Who Will Rise if PetSmart and Petco Merge?


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With a potential merger between PetSmart and Petco looming over the pet specialty channel, the million dollar question just may be who can and will step up to fill the void that such a deal would create in the national pet products retail market?

As you will read in this month’s cover story, it was widely reported this fall that Petco and PetSmart had begun discussions toward merging the two big-box pet chains—a development that would surely have far-reaching implications for the industry. According to a number of industry experts, such a deal would almost undoubtedly create an opening for one or more of the channel’s rapidly growing chains to rise into national prominence.

But who are the likely contenders? Let’s take a look:

Petsense: Petsense seems to be an  early favorite in the minds of many industry observers, largely because of its past growth arc and the pedigree of its leadership. Established by PetSmart founder Jim Dougherty just 10 years ago, and helmed by fellow PetSmart alumnus Bob Angstead, the chain has already grown to nearly 120 stores with the help of private-equity investor Winona Capital. While much of that growth has taken place in the southeast, Petsense operates stores coast to coast.

Pet Valu/Pet Supermarket: The Pet Valu chain is another retail brand that is cited as a leading candidate to fill the void left by a Petco/PetSmart merger. Last year, the Markham, Ontario-based company—which is backed by private-equity firm Roark Capital Group in Atlanta—acquired Jack’s Pets, a 32-store Midwest chain, based in Dayton, Ohio. The deal brought Pet Valu’s store count up to more than 600 units across North America, including 200 in the U.S.

Shortly after the Jack’s Pets acquisition, Roark Capital also purchased the Sunrise, Fla.-based Pet Supermarket chain. However, all indications are that the intention is to continue operating the chain’s 150-plus stores in the southeast under the Pet Supermarket brand, rather than folding it into Pet Valu. Many industry experts believe that Roark has its sights on evolving both retail brands on a national scale. But in business anything can happen, so don’t be surprised if the two chains are eventually merged.

Pet Supplies Plus: Under the ownership of Irving Place Capital for the past five years, Pet Supplies Plus (PSP)—the fourth-largest pet specialty retailer in North America and the largest pet retail franchise in the U.S.—has been aggressively adding both franchise and corporate locations. In 2014, PSP reportedly grew by about 10 percent, bringing its store count up to more than 300, with the stated goal of adding 200 more units over a five-year period.

Kriser’s: Kriser’s Natural Pet is a bit more of a long shot, if for no other reason than its relatively modest store count, which is currently at around 30. However, with the backing of private-equity investors Alliance Consumer Growth LLC and River Hollow Partners, the chain has grown its reach from its original Chicago base to include Southern California, Houston and Denver. Clearly, founder and CEO Brad Kriser and his deep-pocketed investors are not limiting the retail brand to simply being a regional player.

This is a strong list of contenders—so strong, in fact, that those in the know say the removal of one of the two pet specialty powerhouse retail brands may not be necessary for the emergence of a new national player. So, the real question may not really be who will fill the void; but rather, how many heavyweight competitors will independents have to square off against in the months and years ahead?

 

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