Petco: Capturing the Pet Economy - [Business Breakdowns, EP. 18]

Jul 21, 2021

In this discussion, Greg Kamstra, CEO of Riverdog and former private equity investor, dives into Petco's journey from a mail-order business to a top pet care retailer. He highlights how the pet care market has transformed, particularly with the rise of e-commerce and specialty pet retailers. The conversation reveals intriguing insights about increasing pet ownership and spending in the U.S., as well as strategies Petco employs to maintain growth and compete effectively in a rapidly evolving landscape.

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INSIGHT

Pet Market Growth

The pet care market has exploded since 1965, going from $1B to $120B today.
Growth is driven by increased pet ownership and higher spending per pet.

INSIGHT

Specialty Brands

Petco's growth in the 80s and 90s was fueled by the rise of specialty pet food brands.
These brands offered differentiated products not available in grocery stores.

INSIGHT

Petco's Store Economics

Petco's store economics rely on volume and comparable store sales growth.
Increasing revenue per store significantly impacts profitability.

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Today, we will be breaking down pet care giant, Petco. Founded in 1965 as a mail-order business, Petco has evolved into a one-stop-shop pet care solution across its nearly 1,500 locations.

To help break down Petco, I am joined by Greg Kamstra, current CEO of pet care provider, Riverdog and former private equity investor. We will discuss how Petco evolved into its current big-box model, how pet care store economics differ from grocery economics, and what impact e-commerce has had on the industry. It’s always fascinating to learn about secular growth stories, and the pet care industry falls into that category. I hope you enjoy this breakdown of Petco.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:19] - [First question] - What is Petco?

[00:03:06] - How much of their business is solely eCommerce

[00:03:40] - The scale of the market today and what that space looks like

[00:05:24] - Pet ownership in the US and how much it’s grown over the decades

[00:06:28] - The spend-per-pet metric and how it continues to grow

[00:06:49] - Sales channels for Petco and the big players in this industry

[00:07:31] - When and how Petco started and unique insights that led to starting the business

[00:09:09] - Unit economics for specialty brands versus generic brands

[00:09:42] - General thoughts on the economics of Petco

[00:11:03] - Viewing their revenue and customer base through the lens of a single-store

[00:13:15] - How they drive same-store sales growth and customer frequency

[00:16:22] - The ways they’ve invested in services to incentivize return customers

[00:18:13] - Conventional retail strategies and how they’ve performed for Petco

[00:20:42] - Ways they are trying to compete with their eCommerce competitors

[00:23:50] - What their eCommerce growth could look like over the next few years

[00:25:20] - Early days of a mobile app and working on their digital-first footprint

[00:26:18] - How good of a deal Chewy was for Petsmart

[00:27:48] - Other big deals Petco has made and why they’ve mattered

[00:28:52] - Unique private equity aspects of Petco

[00:31:07] - What happened to their business during the pandemic and what trends might be here to stay

[00:32:03] - How many non-pet owners became pet owners because of COVID-19

[00:33:11] - Reasons why their market cap could double in the next five to ten years

[00:34:19] - Reasons why their market cap could be cut in half over the coming years

[00:35:10] - Lessons for builders when studying Petco’s story

[00:37:14] - Lessons for investors when studying Petco’s story