HomeFEATURESThe new breed of cash cow

The new breed of cash cow

Ruby competes for attention against a copy of NZ Retail issue 739.

There’s something about shopping for others that breaks down barriers.

I’m normally a consumer who researches purchases, budgeting and planning meticulously ahead of any anticipated spending. Every dollar in my life is accounted for, and I’ve been known to get a shoppers’ high from transferring money into my savings account. All of that changed in July when I adopted a rescue dog.

On the surface, Ruby’s needs are simple. She’s an older rough-coated Jack Russell – scruffy, robust and unfussy. The only presents she got on arrival were a collar and lead, a kennel, food and bowls, and a bed.

After covering the basics, however, I’ve been impulse buying like there’s no tomorrow. Ruby now has the best of everything – blankets, toys, shampoo, organic biscuits. There’s a huge dog mattress filled with pure wool squashed under my desk, and all the beef bones on my porch make it look like an ogre’s lair. My generosity has even spilled over to my brother’s dog, who received an oilskin jacket from Swanndri on her owner’s birthday.

Given how out of character this is, I can’t help but wonder why I’m constantly seeking out opportunities to shower my dog with gifts.

It turns out I’m far from alone. In America and the United Kingdom, the pet goods industry is expected to hit US$60 million and £4.6 billion pounds, respectively, this year. Market research firm Euromonitor International expects a trend towards “humanisation” to drive global spending on pet goods past the $100 billion mark for the first time this year.

As consumers become more willing to treat their pets like humans, Franchise Help’s Pet Care Industry Analysis 2015 explains, commercial opportunities emerge for those willing to provide human-style goods and services for pets.

“Pet pampering is becoming the norm, as pet owner spending has moved far beyond simple food and grooming expenses to include innovative and specialised premium products.”

The latest figures available from the New Zealand Companion Animal Council indicate that in 2011, Kiwis spent around $1,252 billion on their pets annually. With an ever-increasing array of items to buy and services to book for shoppers’ nearest and furriest, it’s likely that figure has only increased.

Euromonitor blames New Zealand’s rising humanisation of pets on our falling birth rate, but also mentions our high pet ownership. New Zealanders are pet people. According to Nielsen CMI’s Q2 2014 – Q1 2015 database, 53 percent of Kiwi households have at least one pet – 24 percent have only a cat, 11 percent have only a dog, and nine percent have both cats and dogs. Around three percent dabble in other companion animals such as rabbits, birds and fish. The NZCAC says that cats and dogs account for 90 percent of New Zealand’s expenditure on animals, and around 50 percent of that expenditure goes on food.

A report on the pet food industry compiled by Coriolis Investment Group for the Ministry of Business, Innovation and Employment in 2014 puts the value of New Zealand’s total domestic pet food market at $300 million. Supermarkets take up 80 percent of the market share, accounting for $241 million. Vets cover $10 million of total pet food wholesale, claiming three percent of the market; rural retailers cover six percent to the value of $16 million, and pet stores have an eight percent market share, valued at $24 million.

Of the figures provided by Coriolis around the growth of New Zealand’s domestic pet food market, one stands out. Pet superstores have grown by 17 percent in the last five years, dwarfing every other category.

There’s only one chain in New Zealand that meets the description of a “pet superstore” – Animates.  The company itself cites 25 percent growth from 2013 to 2014, and its total revenue for the 2014 financial year was more than $62 million. This grew to $71 million for the 2015 year.

Animates NZ general manager Tanya Houghton.

Animates NZ general manager Tanya Houghton can claim partial responsibility for this astounding growth. Her story starts in Palmerston North, where, like many, she got her first part-time retail job while attending high school.

At that stage, she had no intention of pursuing a retail career. However, her part-time jobs remained in the mix while she went to Massey University. She enjoyed these roles, and also dabbled in hospitality positions.

“Not only were they funding my lifestyle, which is a good thing when you’re a student, I really enjoyed the interaction with people as well.”

At university, Houghton started a business degree and considered a move into law, but found these traditional paths “all a bit boring”. They lacked the energy and vibrancy she had come to appreciate in her retail roles, which continued to hold her interest.

“I was actually working so much, it was to the detriment of other parts of my life.”

She ended up majoring in english literature. After graduating in 1990, Houghton joined London Bookshops, a chain based in Wellington, on a store manager internship. London Bookshops was a small chain founded in Christchurch with Karo Emanuel, who first opened a lending library in 1935.

Houghton spent four years with London Bookshops running stores. She moved locations twice before ending up in Auckland.

“By 25, I was running the largest store in the group.”

This store was the St Lukes branch, which Houghton describes as being “the hub of retail in Auckland at the time”. It had the largest turnover of any store in the London Bookshops stable and was an early adopter of 24-hour trading. She describes the role as “heaps of fun.”

Her enthusiasm paid off when in 1995 she was appointed Wellington regional manager at age 26, making her younger than any of the store managers who reported to her.

