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On the shop floor with…Pets at Home chief executive Matt Davies

Back in 2004 in the pre-recession era Pets at Home was bought by private equity firm Bridgepoint for £230 million, which was widely regarded as being far too rich a price, but fast forward to 2009 and there is an increasingly strong argument to suggest it was anything but. By Glynn Davis

On the shop floor with…Pets at Home chief executive Matt Davies

Certainly this is the view of Pets at Home chief executive Matt Davies who is tasked with running one of the few retailers still pursuing a strong growth strategy. “They paid a 'great' price but it was only making 23 million whereas this year the business will make 70 million and generate sufficient cash to open stores and invest very strongly,” he says.

The plan is to open around 20 stores per year to add to the existing portfolio of 230-plus outlets so over the next 10 years Davies says he can see “plenty of growth”, helped by the fact the company does not currently even cover half of the country and the average drive-time to a store is a mere 10 minutes.

These openings will move him towards his aim of growing the

market share of Pets at Home from approximately 13 per cent to 20 per cent of the pet category. What this means in actual money terms is hard to quantify because Davies says the market is worth around 2.5 billion but up to 80 per cent of this is food and Pets at Home has only a small share of such sales compared with the major grocers.

What we can assume though is that it will mean a decent increase on the company's current annual turnover of 400 million. The majority of these sales relate to accessories and Pets at Home is the unrivalled market leader.

We also know that the pet market is very fragmented, with Davies calculating that there are between 2,000 and 2,500 independents spread throughout the UK. He does not however, regard Pets at Home as a threat to most of these players - provided they are doing a good job.

“When we open we provide people with hundreds and hundreds of product opportunities so we're growing the size of the market. I don't look at taking share from the independents because if we keep opening and innovating then the market overall grows,” he agues.

This innovation involves continuously “refreshing and renewing the offer” as Davies says the differentiated proposition of Pets at Home is down to its research and development, which involves a strong focus on developing own label and in-house brands. “We have 20 people focused on the offer across R&D, working on own-label and packaging designs. It's a significant investment in these brands,” he says.

In addition, the company has been creative in expanding its offer to also include pet care services and has been a lot more successful than Boots was in serving the human market with the likes of dentistry and chiropody services.

Its veterinary service is now in 50 stores and a further 15 practices will be added this year alone. There are also salons offering pet grooming services and an adoption programme that has been rolled out to 200 stores.

“If an animal needs re-homing then we take them in and rather than sell them we find customers to adopt them and they then donate to our charitable foundation,” says Davies, who reveals it has received a total of 750,000 so far and 40,000 pets have found new homes.

However, it is the accessories that are at the heart of the business and thankfully for Pets at Home and its owners they generate a much better margin than the likes of commoditised pet foods. But this is not a focus for Davies as he says “we focus on being a one-stop-shop irrespective of margins as we are driven by the overall shopping experience”.

This is undoubtedly helped by the fact the company typically has a decent amount of space to play with. Its store sizes range from 5,000 sq ft to 18,000 sq ft with the average tipping the scales at 9,000 sq ft.

“The company has done lots of work over the past three to four years to refine the offer so we're still a destination store at 5,000 sq ft. Across all the categories we can get a very strong offer but with a bit less of an experience,” he explains.

This means there won't necessarily be the theatre of the aquatics section; at the Stockport store there is a tank containing 1.5 feet long sharks (which are not for sale). This is maybe not so much of an issue in the current tough market because aquatic set-ups are one of the areas where sales have not held-up so strongly.

This is in contrast to pretty much everything else, according to Davies, who says: “There has been no discernible reduction in spend on pets. Children and pets hold a high position in UK households and a lot has to happen for a pet to go without.”

To highlight this point he says there is a growing trend for 'humanising' pets so premium treats from the Pets at Home cat and dog deli range are selling very well. “They are piggybacking on how we are treating ourselves,” suggests Davies.

The company is also helped by its low average-spend of 20, which he says is “not a break-the-bank experience” and predicts that consumers will more likely drop higher-priced discretionary items before they cut their spending on lower-cost pet-related goods.

It is an equally positive story with the Pets at Home online store that was launched only 12 months ago. It has hit the year-one target of being a top-10 shop and the objective now is for it to be the group's top performing store by the end of 2009. But although Davies regards the internet as a great opportunity he admits to not being particularly focused on it.

This is because growing the physical stores portfolio still represents the main aim and it is here that Davies admits to the recession having an impact: whereas previously 50 per cent of its units came from new-builds on retail parks, this market has now “fallen away” and the company is instead picking-up stores from failed retailers - such as MFI - on existing parks.

This does not sound like too much of a problem, especially when the company will undoubtedly be getting extremely good deals on these sites. If this represents the worst of the effects of the recession on Pets at Home then there must be many chief executives who would very much like to be sat in Davies' seat right now.

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