Pet Supplies Plus – Case Study

Pet Supplies Plus

History of Pet Supplies Plus

Founded in 1988 by late Jack Berry and Harry Shallop, Pet Supplies Plus is a pet retail chain that is known as America’s favorite neighborhood pet store. They serve 33 states in the Midwest, Southeast, and Northeast. The company started franchising as early as 1989 and by 1995 had grown to 100 locations. Today, there are over 400 Pet Supplies Plus locations spanning from California to Texas.

The success of Pet Supplies Plus attracted attention in the private equity world. In 2010, Irving Place Capital acquired the company later sold it to Sentenial Capital. In 2020, the Franchise Group saw the uptick in sales in the pet industry fueled by the quarantine. It decided to double-down on the industry, buying Pet Supplies Plus in a deal announced in January 2021.

The Pet Store Industry

In the United States, the Pet Store Industry is a $20 billion dollar industry[1]. Over the past five years, the industry has grown at an annual rate of 1.7%. The primary driver of growth is pet ownership, which has been increasing during the pandemic. Additionally, shifting trends on treatment towards pets is also contributing to growth. More and more, pet owners are treating their pets as family members. As a result, pet owners are spending more of their disposable income of their furry companions.

From now to 2026, the Pet Store Industry is forecasted to grow at 2.3% annually1. Customers in search of convenience are turning to ecommerce for purchasing pet food and supplies. This will increase revenues for existing brick-and-mortar pet stores that also have an online storefront. Furthermore, new, digitally native companies will enter the market and increase competition.

Competitive landscape

The competitive landscape in the Pet Store Industry is of moderate concentration. Pet Supplies Plus is the third largest pet retailer in the us, holding 2.4% of the market share by revenue1. The industry leader is PetSmart, with approximately 34% of the industry’s market share by revenue. Following second is PetCo with 15%.

The Online Pet Food & Pet Supply Sales industry in the United states is valued at $11.5B. Competition in the industry is high; two companies own more than 50% of the market. PetSmart continues their market dominance with 40.4% of the online market share. Following that is Amazon, with 39.3%.

The pandemic is accelerating the adoption of ecommerce. As a result, online pet stores and big retailers, like Amazon, are gaining market share. This is pushing traditional brick and mortar stores to launch ecommerce offerings to their customers.

Pet Supplies Plus’ business model

As a franchise, Pet Supplies Plus earns revenues by charging fees to franchisees for owning and operating stores. Potential franchisors maybe interested in owning and operating a store given the large market opportunity of the pet supplies and food industry. In times of recession and or downturn, pet supplies stores fair well as pet owners stock up on food for their pets.

In addition to franchising, Pet Supplies Plus also own a pet food brand, Redford Naturals. This private label brand is only available through company and franchise stores. Franchisees can opt to sell Redford Naturals at their store and are typically given discounts on the product in comparison to other labels.

Pet Supplies Plus’ success factors

One success factor of Pet Supplies Plus’ is their hi-touch, hi-tech business model. The stores very interactive with services that cross from digital into brick-and-mortar stores. During the pandemic, pet food stores were deemed as an essential service and, as a result, could remain open. Their integrated services enabled them to beat out their competitors with an increase in sales of 76.4% in the first month of the pandemic. In comparison, competitors such as PetSmart and PetCo only experienced a 36% and 41.8% increase in sales respectively[2].

Another unique success factor the Redford Naturals brand. As a Pet Supplies Plus brand, the products are available exclusively through their company and franchise stores with higher margins. This provides franchisees with profitable staple products, which can be attractive for potential business owner candidates who are debating between a franchise or running their own store. The proximity of the stores to their customers allows Pet Supplies Plus to solicit feedback directly from the customers. This enables the business to create a superior product that truly meets pets and pet owners needs.

Finally, being part of a franchise can serve as beneficial during times like the pandemic, where businesses have to digitally transform in record time. Franchise companies are known for building systems where they draw on learnings from a large pool of franchisees to develop insights and best practices. Large digital initiatives, such as setting up an ecommerce store with supply chain and or ERP, can be resource intensive and risky for a single individual business. Franchises achieve an economies of learning that can help them improve the efficiency of these digital transformation initiatives. They then pass these learnings onto their franchisees, turning them into well-oiled machines.

Looking ahead

As the world comes out of the pandemic, Pet Supplies Plus will need to rebalance their focus to ensure that their omni-channel offerings reflect what pet owners value the most. In a world where Amazon poses as a real threat, Pet Supplies Plus will need to create new and convenient services that allow them to command a premium for their products. This is the best way to fight against Amazon’s ability to command lower prices. Services such as local delivery with value proposition of minimizing waste are great ways to entice customers to make the switch.

[1] Thi Le, “Pet Stores in the US,” IBISWorld, April 2021

[2] “Franchise Group acquires Pet Supplies Plus for $700M,” https://www.retaildive.com/news/franchise-group-acquires-pet-supplies-plus-for-700m/594041/

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