“All of a sudden, I found I had a career in retail. I had progressed quite rapidly and absolutely loved the environment.”

Despite her success, Houghton’s peers from outside the industry didn’t see retail as a career, she says: “It was something you did, but not something you stayed with.”

“They wondered what I was doing.”

Times are changing, she notes, as a retail degree has recently been made available this year through Massey University. The three-year Bachelor of Retail and Business Management is tailored to the retail sector’s requirements, and is supported by The Warehouse Group.

Unusually, London Bookshops had a management team which was skewed female. Houghton says she appreciated this, saying she was never presented with any kind of gender-based barriers. She appreciated the chance to work with “some very strong women who had done very well for themselves within the company.”

After returning from a year-long OE in 1997, Houghton spent a year with NZ Post as a retail business manager. The company wanted her to improve the retail focus of its network so that it wasn’t so service-driven, she says.

She then became Books and More’s national operations manager for New Zealand. Houghton helped develop the chain from a concept to reality, expanding the reach of NZ Post. She was one of the first people to join the Books and More management team. Despite reaching 30+ sites, the company ended up being wound down. The majority of sites remained trading, with many moving into the Paper Plus Group.

Books and More’s failure was more to do with a change in focus from the joint venture partners, Houghton says, as the stores traded well and the company was flourishing.

In 2004, Houghton started her first position within the pet industry as general manager of Jansen’s Pet and Aquatic Centre, a chain of five large-format Auckland stores. She was approached by a contact from the book trade who happened to be a Jansen’s board member.

“Both the book and pet industries are environments where you feel like you’re making a difference to people’s lives,” she says. “Giving [customers] an experience that can make their day is something I am very passionate about.”

In 2007, Jansen’s combined with Animates New Zealand, creating a chain of 13 stores. The company originally founded in 1977 as Jansen’s is now jointly owned by EBOS and Greencross Limited.

Later that year, Houghton relocated her family to Sydney to work with the Australian support team, and stayed there for five years.

She notes that while the Australian retail industry has some similarities to NZ, one of the biggest differences she experienced was that businesses seemed to contain a higher percentage of men in management.

In this environment, Houghton was not only a Kiwi – “who would say what she thought anyway” – but the lone female executive. She believes that getting the right gender balance is important for business: “I firmly believe that the way to get the best results is to have a mixed-gender team.”

Houghton says the opportunities in New Zealand are similar but different compared to those of Australia. She says she knows of many retailers who treat New Zealand and Australia as the same market, but Animates “absolutely doesn’t”. Animates invests in running a full New Zealand-based support team covering all business functions. In addition, many innovations enacted in the Kiwi market feed back into Australia.

“New Zealand is a great test and trial market.”

In 2012, Houghton moved back to New Zealand to take over Animates New Zealand.

One of the first changes Houghton was responsible for was moving Animates’ support office from Christchurch to Auckland.

“One of the key reasons for this was that we had quite aggressive growth plans and we needed to access a larger talent pool.”

Today the chain has 16 outlets in the wider Auckland area, with a greater network of 29 stores in New Zealand and three more currently under construction, two of which are in the South Island. There are currently three Animates stores in the South Island, one in Nelson and two in Christchurch.

On Houghton’s arrival, she embarked on a regional strategy. The first regional store opened in December 2012 in Rotorua. More quickly popped up: New Plymouth, Hastings, Nelson.

A smaller store format was also introduced as part of the evolution of the regional strategy, enabling Animates to both have a footprint in communities of under 30,000 people and to infill in metro locations. A 500sqm store opened in Pukekohe in September last year and in Glen Innes in June 2015.

“This store [format] has been very successful, it allows us to move into smaller regional towns around New Zealand and bring Animates everywhere, really,” Houghton says.

Houghton is pleased with the results. Of the 12 new stores open or in development since Houghton’s arrival, only three have been in the Auckland market. She says she sees growth in regional New Zealand as strategically important.

“It was something we’d been a little bit nervous of in the past,” she says. “We needed to find a way to develop a model which enabled us to extend our reach to ‘pet parents’ across New Zealand.”

Animates remains New Zealand’s only national pet care chain. The next-largest competitor is a group of four stores in Wellington, but as this magazine went to print, Animates advised that national Australian company PetStock had purchased three independent pet stores in New Zealand with plans to expand. PetStock has more than 100 stores in Australia. The chain declined to comment when contacted by NZ Retail. Houghton says its presence will change the landscape “a little” for Animates.

Initial success in the regions has reinforced Animates’ ongoing plans to expand across New Zealand, offering access to pet owners around the country. There remains a lot of regional New Zealand to move into.

In conjunction with the regional strategy, Houghton embarked on a rebranding exercise. She intended to move Animates from being a brand which felt “small-scale, small format, specialty offer,” to a “large-format, bulky goods offer”. The new look was intended to give customers a sense that they were in a national chain with a local offering and a connection to local pet communities.

External rebrandings were completed at the start of this year, and internal work continues.

