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Choosing a winner in the pet economy is no walk in the park. The pandemic-era pet boom that saw millions of American households welcome a new animal has come and gone. Gone, too, is the rapid growth in sales of pet food and supplies. That has left shares in Chewy and Petco Health and Wellness — two of the sector’s biggest speciality retailers — in the doghouse.
Online retailer Chewy — sometimes referred to as the Amazon of pet supplies — is down more than 70 per cent from its 2021 peak. Petco, which operates more than 1,500 brick-and-mortar stores across North America, has shed more than 90 per cent of its value over the same period. Bark, a canine-focused toys and treats subscription service, is trading at less than a tenth of its value four years after it went public via a Spac deal.
Americans are still doting on their fur-babies. Pet spending topped $151.9bn last year, up from $147bn in 2023, according to the American Pet Products Association. That figure is expected to hit $157bn in 2025.
But competition for these dollars is fierce. Large retailers from Walmart to Tractor Supply sell an array of pet food and toys. And, with consumer sentiment weakening, few will want to splurge on that $424 orthopaedic dog bed.
The shift to thrift applies to food as well. “Pawrents” are trading down and buying less wet pet food and snacks, according to General Mills and JM Smucker. The two US package foodmakers reported flat or declining sales in their pet food divisions in their most recent quarter. Even Nestlé, which along with privately owned Mars dominates the global pet food market, said sales at its pet division were little changed last year at SFr18.9bn ($21.4bn).
Still in the dog-eat-dog world of pet retail, online-only Chewy has an edge over its bricks-and-mortar rival Petco. Chewy’s 20.5mn customers are loyal. Subscriptions — mainly auto shipments of food — generate about 80 per cent of group revenue and give Chewy good visibility over future stock needs and likely cash flow. Chewy shares, despite doubling in value over the past 12 months, trade at 27 times forward earnings, a discount to Petco.
An even better play may be pet healthcare. This is a growing business as ageing pets need more supplements, vet visits and medication. Zoetis, which makes products ranging from flea collars to deworming medicine and pet vaccines, increased revenue at its companion animal division by 13 per cent last year. Margins are also fatter. And, surely, adoring owners will forgo visits to the doggy spa before they give the vet a miss.