Do recent buyouts of independent pet retailers signify an onslaught of consolidation on the horizon, or just good business moves in an industry that continues to overachieve?
Pet industry wonks are a bit all over the map as to exactly what the 2016 acquisitions of TailsSpin Pet Food & Accessories and Wylie Wagg by Chicago-based Bentley’s Pet Stuff and Santa Monica, Calif.-based Kriser’s Natural Pet, respectively, portend for independent pet retailers in 2017.
Will the New Year bring widespread buyouts, or will it be business as usual and another rosy year for the pet industry?
Can’t Throw Shade on Success
Few know the pet industry as well as Steve King, president for 26 years of the Pet Industry Distributors Association (PIDA), who sees the recent mergers as par for the course.
King said the pet industry’s own success is why it is flush with private equity money and seeing moves at all levels—manufacturing, distribution and retail.
Lending credence to King’s assertion is the 2016 M&A Outlook Survey by KPMG, a global auditing firm in the Netherlands, which found that 51 percent of the more than 550 executives it surveyed held that “corporations and PE funds sitting on record amounts of cash and uninvested capital and the need to make money work, especially in today’s low interest rate environment” would be the biggest driver of deals in 2016.
“Now, if you look at how the industry came through the last recession that started in ’08 compared with a lot of other industries, it kind of put the pet industry in an enviable position and one that attracted the attention of a lot of folks from the outside,” said King, calling the pet industry “recession resistant.”
King compares recent acquisitions by Kriser’s and Bentley’s with what Petco did some 20 years ago or so, when the San Diego-based pet retailer started to rapidly expand.
“When you look at the growth of Petco … it was largely by buying up regional chains rather than adding new stores,” King said.
Buying rather than building can be a good business decision for growth companies, noted King, because they don’t have to spend additional time and money scouting locations and on construction, and they have a knowledgeable, established customer base to tap into.
“An established retailer is going to have a customer base that’s in place, so if you’re new to an area, it may be easier to establish yourself [by buying] than to start completely new, where consumers in that area don’t know your brand, don’t know your store,” King added.
There’s no denying that consolidation has occurred in the pet industry, especially among wholesale pet distributors, over the past few years.
In “virtually every market in the country,” King said, “there has been a regional distributor that has sold to one of the larger companies that have been rolling up distributors around the country.”
Three major players are responsible for the consolidation of pet supply distributors: Central Garden & Pet Co. in Walnut Creek, Calif., Phillips Pet Food and Supplies in Easton, Pa., and Animal Supply Co. in Whittier, Calif.
King is optimistic, however, that the industry is big enough for national and regional pet distributors to coexist.
“In those same markets, there is still at least one, if not more, regional distributors that continue to compete and provide service to the retailers in that market,” he said.
To King, the Davids who continue to compete against the Goliaths aren’t better than those who’ve merged with bigger players.
“They have simply made a decision that for them it made more sense … to remain an independent distributor than to become part of a larger entity,” he said.
Two Sides of the Retail Coin
The decisions are the same for pet retailers; the motivations of buyers and sellers often differ, but there needs to be common ground or no deal.
“For us, it was always the plan to grow and take care of as many pets and pet parents as possible,” said Brad Kriser, founder and CEO of Kriser’s Natural Pet.
“Expansion into the Northern Virginia-D.C. region has been on our radar for a while, so when Wylie Wagg came along and we saw the remarkable fit in terms of tone, appeal and customer experience, it just made sense to do it,” he said.
The ownership of TailsSpin, with its three Georgia locations, and Wylie Wagg, with five locations in Northern Virginia and Washington, D.C., each report having been approached before (further proof that acquisitions like theirs are nothing new) by “investors, venture capitalists and other chains” looking to buy before each found their white knight.
“Larger chains are buying and pursuing smaller independent pet retailers at a rate that appears to be higher than in previous years,” said Laura Clark, co-founder of Wylie Wagg.
Clark said it was the “right time” to sell and that she did so of her own volition.
“We chose Kriser’s because their philosophy so closely aligned with ours,” she said.
Specifically, Clark cited the Kriser’s commitment to the health and well-being of animals and the company’s agreement to keep on all of Wylie Wagg’s current employees. “We knew we were leaving our team members in great hands.
“In the end, it always has to be the right offer at the right time,” she said. “In this case, it was. The current increase in M&A activity represents greater opportunities for companies interested in selling to do so, but it is not a death knell for small independents in our industry.”
While Clark stepped out of the business entirely, Jusak Yang Bernhard and Jeffrey Allen Manley, co-owners of TailsSpin, wanted to retain some level of involvement as well as see their brand live on.
“Our community work defines us and has always been our focus, as we create bridges between pet rescue agencies, pet communities, pets, schools and many other nonprofit organizations,” Bernhard said.
Bernhard and Manley found their kindred spirits in Lisa and Giovanni Senafe, owners of Bentley’s Pet Stuff, a pet supply chain with 40 stores, including the TailsSpin locations.
“As both sides explored the purchase, we realized that TailsSpin and Bentley’s share core philosophies that will allow us to continue to operate under our mission of serving the customer as usual, as we are very proud of TailsSpin being born and raised in Savannah, Ga.,” Bernhard said.
Under the agreement, Bernhard and Manley will retain some equity, remain co-owners, and oversee current TailsSpin operations and expansion; in addition, the TailsSpin name will remain because, as Bernhard said, “we have built a trusted brand in the community.”
“We are planning to continue extending and offering our southern charm and hospitality to the Southeast region of the U.S.,” he said.
For Bernhard and Manley, the decision to merge with a bigger chain came down to one word: competition.
Savannah is a town of 250,000, and Bernhard rattled off the other pet retailers he and Manley must vie against: three PetSmarts, a Pet Supermarket, a Petco, five chain stores and other independent pet retailers.
“We notice that big-box pet stores are continuing to add stores … that online stores are becoming quite a force in our industry, [so] competing in the market becomes quite a challenge,” he said.
“For TailsSpin, it makes sense to combine our resources to compete with the big-box stores.”
King likens independent pet retailers to locally owned restaurants that compete with national chains by providing dynamite food and outstanding service while appealing to those who enjoy frequenting independent businesses.
“I think a local pet store that gives consumers a reason to shop there through a great selection of unique products, outstanding customer service and a real welcoming environment … are going to remain viable and attract customers who value that,” King said.
But as Bernhard and Manley laid out the competition they face in their community, challenges facing independents are coming from seemingly every street corner, and every handheld device and laptop.
It’s not your father’s pet store anymore.
“The days of the hobbyist who had a love for … pets and who decided to get into the business because that was their passion probably isn’t enough today,” King said.
Independents need to differentiate themselves from large chains by offering a unique product mix not available elsewhere; providing employees with superior training, translating to top-shelf customer service; and even selling live animals—all of which cost money.
“You have to have a higher level of business skill and financing to pay for everything you need to have a successful store today,” King said. “That’s the fixtures, the storefront itself, it’s all the inventory you need to carry, the complete training … and technology with point-of-sale systems and such and marketing.”
For “Jungle” Bob Smith, owner of Jungle Bob’s Reptile World in Centereach, N.Y., it all boils down to people.
“Independents are community. We have people from all walks of life coming in for their supplies and food, checking to see what is new; I hear them say that coming in for 15 minutes a week is something they always look forward to. During the week, grandparents with their grandkids come in just for the experience … it’s great to see, personally rewarding and, businesswise, a homerun.”
And that’s why there will always be independent pet retailers—they’re needed.
This article originally appeared in the January 2017 issue of Pet Product News.