The Chain Gang
By Dennis J. Farrell
National and regional pet specialty chains have driven the pet products market from a small cottage industry to a 21st century retail powerhouse.

In the nearly quarter of a century since ‘pet superstores’ surfaced in the Southwest United States, the pet specialty channel has had the best of times. The industry’s first big-box pet superstore, PetSmart, was founded by John Doherty in the desert town of Phoenix in 1987. Since then, the chain has grown organically–through a 1994 IPO, through multiple acquisitions, through multiple management changes (four CEO’s), a near collapse in the early decade of the new century, and now an orderly maturation into a solid, world-class, 1,137-store, $5-billion pet food and supply behemoth (an appropriate description considering one of PetSmart’s acquisitions was the chain Pet Food Giant). 

Not only has PetSmart been good to itself, its investors and its industry trade partners, it has also been good for its competitors.  The PetSmart retail model was the germination genesis of other regional pet superstore chains all over the United States and Canada.  What many entrepreneurs across the country witnessed in Phoenix, they emulated across our land in new pet chains throughout the 1990s.  The retail model itself, and the new standard of better merchandising, became the catalyst for the boom times in our industry throughout the past two decades.

Follow the Leader
As industry folklore goes, while vacationing in Phoenix in the winter of 1989, the late Harry Shallop witnessed the PetSmart model and called home to his Detroit business partner, Jack Berry and said, “. . . scrap the plans for our supermarket; change the concept to a pet superstore.” 

With that long-distance, midwinter telephone call, the Pet Supplies “Plus” pet retail chain was born on Telegraph Road in Redford, Mich. In the past 20-years, Pet Supplies “Plus” has grown to be the pet industry’s number-three chain, and the largest franchised pet superstore chain in the industry. The Shallop/Berry-founded/managed company has transitioned to current president Harvey Solway and has grown to 225 stores in 22 midwest and eastern states.

Although it was created two decades before PetSmart’s inception in 1987, the PETCO chain remained a small-format, one-state chain for its first 20 years. But when Brian Devine was hired away from Toys R Us to run PETCO, things changed. Devine­–then president/CEO, and now chairman–made PETCO stores larger, growing a 15,000-square-foot format to compete against the 25,000-square-foot  (now 19,500-square-foot) PetSmart model. 

Devine also expanded the chain outside the state of California–first in the western states, and then (after its own 1994 IPO) nationally through many strategic regional pet chain acquisitions. More than 200 PETCO stores formerly had names like Pet Supply Depot (Mass.), Just for Pets (Mass.), P.T. Moran (Va.), PAWS (Pa.), PetCare Superstores (Ill.), Pet Nosh (N.Y.), and Pet Food Warehouse (Calif.). 

Over the past decade, the Devine-led PETCO chain has had a course of public-private-public and now private again ownership.  At 950 stores nationally, and approximately $2.5 billion in sales, PETCO is the industry’s number-two pet chain.

Entrepreneurs Still Strong

Dozens of entrepreneur-retailers have had great long-term success developing and growing regional pet chains and competing against the two national giants.  Good examples of those chains include Pet Valu in Ontario, Canada and the Mid-Atlantic U.S. with 350 small-format pet stores.  Pet Valu is to PetSmart, what 7-11 is to Kroger.  The 2,500-square-foot Pet Valu model is a small convenience store for pet foods and supplies.  This chain, which was founded by Geoffrey Holt  and is run by David Stauble, is a dominant retailer in Toronto and all of Ontario, as well as the Pennsylvania/ Delaware area of the Eastern U.S.

The Florida and Southeast United States market has been a goldmine for the well run, again, small-format (6,000-square-foot) chain, Pet Supermarket.  The now 115-store pet chain was founded by owner Chuck West, again in response to the PetSmart Phoenix model in the early 1990s.  Pet Supermarket is managed ably and astutely by vice president and general manager Steve Fienberg. 

In the Midwest town of Dayton, Ohio, Kevin Mannix and Tim Rogers have developed a strong consumer following with the small format chain, Complete Petmart, which has now grown to 32 stores. Complete Petmart is now growing outside the buckeye state, with two stores in the Charlotte, N.C. market. 

