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What Should Petco’s Next CEO Focus On?
Last week, Petco’s CEO, chairman, and board member Ron Coughlin stepped down amid downward trends in pet adoptions and as the pet category overall has proved less resistant to macroeconomic pressures than predicted.
Coughlin, who took over as CEO in 2018, repositioned the chain around health and wellness. It became the first national specialty retailer to stop selling dog and cat food and treats with artificial ingredients, removed electronic shock collars from selling floors, and committed to having half of its products be “sustainable” by the end of 2025. The chain established 282 in-store hospitals by the end of 2023, and its Vital Care annual insurance program now counts over 720,000 members.
In 2020, it changed its corporate name to “Petco, The Health + Wellness Co.” and went public the following year as results were boosted by the pet adoption boom during the pandemic.
Adoptions have slowed and animal shelter populations have steadily grown since 2021, with the shift being attributed to inflationary pressures. With inflation on pet food last summer soaring, pet spending also retreated, impacting Petco’s results.
To improve traffic, the company has reintroduced a number of value-oriented pet brands — including Friskies, Pedigree, Purina Beneful, Temptations, and Milkbone — along with lower price points.
Mike Mohan, former president and COO of Best Buy and Petco’s lead independent director since July 2021, was appointed interim CEO as a search for a permanent CEO gets underway. Coughlin will stay on as an advisor through the transition.
On the retailer’s fourth-quarter analyst call, Mohan described Petco as “an iconic brand in the pet care category,” positioned for growth around humanization and premiumization trends. He said, “Petco has a combination of differentiated products, a commitment to veterinary, and other services, and an omni-channel model that taken together is unmatched in our industry.”
However, he acknowledged Petco made some missteps, including failing to adapt to changes in consumer preferences that led to market share losses and eroding profitability.
“First, we did not anticipate the magnitude of the shift to value in both our consumables and discretionary business. And second, we did not expect customers to pull back as quickly as they have and for this duration when spending on discretionary items,” Mohan said. “As a result, our in-store and omni-channel offering was not appropriately aligned with our customers’ needs.”
In-store vet hospital additions will be slowed to protect free cash flow this year, but hospitals and mobile clinics continue to perform well, and the overall veterinarian services push remains a priority. Beyond offering “more balanced price points” across products, near-term priorities include inventory management, associate training, improving marketing, and aligning in-store and omni-channel approaches.
Mohan said, “We’ll act purposely, to connect with pet parents, to drive share gains, and grow margins through improved baskets, and a quality of sales in a meaningful, and substantial way.”
Discussion Questions
Should Petco continue, tweak, or abandon its focus on health and wellness complemented by its recent reintroduction of value-based offerings?
How should Petco be positioning itself against competitors like PetSmart, Chewy, and Walmart?
Poll
Loading …BrainTrust
Carlos Arambula
VP of Marketing, FluidLogic
Neil Saunders
Managing Director, GlobalData
Petco is not wrong to have a health and wellness strategy as this is a growing area of the market. However, compared to the mainstream market, it is niche. So this cannot be the central focus. In the mainstream part of the market consumers primarily want two things: value and convenience. Petco needs to focus on delivering very solidly on both. Its relative neglect of these areas has seen its cede some share to Chewy, PetSmart and others. The difficult is that Petco has now lost those customers, winning them back will be pretty tough, especially form Chewy which has high loyalty rates.
Petco’s overall strategy is sound, but the issue was that they didn’t adjust as market conditions changed. The commitment to health and wellness provides a good long term vision, but they need to reclaim lost market share and the reintroduction of the value-offerings seems like a good place to start. Petco needs to walk a balance between leading on health and wellness, and delivering value that their customers demand and that competitors are happy to fulfill.
As the head of a multi-pet household, I’ve noticed a few areas where Petco could enhance its appeal. Firstly, while Petco offers multiple brands of similar products, there seems to be a lack of variety overall. The spacious layout of the Petco stores I’ve visited, sometimes amplifies this perception, as empty spaces contribute to the feeling of limited options.
While Petco’s focus on Health and Wellness is commendable, it’s not unique to them. Many other retailers offer similar products in this category, making it challenging for Petco to stand out. Additionally, considering Petco’s competition extends beyond other pet retailers to include mass merchandisers, grocery stores, and club stores, they would benefit from an inclusive positioning strategy that appeals to a wider range of pet owners and budgets.
Prior to the pandemic, my apartment building was not pet-friendly. However, the demand for pets forced the building to change its rules and allow pets. The pet trend excelled due to the pandemic. Everyone who wanted a pet got one.
Unfortunately, Petco management thought it was something they did to accelerate the business. What they missed was the reversal of the pet trend. Hubris!
I advise keeping the health orientation; it distinguishes PETCO in the marketplace but offer everything the pet owner wants. Most of all, be realistic with expectations.
Pet owners continue to prove that most of their spending is recession-proof, but focusing on value is the right strategy to protect market share and recoop a rebound and build. While consumer spend on discretionary items has slowed, shifting spend to purchases like healthcare for pets is on the rise. Chewy is focus on insurance and healthcare options and we have already seen success in the human sector with CVS. I like the idea of introducing telehealth for pets which should be part of the pet future. There is also a rise on the higher end spending (though a smaller segment) with fresh food and subscriptions for all natural food. I would recommend that Petco revisit the top 20% of their business and minimize sq footage dedicated to ancillary pets and products–also, as a cat owner, please increase your assortment.
For me, Petco’s otherwise laudable adoption events and wellness pushes (for dogs/cats) are at odds with its sale of live animals (miscellaneous other than dogs/cats) to anyone who can carry a box home. After seeing ill or even dead animals in enclosures, I stopped visiting Petco stores years ago knowing I can easily purchase the same brands Petco carries online from Chewy or Amazon. Deal-breaker.
WOW!
I think Petco has a bright future based on continued evaluation of their strategy and execution. Health and wellness translate well from humans to pets, particularly after the emphasis of the last several years. Petco will need to think about how to enhance and differentiate as their competition continues to grow, including from great retailers like Tractor Supply and Walmart and even local hardware stores like ACE. One idea, perhaps Petco should explore potential store in store partnership with another large footprint retailer, like Target, Home Depot, or Bass Pro Shops?
I’m not surprised that there has been a downturn in premium categories in pet food and supplies. Investing in health and wellness is still a sound strategy for Petco, but there isn’t going to be enough demand to be a core source of revenue. Bringing back value is absolutely the right way to go. The good news for Petco is that its brand value is strong, and its customers will appreciate the changes to their assortment.