Dog Gone Stores : Pet Outlets Do Well Sans Pets
You can’t ask how much that doggy in the window costs at Petmart stores because, like a growing number of pet-supply store outlets, the San Diego-based retail chain doesn’t sell dogs--or any other live animals, for that matter.
But Petmart and Petco, two privately held, San Diego-based companies, are among a growing number of “pet-less pet store” chains around the country that are capturing an increasing share of the $7 billion that Americans spend each year on pet food and related goods.
Petmart has 30 stores, most of them franchises, scattered throughout California. The chain, which reported $20 million in gross 1991 revenue, says it may have hundreds of locations open nationwide by the end of the decade.
Petco, which has 188 stores in five Western states, intends to open 100 new stores during the next two years, including 20 on the East Coast. Petco does not report revenue or profits.
Revenue at pet-less pet stores is driven largely by sales of higher-priced and nutritionally sound pet foods that promote healthier and longer lives. Stores also stock toys, treats, shampoos and other products that are friendly both to pets and the environment.
Owners of pet-less pet stores also escape the wrath of animal rights groups that want to severely limit or restrict the sale of live animals. Humane society figures support chain store owners’ belief that there are plenty of pets available through traditional retail pet stores, tax-supported pounds and privately owned shelters.
Petmart founder Russell H. Harris owned two traditional pet stores when he opened his first pet-less retail location in Imperial Beach in 1982. Harris opened his “urban feed store” shortly after realizing that most of his available square footage was used to house animals, but more than 75% of his revenue was generated by sales of feed and related goods.
Ray Guyer, a former executive vice president of Wilmington, Mass.-based Docktor Pet Center, also had strong, initial doubts about departing from the traditional “puppy in the window concept.”
“To be honest, I thought (pet-less stores) was a flash in the pan,” Guyer said. “I didn’t understand how it was going to work. . . . In a typical store, pets drive sales.”
Guyer became a believer, though, and in 1989 he left Docktor Pet Center to found Chicago-based PetCare Plus. The privately held chain, which has 33 locations, hopes to open at least 40 more stores in the Midwest during 1993.
Pet-less pet store chains take advantage of the same kinds of distribution channel changes that fueled the growth of office products super stores and automotive parts chains, Guyer said. PetCare Plus, Petmart and other chains strike deals directly with food manufacturers and further cut costs by handling their own distribution.
The elimination of animals also cuts costs dramatically. Veterinary bills can become prohibitive and “animals can jack up a $200-a-month utility bill to $1,000 overnight,” Harris said. “You need $5,000 in sales just to cover that.”
Oddly enough, pet-less chains aren’t really competing against traditional pet stores, which sell relatively little pet food. They do compete directly with grocery stores, which traditionally sold more than 90% of pet food.
During the past decade, grocery stores’ share of the chow market dropped to slightly more than 70% as consumers embraced the costlier food found at pet stores, Guyer said.
“There is tons of room for growth,” Guyer said. “In recent years, premium sales (at chains) have increased by 15% to 30% annually, while (brands sold in grocery stores) are only growing at 4% to 5%.”
Premium chow is sold almost exclusively through pet-less pet stores and not in supermarkets, Harris said. The higher-priced feed accounted for $1.2 billion of the $7.3 billion in chow that Americans bought during 1991, Guyer said.
Manufacturers of premium feeds probably aren’t expected to market their higher-priced products through grocery stores, Petco Vice President Craig Walker said. “It is going to be very difficult to convince a person (shopping in a grocery store) that a $24 bag of food is equal in value to a $15 bag,” Walker said.
The recession hasn’t prompted consumers to cut back on the healthier, albeit, more expensive food, Harris said.
Pet Xtra, the privately held, San Diego-based parent company of Petmart, is readying an expansion campaign in Los Angeles and Orange counties. It faces competition from Phoenix-based PetsMart, which recently opened a store in Victorville, and Petco, another San Diego-based chain that operates pet-less pet stores.
Petmart and PetsMart recently settled a lawsuit generated by their similar names. Petmart retained its Petmart name inside San Diego County, but out-of-county stores will be called Pet Xtra.
Executives said the rapidly growing industry likely fill face a shakeout in coming years, as regional chains bump up against each other. Petmart, for example, plans to eventually license 500 stores by 1999.
It also is uncertain whether super stores or smaller outlets will dominate. PetCare Plus and Phoenix-based PetsMart are concentrating on massive, 25,000 square-foot locations, but Petmart has opted for smaller, 2,400 square-foot stores.
Harris compared the pet store to the hardware retail industry, where smaller hardware stores are competing against huge warehouses. “It all comes down to what kind of service . . . those (larger) warehouse operations can offer,” Harris said.
In the still evolving industry, some pet-less pet stores do offer small pets. Petco, for example, sells tropical fish and birds but not dogs, cats or small animals. PetsMart, a Phoenix-based company, sells only freshwater fish, but not dogs or cats.
While most pet store chains involve company-owned stores, Petmart’s business plan calls for the franchising of 500 stores by 1999. Part of Petmart’s expansion in Los Angeles will involve the “conversion” of traditional mom and pop pet stores, Harris said.
Petmart now has 30 stores, all but two of which are franchised. While most of Petmart’s stores are located in San Diego County, it has opened locations in Orange County, Pismo Beach, San Pedro and Sunnyvale.
