During online pet food retailer Chewy’s earnings call for the second quarter of fiscal year 2019, one attendee’s question touched on Chewy’s move towards higher gross margin products, such as veterinary products with the creation of Chewy Pharmacy. However, greater focus on health and wellness pet products doesn’t mean Chewy will eschew pet food, according to one pet care investment strategist.
“It makes perfect sense that Chewy is growing its businesses outside of pet food,” Simeon Hyman, global investment strategist at ProShares, a brokerage offering a pet care exchange traded fund (ETF), told Petfood Industry in an email. “Pet health care is a substantial piece of the pet care industry – pet health comprises more than half of our pet care ETF (ticker PAWZ) – so no surprise that Chewy Pharmacy is of particular focus. The synergies here seem clear, so while ultimately pet food will likely be a smaller piece Chewy pie – it’s probably not fair to characterize it as a reduced focus on pet food.”
Technology and data drive Chewy sales strategy
Chewy’s move towards pharmaceuticals and other medical products mirrors pet food companies’ moves into veterinary services and may serve similar economic goals. As Chewy expands the products they sell, the online retail seems likely to continue using technology to drive their sales growth, as well as retaining customers and attracting new ones.
“We internally have now created a master dataset that connects our pet data, our vet data, our customer data all at the same time, which is a pretty powerful combination to have, because…we don't think ourselves as an e-tailer of products and supplies,” said Chewy CEO Sumit Singh during the earnigns call. “We think of ourselves as building an experience-led proposition on the back of product technology and good data…”
Chewy has millions of pet owners active user profiles’ data, said Singh. That allows the company to personalize the shopping experience for each customer. With that, the addition of health and wellness needs to Chewy profile data may allow connections between pet owners and the veterinary community.
Personalizing pet owners’ experiences online has served Chewy well.
“Regarding the mix of pet food itself, while we are not retail supply chain and vendor relationship experts, one of Chewy’s core competencies is technology-driven customization,” said Hyman. “This should drive efficient sourcing, distribution, marketing, and sales across a wide mix of price points, private label, and branded offerings, to the benefit of Chewy and its suppliers – both large and small.”
E-commerce pet product retailer Chewy financial results
Fiscal Q2 FY19 highlights:
- Net sales of US$1.15 billion, grew 43% year-over-year
- Gross margin of 23.6% expanded 300 basis points year-over-year
- Net loss of US$82.9 million, including a non-cash share-based compensation charge of US$43.8 million
“Chewy is positioned at the intersection of that powerful trend and the rise of e-commerce as consumers shift their purchases in all categories online, including pet care,” said Hyman.