The Strong Survive
While the past five years of economic strife have proven disastrous for many retailers, five pet specialty chains prove that it is possible to not only survive, but grow in a difficult economy.
The toll that the latest Great Recession and lingering post-recession economic malaise has taken on a broad spectrum of retailers is undeniable. Specialty stores, in particular, have felt the effects of tightening consumer pocketbooks over the past five years, as price-focused mass retailers like Walmart have tried to leverage this trend to capture a larger slice of the pie in a variety of product categories.
While the pet specialty channel is often considered to be recession-resistant, it has by no means been immune to the inevitable thinning of the retail herd that comes with mounting economic pressure. Many pet specialty stores have succumbed over the past five years; and the list of the fallen includes not only single-store independents, but also some fairly prominent chains.
Take, for example, Complete Petmart, a 32-store chain based in Dayton, Ohio, which was acquired by Petco in 2011. Or SuperPetz, which used to be a 25-store chain based out of Hatfield, Pa. After former SuperPetz owner Weis Markets (a regional grocery chain) divested itself of the bulk of its locations to Petco in 2010, it sold the SuperPetz moniker and remaining handful of locations to a third party. Today, SuperPetz operates just three 20,000-square-foot “superstores” in Ohio’s Miami Valley region.
But even as some pet specialty retailers have had to either shutter their stores or sell out to big-box competitors, there are a number of chains of that have thrived in the face of economic adversity. Not surprisingly, pet specialty behemoth PetSmart is right at the top of that list. However, when it comes to separating the winners from the losers in today’s retail landscape, size isn’t everything. Here is a look at how five chains, ranging in size from just three stores to more than 1,200, have successfully navigated through economic turmoil to not only stay afloat but grow their businesses over the past five years.
While PetSmart has actually slowed its rate of expansion in recent years, Pet Valu has taken the opposite approach, accelerating its growth over the past several years. The Markham, Ontario-based chain—which has a much smaller store format that focuses on convenience as its competitive strength—has opened 110 stores since 2007, growing the brand to 454 stores across Canada and in the mid-Atlantic United States.
An aggressive push to expand its presence in the U.S. has been a particularly important part of Pet Valu’s overall growth strategy over the past few years. Within the past 12 months, the company has opened 35 new Pet Valu stores in the U.S., bringing its total up to 94, from 59 last March.
According to Julie Johnston, Pet Valu’s vice president of merchandising and marketing, the company’s focus on growth can largely be credited to its 2009 acquisition by Roark Capital Group, an Atlanta-based private equity firm that has a portfolio of well-known retail (primarily food-service) brands such as Auntie Anne’s Pretzels, Cinnabon, Seattle’s Best Coffee and Carvel. “Before we were acquired by Roark, we had steady growth,” says Johnston. “But over the past three-and-a-half years, our growth has become much more aggressive.”
All indications are that the Pet Valu chain has profited from this strategy. “Over the past two-and-a-half years, we have seen double-digit sales growth [overall],” says Johnston, noting that this growth has been driven by not only increasing the number of Pet Valu locations, but also double-digit same-store sales growth in the in the U.S. and strong single-digit sales growth in its Canadian locations. In fact, Pet Valu’s sales increases have even extended into some of the more discretionary product categories, such as luxury collars, apparel and high-end beds, even in communities that have been hardest hit by recessionary forces, says Johnston.
In addition to driving the chain’s increased rate of expansion, Johnston says that Pet Valu’s acquisition by Roark Capital Group helped improve the performance of existing stores. “The infusion of capital went a long way in helping us renovate stores and truly change the face of Pet Valu,” she says. “Today, more than 75 percent of the chain has our new look, and that has obviously helped our sales.”
As Pet Valu has been busy renovating and expanding its brand, the company has also worked hard at finding operational efficiencies to complement and further drive its sales growth. This includes the installation of a full enterprise resource planning (ERP) system, which streamlines communications between various business functions, and a brand new POS rollout. “All of those things will help us to be more efficient and look at our business in a different way,” says Johnston.
Pet Valu has also leveraged technology to make staff training more efficient and consistent across the entire chain. The company has designed an on-demand online staff-training system, which covers everything from sales training to animal care modules that were developed by the University of California-Davis’ School of Veterinary Medicine. “Our CEO, Tom McNeely, is a big believer in online training,” says Johnston. “He wants to make sure our staff members are all experts in all of the topics necessary for helping pet parents.”
