Petco now plans to acquire full veterinary practices with established customers and relocate them into its stores as the nation’s second-largest pet store chain expands its initial strategy of just hiring veterinarians, a move that could change the real estate patterns for the pet health industry at large.
Executives of the San Diego-based company told analysts the acquisition plan goes beyond recruiting individual veterinarians to its growing slate of in-store pet hospitals. The company expects by the end of August to complete the first in a series of purchases of veterinary practices nationwide, at terms expected to be “really attractive,” though the exact number of planned acquisitions is not yet determined.
“As we looked at the market, there are still many, many small one- and two-vet practices that typically don’t get consolidated,” Petco Chief Financial Officer Mike Nuzzo said during the company’s first-quarter earnings call.
“We like the idea of taking an existing vet practice and moving it into our pet care center hospital,” Nuzzo said. “You start with a mature vet hospital, and it gives you a way to accelerate the model.”
Petco and its competitors are seeking to capitalize on trends including rising pet adoptions and sales of pet care products, which accelerated during the pandemic lockdowns of the past year. U.S. consumers spent an estimated $99 billion on their pets in 2020, up from $95.7 billion in 2019 and $90.5 billion in 2018, according to the American Pet Products Association trade group.
Petco CEO Ron Coughlin said Petco this year plans to open 72 new in-store pet hospitals within its existing slate of more than 1,500 stores, up from its previous guidance of 70 for the year. Petco is ultimately looking to have the in-store care centers in at least 900 locations. They are currently established in 137 locations, including more than 40 that debuted during 2020.
Coughlin said the hospitals have been key to establishing customer loyalty, repeat visits and merchandise purchases made during clinic visits. Combined with other initiatives including growing use of third-party delivery services for some items, the hospitals helped Petco generate a company record $1.4 billion in sales during its first quarter ended May 1, up 27% from the year-earlier period.
The company posted net income of $7.6 million, compared with a net loss of $31.2 million in the year-earlier quarter.
Coughlin said another factor aiding sales is industry consolidation. For instance, the CEO said Petco probably gained sales from customers in U.S. regions previously served by Pennsylvania-based retailer Pet Valu, which announced in November that it was shutting down all of its 358 U.S. stores and warehouses.
On the flip side, Michigan-based retailer Pet Supplies Plus announced it plans to open 100 new locations this year, including 40 locations acquired from Pet Valu after its shutdown.
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