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Americans are treating their pets like children. That's good news for Chewy

Americans' obsession with their pets is lifting Chewy, the online pet food and supply company.Chewy...

Posted: May 1, 2019 1:55 PM

Americans' obsession with their pets is lifting Chewy, the online pet food and supply company.

Chewy announced on Monday that it will go public. It chose a good time for its IPO: Chewy pulled in $3.5 billion in 2018, around a 65% increase from the year prior.

Chewy's sales have grown each year since it opened for business in 2011, and nearly two-thirds of its sales come from customers who order through its automatic-refill service.

The pet supply market is booming because more Americans, including young adults, own furry friends. The rapid growth of the US pet market created an opportunity for Chewy and other companies to woo pet owners with money to dish out.

Healthier diets for pets

Nearly 85 million US households have at least one pet, up from 73 million in 2010, according to the American Pet Products Association, an industry trade group.

For pet food stores, grooming businesses and even health insurers, all those owners represent a windfall. The pet supply industry has grown annually for more than a decade straight, including during the Great Recession. In 2018, sales topped $72 billion, according to the trade group.

About 42% of the dollars humans spend on their pets go to food, while 47% goes to vet care, pet supplies and over-the-counter medication.

Chewy says the pet-humanization trend — humans treating their pets like family — is driving higher spending on health care for pets and even premium and organic foods for their diets. Late last year, for example, Petco announced it would stop selling dog and cat food and treats with artificial colors and preservatives.

"There is an increased focus on the impact of diet on pet health," Chewy said in its filing. "Pet parents increasingly view pets as part of the family and are willing to spend increasingly larger dollar amounts on higher-quality goods and services for those family members."

Another Pets.com?

Online shopping made up around 14% of the pet industry's food and supplies market in 2017, according to Chewy. But it's projected to reach 25% by 2022 as more Americans choose to get bulky bags of pet food and supplies delivered straight to their homes.

Shipping those heavy bags is expensive, however. Chewy lost $267 million last year. It wants to tap the public market to help fund operations and spur growth.

PetSmart bought Chewy in 2017 for $3 billion, but sold a 20% stake in the company last year. PetSmart will remain a majority owner of Chewy after its initial public offering. Chewy plans to trade under the ticker "CHWY."

The company is pitching Wall Street on a plan that involves expanding its new "Chewy Pharmacy" pet health care business and growing higher-margin private brands Frisco, American Journey and Tylees.

It hopes to avoid the fate of Pets.com, which went bust in 2001 after spending millions of dollars in ads.

Pets.com went public in 2000. Its stock started at $11 a share and rose to a high of $14. But the rally was short-lived and Pets.com's stock quickly fell below $1 and stayed there until its demise.

Competition in the pet food industry — especially online — is brutal. Rivals, such as JM Smucker and General Mills, pose an "ongoing threat to the success of our business," Chewy warned investors in its filing.

Chewy called out Amazon as a key threat. Pet food sales on Amazon reached $1 billion in 2018, according to an estimate from Edge By Ascential. And last year, Amazon launched Wag, a line of kibble available exclusively to Prime members.

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