Elevating the Brand
Having carefully crafted its brand in the Twin Cities for almost 20 years before the recession struck, Chuck & Don’s Pet Food Outlet, a Mahtomedi, Minn.-based full-line pet store chain, was well prepared to weather a stormy economy. In fact, according to Chuck Anderson, who founded the chain with partner Don Tauer, the past five years have been a period of “dynamic growth” for the company, which almost doubled its number of locations—24 today from 13 in 2007. This includes getting a foothold in the Denver market, where Chuck & Don’s has opened five stores so far.
Like Pet Valu, Chuck & Don’s growth has come not only from the addition of locations, but also from strong performances by its existing stores, which the company has been able to maintain at close to pre-recession levels. “Our same-store growth [at the time of the recession] was at around 24 to 25 percent per year,” says Anderson. “At of the end of 2012, our growth was still around 19 to 20 percent.”
Anderson points to Chuck & Don’s high level of customer service as a major factor in the chain’s ability to prosper despite the tough economic environment. Whether it’s the company’s loyalty club, called “Friends of Chuck,” and its associated coupon-filled newsletter, the impressive knowledgebase of its store staff, or simply the willingness to carry a customer’s bags to the car, the focus on connecting with its customers has struck a cord with the communities that Chuck & Don’s serves. “I think that a lot of people are tired of self-service; they’re tired of having to do everything themselves,” says Anderson. “Their hungry for a warm, inviting atmosphere.”
To maintain this level of customer service across the entire chain, Chuck & Don’s puts a premium on staff education, as well as selecting applicants whose passion for animals makes them a good fit for the company’s culture. Also important to the way the chain manages its staff is the fact that information flows both up and down the company’s hierarchy. Input from store-level employees is always welcomed by Chuck & Don’s executive staff, who then uses it to strengthen the business as a whole. As a result, Anderson says that the chain sees very low turnover in its staff.
Offering customers as much selection as possible has been another strategy that has paid off for the Chuck & Don’s chain. Anderson says that the company can fit as many SKUs in its average 4,500-square-foot location as other retailers carry in 10,000 square feet. “You have to appeal to a vast array of customers,” he says about the company’s focus on product diversity. Not surprisingly, the increasing popularity of advanced diets—natural/holistic, limited-ingredient and frozen foods—has factored heavily in this diversity.
Of course, like any business, Chuck & Don’s has benefited from finding areas where its operations can be more efficient. For example, the company abandoned its practice of warehousing and distributing products to its outlets in favor of counting on pet specialty distributors to keep its shelves full—a move that Anderson says makes much more economic sense. In addition, the chain uses automated computer-based ordering to keep its in-stock rates up and has put dedicated staff in place for functions such as marketing, information tracking and store design. While these operational efficiencies were largely a product of the chain’s rapid growth, they have proven quite valuable in making Chuck & Don’s a stronger company over the past five years of economic trouble.
Life in Vacationland
By the time the recession began in late 2007, the fortunes of Pet Life, a 13-store chain based in Augusta, Maine, had already been changed by a key development that came a couple of years prior. In 2005, a private investment group acquired what was then a six-store chain operating under the name The Kennel Shop and brought on a new president, Pete Risano, to grow the business. It was a change that proved to have a fundamental impact on the way the chain was managed.
“The first couple of years were spent redesigning the existing stores,” says Risano. “We changed the store layouts and fixtures and updated the merchandising scheme to be more consumer friendly and intuitive.”
Once those efforts were well under way—coincidentally, around the same time the recession hit—Risano began opening an average of two stores per year and made the decision to rebrand the chain as Pet Life. It wasn’t long before the re-imagined chain extended its reach beyond the borders of Maine by opening two stores in Massachusetts, and two more in New Hampshire. Risano says that his goal is to keep opening two to three stores annually within the three-state region.
While recessionary forces did not really slow the Pet Life chain’s growth strategy, Risano says that it did have an impact. “It drove us to be better,” he says. “We knew that we were good at keeping down expenses, but we looked at every aspect of our operations to see how we could be more efficient. We couldn’t allow waste in any facet of the business. For example, we changed our internal communications from faxing things back and forth to putting everything online.”
