Not immune to inflationary economics, pet supply is dealing with the same headwinds as other consumables sectors, but with the cushion of pet parent love upholding some areas, particularly in subscriptions where savings and perks stretch pet care dollars.
This was evident on Petco’s second-quarter earnings call Wednesday (Aug. 24), as Petco CEO Ron Coughlin told analysts that “as expected and similar to other consumer categories, inflationary pressures have softened the discretionary areas of our business. This transitory response is consistent behavior during previous recessions, and past experience indicates return to growth with economic improvement.”
Coughlin pointed to strength in Petco’s subscription services as a saving grace during a softer Q2, noting that “recurring customer revenue grew by 54% year over year, driven by repeat delivery, insurance, PupBox and Vital Care members.”
He said total active Vital Care customers hit 22,000 in Q2, including customers who converted to Vital Care membership after Petco’s acquisition of the Thrive Pet Healthcare veterinary network in March. Vital Care is the Petco subscription priced at $19.99 per month and includes an array of benefits, discounts and loyalty perks, along with grooming and other services.
Customers joining the Vital Care loyalty program “have been increasing their visits and spending by double digits with a lift in spending across all categories and delivering a 3.5 times higher LTV than average customers,” he said, “up 10% from last quarter.”
Coughlin said changes to Vital Care membership in the first half — which he referred to as Vital Care 2.0 — “have resonated with pet parents who clearly see the value in this program, especially in the current economic climate. The average pet parent can save over $300 annually,” he said, adding that changes are helping Petco “capture far greater share of wallet with around 30% of Vital Care customers new to food and 40% new to services.”
Calling loyalty and membership value “significant, especially when combining Vital Care with our existing 1.6 million grooming and nutrition perks members who continue to increase visit and spend by almost 50% and 40% respectively year over year,” Coughlin said loyalty program members “have over two times higher LTV than average customers.”
PYMNTS research sees correlations between price, convenience and value in subscription offerings now more than ever. According to the July Subscription Commerce Conversion Index, a PYMNTS and sticky.io collaboration, “cost-driven subscribers are likely to consider convenience-related features to be important, and vice versa. For example, 87% of cost-driven subscribers consider free shipping and 76% consider coupons to be very or extremely valuable features; 86% and 78% of convenience subscribers said the same, respectively.”
Get the report: The Subscription Commerce Conversion Index
Care and Feeding Lead Gains
Coughlin also referred to “a robust roadmap of enhancements to come” which included the coinciding announcement launching a new WholeHearted Fresh Recipes line offering frozen nutrition for dogs. Co-developed with longtime Petco vendor JustFoodForDogs, the WholeHearted Fresh Recipes “is comprised of human-grade ingredients and formulated under veterinary guidance.”
Petco is seeing a “multiyear shift to healthier premium foods even in this hyper inflationary environment,” including high end kibble brands like Orijen and Royal Canin “that can’t be found in the mass grocery channel,” he said.
“In the quarter we launched an exclusive partnership with Cliff with plant-based jerky, a smart crossover from human food,” he added. “If you’re grabbing Cliff Bar on a hike, why can’t the border collie have one too?”
On the digital side, Coughlin pointed to “powerful profitable growth through innovations including in-app repeat delivery signups and multi-location fulfillment for same day delivery.” Q2 to total digital sales rose 10%, and “We’ve more than doubled our digital business over the last three years. Our digital customer spend is now up over 20% year over year,” he said, adding that Petco has renewed its contract with Door Dash delivery contract.
Saying use of pet care centers as micro distribution centers “creates unmatched competitive advantage and agility,” Coughlin said, “We continue to not only fulfill nearly 80% of the digital orders for pet care centers but delivered a record number of same day delivery orders in the quarter, a 60% increase year over here. Needless to say, same day delivery provides a competitive moat.”
He also called its digital or advertising network “a jewel in Petco’s crown” with over 200% growth year over year, adding that “our platform and bespoke data capabilities provide a compelling offering for vendors to connect to pet parents and convert them down the marketing funnel.”
Mimicking action in the growth of human primary care clinic networks from Amazon to Walmart, veterinary is a strong point for the pet supply retailer, pushed into a higher orbit by the Thrive acquisition.
“We’ve now added over 600 veterinarians to our network in the last six months alone,” Coughlin said. “We opened 11 new pet hospitals in the quarter to remain on track for the target of 50 new hospitals for the full year. We also made significant enhancements to our online booking system allowing customers to seamlessly use appointment availability across multiple locations and driving a 30% increase in online hospital bookings.”
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