Houghton also reworked Animates’ national marketing spend: “It completely changed the way we go to market.”

Animates is now working on expanding its offering with services. The company has recently purchased three vet practices in Wellington. There are a number of co-locating vets who operate out of Animates sites in other parts of the country.

It offers puppy school, pet grooming, DIY dog washes, pet adoption and pet insurance throughout the chain. Houghton says each of these increases the number of touchpoints for consumers.

“We see the future of Animates as an expansion of our current footprint, combined with making available services for our pet parents.”

Animates launched online “quietly”, Houghton says. Its ecommerce venture went live towards the end of last year. Houghton sees ecommerce as a critical extension of Animates’ bricks-and-mortar network: “It was something we absolutely had to do.”

There are a number of other pet care operations online, several of them online-only. One of the first to set up was 2009’s MyPetShop.co.nz, which was founded by a consortium made up of farm advisors. The group had set up a corresponding ecommerce venture for farm supplies, MyFarmStore, a year earlier – company spokesperson Scott Walker said at the time of the pet website’s launch that it was about building on a successful model.

“We’ve got the product knowledge, animal health expertise and we’ve invested heavily in ecommerce and new online retail technology and methods. We’re also pet owners ourselves so we’ll understand if someone wants a Christmas pet stocking.” Walker said.

Like Australian-owned department store Kmart, The Warehouse Group stocks pet goods as one of its general categories in The Warehouse stores. New Zealand’s largest listed retailer also stuck a tentative foot into the online-only pet goods market when it purchased a 50 percent stake in online retail business ShopHQ in 2013, which had launched Pet.co.nz a few months prior.

A spokesperson from The Warehouse Group says that the sum involved in purchasing its stake in ShopHQ was so small that the group didn’t make a stock exchange announcement. ShopHQ was then operated by Shane Bradley, who founded popular daily deal website GrabOne in 2010. The Warehouse Group confirmed that Bradley is now the CEO of Pet.co.nz, but declined to comment on the site’s performance or market share for this story.

The site briefly launched in Australia, but according to Bradley, The Warehouse Group decided to focus purely on the Kiwi market first as it saw the most opportunity here.

Houghton believes Animates’ online offering has a different position to its competitors as it’s able to both extend the benefits of its loyalty programme online and give customers the option of shopping in both a physical and online environment. While the online operation is still being ironed out, it’s seeing week on week growth.

Houghton feels that while online is important, the best way to achieve growth and see a return on investment is by increasing Animates’ bricks-and-mortar network through both retail and vet sites.

“Pets internationally, you don’t see the same shift online as with some other sectors, like fashion.”

Houghton says shoppers at pet care stores are driven by the need to see and handle items and to pick up food, which is often a last-minute purchase. This dynamic means that Animates’ biggest competitor is supermarkets.

A Foodstuffs spokesperson says pet goods is a highly important category for supermarkets as consumers shopping for pet products have a larger average basket than those who aren’t. The cat and dog population in New Zealand is fairly stable, she says, but Foodstuffs currently has growth of between three to four percent in the pet category. Value growth is being achieved through a consumer shift to more premium products, increasing the cost per calorie of food, and some market share movement from traditional pet stores.

The spokesperson says there are some segments within the pet category where branded products are more desirable to consumers, listing premium cat food as an example, but the major share of Foodstuffs’ sales in pet goods come from its core range of private-label products.

“Our overarching category strategic statement is to offer an improved in-store experience for our pet consumers with a broad, simple to navigate and competitively priced range, as well as attracting additional consumers to our stores as the destination for key pet segment purchases,” the Foodstuffs spokesperson says.

“Animates’ challenge is to explain via information, range and promotional activity why people should be shopping for their pet in a specialty environment rather than a mass-market merchant,” Houghton says.

Another point of difference between Animates and its competitors, Houghton says, is Animates’ relationship with the SPCA and the Mobility Assistance Dogs Trust. This ensures it’s “doing everything it can to improve pets’ lives.” Houghton says that through the SPCA partnership, Animates has found homes for more than 10,000 rescue animals.

Asked whether Animates has suffered from rising consumer awareness around puppy mills, seen in the ‘Don’t Trade Me’ campaign launched by Paw Justice in March, Houghton says there’s been no noticeable impact on business. Animates takes the high moral ground on livestock sales, she says: “We work closely with our breeders to ensure best practice standards are in place.” Live pets are a “tiny, tiny” portion of overall sales, especially as the company now focuses predominantly on rehoming.

Houghton says what’s been achieved with Animates shows the need for retailers to keep evolving and evaluating their businesses to meet customer needs. They should also be continually looking for opportunities to extend their relationship with the customer.

Animates, in the last three years, has been through a lot of transitional change: “We’ve evolved ourselves to meet customer needs, enabling us to maximise our growth opportunities in the New Zealand market.”

And me? I’ve discovered that my daily walk with Ruby comes quite close to an Animates branch. We might just have to stop by.

This story was originally published in NZ Retail magazine issue 739, August/September 2015.

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