Much like Pet Valu’s Johnston, Risano credits Pet Life’s investment-group ownership for helping to drive those increased efficiencies. “For them, it’s all about [profit and loss],” says Risano. “So, while we have a good relationship, it’s not all warm and fuzzy—it’s strictly business.”
Another key element for Pet Life has been an increased focus on marketing and staff education. The company has extended its corporate team to include personnel devoted to each of these areas, an important step for supporting the chain’s continued growth.
When it comes to product mix, Pet Life stores follow a full-line pet store model, including livestock in all but two locations. Although its food assortment does overlap somewhat with bigger competitors in the category, the chain focuses on higher-end independent food brands, which has been a key point of differentiation.
Like many full-line pet retailers, Pet Life has responded to the slow but steady declines in animal categories such as birds and small animals by shrinking their presence on its shelves in favor of higher-turn dog and cat products. However, Risano says the chain remains committed to the full-line model, including livestock sales.
In addition to refining its brand and product mix, Pet Life has also improved the performance of its supply chain in order to control pricing and maintain in-stock rates. Risano says that the company utilizes a 10,000-square-foot warehouse to supply its stores’ food aisles, which allows it to better manage costs. “I buy direct from most of the big food companies by the full truck load, which helps keep prices down,” he says.
While the warehouse was already in place when Risano joined the company, he says that it was originally used to supply 100 percent of the store’s product mix. However, again in an effort to increase efficiency, Risano took a close look at this setup through the prism of SKU rationalization and determined that its best use would be as a distribution hub solely for the chain’s food products. The company now uses regional pet product distributors to supply its hard goods.
Hitting the Spot
Healthy Spot stands apart from the previous pet specialty chains in more ways than just its size. In addition to focusing entirely on dog and cat products, the three-store chain, based in Los Angeles, actually opened the doors to its first location during the thick of the recession. “We started planning the business model in 2007, and we opened the doors to our first store in May 2008,” says Mark Boonnark, who founded Healthy Spot with co-owner Andrew Kim after both decided to leave previous careers—Boonnark was in advertising, while Kim worked for a hedge fund. However, even while facing the recession in its formative years, the company has flourished, not only adding two locations to its roster but also consistently improving the performance of each store.
Although the economic climate changed drastically between the planning stages of the first store and its opening, Boonnark and Kim were not deterred. “When we started on the idea to open Healthy Spot, it was always a matter of passion,” says Boonnark, noting that he and Kim—both dog owners—were inspired to start the chain, at least in part, by the 2007 pet food recalls. “We definitely put a lot of business thought into it, but all of the motivation came purely out of the desire to do something fulfilling. It was kind of that ignorance, I think, that allowed us to brave through tougher economic times.”
Not surprisingly, given their inspiration, Boonnark and Kim’s main focus in starting Healthy Spot was to provide pet owners with a source of superior nutritional products. “When we set out, our entire focus was on nutrition,” says Boonnark, noting that they aspired to become the Whole Foods of the pet industry. “We knew that there were already healthy brands on the market, but there was very little education and awareness about those brands. What we saw lacking in the industry was the ability to go into a store where you could trust everything that you buy and trust that the staff has the proper education. That’s what we set out to provide.”
While the jury is still out on whether Healthy Spot will reach the heights of Whole Foods, the use of the health-focused grocery chain as a model for inspiration is reflected in the owners’ approach to branding. “Branding has been very important to our success,” says Boonnark. “With our whole idea of becoming a national brand, we wanted to be unique and recognizable. With that in mind, we went through several iterations of logos and names and slogans until we found the right fit. Even in terms of the aesthetics of the store, we looked for elements that could be replicated so you could walk into any Healthy Spot location and recognize the brand.”
When it comes to managing its product mix, Boonnark says that Healthy Spot sticks to independent brands to set it apart from big-box competitors. “We don’t want to compete head-on with the mass channel or the big-box specialty chains, so we have a pretty strong strategy to have zero overlap with those types of stores. In addition, we have developed more exclusive relationships with some of our top vendors, and in doing so, we’re able to grow our volume and they can offer us better pricing.”
Another element to Healthy Spot’s success has been the important place that services hold in the chain. “Going in, we knew that the nutrition side of the business was somewhat recession proof, and we felt the same way about services,” says Boonnark. “Obviously, margins can be much higher with services as well. Ultimately, we felt that the synergy between different services and products would really prove to be unique from what was already out there—essentially providing a one-stop shop for all of a pet’s needs.”