Not just for lockdown: Pets at Home adapts to life after pet-buying boom
As the generation of millions of lockdown pets across the country begins to celebrate their fifth and sixth birthdays, Pets at Home faces a challenge.
Embarking on its turnaround – led by former Waitrose boss James Bailey – the FTSE 250 retailer can no longer rely on the boost offered by the spike in pet buying that came with the Covid-19 pandemic.
Pets at Home runs a retail arm of pet products as well as a veterinary services business and saw its previous boss, Lyssa McDowan, quit last year following a flurry of profit warnings.
On Wednesday, Bailey hailed “better momentum” for the business and pointed to results from his drastic price-slashing plan. But investors are seeking firm evidence that Pets at Home can maintain a steady pace in a less frantic environment.
British households bought 3.2m new pets during lockdown, according to the Pet Food Manufacturers’ Association. But this trend has since faded, and Pets at Home said in its Wednesday trading update that the market has become newly “subdued”.
“The industry backdrop remains subdued given the natural aging of large pandemic pet cohorts,” the company told investors. The firm will have to wait a few years before it sees an influx of demand for veterinary services from this lockdown era of pets.
Tough competition from supermarkets
Russ Mould, investment director at AJ Bell, told City AM that a “slowdown in the lockdown pets boom may be one factor” for the firm’s falling profit, which dropped 28 per cent in the year to March.
As the shift away from the pet-buying boom coincides with weakening consumer confidence, Pets at Home is also being hit by lower discretionary spending on toys and accessories at its retail arm, as well as less demand in its vet business.
“Cut-throat competition from supermarkets in the pet food business has been a further challenge,” Mould added.
“Retail will be the side of the business to watch from here – being the go-to store is even more important than ever, with pet ownership normalising after Covid and competition heating up,” Robinhood UK analyst Dan Lane said.
Lale Akoner, a global market strategist at eToro, told City AM: “Pets at Home is now operating in a more normal pet-care market after the lockdown boom. During the pandemic, many households bought new pets, creating a surge in spending on essentials such as food, beds, toys and accessories.
Are pets just for lockdown?
Now that this wave of first-time buying has faded, Pets at Home’s retail arm must find momentum without this “one-off boost,” Akoner said. The firm has cut prices on more than 1,000 products and said this is paying off, reporting 3.7 per cent food volume growth and a four per cent jump in customer satisfaction.
However, the pandemic era of pets has not abandoned Pets at Home entirely. “The ageing of pandemic pets is also relevant for retail, as older animals often require more specialist food, health products and repeat purchases,” Lakoner said.
But there are reasons for investors to wag their tails, analysts say. The firm’s vet arm has proved resilient – even while it waits for an influx from these pandemic-era pets – and is responsible for 35 per cent of the company’s consumer revenue.
Pets at Home is also set to expand into pet insurance, and the firm told City AM that this new venture is driven by a desire to re-engage with the consumers who bought new pets during lockdown.
“It all looks more manageable than the company might have thought six months ago,” Lane said. “Retail isn’t purring by any means but getting back to basics with a focus on product, price, execution and cost is hard to argue with.”
