PetSmart. If anything, PetSmart should listen to and learn from the folks at Chewy in order to improve their physical store experience. This will certainly put the pressure on Petco, Chuck & Don’s and other pet product retailers. While Chewy is certainly convenient their higher pricing reflects the convenience. Competitors will need to step up their game in terms of in-store experience, community and price to overcome the online advantage.

Ben Zifkin
Guest

I really like this play. You are starting to see this become the game plan for many brands and retailers. Whether you are an incumbent large retailer or brand, you are not going to be able to move at the velocity of some of the other more niche players. I foresee these large retailers and CPG companies becoming more like parent/holding companies to a portfolio of great other companies. Mark Lore has started this at Walmart and many CPG companies are enhancing their brand portfolio by acquiring up-and-comers.

Ken Cassar
BrainTrust

Wow. This is the boldest acquisition that I’ve ever seen of an online pure play by a brick-and-mortar retailer. Not just the fact that PetSmart paid $3.3 billion, but the size of the acquisition relative to PetSmart’s $8 billion market capitalization. It is a “bet the company” move. For this deal to pay off, scale and bricks and clicks integration will be critical. They need to continue Chewy’s pace of growth to achieve profitable scale on delivered orders, and they need to leverage PetSmart’s huge store base as miniature fulfillment centers.

Anne Howe
BrainTrust

The key here is that PetSmart really understands how meaningful it is that Mr. Chewy has a “high-touch” model with its shoppers. Because pets are kids too! There is a big opportunity here!

Brian Kelly
Guest
5 months 4 days ago

I think this is a disaster. Zappos’ acquisition by Amazon comes to mind. Is PetSmart’s corporate culture sufficiently confident to endure the first three years of ownership? Is it financially strong enough to withstand the inevitable “J-curve” of profitability? The base here is brick-and-mortar retail and comping. Not a dot-com with a bright fuzzy future despite a lack of profitability. And then there are Amazon and Walmart. Those are train horns not dog whistles!

Whew, retail ain’t for sissies!

Karen S. Herman
BrainTrust

Wowza. So many interesting online and offline retail opportunities to consider with PetSmart’s acquisition of Chewy. First, this pairing should continue to generate an attractive challenge to online pet product shopping with Amazon. I’m wondering if Amazon will roll out a dedicated pet products Pop Up Store in response. Secondly, bringing the Chewy brand in-store at PetSmart offers the opportunity to elevate the experience and delight and engage shoppers. From flash sales to interactive kiosks to branded fixtures or a Chewy Pop Up Shop, shopping the Chewy brand in-store should be a memorable experience that complements the culture Chewy has cultivated online.

Tom Redd
Guest

Smart move for the Pet. With Chewy leveraging the PetSmart brand they will gain more market share fast. Chewy can be a channel for some of the recent pet foods that PetSmart is dropping — due to the brands availability at Walmart (soon) and other stores.

Smart move Chewy! Welcome to AZ!

Min-Jee Hwang
BrainTrust

Following in Amazon and Walmart’s footsteps, PetSmart has made a smart move in its acquisition of an online competitor in order to boost its own capabilities. As with Walmart and Amazon, it now has to successfully integrate what made Chewy successful into its own structure without affecting Chewy’s core principles of customer service and its brand equity. Together they stand to outperform Amazon and become the best pet supplier on the market.

Thomas Becker
Guest
5 months 3 days ago

Not surprised. (Your move PetCo.) I see this as a perfect opportunity to accelerate retail transformation. A great benefit of Chewy is rapid home delivery. Rather than use the stores as a pick-up point, will they be able to cost-effectively move the origination of shipments to the local store and provide same-day or 24 hr delivery? And of course the companies will now enter into the all-important branding debate … to combine or not to combine the brands.

wpDiscuz
Braintrust
"PetSmart would be wise not to mess with the Chewy model, rather they should keep the brand and support it."
"The key here is that PetSmart really understands how meaningful it is that Mr. Chewy has a “high-touch” model with its shoppers. "
"I’m wondering if Amazon will roll out a dedicated pet products Pop Up Store in response."

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