Do micro distribution points (AKA stores) give Petco an edge over Chewy and Amazon?
Petco believes its expansive store base not only offers differentiation against its online competitors, including Chewy and Amazon.com, but will ultimately help accelerate its online growth.
“Our structural advantage of 1,453 micro distribution points through our Pet Care Centers is a strategic differentiator versus pure-play online competitors,” said Ron Coughlin, chairman and CEO, last week on its first quarter investor call. “We can get to the customer faster for lower cost than shipping from a DC.”
Stores fulfill about 83 percent of Petco’s online orders when you include ship-from-store, in-store/curbside pickup and same-day delivery services.
“We’re actively shifting customer expectations to same-day delivery, something pure-play online competitors will be challenged to replicate nationally,” added Mr. Coughlin.
Finally, categories such as fresh food, he contends, are “much more costly” to ship from distribution centers.
“Giving a personal example, when my order of Just Food for Dogs, fish and sweet potatoes comes from one of our Pet Care Centers two miles from my house, it comes in a simple bag versus a pack box with cardboard with dry ice with foam packaging that online pure-play competitors use for comparable products,” said Mr. Coughlin. “Clearly, we have an advantage here.”
Having stores also supports expanding opportunities in services (i.e., training, grooming) and veterinary clinics, as well as Petco’s recent repositioning as a pet health & wellness company.
Petco’s digital market share in the first quarter increased more than 50 percent year-over-year and more than doubled on a two-year basis. The retailer’s share is dwarfed by Chewy, however, which controlled half of the online pet marketplace in 2019 before its sales surged during the pandemic.
For its part, Chewy last fall opened its first automated and high-velocity fulfillment centers and introduced telehealth and Connect with a Vet chat services as it saw pet healthcare and services shifting online.
On Chewy’s fourth quarter investor call, Sumit Singh, CEO, said he believes his company will continue to prosper. He cited estimates predicting overall online penetration rates for the pet category climbing to 53 percent by 2025, up from 30 percent in 2020.
“We believe this shift in favor of e-commerce channels are durable and largely permanent,” Mr. Singh said.
- Petco Health + Wellness Company, Inc. Announces Record Results for First Quarter of Fiscal 2021; Raises Full Year Outlook – Petco
- Petco Health and Wellness Company (WOOF) Q1 2021 Earnings Call Transcript – The Motley Fool
- Petco Health + Wellness Company, Inc. Reports Strong Fourth Quarter and Full-Year 2020 Results, Issues 2021 Guidance – Petco
- Chewy Announces Fiscal Fourth Quarter and Full Year 2020 Financial Results – Chewy
- Chewy (CHWY) Q4 2020 Earnings Call Transcript – The Motley Fool
- Is Petco really a health and wellness retailer? – RetailWire
- Chewy takes a bigger bite out of the pet products market – RetailWire
DISCUSSION QUESTIONS: How can Petco best tap its large store base as a competitive advantage against Chewy and Amazon? How big a role do you expect Petco’s stores to play in determining the retailer’s digital sales growth?