These Omnichannel Strategies are Helping Brick-and-Mortar Retailers Stay in the Black
Perhaps nothing illustrates the shifting tides of the U.S. pet industry more than the strategic initiatives of the retail channels carrying pet products. These days, that’s pretty much all retail channels, with stores of just about every stripe getting into the “pets as family” game within the past couple of decades.
As of 2019, the bulk of the brick-and-mortar business still goes to mass channels and pet specialty retailers, with the former (including discount stores/supercenters, food stores, wholesale clubs, dollar stores and drugstores) accounting for 44 percent of U.S. retail sales and the latter (including pet chains and independents) at 29 percent. Less than 10 percent of the more than $50 billion Americans spend on pet products annually goes to other channels, led by farm/feed stores with a 6 percent share. And then, of course, there’s the internet, with online purchasing accounting for 18 percent of total pet product sales as of 2019—up from only about half that much not long ago—and making the fastest strides. Although some of those gains are incremental, a significant portion have been coming at the expense of physical stores, obliging brick-and-mortar retailers to retool their strategies while facing off against an online marketplace whose product selection, pricing and convenience are tough to top. Driving the ebb and flow of internet versus brick-and-mortar are numerous structural, marketing, retailing and consumer trends and demands:
Internet: The surging role of e-commerce/home delivery in consumer shopping overall is an ace in the hole for online sellers of pet products, especially because heavy internet shoppers are either already in or aging in to their prime pet ownership years. Younger consumers are also key forces on the web, especially the pet market’s largest demographic: millennials.
Online pet juggernauts Chewy and Amazon continue to battle it out while expanding into pet medications and private label, and brick-and-mortar-based big boxes including Walmart, Target, PetSmart and Petco are all in omnichannel-wise, including the acquisition of online platforms and the implementation of “click-and-collect” programs and same-day delivery. The internet also benefits from its “endless shelf” selections, unlimited retailer/marketer/brand/SKU information in an age of production and product transparency, and the unbeatable convenience of home delivery and auto-replenishment/subscription programs. Online sellers like Chewy are even battering away at what might be pet specialty retailers’ last-bastion advantage—customer service—by staffing their phone banks with friendly, well-trained personnel able to execute generous promotions and credits on the spot.
Pet Specialty Chains and Independents: The traditional channel for pet products, pet specialty chains and independents have been taking the brunt of the internet blow, challenged both by pureplay online players and their own websites. Pet specialty stores also stand to lose sales with the acceleration of superpremium pet food in the mass market, spurring an increased focus on superpremium brands not available at mass and on fresh pet food, as well as on veterinary and other pet care services, such as PetSmart’s Groomery and Petco’s in-store Thrive clinics and PetCoach shops. Independents are having to contend with the loss of exclusivity of superpremium brands like Champion Petfoods’ Acana and Orijen (which in January 2019 advanced into Petco), mass premiumization, general weakness in non-dog/cat pet ownership and competition in dense metro areas from boutique pet specialty chains positioning as “neighborhood stores.” To remain competitive, they have been joining forces under initiatives such as Independent Pet Partners (IPP) even as new digital e-fulfillment and delivery solution outfits like Animal Supply Connect (ASC) make it possible for them to set up their own online shops.
Discount Stores/Supercenters: These mass-market retailers are benefiting as shoppers convert to premium and superpremium cross-overs like Blue, Nutro and Nature’s Recipe, and from superpremium-type mass brands like Rachael Ray Nutrish and Mars’ Crave, all of which are now more affordable than ever. Walmart enjoys enormous strength in shopper traffic/shopping trips, while the discount stores/supercenter channel overall offers almost unbeatable one-store shopping convenience, making it possible for pet owners to pick up human and pet products in the same place and gain immediate (faster than Amazon!) access. With its in-store pharmacies, the channel might eventually also benefit from the Fairness to Pet Owners Act, which will encourage pet owners to buy their pet medications in mass channels and pick up additional pet products in the process.
Food Stores: Although “upper premium” is already well established here, supermarkets and other grocers are, like discount stores and superstores, capitalizing on mass premiumization as formerly pet-specialty-only brands flood the channel. At the same time, supermarkets are being challenged by the gradual erosion in the number of shopping trips, declining center-store velocity and slow engagement with internet/omnichannel. Over the longer term, progressive operators will be focusing more on fresh/specialty goods and less on center store packaged products, and on click-and-collect programs and home delivery, including via third-party services such as Instacart.
Wholesale Clubs: Despite the continued appeal to the family household “SUV crowd” and the popularity of Kirkland Signature (Costco) and Member’s Mark (Sam’s Club) private labels, wholesale clubs will likely find it harder to hang on to their market share in the coming years. Accustomed to buying in bulk, club shoppers might be less susceptible to poaching by online sellers touting the convenience of home delivery. But Chewy and Amazon aside, wholesale clubs are increasingly investing in their own online operations, and there’s something to be said for having those same bulky items doorstep-delivered, especially as the shipping costs come down or are rolled back entirely.
During the last decade of the 1990s and first decade of the 2000s, online shopping for pet products advanced gradually enough to afford physical retailers the luxury of underestimating its ultimate impact. If the initiatives outlined above are any indication, this is no longer the case. Ironically, though, by adopting an “if you can’t beat ’em” approach to e-tailing, brick-and-mortar-based retailers are adding fuel to the internet fire. To some degree, they will gain. But almost inevitably it’s at the expense of brick-and-mortar retail that pet products purchased online will continue to grow, accounting for upward of one-quarter of all U.S. sales of pet products by 2025.
David Lummis is the lead pet market analyst for Packaged Facts, a division of MarketResearch.com, and author of Packaged Facts’ annual U.S. Pet Market Outlook report. The statistics cited here are drawn from or based on data presented in that report.