Like people, dogs and cats must eat regularly. And that makes their owners prime prospects for a program that offers them discounts for signing up for automatic replenishment of goodies for their furry friends.
Chewy Inc., the leading online pet supplies retailer, is all over the concept, like a kitty on a freshly opened can of tuna.
44% of Chewy’s customers are enrolled in the e-retailer’s Autoship program, which lets customers specify when they want replenishment orders. And those customers spend considerably more than others who shop on Chewy.com, according to market research firm Consumer Intelligence Research Partners LLC, which based its results on a survey of 500 recent Chewy customers.
Autoship customers buy $820 per year on average from Chewy versus $423 for other Chewy customers. They buy 15.5 times annually versus 10.4 times and spend $53 per order compared to $41 for those who don’t choose automatic reordering.
Chewy promotes Autoship heavily on its home page, promising 35% off a customer’s first order. After that, prices on Autoship orders are about 5% less than Chewy’s regular prices.
Autoship compared to Amazon Prime and Walmart+
While shoppers don’t pay anything to join Autoship, it’s effectively a membership program, says Mike Levin, partner and co-founder of CIRP.
“Not only does Autoship commit the customer to Chewy for their predictable, regular replenishment orders,” he says. “But those customers place additional orders beyond their standing orders. A typical Autoship customer spends another $350 a year in addition to their scheduled orders.”
Because there is an implicit financial commitment on the consumer’s part, CIRP compares it to paid loyalty programs, such as those of Amazon.com Inc. and Walmart Inc. Chewy’s 44% Autoship participation rate puts it in the middle of the roughly 65% of Amazon customers who belong to Amazon Prime and 25% who belong to Walmart+. Prime costs $139 per year and Walmart+ $98. Amazon ranks No. 1 in the Top 1000 Database, the Digital Commerce 360 ranking of North American retailers by online sales. Walmart ranks No. 2.
Autoship customers skew somewhat younger and more affluent than other Chewy shoppers, CIRP says.
Chewy’s Autoship revenue grows 77% in two years
Chewy was co-founded in 2011 by Ryan Cohen, who now is chairman of GameStop Corp. (No. 48), and Michael Day. It rapidly grew to be North America’s leading online pet supplies retailer, eclipsing the web sales of such established retailers as PetSmart LLC and Petco Health & Wellness Co. Inc.
PetSmart, owned by private equity firm BC Partners, acquired Chewy in 2017 and Chewy went public in 2019. Because of the continued joint ownership through BC Partners, Chewy is ranked No. 13 in the Top 1000 as part of PetSmart.
However, most of PetSmart/Chewy’s ecommerce revenue comes from Chewy. The combined retailers’ online sales totaled $9.16 billion in 2021, nearly 10 times the web sales of its nearest competitor, Petco (No. 95). Petco had web sales of $922.7 million last year, according to Digital Commerce 360.
Autoship has played a major role in Chewy’s recent growth. It accounted for 70.7% of sales in the fourth quarter of the retailer’s 2021 fiscal year, which ended Jan. 30, 2022. Chewy says its Autoship revenue has grown 77% in the two years of the pandemic.
Despite rapid sales growth, Chewy has struggled to make a profit. The e-retailer reported a loss of $73.8 million in its last fiscal year.
Petco’s recurring revenue compared to Chewy’s
Chewy rival Petco also has an auto-replenishment program called Repeat Delivery, which was launched in 2018. Petco also has other subscription services, including Vital Care, which offers pet owners routine vet visits, grooming and other services for a monthly fee.
Petco says its recurring revenue from these programs represents about half of its total revenue. That’s far less than the nearly 71% of revenue that Chewy realizes from Autoship, but it’s important to remember the two retailers have different business models.
Chewy operates no brick-and-mortar stores and thus relies on closing sales online, which an automated reordering program like Autoship helps accomplish. Petco, meanwhile, operates more than 1,500 physical stores in the U.S., Mexico and Puerto Rico. Like most retail chains, Petco no doubt aims to draw pet parents into its stores. There, they’re likely to splurge for a new toy or another treat for their faithful companions.
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