Diving Into the Data Stream
In today’s highly competitive, high-tech retail environment, pet stores that do not understand how to obtain and utilize key sales and customer information risk drowning in their own ignorance.
In an industry that has the power to evoke warm and fuzzy feelings, it may be surprising how often success or failure depends on cold, hard numbers.
That is the reality of pet product retailing in the information age, where just about every consumer behavior—from where they shop to what they “like” on social media to what they actually purchase—is being tracked, aggregated and contextualized against broader trends on any number of levels. Retailers that can tap into this type of information, whether it is streaming from their own stores’ point-of-sale (POS) systems or collected on a macro level, have a clear advantage in anticipating and responding to the trends that will have the biggest impact on their business.
Unfortunately, pet stores have not historically been at the forefront of the data revolution; and while these retailers—and the industry as a whole—have made great strides in collecting and utilizing sales and customer information over the past couple of decades, industry experts contend there is still much room for improvement.
“There are so many [independent pet] retailers that approach their business like it is a hobby,” says Maria Lange, business group director of the POS tracking team for GfK, a New York-based market-research firm that specializes in the pet specialty channel. “But at the end of the day, if you want your business to be successful, you really need to look at data to figure out what brands and products customers are looking for in the marketplace. Otherwise, you are making decisions based on your gut, and you are depending on luck.”
Andrew Kim, founder and CEO of Healthy Spot, a pet retail chain that operates seven stores in Southern California, agrees that making decisions without the benefit of hard numbers to back them up can be a dicey proposition. “There will be general biases when you rely just on individual assessments,” he says, providing the example of a store manager who believes that a particular product is a top seller simply because he or she personally sold many units of it. “Data will provide the analytics to support or diffuse that belief.”
Brian Strasser has gotten a first-hand view of the relatively steep learning curve that still exists among the pet industry’s independent retailers in his role as director of strategic alliances and enterprise sales for Lightspeed, a POS-system provider based in Montreal. “A lot of [independent pet retailers] are still using pen and paper or just cash registers,” he says.
Typically, when these retailers are asked how well their stores are faring or how much inventory they have on hand, Strasser says the answer is either an honest “I don’t know” or a disingenuous claim that they know exactly how their stores are doing and how much inventory they are carrying. “Those are the people that shy away from technology and feel that it is intrusive on what they do,” he explains. “So it’s a matter of trying to break their old habits.”
While some stubborn holdouts do still exist, industry observers say that a growing number of retailers in the pet specialty channel are adapting to the new realities of what it takes to compete in the modern marketplace. This has become particularly important as the competitive climate in pet product retailing has heated up over the past several years.
“As the industry grows, as it becomes more prominent and as you fight for your share of the overall market, data is becoming more important in helping retailers make smart, fact-based decisions,” says Dave Stevens, vice president of retail for GfK, noting that the food, drug and mass (FDM) retailers that continue to target the pet care market as a major growth area for their stores are among the most data-savvy players out there. “This is critical, because you’re not going to have the same leeway as in the past. If you make a mistake, it is going to be more costly because there are more opportunities to get similar products elsewhere.”
Derek Drushel, president of Joey’s Pet Outfitters, a single-store operation in Williamston, Mich., can be counted among the many pet store owners who have evolved their approach to managing information to the benefit of their businesses. While he founded his store in 2005, Drushel admits that he did not really have access to “reasonably good data” until approximately five years ago. “I wanted it, but the first point-of-sale system we were using was an old feed and agriculture-based system. It got the job done in terms of ringing up customers, but it was very difficult to pull reports and get any retail context from it.”
After replacing the old POS system with an updated version that proved problematic in its own right, Drushel installed his current system about three years ago, a move that greatly enhanced the store’s data collection and reporting capabilities.
For many pet specialty retailers, failure to fully harness the power of data is not necessarily due to a lack of motivation, but rather simply a dearth of resources. The good news for these retailers is that POS systems with all of the necessary data-collection, reporting and business-integration capabilities have become much more affordable, so this technology is no longer exclusive to large, national retail operations.
“POS systems are getting cheaper,” says Jessica Farina-Morris, vice president of marketing for Phillips Pet Food & Supplies, an Easton, Pa.-based pet product distributor that supplies more than 300 pet product brands to independent retailers across the country. “A lot of times in the past, it was a big ordeal [to install a new POS system]. You had to make a pretty hefty investment, and you had to bring in these big computer systems. Today, all you need is an iPad and about $70 per month to have the service that provides all of these bells and whistles for you in real time. So, it’s not as scary as it used to be.”
To make this technology even more affordable, Phillips Pet Food & Supplies has partnered with Lightspeed to include POS systems in the distributor’s IT Kit—a comprehensive set of business resources that independent pet stores can utilize to operate like their much larger big-box competitors.
