The impact of e-commerce on the pet sales landscape

Pet product e-commerce is growing globally, with its strongest year occurring in 2020. According to Euromonitor International, a global market research company, e-commerce channel share in the global pet care market grew from more than 10% in 2017 to over 20% in 2020.¹

Smaller household sizes, urbanization, social distancing measures, and public health concerns have led to a shift in consumer behavior. There is a heightened preference toward online stores, which is driving consumers away from physical stores to meet their pet product needs. The increasing pet population, pet ownership, humanization of animals by their owners, and spending per pet have also contributed to the rapid growth of e-commerce pet product sales in 2020 and 2021. Moreover, with technological advancements, there is no indication of this digital industry slowing down any time soon. According to Euromonitor International, almost one-third of global pet sales are expected to come from e-commerce by 2026.¹

The evolving pet care e-commerce landscape and business models

Pet care e-commerce includes the types of retailers as follows:

• Online generalists such as Amazon
• Pure online retailers of pet products offering a range of pet products and services, as well as pet pharmacies, such as Chewy, PetMed Express, and Zooplus AG
• Brick-and-mortar retailers that sell through their websites such as PetSmart, Petco Health and Wellness Company, and Pets at Home Group Plc
• Big-box retailers that sell through their websites such as Walmart, Target, and Tesco
• Veterinarians who sell through their websites

As online retailers and e-commerce grows, brick-and-mortar pet product specialists in the US are expanding their online offerings. For example, in 2021, PetSmart unveiled The Pharmacy at PetSmart, an online portal for pet owners that allows customers to fill veterinarians' prescriptions and have them shipped directly to their door.² Petco also offers to pet parents access to medications their pets need online via petco.com.

Zooplus AG is Europe's leading specialist online pet supply retailer. Like Chewy in the US, Zooplus has built up a significant online market share in Europe (about 50% in 2020³) compared to Amazon (with its pet business a fraction of Zooplus³) and the traditional brick-and-mortar pet supply stores.

Pet care retailers are implementing innovative strategies to gain a competitive edge over others. Providing a personalized and seamless shopping experience, information on pet behavior and illness, pet education content, omnichannel fulfillment, presence on social media, and mobile apps have become an essential part of online stores. Moreover, the retail incentives, competitive pricing, wider selection, ease of finding product details and reviews, and convenience offered by online retailers are attracting more and more pet product shoppers to online stores.

Examples of the business models aimed at meeting the surging online demand for pet care products include the following:

• New customer growth:The management of Zooplus views new customer growth as a priority.³ The company has enhanced its marketing strategy to increase brand awareness with online and offline shoppers. It is expanding its addressable audience through additional marketing initiatives.⁴ Efficiently adding new customers and increasing its share of consumer spending are critical components of Chewy's growth strategy. Chewy reportedly has a total active user base of 19.8 million.⁵
• Customer centricity and focus on customer retention: When it comes to bolstering customer loyalty, services such as autoship, subscriptions, and buy-again dashboards can be powerful tools. Major online retailers provide these services, such as Chewy's Autoship program, Zooplus' Subscribe and Save service, and Amazon's Subscribe and Save program. Nearly 70% of Chewy's sales reportedly come from its Autoship customers.⁶ The Autoship program provides further convenience to shoppers, and nearly half of Chewy's products are available for Autoship.⁷ In Q1 2021, Zooplus' loyalty program, Subscribe and Save, accounted for 54% of its active repeat sales. Its active repeat customers grew to 5.4 million in June 2021 (compared to 4.8 million in June 2020).⁸
• Omnichannel interface options: Besides direct-to-consumer models, the demand for click-and-collect at retailers such as Walmart, Kroger, Tesco, Carrefour, and Target has significantly increased.⁹ Many pet stores are also providing new e-commerce pick-up services such as the contactless curbside pick-up by Petco. Partnering with third-party logistics providers is another innovative way retailers are increasing their customer reach. In 2019, Petco and online grocery delivery company Shipt partnered to offer members of Shipt same-day delivery of pet supplies from Petco stores across the US.¹⁰
• Telehealth and medicinal compounding:Chewy is focusing on making pet health care more affordable and accessible by expanding its services to include medicinal compounding and telehealth. In October 2020, Chewy launched Connect-with-a-Vet, a telehealth service that allows customers to ask licensed veterinarians questions about their pets' health.¹¹ The service is free for customers enrolled in Chewy's Autoship program¹¹, which could possibly increase sign-ups and boost customer retention rates. Chewy's medication compounding service, launched in the US in November 2020, offers custom medications to meet pets' specific needs, such as providing medicines in different formats to its pet-owner customers.¹² Approximately two-thirds of the company's compounding customers are new to Chewy Health, including over 20% who are new to Chewy overall, according to a 2021 report.⁵
• A one-stop shop for pet products and services: Chewy focuses on delivering a multi-dimensional customer experience that comprises food, treats, personalized accessories, health care, and services. Zooplus caters to above 8 million pet parents across Europe with a large product offering in pet food, pet care accessories, veterinary medicines, and services such as insurance, grooming, veterinarians, day walking, and pet keepers.⁸ In 2020, Walmart launched Walmart Pet Care as a central online hub for the sale of pet products and services. Walmart Pet Care includes Walmart PetRx, in-store, and online pharmacy services, as a lower-priced alternative to rival services marketed by drugstores and specialty chains.¹³
• Private label: In 2018, Chewy's private label sales were about 5% of its business. By the following year, the company was seeking to increase that to more than 15%, in line with private label sales levels typical of large retailers.¹⁴ Zooplus' share of orders with at least 1private label product has grown year on year, highlighting the increasing popularity of Zooplus' own brands with pet parents across Europe.⁸
• Pricing: Amazon offers lucrative deals to customers who sign up for its version of the autoship program, while it and other retailers also provide discounts on some pet products.

