If you’re a proud pup parent, you’re not buying any old pet food. You’re buying the special stuff from a place you trust.
That’s the dynamic that undergirds the $70 billion pet industry and has helped ecommerce companies flourish despite big box competitors and the ever-present Amazon.
It also led to the biggest deal in e-commerce history when PetSmart announced its recent $3.4 billion acquisition of Chewy.com, a deal that surprised plenty who didn’t think of our furry friends as much of a tech-business opportunity.
“Maybe it’s because the dogs are so amazing and so cute that people expect the industry to be the same,” says Henrik Werdelin, co-founder of Bark & Co., the company behind the dog toy subscription delivery service Barkbox.
Don’t be fooled by the twee names and gratuitous puns, Werdelin says: Pets are big business, and the industry is growing at a rapid clip.
Spending in the American pet market as a whole is projected to reach nearly $70 billion in 2017 almost double what it was a little over a decade ago, according to the American Pet Product Association. More than half of American households now own pets.
Bark & Co. is one of several startups tapping into some of that money as the market begins to transition from the domain of a handful of big-box retailers to that of a collection of online vendors.
Of course, pet-focused ecommerce isn’t entirely new. Pets.com remains one of the go-to companies in reference to the original dot-com bubble. Still, there’s clearly faith among venture investors that the pet market is one worth pursuing.
Werdelin’s company has raised around $77 million to back its monthly deliveries of specially tailored packages of treats and toys. Since its inception in 2012, it claims to have sent out 38 million items, and it pulled in $100 million in revenue last year.
Among Bark & Co.’s less prolific services are a “Tinder for dogs” called BarkBuddy, dog photo-sharing app BarkCam, and dog-themed content site BarkPost.
People are willing to spend the extra buck on this sort of obsessive design because they increasingly see their dogs as more of a household peer in their own right, he says. Hence the rise of terms like “fur baby” and “dog mom.”
“The industry is expanding not necessarily because people are getting more dogs but because they see them more as family members, and therefore, they spend more money on them,” Werdelin said.
Like virtually every segment of retail, a growing portion of the the pet food industry’s sales now take place online. But unlike other areas of retail, it’s not dominated by Amazon.
And with a little over half of the market in its paws, Chewy.com is the top dog of web pet retail followed not particularly closely by Amazon, which boasts a 35-percent share, according to 1010Data.
That dominance makes the site a frequent topic of conversation in the C-suites of big pet retailers, according to Guru Hariharan, CEO of retail tech firm Boomerang Commerce, who’s worked with many of the country’s biggest pet providers.
“Chewy always comes up as the key competitor,” Hariharan says.
Hariharan says the site fits a pattern he’s seen in other categories of retail in which an online vendor gains dominant ground over perpetual Goliath Amazon with cheap prices and unmatched knowledge of the ins and outs of its market.
“If you look at every segment you will see some online providers starting to shake up the market more,” he said. “They are idiosyncratic and specific to their segment.”
Even with all the oxygen consumed by Chewy’s success, though, other pet startup founders insist there’s still room for smaller niche companies that cater to specific aspects of pet ownership.
One is a San Diego startup called Pupbox, which has carved out a piece of the market accommodating puppies in particular.
The company offers subscription-delivery kits with training materials and accessories designed to care for puppies from teething to adolescence.
“The puppy niche specifically is a really big market segment that’s kind of ignored throughout the industry,” says Pupbox co-founder and CEO Ben Zveifler. “We want to become the Gerber or the Honest Company for puppies.”
Once the dogs reach a year old (seven dog years), Pupbox cycles them into a more standard food delivery plan that more closely resembles that of some of its competitors in the space.
“It’s like the Disney mentality if you can capture someone young, develop some brand loyalty, it really offers the opportunity to sell them as they age, and the lifetime value is higher,” Zveifler said.
The startup has been helped by a trend in pet ownership towards millennials, according to Zveifler. Members of that generation now comprise the biggest segment of all pet owners, per a survey from the APPA.
The traditional pet industry dominated as at is by a few big chains wasn’t equipped to keep pace with the changing tastes brought on by this influx of young people, Zveifler says.
“For the last 10 to 15 years, as we’ve seen the tech industry and the internet industry as a whole exploding, the pet industry has been a little bit behind the curve in that sense,” Zveifler said.
One of the most prominent trends among pet owners in recent years has been a move towards healthier, less processed foods that’s tracked closely with similar thinking about human diet.
“What’s happening over at least the last decade is you’re really seeing a paradigm shift as people are starting to pay more attention to their own food,” says Jonathan Regev, co-founder of a startup called The Farmer’s Dog. “And it’s not a far stretch to connect that to their pet’s food.”
The Farmer’s Dog, which offers handmade, customized dog foods made from real meat and vegetables, was well-positioned to cash in on this shift when it launched in early 2015.
Like Barkbox, the company couches its recipes in dog data collected from customers and delivers its products on a monthly subscription basis.
“We create a product that they simply can’t get anywhere else,” Regev said. “If you go to any pet food store and purchase pet food, typically that food is made six months or a year or much longer than that. It’s sitting on a shelf. Versus we’re able to create the food fresh and send it direct.”
The joining of Petsmart, the country’s top brick-and-mortar retailer, and Chewy, the internet’s top pet vendor, constitutes a major shift in the industry’s balance of power a realignment between the new web generation and the established oligopoly.
But one thing it did do, for better or for worse for existing pet startups, is call attention to a massive market that had largely been flying under the radar in tech circles.
“It put numbers on the board,” Werdelin said.
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