Pets at Home an Increasingly Important Player in UK Pet Care
Damian ShoreAnalyst Insight by Damian Shore – Contributing Analyst
Strong growth in UK pet care sales, a loyal customer base, an expanding store portfolio, the integration of pet services into its retail model and a growing online presence are the main factors driving growth for the UK pet superstore chain, Pets at Home.
Pet superstores now account for 9% of UK pet care
In March 2014, Pets at Home suffered a rather lacklustre initial public offering amid concerns that it was overpriced. A year later, it has produced an impressive set of trading figures and its shares have risen above their flotation price. According to the company, merchandise revenues rose at an annual rate of 8%, to £666 million (US$1,049 million), during the 12 months to March 2015. The number of Pets at Home retail outlets grew by 25, to 400, during the 12 months to March 2015. Largely due to the chain’s growth, the proportion of UK pet care value sales accounted for by pet superstores rose by 160 basis points between 2009 and 2014, to 9%.
The UK pet care market continues to be one of the best performers among developed economies, with real value sales expanding by 2%, to US$7 billion, during 2014. Value sales of premium dog and cat food were particularly impressive, rising by 4%, to US$1 billion. As Pets at Home stocks a wider range of premium pet food brands than most grocery retailers, it is particularly well placed to benefit from this trend towards premiumisation. It is also making a private label foray into the premium category with such brands as Evolution Naturally, a raw product launched in autumn 2014.
In search of a captive audience
The retailer’s VIP club loyalty scheme has proved hugely successful, with membership rising from two million to 3.2 million during the 12 months to March 2015. VIP members accounted for 65% of store revenues during the first three months of 2015, up from 61% during the previous three months. Apart from promoting customer loyalty, the sheer volume of data on UK pet owners and their purchasing habits generated by this scheme represents an extremely valuable marketing resource.
Integrating veterinary clinics and grooming facilities into its stores is another source of strength. The retailer’s services revenues rose by 25%, to £63 million, during the 12 months to March 2015. It opened 61 new veterinary practices (of which 32 were refitted existing facilities) during this period, bringing the total to 338. This strategy is particularly useful in the all-important premium dog and cat food segment, where veterinary recommendations can be an important sales driver. It also opened 50 new groom rooms in its stores during the same period, bringing the total number of these facilities to 179.
Making the leap to omnichannel retailing
Pets at Home has also stepped up efforts to tap into internet retailing over recent years in an attempt to transform itself into an omnichannel player. During the final three months of 2104, the range of products it offers online grew by 800, to 11,600 SKUs. With the share of UK pet care value sales accounted for by internet retailing doubling to 6% between 2009 and 2014, a strong presence in this channel is likely to be crucial to the retailer’s long-term growth prospects. It has also been experimenting with a smaller dog-only format called Barkers in urban locations, perhaps signalling a long-term strategy of (at least partially) diversifying away from out-of-town big boxes.