Must-know: An overview of PetSmart’s growth drivers

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PetSmart’s growth drivers

Last week, Barry Rosenstein’s activist hedge fund JANA Partners disclosed a stake in PetSmart (PETM). JANA expects to discuss strategic alternatives, including a sale of the specialty retailer to unlock shareholder value. In this segment, we’ll discuss PetSmart’s growth drivers and its strategy.

 

The company cited Nielsen data on its analyst day in October last year. It said that it’s a leading player in the pets market with a “17% share of the pet product side and a 16% share on the services side.” PetSmart’s earlier strategy was to be the preferred provider for the lifetime needs of pets. Starting this year, the company refreshed its strategic priorities, which it said “are centered around caring for our customers, caring for our associates, and caring for our communities. Our new customer strategy is to develop moment-making products, services, and experiences for pet parents.” “Pet parents,” who are pet owners passionately committed to their pets and consider their pets to be members of the family, are an important demographic for the company.

American Pet Products Association estimates rise in spending on pets

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The company cited the American Pet Products Association (or APPA) data in its annual filing and said “Based on the 2013–2014 APPA National Pet Owners Survey, approximately 68% of households in the United States own a pet, which equates to over 82 million homes. In total, there are approximately 96 million cats and 83 million dogs owned as pets in the United States.”

The association noted in its release that “a recovering economy and the continuation of the humanization of pets as two leading forces behind increased growth in overall spending.” Plus, “the positive impact of pet ownership on human health will also help grow pet ownership in years to come.” PetSmart said on its analyst day last year that the pet industry is “growing 3–5% a year, driven by a trend that has been continuing to increase over the last decade, the humanization of pets.”

For 2014, the APPA estimates pet spending in the U.S. to reach $58.5 billion—a 4.9% increase over 2013. According to the association, the growth will be driven by a stream of entrepreneurs introducing new products and investors infusing money into new and existing companies.

Companies in the space that will benefit from rising pet spending trends include privately held PETCO Animal Supplies, pet pharmacy PetMeds Express (PETS), lawn and pet-supply firm Central Garden & Pet Company (or CENT), animal health products distributor MWI Veterinary Supply (or MWIV), food and animal safety specialist Neogen (or NEOG), and pet health care service provider VCA Antech (or WOOF). Pet products are also sold by traditional retailers such as Walmart (WMT) and Target (TGT), and online retailers such as Wag.com, which was launched in 2011 and is operated by Quidsi Inc., a subsidiary of Amazon (AMZN).

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