How retailers are successfully retaining valued customers

Having acquired many new customers during the pandemic, the race is now on for pet retailers to hold on to their valued customers amid fierce competition. And with spending potential expected to have a long tail – with each new pet likely to be a part of the owner’s household for a decade or more – the stakes are high.

Spending more over time

Retailers are primarily looking to let their customers stay loyal for longer. But they are also looking at ways to make them spend incrementally more the longer they shop with their favorite brand.

According to Chewy, customers typically spend less than $200 in their first year. This amount doubles in the second year to $400 and reaches around $700 by their fifth year. The longest-standing customers spend nearly $1,000 per year.

Chewy CEO Sumit Singh believes this trend illustrates “how much future revenue growth is already embedded in our active customer base, a revenue potential which we can and will unlock over time”.

Chewy’s active customer base was up 4.2% year-on-year in the first quarter of 2022, at 20.6 million. The company is focusing its efforts on those high-value customers who have shown they are likely to keep increasing their spending.

The battle for the customer

Key to customer retention are loyalty programs. The major players are increasingly pivoting towards subscription and loyalty-based models. These tie in shoppers who often prove to be the most lucrative, the longer they stick around.

In the US, Petco has recently expanded its Vital Care loyalty scheme. They now offer discounts and rewards to bird, fish, reptile, hamster and other small-pet owners. The company did so after it noted that the rise in small pet adoptions was in line with the spike in new ownership of cats and dogs.

Petco CEO Ron Coughlin: “Our company’s companion animal business, whether it’s fish, birds or all other types of animals has been growing at double-digits.”

However, at the same time, Petco is facing fierce competition from rivals like online retailer Chewy, as well as general merchandise giants Walmart, Target and Amazon.

VIP treatment for loyal customers

British retailer Pets at Home has seen sales rise as its loyalty scheme membership grows. Its subscription service is also proving popular, with a 15.7% like-for-like VIP customer revenue growth in the past year.

Pets at Home CEO Lyssa McGowan: “Performance has been underpinned by continued customer growth and high levels of retention.”

Sign-ups to the company Puppy and Kitten Club are averaging 25,000 per week, three-fold higher than pre- pandemic, and, according to McGowan “creating a 12 to 15-year growth opportunity over the full pet lifetime”.

A good strategy?

Gemma Boothroyd, an analyst at Freetrade investing app, believes that VIP strategies have been “a major success” for the retailer.

“VIP membership and revenues growth prove the segment hasn’t just been resilient and the ease and perks of its programs have clearly retained pet owners,” according to Boothroyd.

Citi analyst Steven Zaccone remarks: “Pet retail continues to be a bright spot of consumer spending. But the discretionary side of pets remains a drag as consumers prioritize consumables in their fixed pet budgets amidst heightened inflation.”

That’s why hooking consumers into subscriptions and loading loyalty schemes with persuasive packaged offers have never been more important. The hearts and wallets of a relatively recent pet-owning cohort are up for grabs – but the competition is heating up.

Competition from online

Fressnapf, which has announced plans to establish 400 new stores in the next 3 years, is trialing an ultra-fast 30-minute delivery system to increase its customer base. The system, in partnership with Finland-based cycle logistics specialist Wolt, is currently available in Düsseldorf and Berlin.

The company also has a PayBack loyalty program in place, offering in-store and online shoppers redeemable points on purchases.

In addition, the chain aims to further strengthen its online presence. “We not only want to defend our market leadership, but also expand it,” says Fressnapf founder and owner Torsten Toeller.

Moreover, the German group wants to expand its online services, with further initiatives such as a video chat vet, GPS trackers, animal insurance, and a virtual platform for animal recommendation and adoption.