Retailer Moving Beyond Supplies To Serve Rising Base of Pet Owners Seeking One-Stop Shop
After buying out its partner, Petco is ramping up locations of veterinary services in a nationwide chain of pet hospitals, as it caters to high-spending customers who adopted millions of dogs and cats during the pandemic.
Executives of San Diego-based Petco, which operates more than 1,500 locations in the U.S., Mexico and Puerto Rico, told analysts Tuesday that customers at its in-store and stand-alone veterinary clinics spend about three times more on average than its traditional retail customers.
That spurred the company to accelerate a previously announced escalation in pet healthcare services, saying last week it is buying out Austin, Texas-based veterinary provider Thrive Pet Healthcare, in which Petco had taken a 50% stake in 2017.
During a fourth-quarter earnings call, Petco CEO Ron Coughlin said the company “made a big bet” four years ago on creating a comprehensive strategy based on research showing 54% of Petco customers wanted a one-stop location to not only buy food, leashes and toys but also take care of their pets’ health.
“To me, Vital Care is the customer-facing manifestation of that bet,” Coughlin told analysts, noting that veterinary services will be the company’s “primary expansion focus going forward.”
Executives said Petco opened 72 in-store and stand-alone veterinary hospitals during 2021, bringing its total to nearly 200. Petco previously announced a long-term goal of operating around 900 veterinary hospitals, through in-store and stand-alone location expansion.
Chief Financial Officer Brian LaRose said the company plans to open 20 to 25 new hospital locations in the first half of 2022, before returning in the third quarter to a growth rate of about 18 per quarter, or 70 per year, once the Thrive integration is complete.
Financial details were not disclosed, but the buyout is expected to close in May, as Petco takes full ownership of 98 joint-venture-owned pet hospital locations nationwide and rebrands them as Vetco Total Care.
In the process, Petco is also taking in 800 of Thrive’s in-house veterinarians, adding to the retailer’s own ongoing expansion of its veterinary staff. “As we scaled our own model, we increasingly duplicated hospital support overhead with the joint venture, that with this acquisition will give us the chance to optimize” cost savings, LaRose said.
Coughlin told analysts the expansion of care services represents what he described as a “next phase of retail,” as the company looks to provide an “end-to-end health and wellness system” for pets as it boosts tech services geared to app-enabled product sales and scheduling for grooming, training and other pet services.
Executives said the company added 800,000 net new customers during 2021, bringing its total to 24 million at year’s end, as Gen Z and millennial owners in particular looked to provide care to newly adopted pets.
According to the American Society for the Prevention of Cruelty to Animals, more than 23 million — nearly 20% — of all U.S. households adopted a pet since the start of the pandemic in March 2020.
Executives said Petco is also considering follow-ups to its move earlier this year to establish Petco “store within a store” sections at several locations of home improvement retailer Lowe’s. Coughlin said the relationship with Lowe’s remains in early stages, and Petco will gauge sales results from that partnership before deciding whether to make similar arrangements with other chain retailers that have similar customer demographics.
For its fourth quarter that ended Jan. 29, Petco reported revenue rose 13% from the year-earlier period to $1.5 billion. Net income was $29 million, compared with a net loss of $6.2 million in the year-earlier quarter.
For the full 2021 fiscal year, revenue increased 18% to $5.8 billion and net income was $164.4 million, compared with a net loss of $26.5 million in the prior year.