Implications for pet care product manufacturers

The new online models and shifts in the retail landscape have important implications for pet care manufacturers. Manufacturers must begin to prioritize partnerships with leading e-commerce retailers to best leverage product sales. They need to adapt to the following opportunities and trends in pet retail:

• Lead in digital: It will be critical for manufacturers to call out "winning in e-commerce" as a key digital priority. They will need to build, test, and scale new business models at pace with shoppers who are already making the transition to online channels. Meeting customer expectations will be critical for success.
• Create an omnichannel shopping experience:Online shopping continues to grow rapidly, but brick-and-mortar stores still account for many of the retail sales. Manufacturers and retailers must create a seamless omnichannel shopping experience to bridge the online/offline gap and maximize market basket dollars.
• Target new pet owners:The first purchase is vital for autoship or subscription-based programs. The stickiness of these programs discourages product changes. Also, for new pet owners, veterinarians and breeders are key influencers for brand selection.
• Target customers with the right message: Manufacturers will need to focus on mining shopper insights, mapping the shopper journey, developing different shopper personas, and targeting them with the right message at the appropriate touchpoint to optimize the customer journey.

The way forward

The online channel is increasing the reach of animal health companies. The need for data and insights, along with understanding the dynamics of the online channel, is becoming urgent. However, digital transformation—data monitoring, data mining, cloud-based management, and predictive modeling—is still emerging in the animal health industry.

Effectively aggregating and harmonizing data as well as identifying and connecting the most relevant data variables and key performance indicators to derive meaningful insights to inform the online strategy of animal health companies is not a straightforward process. Animal health companies face several challenges to getting a clear view of the e-commerce market. One of the biggest challenges is capturing and reporting sales data since there are no national data aggregators. Therefore, animal health companies need to forge data partnerships with retailers/data aggregators that are sustainable with a commitment to provide data regularly.

Country-specific regulations, product variances across regions, and varying concentration levels of e-commerce players across the market worldwide, further add to the complexities. Therefore, it has become imperative for animal health companies to ensure that they are prepared for the challenges involved with deriving meaningful insights from e-commerce data to drive their online strategy.

Scott Jacobovitz has over 30 years of experience in the life sciences industry, with 12 of those years including animal health products and services. His expertise includes commercial excellence, marketing, and sales strategy. Currently, Scott is a director in Axtria's Commercial Excellence practice. He leads global engagements in both animal health and human pharma. Scott has an MBA from Seton Hall University and is a certified PMP.

Nidhi Jolly, MA, is senior manager, marketing, at Axtria. She has over 15 years of experience in the research and consulting industry, with about 10 years of experience working across various facets of content development, offering management, business development, and consulting services for the life sciences and consumer health industries. Nidhi holds a master’s degree in advertising and marketing from Leeds Business School, United Kingdom, and a bachelor’s degree in business and management studies from the University of Bradford, United Kingdom.

References

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