Petco’s Healthy Strategy Pays Off, As It Expands Plan To Fetch Loyal Customers – Forbes
Petco’s strategy of doubling down on pet wellness, fresh food, vet care, and services is paying off with some healthy growth for the retailer.
The pet retailer today reported fourth quarter revenues of $1.5 billion, up 13% year-over-year, and full year revenues of $5.8 billion, up 18% over the prior full year.
Petco beat estimates for revenue, and for earnings, causing its stock to start climbing in pre-market trading as soon as the results were released this morning. Shares jumped by more than 4% in early hours trading. Petco stock had closed at $17.69 the previous day, down 3%.
The stock closed for the day at $19.11, up more than 8%.
It was Petco’s seventh consecutive quarter of double-digit growth, and a striking endorsement of the company’s decision several years ago to focus on “whole pet” care by adding healthier food options, ramping up its in-store vet hospitals and clinics, and partnering with pet-care service providers.
CEO Ron Coughlin, in an earnings conference call with analysts, said the results are a testament to the success of the whole-pet ecosystem Petco has built. “We can meet all our customers needs when, how, and where they want,” Coughlin said. That eco-system, which includes food, supplies, online, brick-and-mortar stores, and vet, grooming and wellness services, positions the company to “drive above category growth for years to come,” he said.
It also gives Petco a deep moat that protects it from online-only competitors as well as other brick-and-mortar players, who can’t offer the range, or the scale, of services as Petco, Coughlin said.
The earnings release came on the same day that Petco launched a “Petconomics” marketing campaign to attract new members to its expanded Vital Care wellness rewards membership program.
Petco has expanded Vital Care to include new services, and a new species – cats. Vital Care, which Petco began offering in the fall of 2020, previously covered only dogs.
Petco began promoting the expanded Vital Care in its stores three weeks ago, and the campaign is seeing “tangible” results already, with one-quarter of the new signups coming from cat owners, Coughlin said.
Vital Care members typically spend three times more with Petco than non-members, he said.
Coughlin, soon after launching Vital Care, told analysts in a March 2021 call that it was designed to help Petco gain a bigger share of the pet owner’s wallet, calling it a “key future pillar of our business.”
Coughlin said then that Petco saw that significant numbers of Vital Care customers began buying food from Petco, and using grooming and other services after becoming members, thus increasing their spending with the retailer.
It also is a way, Coughlin has said, of making customers more loyal to Petco, and convincing them to stick with the retailer for the long term. The strategy, in effect, offers services at a discount now in hopes of creating a customer with a longer life-time value. “We’re driving people into the offers that have higher margin and have higher LTV,” Coughlin said a year ago.
He repeated that message today, saying Vital Care is attracting higher value customers who spend more.
Vital Care members pay $19.99 a month when they commit to an annual membership. The membership gives them $15 in rewards credits to use on healh and wellness purchases, discounts on dog grooming and other services, and discounts on pet food cat litter, and repeat delivery. Members also get a unlimited free routine exams at Petco vet facilities, and rewards for taking their pet for a checkup at a non-Petco vet.
The Petconomics marketing campaign is designed to send the message that customers can take care of their pet’s health needs at Petco without breaking the bank, Katie Nauman, Petco’s chief marketing officer, said in an interview.
“The enhanced Vital Care membership gives access to all of the health and wellness solutions that Petco offers, and when you add up all of the monthly savings compared to the monthly cost it pays for itself,” Nauman said. “Our pets are healthier and happier and so are our pet parents’ wallets,” she said.
Vital Care currently has about 160,000 members, which is only a small fraction of the 24 million active customers Petco had as of the fourth quarter of 2021. Coughlin told analysts today that he fully believes Vital Care will reach one million members.
The Vital Care announcement comes on the heels of news from Petco that it is purchasing the remaining 50% stake in the joint venture with veterinary partner, Thrive Pet Healthcare, which will allow it to expand its network of Petco vet hospitals and veterinarian services.
Petco also announced recently that it was expanding its partnership with premium dog food company JustFoodforDogs that will expand that company’s distribution of its fresh frozen meals to more than 1,000 stores this year, and will enable Petco to launch its own fresh frozen line.
Petco also has announced a partnership with Rover that would make Rover’s boarding and dog walking services available to Petco customers.
Coughlin has said previously that a pivotal moment in Petco’s transformation was the decsion in 2018 to get rid of artificial ingredients in the pet foods it sells. That decision, Coughlin has said, repositioned the company into a health and wellness company, helped it move into selling higher-end, higher margin foods, and gave it credibility in the vet space.
All of Petco’s competitors are chasing the same customers with similar strategies of focusing on wellness and vet services. But Petco’s headstart may make it hard for the rest of the pack to catch up.