The $8 billion business battle over your pets

Fluffy and Rover are big business as well as four-legged friends

As pet owners look for new ways to indulge their four-legged friends, two firms are fighting for dominance in the fast-growing online pet supplies market.

Michael Frizell was visiting his parents one afternoon in 2011 when he noticed they had stopped buying jumbo bags of dog food for their golden retriever, George. They had switched to 4kg bags, because the larger ones were too big and heavy to lug home from the supermarket.

This sparked an idea for Frizell. “As soon as you see changes in consumer behaviour that don’t reflect what they want, it’s an opportunity for a new business,” he says. “I could see there was value in having pet food delivered.”

Frizell quit his job in investment banking and spent months researching the pet supplies sector before launching Pet Circle (formerly called Paws for Life), an e-commerce pet supply store that sells food, medication, toys and treats and delivers to 50,000 customers across Australia.

In its first year, Pet Circle turned over A$1 million and continues to grow, thanks to some significant cash injections from venture capitalists. Now Frizell has ambitions to grow the business to A$100 million. He’s on the right track; pet supplies is one of the fastest-growing e-commerce sectors in Australia.

For the love of pets

Australia has one of the highest rates of pet ownership in the world, and the A$8 billion pet supplies sector is a perfect target for e-commerce. Browsing supermarket shelves for kitty litter or flea treatments is time that the average pet owner would prefer to spend tossing the ball at the park or grabbing a “doggycino” at a pet-friendly cafe. Doing that browsing online and having bulky pet items delivered is far more convenient.

The predictability of demand in the pet consumables market also makes it a perfect sector for e-commerce: an adult Labrador is likely to gobble about 25kg of food each month and chances are it will eat the same thing for about eight years until it switches to a seniors’ diet. 

Pet supplies is one of the fastest-growing e-commerce sectors in Australia.

Have a fussier pooch that likes some variety? E-commerce businesses are also homing in on more indulgent pet owners and the growing “humanisation” of their beloved furry friends. A recent report commissioned by the Animal Health Alliance shows 90 per cent of Australian pet owners regard their dog or cat as part of the family – no surprise there. By shopping on sites such as Pet Circle, pet owners can source organic grass-fed lamb, designer beds and drinking fountains that provide not just filtered water but good feng shui.

Who knew? Data from research provider IBISWorld shows that pet supplies is one of the fastest-growing e-commerce sectors in Australia, with revenue of A$145 million to June 2015 and expected annual growth of 15 per cent over the next three years. 

While Pet Circle is the market leader, competitors such as My Pet Warehouse may soon be nipping at its heels. Founded in 2009 by former Petbarn chief executive Philip Bartholomew, My Pet Warehouse launched an online store in 2011.

It has a network of 12 physical stores but about 55 per cent of its business is now generated online from the 10,000-15,000 orders it receives monthly. The e-commerce side of the business is growing by 50 per cent every year, and Bartholomew’s revenue target of A$100 million for his business matches that of Frizell’s.

Logistical challenges

Pet supplies e-commerce may be booming but it’s not without its challenges. Pet Circle delivers about three million kilos of pet food each year from its 7000sqm warehouse in Sydney, and Frizell says logistics are tough.

“It’s a relatively low-margin industry, so you can’t have loss and you can’t have damage,” he says. “One of our biggest challenges as we move forward is how we get physical volumes if we want to double and triple in size. It’s all about setting up our warehouse, distribution and logistics to handle that kind of volume.”

Michael Frizell from Pet CirclePet Circle has its own proprietary technology designed for picking and packing pet food and accessories at high volume.

It has worked with seven different logistics companies to get it right and has found a solution of sorts. “We no longer take the standard logistics approach,” explains Frizell. “We’ve dissected our logistics chain into various components and each one is handled by different parties, because there is no one party good enough to manage it all.”

Bartholomew says he quickly learned the perils of shipping across the vast distances around Australia from his Sydney base.

“We had no clear [e-commerce] model; we just opened it and thought we’d see how it goes,” he says. “When we got our first order, we were all high-fiving each other, but I recall looking at a freight bill for a delivery we’d sent to the Northern Territory – the order was for A$840, but the freight bill was A$1300 or A$1400.

That was a scary moment when we thought, ‘it’s not going to work if we’re trying to send everything from one location’.”

Bartholomew’s solution was to regionalise his distribution centres. “It’s the only way if you want to make money outside your home state,” he says. My Pet Warehouse now distributes from centres in Sydney, Melbourne, Brisbane and Perth, but even this method can present compliance challenges in keeping track of orders and delivery outcomes.

“It’s nothing that can’t be overcome,” notes Bartholomew. “You just need to keep on top of it.”

Big competition

While Pet Circle and My Pet Warehouse both have significant growth targets, competition is never far away. Barney Tan, senior lecturer in business information systems at the University of Sydney, sees more established players joining the pack.

“If they grow too big, too quickly and the segment becomes very attractive, they may become victims of their own success,” he says.

“What’s to stop Coles or Woolworths from offering a more extensive range of pet products online? The packaged offering would be compelling – you could buy your groceries and pet supplies online and maybe get a bigger discount and have everything delivered at once.”

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The advantage for companies such as Pet Circle and My Pet Warehouse – at least for now – is that they are purely about pets. A fact not lost on Fido’s human carers.

Pet e-commerce in the US and China

  • The pet e-commerce sector in the US dwarfs Australia. Businesses such as PetFoodDirect, PetFlow.com, Chewy.com and Amazon’s Wag.com are some of the key contributors to its US$4 billion annual turnover.
  • Pet e-commerce is growing in China. Home to a pet population of 100 million, its leading online businesses include Epet.com and Boqii, which raised more than US$25 million from US-based venture capitalists in 2014.
  • Barney Tan, senior lecturer in business information systems at the University of Sydney, says the big e-commerce players are also moving into the pet supply sector in China. He recently used a Chinese website to search for pet supplies and the first hit he got was Amazon.

“The potential for this sector in China is huge,” he says.

“It’s going to be really interesting to see whether a business such as Epet.com is going to be acquired or if it’s going to be able to hold its own.”


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