At the end of the day, retailers should consider the cost of a good-quality POS system as an investment, rather than an expense. When used properly, this technology should not only improve sales, it should help to reduce costs in other areas of the business, such as inventory control. “When trying to determine the right amount of inventory to carry, there is a huge benefit in being able to see the relationship between sales and inventory,” says Strasser. “Being able to do purchasing, receiving and any accounting related to that through [a POS] system provides retailers with better insight into how their businesses are functioning and how well they are managing what ends up being their biggest cost—inventory.”
Of course, inventory management is not the only area in which a POS system can improve a retailer’s operations. One of the biggest benefits of tracking and reporting a pet store’s sales with this technology is that it can reveal important trends that may not have been obvious through casual observation. “A lot of times, retailers might have an inkling about a trend going on in their stores, but looking at the numbers will give them a clearer picture of what is really going on and will allow them to plan as accurately as possible,” says Farina-Morris. “For example, those numbers might say, ‘Hey, your frozen foods are flying out of the store; you should add another freezer.’ Or, it could reveal that a particular part of your toy selection just isn’t doing so well, so it’s time to take it out and freshen up the department.”
Paul Allen, CEO of Woof Gang Bakery, a franchise pet specialty chain with 64 locations across the country, says that this type of trend revelation has been instrumental in driving rapid growth for his company’s franchise and corporate stores. “We know what our customers are buying, and we market to them based on that information,” he says, noting that sales trends are typically analyzed on a year-over-year basis. “We can examine what the buying patterns are by location or by region, and we then turn around and share that information with our stores. For example, we may tell them, ‘Look, this percentage of your customers are buying raw food, and based on experience, we’re suggesting that you market these products to these customers.”
This strategy has contributed, at least in part, to some pretty staggering sales increases. For example, one store mentioned by Allen went from $360,000 to an expected $1.2 million in sales over a period of just two years.
For some retailers, a POS system’s tracking capabilities transcends traditional retail fare to also include pet-related services. That has certainly been the case for Woof Gang Bakery, for which Allen says the biggest revelation was the potential that grooming and other services held for its business model. “We never saw just how big [services] were getting in our stores,” he says. “Once we looked at the numbers, we all sat down in amazement. We realized that we were growing so quickly largely because of those services—particularly grooming services.”
In fact, grooming services now account for about 50 percent of Woof Gang Bakery store sales, according to Allen, who reports that sales tracking revealed another important trend related to grooming service customers. “We have to capture that customer who came into one of our stores for grooming and never bought food from us,” he explains. “We have to look at other food options, because when you consider the fact that such a small percentage of people are actually buying premium pet food, it is obvious that millions of pet owners are buying store brands and [other grocery and mass brands]. We have to work out for ourselves whether or not we want to go to all of our stores and say, ‘You may want to look at bringing in some less-expensive foods, because you have customers coming in and spending $60 a month on grooming, but they’re walking out of your store and buying their food at a big-box.”
As Woof Gang Bakery has learned by looking closely at its grooming customers’ food-buying habits, the insights that can be gained by overlaying data sets can be invaluable in providing context for any trends that are seemingly revealed. “Context is everything,” says Stevens. For example, “Based on the data they are looking at, a retailer may see what looks like an opportunity to put a high-margin item in place of a low-margin one. However, what may have been missed is that the original item is more than making up for its lower margin by driving traffic and other high-margin sales.”
An Outside-In Approach
While the ability to expose buying trends within the four walls of a pet store or across a chain can be invaluable, the fact is that this will only provide retailers with limited information upon which important decisions will be made. To broaden their perspective, retailers should seek out data on what other players in the market are experiencing on a local, regional and national level. It is an approach that has served Joey’s Pet Outfitters well, says Drushel. “Any time you can get data that can provide you with objectivity, take it,” he says.
Drushel did just that when he decided to partner with GfK, whereby he shares his business’ POS data with the market research firm in exchange for reports that aggregate sales information from more than 1,100 other pet specialty stores. The partnership, he says, has proven quite valuable in providing insight into what is going on in the rest of the market. “The problem before was that we were always completely in the dark about what was going on in other stores,” Drushel explains. “So what we were doing amounted to navel gazing. Now we have a picture of what is going on in other stores and can see whether a brand or category is growing or contracting.”
Pet product distributors can be another great resource for obtaining information about what is going on in the broader marketplace. For example, because it has a national presence, Phillips Pet Food & Supplies can draw on the purchasing habits of thousands of retailers to look for revealing patterns. “We are able to identify trends in the industry; so if something like grain-free diets is taking off, we can use that information to not only help strengthen our own portfolio but also make our retailers aware of the opportunity that bringing in those products can hold for the profitability of their business,” says Farina-Morris.
While the availability of all this data can be a great help to independent pet retailers in refining and growing their businesses, it can sometimes become a case of having too much of a good thing. “The problem with data is that it is never ending,” says Miller. “There is just a massive amount of data available and retailers have to figure out what and how much they really need. For those who are new to it or are on the smaller side, I would suggest they utilize simple numbers.
“After all, if you can’t get a positive outcome from [analyzing] these numbers, what’s the point?”