Rogers says that part of his chain’s success in the past 20 years has been keeping sight of its size. “Our hallmark against the big boys is ‘service & selection,’” says Rogers. “We have kept our concept simple. In fact, our newer stores are now smaller by a third of our original model.”

This chain demonstrates that you can maximize sales and profits in a minimal store size. 
Another example of regional dominance is the Michael Levy/Mark Witrol-owned chain, Pet Food Express. This chain also effectively uses a 6,000- to 9,000-square-foot format, in metro and suburban San Francisco. Pet Food Express has 34 stores in the extremely competitive Northern California marketplace. 

When asked to explain his staying power for 23 years, in that overly competitive marketplace, founder/president Michael Levy says, “We are passionate on how we run our chain. We are in the stores all the time to get a feel for what is working and what is not. Execution is the key for us and we strive to constantly improve.” 

The Pet Food Express chain, like so many other regional pet chains, has used its brand selection to differentiate itself from the national chains. Pet Food Express was one of the first pet chains to embrace the shift in consumer preference to the natural/holistic pet food brands.  They now feature nearly 20 brands of these types of foods.  Another distinctive differentiation is their ‘in-store, do-it-yourself dog wash.’  This has been a unique feature that returns dividends every day.

Pet Chain Growth Slowed

In the current recession, the general retail industry has been very hard hit.  While many chains are now contracting, like Macy’s, or going out of business, like Linens ‘n Things or Circuit City, pet industry chains have held steady.  In a May 21, 2009, Newsweek article, ‘The Pet Economy:  Purring Along Nicely,’ it was reported that the pet industry in 2009 will grow +5.1 percent from the previous year and pet spending will be double that of a decade ago.

The strength of the pet industry economy is reflected in the pace of new store openings. The Pet Business Top 25 Retailers list of 2009 reflects a gain of 254 stores over the 2007 edition of the report.  That represents an annual gain of four percent.  The Top 25 list now encompasses 3,464 stores. 

PetSmart had the strongest growth over the past two years, opening an additional 171 stores; this represents an annual growth rate of nearly nine percent.  PETCO added 50 more stores-a 2.8 percent annual growth rate–and Pet Supplies “Plus,” the number-three chain, grew by 1.1 percent-a net gain of five new stores over the past two years.

Most other regional chains have had modest store growth over same the two-year period.  Two older full-service pet chains, Petland in Ohio and Petland Discounts in New York experienced some contraction.  They closed eight and seven stores, respectively.

In 2009, PetSmart plans to open 40 more new stores, and Pet Supplies “Plus” says that it will open four new stores.  PETCO continues to grow modestly, but has just unveiled a new prototype in San Diego called, ‘UNLEASED by PETCO.’ This is a newer, smaller, 5,000-square-foot model that PETCO is testing. 

Raising the Bar

The collective impact of the two big national chains, PetSmart and PETCO, and the privately owned and operated regional pet chains has been an improved and higher standard of retail merchandising. The national chains have made the pet industry mature and grow over the past 25 years. We have left behind the small, cottage industry of the 1960s and 70s to a 21st Century retail channel that is more sophisticated in product selection and merchandising and is more technologically advanced.

National pet chains have changed the dynamics of pet retailing and the economics of our pet specialty industry for the good.  By dint of more retail space to devote to more pet products and brands, our industry’s base of pet vendors has increased dramatically in the past 20 years. There are now more than 1,000 pet product companies in the pet products market–in 1990, there were less than 200. 

Did the national chains create business challenges for our independent base, both retail and wholesale?  Most assuredly they did–and still do.  But, those private, independent businesses that have survived the past 20 years are better for witnessing, competing in, enduring and surviving the retail challenge.  The national and regional pet chains, more than 3,500 stores strong, will still continue to dominate our industry.  But as an industry, we are all in debt to this living retail transformation process that we have all experienced in the past 20 years. 

Entrepreneur and consultant Dennis J. Farrell is celebrating his 40th anniversary in the pet industry. An independent sales & marketing manager, he has been a contributing editor for Pet Business for 15 years.