Pet specialty chains have fared quite well over the past five years despite-and in some cases, because of-recent economic troubles.
As with any thriving retail industry, the growth of the pet specialty channel over the past three decades has largely been driven by the success of multi-store chains. Whether you are talking about 10-store single-state operations, 20-store regional retailers or 1,000-plus-store national big-box behemoths, it cannot be overestimated what these chains have meant to the world of pet specialty retailing, particularly as the channel has faced increasing competition from mass retailers over the past several years. Through economies of scale, these retail operations are able to offer price-sensitive pet owners a viable alternative to shopping at Walmart, Target or their local supermarket, while still preserving—to varying degrees—the high level of customer service and pet-related knowledge that have long been the hallmarks of neighborhood pet stores.
This approach to retailing has paid off handsomely for pet store chains across the U.S. and Canada. However, success has not been evenly distributed across the broad spectrum of these companies over the past few years. Regional variations in the impact of a generally poor economy, combined with the relative strength of individual retail operations, have largely determined which pet stores have thrived while others have failed to survive. It is dynamics like these that have led to some significant changes in Pet Business’ list of North America’s Top 25 Pet Specialty Chains since it was last published in 2009.
By all accounts, the pet industry has fared quite well over the past few years. Widely known as one of the most recession-resistant retail segments out there, the market for pet products has chugged along nicely even as other industries have been decimated by declines in consumer spending. Put simply, pet owners remain committed to taking good care of their companion animals, even if it means cutting back in other areas.
In fact, U.S. pet industry expenditures grew by almost $10 billion over the past five years, breaking the $50-billion mark in 2011, according to the American Pet Product Manufacturers Association (APPA). Not surprisingly, that trend is expected to continue through 2012, by the end of which total expenditures should reach nearly $53 billion.
The impressive growth rate that the overall pet industry has experienced in recent years is similar to the pace of new store openings among pet specialty chains during the same period. The number of stores encompassed in the Pet Business Top 25 list increased to more than 3,900 this year from 3,210 in 2007. That is an increase of about 700 stores, which represents an average of about four-percent annual growth, compared with the industry-wide annual revenue growth of about five to six percent.
Not surprisingly, PetSmart (number one on the list, with 1,232 stores and counting) and Petco (number two, with 1,100-plus stores) were at the head of the pack when it came to new store openings. Between 2007 and 2012, the big-box chains added 266 and 230 stores, respectively. That is approximately 25-percent growth over the past five years.
To put the growth of the big-box chains in context, PetSmart and Petco each added around the same number of stores as all of the other players on the Top 25 list combined during the same period. In fact, the number of new stores opened by PetSmart since 2007 is actually higher than the number of stores in each of the chains that make up the rest of list, with the exception of Petco and Pet Valu, which came in at number three with a total of 403 stores.
The big-boxes were not the only members of the Top 25 to experience significant growth. All but one of the retailers on the list added stores over the past five years. Some of the more notable increases included:
• Pet Valu (#3): Based in Markham, Ontario, this mostly Canadian chain added 59 stores, including a push to expand its reach into U.S. markets.
• Global Pet Foods (#5): Formerly Global Ryan’s Pet Foods, the Brampton, Ontario-based Canadian chain added 57 stores and made inroads in the U.S. by opening two stores in Connecticut.
• Petsense (#9): Based in Scottsdale, Ariz., this chain, which was created by PetSmart founder Jim Dougherty, added 41 stores, mostly in southern states, but also in the Pacific Northwest, California, Indiana and Connecticut.
• Pet Supermarket (#7): Based in Sunrise, Fla., this southeast chain expanded its brand with 19 new stores.
A chain that has experienced growth eclipsed only by that of PetSmart and Petco, Pet Valu is a major player in Canada and a rising star in the U.S. “We’ve had phenomenal success in the U.S.,” says vice president of merchandising and marketing Julie Johnston. “Last year, our total store sales [in the U.S.] were up over 20 percent.”
In addition to opening 59 new stores in Canada and the U.S. over the past five years, the company also acquired fellow Canadian pet store chain Bosley’s Pet Food Plus (number 12 on the list, with 32 stores) in 2010, which it continues to operate under that brand.
Pet Valu plans to build on this success by accelerating its growth. “We are planning on opening a total of 70 stores this year,” she says. “And we are aggressively looking to acquire smaller chains in the U.S.”
The goal, says Johnston, is to grow the Pet Valu brand in the U.S., while increasing its dominance in the Canadian market. “What we want to do is [create a situation where] if a company like Petco looks north and says, ‘I wonder if there is an opportunity in Canada,’ the answer will be, ‘Nope, Pet Valu has it blanketed.”
