January 9, 2021

Chewy Keeps Adding New Tricks To Grow Sales And Keep Pet Parents Happy

By haziqbinarif


Online pet retailer Chewy, which reported impressive third quarter growth today, is looking to take an even bigger bite out of the billions Americans spend on their pets by expanding its pet healthcare services.

Services like pet telehealth chats with vets, which Chewy launched in October, right now aren’t so much about generating revenue, but about creating bonds with customers that will keep them loyal to Chewy for years to come, Chewy executives said in a call with investors to discuss third quarter results.

The number of active Chewy customers has soared during the pandemic. It added 1.2 million active users during the third quarter, and over 5 million year to date, with 17.8 million active users at the end of the third quarter. Net sales jumped as well, growing just under 45% to $1.78 million.

But the trick Chewy has to pull off is keeping those customers buying every month, preferably on autoship. Its strategy for doing that includes services like its new “Connect with a Vet” telehealth service, which it offers to customers enrolled in the autoship program. Chewy today expanded the service to 12 more states, bringing the total to 47.

Chewy’s long-term growth plan, ever since its startup days when it got noticed for sending flowers when pets died and surprising customers with painted portraits of their cats or dogs, has been to make customers love Chewy as much as they love their pets. That is still the strategy, CEO Sumit Singh said today.

Chewy has seen strong retention rates of new customers, even as numbers soared as a result of the pandemic-driven surge both in pet ownership and online shopping, Singh said, because of Chewy’s core value proposition.

“We build relationships, not acquire mere transactions,” Singh said, Those relationships fuel “evangelism towards the brand, and that has a lot of value in a category like pet,” he said.

The Connect With A Vet service, which lets pet owners have a live text chat with a veterinarian to get advice, and if needed a referral to a local vet or emergency clinic, is seen as a way to entice first time Chewy customers who are likely to also be first time pet owners to enroll in the autoship program.

While the service is free to customers, and isn’t generating revenue yet, Singh said it is likely to help drive sales.

“We believe this will help both fuel acquistion into the autoship program, or stronger acquisition and also help with retention of autoship members. Both of them are incremental to the portfolio in driving topline and bottom line,” he said.

Over time, Singh said, Chewy plans to explore additional ways to monetize the service.

Chewy also wants to get a bigger piece of the $7 billion pet pharmacy market, Singh said. Right now the e-commerce share of that market is $1 billion to $1.3 billion and Chewy currently has 40 to 45% of that, he said.

With pet prescription spending growing at an average annual rate of 10%, “the category has room for multiple simultaneous winners, and our job is to ensure Chewy is one of them,” Singh said.

Last month Chewy expanded its pet pharmacy offerings by adding compounding services, which enables it to sell custom compounds for pets, for example a pet that needs to have the medicine in a liquid form rather than a tablet.

Chewy had a net loss of $32.8 million, about the same as its second quarter net loss, and an adjusted EBITDA (earnings before interest, taxes, depreciation, amortization) profit of $5.5 million, or $10 million less than the second quarter’s adjusted EBITDA of $15.5 million.

The difference in adjusted EBITDA shows that the new customers and increased sales in the quarter came with a cost. Singh said the added costs were largely related to Covid factors such as increased labor costs and logistics, and that he doesn’t see them continuing long term. Higher marketing costs also were a factor.

Chewy has shown it is good at fetching new customers. Singh and his team are confident they will be equally good at keeping those customers. But pulling that off will be tricky with lots of competitors chasing those pet parent consumers.



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