Chewy – demand environment & post-pandemic outlook

Pet supplies outlook as pandemic tailwinds subside

Among the expert’s first observations was that COVID-19 has catalysed “an exponential number of pet additions during this period”, but didn’t convert those who weren’t going to be pet owners in the first place. This has created a “potential trough” for Chewy, with the next 2-3 years unlikely to measure up to 2020’s success. Another industry concern relates to whether adoptions and shelters will see an influx of animals being returned once owners no longer feel they have the time or resources. 

Turning to Chewy’s TAM, the specialist said COVID-19 has “pulled 4-5 years of growth forward into a very short period of time”, potentially increasing by a third. “Now, the concern I have is… what happens to the pet ownership trends?”

The Interview also considered consumer willingness to buy online versus directly in store, with the expert saying that Chewy’s success has been underpinned by its online value proposition. “When you can bundle the ease of use that Chewy provides with the e-commerce solution… and then you wrap it in that customer service that shows the consumer that they’re valued, that the company is there to take care of them, you end up with a very sticky consumer.” Meanwhile, technology is now disrupting some offerings that have historically propped up bricks-and-mortar, such as grooming and veterinary services.

Also on the agenda was the potential upside to Chewy’s pharmacy/Rx business, described as “immense” for the company. “I think it could be upwards of 25-30% of their business, if they can do the right strategies around it,” the specialist said.

On Chewy’s guidance of 25-26% FY21 revenue growth, we heard that “that growth cycle is doable for 2021”. However, without adding a significant vertical, “I would be shocked if that growth trend continues in 2022”, given the concerns regarding how pet ownership trends could evolve. 

Overall, the specialist was optimistic about Chewy’s growth prospects, even as pandemic tailwinds start to dissipate. One of the company’s greatest strengths is how it forms meaningful relationships with its customers, we heard. “What has allowed Chewy to win, for all these years, against the 800-pound gorillas out there has been that relationship with the consumer.”

The Interview also discussed pricing pressures, potential M&A and supply chain issues.

To access all the human insights in Third Bridge Forum’s Chewy – demand environment & post-pandemic outlook Interview, click here to view the full transcript.