Chewy cashed in on pandemic pet boom but now must keep leash on Amazon

While many ecommerce retailers watch anxiously to see if demand will persist after lockdowns end, Sumit Singh, chief of online pet supplies store Chewy, is confident revenues from the recent boom in animal ownership are for life — not just for the pandemic.

“That puppy is going to grow up, eat more food, shred more toys,” he said in a recent interview with the FT.

Over the past year, Americans turned to pets in record numbers, with some 4m households welcoming their first animal, according to estimates from research group Packaged Facts.

Chewy, which sells everything from treats to remote healthcare, has emerged as a big winner. Its revenues for its fiscal year 2020, which ended on January 31 2021, increased 47 per cent on 2019 to $7.2bn, and it recorded its first ever quarterly profit in the period between November to January, at $21m. This week, shares in Chewy were trading at around triple their pre-pandemic price.

Now, as Covid-19 restrictions ease, the company is looking to capitalise on the accelerated rollout of its pet healthcare service; Connect With a Vet has hosted more than 30,000 remote consultations since October, while fending off the growing threat of Amazon and the re-emergence of bricks-and-mortar stores.

Crucial to that initiative is Chewy’s data-driven recommendation engine, which is powered in part by the creation of “pet profiles” for which users upload information about their animals, such as breed and date of birth.

“We have 170m data points,” Singh said. “Imagine the power of this data. We know if ‘Dave’ has a Labrador, and that Lab is six years old, at year seven it might display hip dysplasia, and that allows me to recommend Cosequin as a medical supplement.”

‘A $220 orthopaedic dog bed’

At stake is a bigger slice of the increasingly lucrative US pet market, which is projected to be worth $117bn this year, rising to as much as $155bn by 2025, according to Packaged Facts.

Chewy was founded in 2011, with Singh taking over from Ryan Cohen — who is expected to become chair of video games retailer Gamestop — in 2018. Singh steered the company through a successful IPO the following year, and built out the store’s selection from around 35,000 items to roughly 75,000 today.

“Two years ago on Chewy’s website,” Singh said, “you would have seen one $45 dog bed. And that’s it. Today, you can buy a $220 orthopaedic dog bed from us. Customers love that. I didn’t even know orthopaedic dog beds was a category.”

Chewy’s goods are delivered using a network of 14 dedicated warehouses, with its first “fully automated” facility opening last October. However, the threat from Amazon is growing as it builds out its own pet business, declaring it a priority in 2018 and bringing more pet products into its one-day delivery selection.

Yet Singh argues that Amazon’s core advantage in other product categories — fast delivery — holds less importance in the pet sector. Almost 70 per cent of Chewy’s total sales come via its Autoship programme, where customers sign up for regular deliveries of food or other essentials, often at a discount.

That means fewer costly delivery “surprises”, Singh said, with logistics planned weeks or months in advance. “Customers aren’t waking up and saying: ‘Oh shoot, I need my catheter delivered in the next two hours.’”

Instead, he said, it is Chewy’s expertise in pets that gives it an advantage over Amazon, noting that more than 10 per cent of the calls made to its customer service line are for care advice.

“We’ve been growing at a premium rate with Amazon’s presence in the category, not outside of it,” he said.

Dog eat dog

Analysts say however that Chewy’s future competition could come less from Amazon than from established bricks-and-mortar players adapting to the new era of retail.

Chewy’s former parent company, PetSmart, recently announced a tie-up with delivery app DoorDash, offering essential items with same-day delivery. Walmart and Target, meanwhile, have also been building their online pet strategies, leaning towards more in-person services.

“Being able to come into a retail store and have your pet groomed, or get trained, is something that the online folks largely can’t compete with,” said Steve King, chief executive of the American Pet Products Association. “[And] you’re more likely to identify a new product that meets a particular need by going into your local pet store and getting some advice.”

There is also a degree of worry, he said, around new pet owners suddenly regretting their commitments once workplaces reopen, though he hopes the trend for employers to offer more pet-friendly environments will continue.

“There is concern about the separation anxiety that some animals get when they spent a lot of time with their owners,” he said.

Singh sees ample opportunity to take care further with its tele-health service, Connect With A Vet. Originally set to launch in about three years’ time, the plans were brought forward during the pandemic as veterinary clinics began to reduce their hours or shut their doors completely.

“Veterinarians, traditionally, are great doctors, but they’re not technologists,” said Singh. “So I think there’s an opportunity for us here to drive greater collaboration.”

Standing in his way, however, are rules around remote care for animals, which currently insist on an existing in-person relationship between vet and pet before all but the most basic advice can be offered over the internet. Singh wants to see that change.

“Companies like us, who are doing pioneering work in this category, we believe will provide some tailwind to be able to start unlocking these barriers in the near future,” he said.

But while acknowledging the growth of remote services during Covid-19, Dr Douglas Kratt, president of the American Veterinary Medical Association, cautioned that tele-health had to remain an adjunct to traditional care. “The ability to diagnose accurately is impacted when a veterinarian can’t physically examine the animal,” he said.