No. 1 Online Pet Food Retailer Chewy.com is Aiming Even Higher
Co-founder Ryan Cohen has aggressively pursued the No. 1 position for online sales, but what he really wants is to become the largest pet retailer in the world.
MIAMI — The leading online purveyor of pet food and supplies almost never was. That’s because the founders of Chewy.com originally planned to go into the online jewelry business.
“We had actually bought jewelry inventory, and we were literally days away from launching the website,” says Ryan Cohen, Chewy’s 31-year-old chief executive officer. “We bought about $150,000 worth of jewelry. So we were that close to starting to sell jewelry.”
Cohen and Michael “Blake” Day, who met in an online chat room about computer programming, had pooled their money for the jewelry venture. They decided to sell everything at 80 to 90 cents on the dollar after Cohen convinced his business partner that pets had better market potential. Cohen came to that realization while shopping for his toy poodle, Tylee.
“I always wanted to do something with pets, but I couldn’t figure out how to monetize it,” he said. “So I was going to the pet store and realized the market online was really under-penetrated. I said, ‘This jewelry idea, we’re not passionate about what we’re doing. This is a much better opportunity.’ I understand the customer — because it’s myself. So we built the company.”
Cohen and Day redirected their finances and co-founded the company, which is headquartered outside Miami, in 2011. Neither holds a college degree, and at the start they lacked a business plan. But they had faith in their abilities, both having extensive experience with computers since their teens, Cohen said.
The privately held company registered $26 million in sales during its first full year in business. Chewy has since grown to 3,700 employees and is projected to increase revenues to nearly $2 billion this year — nearly a 7,600 percent growth spurt in just six years.
According to 1010Data, Chewy.com rules the online sales of pet food, with nearly 51 percent of the online market, including 40.5 percent in direct sales and 10.2 percent in subscription sales. The nearest competitor isn’t even close. Amazon.com cornered nearly 35 percent of the market, with 23.5 percent in direct sales, 7.6 percent in subscriptions and 3.6 percent at retail. By comparison, Walmart.com has less than 1 percent of the online market share.
Cohen has aggressively pursued the No. 1 position for online sales, but what he really wants is more of the overall market for pet food and supplies.
According to the American Pet Products Association, pet owners in the United States spent an estimated $62.75 billion on their animals last year, with $24.01 billion on food and $14.98 billion in supplies and over-the-counter medicine, making their target market roughly $40 billion. At $2 billion in sales, Chewy would command roughly 5 percent of the market.
“So if you look at where we are today in the business,” Cohen said, “we’re still scratching the surface in terms of the total addressable market. We want to be No. 1. We’re No. 1 online. We want to be the largest pet retailer in the world.”
That’s an admirable goal, but Chewy might need to diversify its sales approach to attain it, advised Steve Kirn, a lecturer in retail management at the University of Florida’s Warrington College of Business. Kirn pointed out that brick-and-mortar companies such as Petco and PetSmart dominate the field with more than half the overall market, even though their online presence is minimal, with 3.1 percent for Petco.com and 2.2 percent for Petsmart.com.
“The people who are going to be winners are the omnichannel or multichannel people who can satisfy you in a store, online, mobile, maybe even with a mail-order catalog,” Kirn said, explaining that brick-and-mortar stores offer services that online stores cannot match, such as grooming and training. There’s also the social aspect of shopping. Kirn even lets his border collie, Myka, partake of the experience.
“When we go to the pet store, our dog really likes to go along with us, and she sniffs around at all the toys and maybe she’ll land on one that she really likes,” he said. “We give her a little bit of a role in picking it out. This dog is a border collie, and she has a very clear point of view about things. We’ve ordered some things online, but generally we’ll go to PetSmart or Petco.”
While online sales are increasing as much as 20 percent per year, depending upon the category, as much as 90 percent of all purchases are still made in brick and mortar stores, Kirn said.
Cohen recognizes that Chewy.com needs to expand to provide his customers with fast and efficient service.
A network of warehouses in key parts of the country will enable the company to reduce both transport costs and delivery time. The company currently provides overnight delivery for more than 60 percent of its customers. The goal, he said, is to increase that to 80 percent by early next year.
Delivery, which is currently handled by FedEx ground, could prove an expensive proposition, especially to provide for those living in far-flung places, including one remote Texas town that a customer described as, “Honey, I live so far out in the woods there’s not even a Chipotle.”
Kirn asked, “Do the economies of doing this home delivery work out? It tends to work out in densely populated areas because it’s more efficient. You don’t have to go driving all over creation to deliver stuff. Places like New York or Chicago or Miami have the kind of population density where I think it can work out. But if you truly want to be a national service, delivering to everyone, you’ve got a problem.”
Cohen is aware of the many stumbling blocks strewn in the way of his dream. To date, the company has yet to register a profit, using investor money to support the increase in staff and capital improvements. The company currently serves more than 2 million customers nationwide, with the highest concentration of customers in the densest populations such as California and New York. His team is constantly scaling the business model to generate revenues that exceed costs.
Chewy is also following the model of superior customer service pioneered by online retailer Zappos. Chewy set a goal of answering the phone within five seconds — and with a live person who is knowledgeable about the entire line of products the company offers its customers.
“From the beginning,” Cohen said, “we came in saying that we want to provide pet parents with the most amazing customer experience. Period.” His aim is to build a bond based on trust, where customers recognize that Chewy personnel know their products and are not looking so much to make a sale as to satisfy the needs of the customer. “Being able to establish that trust is an amazing thing, because pet parents, like myself, are very vocal, and if we could do a good job at building that trust, then they will stay loyal.”
Those handling customer calls are encouraged to get creative in their efforts to awe the customer.
“The goal is with every interaction there’s a ‘wow’ experience,” said Kelli Durkin, vice president of customer service. “So, that customer should hang up the phone and go, ‘Did that really just happen?’”
Durkin wanted to send a burrito to the Texan who lived outside the orbit of a Chipotle. Instead, she sent a gift card for the restaurant, with a note that said, “Next time you’re in the big city, get yourself a burrito on Chewy.”
“He loved it, “ Durkin said, “and I’m sure he’s still a customer.”