Blue Buffalo growth driven by e-commerce pet food sales

E-commerce pet food sales drove Blue Buffalo’s growth in the second quarter of 2017, CEO Billy Bishop said during their earning call on August 8.

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(Kovbasniuk | BigStock.com)
(Kovbasniuk | BigStock.com)

E-commerce pet food sales drove Blue Buffalo’s growth in the second quarter (Q2) of 2017, CEO Billy Bishop said during their earnings call on August 8. These online sales helped Blue Buffalo increase sell-through to pet owners by seven percent year-over-year for Q2, despite ongoing challenges at brick-and-mortar pet food specialty retailers. Sell-through is the ratio of the quantity of pet food sold by a retail outlet to the quantity it received wholesale.

E-commerce versus pet specialty retail outlets

The pet superstore retail channel continues to suffer slower sales resulting from reduced traffic, said Bishop. Blue Buffalo’s superstore sell-through dropped approximately six percent compared to last year. Not counting pet superstores, Blue Buffalo’s sell-through rate for the quarter was 30 percent.

“On the e-commerce side, we continue to increase our sales and gain share in this high growth channel,” Bishop said. “In fact, Blue is the largest pet food brand in the e-commerce channel, with one-fifth of all Blue retail sales going through e-commerce, much of it on subscription.”

Blue Buffalo’s plans for mass market retail pet food sales

While e-commerce pet food sales grow, Blue Buffalo has developed a new brick-and-mortar channel for sales of their products. Blue Buffalo has begun distribution of a subset of their BLUE Life Protection Formula (LPF) product line to Target, Kroger, Meijer and Publix, with sales to begin this month.

“As you saw on our announcement, we're partnering with four of the leading mass and grocery retailers in the US,” said Bishop. “These four retailers account for approximately 8 percent to 9 percent of the US pet food market in dollar terms compared to our current distribution reach of approximately 40 percent. So, this is a significant expansion for us.

While preparing to the move into the pet food retail mass market, Bishop said they noticed an important sales pattern among pet owners.

“The underlying insight is that wet foods and treats are more likely to be impulse items and benefit from the more frequent shopping trips in grocery and mass retailers,” he said. “This compares to the less frequent and more planned shopping trips to the pet specialty stores for items like larger bags of dry dog foods or for scheduled services.”

To meet demands and shopping patterns of mass market retail shoppers, Blue Buffalo developed smaller bag sizes and plans an attention-grabbing store presence for their dog and cat foods.

Blue Buffalo economic data for Q2 2017

Blue Buffalo’s net sales grew 2.8 percent to reach US$295 million in Q2 2017. The company’s net income reached US$43 million, an increase of 16.5 percent. Blue Buffalo executives expect the company to achieve net sales between US$1,240 to US$1,270 million for all of 2017.

In Q2 2017, net sales of dry foods increased US$7.6 million, or 3.3 percent, to US$237.5 million. Wet foods, treats and other products increased in net sales by US$0.4 million, or 0.7 percent, to hit US$57.3 million.

A transcript of Blue Buffalo’s earnings call is available from Seeking Alpha

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