Analysis: How is Pets at Home fending off industry headwinds?

Chief executive Ian Kellett said “the pet market has proved over time to be more resilient than general retail”.

And speaking to Retail Week, Kellett said: “Whatever the economic condition, it is very unlikely that people will change their pet’s diet for something worse; you’re still going to want to give them treats and they are still going to need vet treatment.”

He also pointed out the many “health and wellbeing benefits” to dog grooming.

But Kellett, who replaced Nick Wood in March, is far from resting on his laurels. “The market is resilient but we do not say we are immune,” he said.

As a reminder that no retailer is safe from industry headwinds, Kellett warned that margins in the financial year to come “will see the impact of weaker sterling and the national living wage”.

So how is Pets at Home making sure it stays on the right track? 

Fast-growing services offer

Verdict analyst Andrew Hall says: “Most notable is the exemplary performance of its [Pets’] services proposition, which saw revenue increase by 29.2%,” he says.

Pets at Home’s original joint-venture model, with the introduction of grooming and veterinary services, launched in 2001 and has now become one of the business’ strongest growth drivers.

The retailer reported like-for-like growth of 10% in its services business for the last financial year and expanded it by 50 vet practices and 60 groom rooms during the period.

The retailer also acquired two specialist veterinary referral centres.

Hall says: “Its services proposition has helped to make Pets at Home stores a hub for pet owners, where they can receive expertise and services, as well as purchasing the basics.”

Kellett added that services will remain a “strong lever of growth” because “there is still some way to go to get total national coverage from a grooming and vet perspective”, and given the newness of some of these, “there are many years of maturity to come too”.

Subscription services

Even the resilient pets industry feels the impact of the weather.

Sales of health and hygiene merchandise were affected during the period because the colder than usual spring weather led to a flat “flea season”.

Kellett explains: “The thing about fleas is that in wet and warm conditions they breed profusely, and in cold weather they tend not to.” 

“The market is resilient but we do not say we are immune”

Ian Kellett, Pets at Home

In order to fend off this seasonal threat, the pet specialist has launched an online subscription service.

Customers can sign up to receive their monthly flea treatment, which Kellett says “serves as a monthly reminder to treat your pet and allows us to remain very competitive on price, with a nice overlay on convenience”.

Efficiency drivers to mitigate costs

In order to mitigate costs of the national living wage and currency, as flagged in Pets at Home’s preliminary results, the retailer is “constantly” looking at how it can “operate more efficiently and effectively”.

Kellett mentioned previously he would “take a look at pricing” and adds that “there is a bit of finessing around the edges yet to be done”.

However, in its implementation of the national living wage, the retailer has not differentiated between over-25s and over 18s.

Kellett says: “Our specialist colleagues are a fundamental part of the proposition and our colleague retention is more than 80%, so we’re not going to start chipping away at the overall pay and benefits package. If anything we’d like to pay our colleagues more.” 

Pressing pause on small stores

Pets at Home operates from 427 stores. It opened 21 superstores during the last financial year, but has also been trialling a range of high street formats under the Barkers fascia and a convenience store called Whiskers ’n Paws.

“Its services proposition has helped to make Pets at Home stores a hub for pet owners, where they can receive expertise and services, as well as purchasing the basics”

Andrew Hall, Verdict

The retailer will continue to grow its core estate but, for now, Kellett has no plans to open any more small formats until it has “sufficiently trialled the variety of pitches” and “analysed the customer experience”.

Kellett says: “These stores create strong community and are meeting our expectations, but it is early days and we’ve got a lot to learn.

“This year is about putting all that information and learning together and then taking it forward from next year.

“Given how many other growth drivers in the business, it is appropriate to take that pause.”

Brandmatch and customer loyalty

Another way the retailer is moving the business forward is through the launch of its Brandmatch scheme in March.

Hall says: “This is likely to become an important asset, especially as competition grows at the value end of the market due to the impact of the grocers and discounters such as The Pet Hut.”

The retailer’s VIP club membership, which targets customer loyalty, is continuing to grow too. It had 4.5 million members at the year end and VIP card swipe rates at tills accounted for 64% of sales.