Another chain that has experienced healthy growth is Pet Food Express, which has grown by 10 stores (to 42) since 2007, all within the San Francisco Bay Area. According to co-owner Michael Levy, the company’s success has come not only in spite of, but also because of the state of the economy over the past few years. “[The economy has affected Pet Food Express] only in a positive way,” he says. “Our industry is very strong, even through all the downturns of the last 50 years, and the sales at PFE continue to grow. Additionally, we have benefited from a down economy by being able to find more high-quality employees and the best real estate sites.”
Aside from the overall strength of the pet care category and opportunities that a stalled economy has provided, Levy credits his company’s commitment to pets, their owners and his employees as being key to Pet Food Express’ growth. “We strive to be upfront and transparent to everyone we touch,” he says. “Not everything is about profit, which separates us from Petco, PetSmart and mass.”
Levy expects to add three more stores to the Pet Food Express chain by the end of the year, and he hints at a possible change to Pet Food Express’ growth plan in the future. “For many years, we felt that we needed to be local to Northern California, but our employees and our customers have asked us to include all of California,” he says.
The Pet Supplies “Plus” chain has also been buoyed by the recession-resistance of pet owners’ commitment to their companion animals. “At Pet Supplies Plus, we have continued to see economic factors being trumped by the increasingly strong connection between people and pets,” says Amy Parker, chief marketing officer for the chain. “While other sectors of retail may have seen a greater impact, in our neighborhood-focused stores, we have seen continued positive customer acceptance.”
Parker credits Pet Supplies “Plus” growth strategy for the chain’s ability to take advantage of the pet care category’s strong performance over the past few years. “Our hybrid model of corporately owned and franchise-owned stores provides a distinct advantage in our capacity to grow stores and provide that connection to the neighborhood,” she says.
For the Petland chain, the economic troubles that began in 2008 proved to be more of a challenge, particularly because franchising plays a large role in the brand’s growth. “The lack of capital for new franchise development slowed the growth of new store activity,” says president Joe Watson.
Luckily, the chain has been able to overcome these difficulties, he says. “Capital is beginning to free up and new store development activity is increasing,” Watson says.
With the credit crunch behind them, Watson says that his company is poised for growth. “Petland remains very bullish on the pet retail space and our ability to continue to differentiate ourselves from the larger, merchandise-focused chain stores,” he says. “Petland provides a unique platform for consumers of all ages to get acquainted with a new pet and a wide selection of merchandise to meet all their pet’s needs.”
Additions & Subtractions
In addition to illustrating the growth of some of North America’s top pet specialty retailers, this edition of Pet Business’ Top 25 list also reveals some notable acquisitions, closings and reinventions of formerly prominent chains, including:
• Petcetera: A Canadian chain based in Richmond, B.C., Petcetera succumbed to financial pressures shortly after Pet Business released the 2009 edition of the Top 25 list. The company, which was founded in 1997, liquidated its 45 stores as a result of insurmountable vendor and creditor debt. After the chain filed for bankruptcy, founder Dan Urbani was able to buy back some of the company’s assets, and he is currently working to reestablish the Petcetera chain across Canada in a leaner format.
• Complete Petmart: This 32-store chain based in Dayton, Ohio, was acquired by Petco in 2011.
• Superpetz: A 25-store chain that was based in Hatfield, Pa., Superpetz is another retailer that dropped off the list after many of its stores were acquired by big-box competitors. However, Superpetz’ four original stores, as well as the Superpetz brand, were purchased by new president Tim Kleptz, who is rebuilding the brand.
Of course, there were also some new additions to the Top 25 list, including:
• Unleashed by Petco (#10): With a much smaller format and greater focus on service than its big-box cousins, this relatively new retail concept is Petco’s version of a small, independent pet shop. Since launching the brand in 2009, the company has opened 44 Unleashed by Petco locations.
• PJ’s Pets (#21): Founded in 1969, the Canadian pet store chain, based in Mississauga, Ontario, has 21 stores in the provinces of Ontario, Alberta and British Columbia.
• Pets Unlimited (#24): Another Canadian chain, which was founded in 1988, Pets Unlimited bills itself as “one of Canada’s original pet superstores.” The company currently has 17 stores across Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland.
• Red Bandanna (#26): Located in the Atlanta area, the Red Bandanna chain has grown to 14 stores by focusing on natural foods and supplies for dogs and cats.