animal, digital Pet Shop Ploys

Pets are man’s best friends – and a business worth millions for Zooplus.
I dig it.

Whether tasty doggy snacks shaped like Christmas trees or little toy bells for cats, the Zooplus website offered plenty of holiday treats for pet owners to pick and give to their animals last year.

“The extra Christmas business isn't essential for us like it is for other retailers, but it is becoming increasingly more important,“ said Cornelius Patt, co-founder and head of Zooplus, an online retailer for pet supplies.

Slowly but surely it’s beginning to feel like a real company, not just a start-up. Cornelius Patt, Zooplus chief executive

About 40 percent of dogs, cats, birds and rodents living in German households get presents on Christmas Eve, according to Forsa, a market research company based in Berlin.

For Zooplus, the rest of 2014 was pretty good too.

Last year the company generated €571 million in sales and advertising revenues, or $653 million. That’s a 34-percent increase over the previous year. The online pet supply store won't report earnings until March, but pre-tax profits are expected to more than double, from €3.8 million to €8 million.

Zooplus stock – listed on the SDAX index of small and medium-sized German companies since 2011 – gained 77 percent in value since August. Last week its shares reached a record high of €84.89. Market capitalization is around €569 million.

“Slowly but surely it’s beginning to feel like a real company, not just a start-up,” Mr. Patt told Handelsblatt.

It has been a long journey to become online market leader in Europe. Zooplus started in 1999, at the height of the new economy’s innovative technologies, business models and opportunities. Burda, the German-owned global media company, helped finance Zooplus early on and still holds more than 30 percent stake in the company.

The idea behind Zooplus originated in the United States: Order everything your pet needs online with home delivery – no more carrying heavy sacks of food or kitty litter.

“We were almost too early for the online retail sector in Germany,” said Mr. Patt. “We would never have believed at that time how long it takes for people to change their shopping habits.”

Germany's house pets include 11.5 million cats, 6.9 million dogs and 6.1 million small mammals – with pygmy rabbits the most popular. Cornelius Patt, Zooplus chief executive

Much has changed in Germany over the years. Specialist retailers, supermarkets, discount stores and drugstores are still the most important outlets in the €3.9 billion pet supplies market. But now about 10 percent of industry sales are generated online – and the proportion is growing.

“Many of our customers order from their office desks,” Mr. Patt said. Most orders are made on working days, especially at the beginning of the week.

Germans keep a lot of house pets, according to IVH, the German industry association of pet care companies. They include 11.5 million cats, 6.9 million dogs and 6.1 million small mammals – of which pygmy rabbits are most popular.

But only a third of Zooplus revenues originate in Germany. The company does business in 24 European countries and plans more growth in core markets such as Austria, Switzerland, the Netherlands, France, the United Kingdom, Italy, Spain and Poland.

By 2017 Mr. Patt hopes to exceed €1 billion in revenues. A capital increase in November generated funds he needed, bringing in €37.5 million. He is aiming for pre-tax profits between €20 million and €30 million.

An analyst at Commerzbank also expected profitability to increase – “thanks to economies of scale and an improved sales mix featuring a higher share of its own brands.”

Up to now, the company’s own brands, which produce far higher profit margins than brand products of well-known manufacturers, only generate about 10 percent of revenues.

Zooplus sells pet food more than anything else. Profit margins are higher on accessories like scratching posts or leashes. But the fact that animals eat every day makes for continuing demand and business volumes which are easy to predict.

Mr. Patt thinks subscription models are too rigid – some online shops offer them for toilet paper or diapers. “Cats in particular like variety in their food,” he said. He said he doesn’t want to miss out impulse buyers and the opportunities they offer.

Few markets are tougher than the pet supply business, which is characterized by falling prices and cutthroat competition.

Europe’s market leader is Fressnapf, based near Düsseldorf. With revenues of €1.67 billion last year, Fressnapf has 1,300 stores and is expanding its online business.

Pets At Home, from the United Kingdom, is primarily an over-the-counter retailer and another Zooplus competitor.  Then there are Internet outlets like Amazon, and specialized mail order companies like Zooroyal.

“We have worked hard to reduce costs for marketing, logistics, staff and administration,” said Mr. Patt. “That's the only way we can generate the profits we're making. Margins for pet food are particularly low.”

Brand manufacturers have to keep coming up with new ideas to sell their products to pet owners. “Nutrition to match needs” is a big selling point now – whether it’s special food for cats that spend a lot of time outdoors, or for urban dogs that tend to be over-stimulated.

In western industrial countries, house pets are being treated more like people. "Everybody loves them – and they're cuddly too," Mr. Patt said. Pets are part of the family – and spoiled just like kids.

 

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Kirsten Ludowig covers retail for Handelsblatt’s companies and markets department. To contact the author: [email protected].