Chewy coming to Canada — But will it stay?

Earlier this year, amidst the backdrop of the largest veterinary conference in North America, online pet food retailer, Chewy, announced it was expanding into international markets and had its sights on Canada. They followed that up with specific plans to enter the Toronto market in the fall of 2023 and expand into the rest of Canada at a later date (1).

Anyone who has been following Chewy in the United States (US) has seen colossal growth over the last few years. They first gained a lot of momentum with aggressive pricing and even more aggressive marketing, then rode the pandemic e-commerce wave. Fast forward to 2023 and, in the US, Chewy controls almost half the market for online pet products and 7% market share for pet food (2).

Why Canada will be different

No war chest to buy customers

While Chewy was gobbling up market share in the US, they were spending more than they were making. Chewy had outstanding customer service and jaw dropping prices, but all that came with a cost. In 2019, Chewy spent 3 times the industry norm to acquire customers with per customer costs running as high as $148 USD (3). At the time, investors had high expectations for customer lists and low expectations for profit, so Chewy kept spending money and taking names.

In recent years, Chewy has lowered their marketing budgets and focused more on profit. Last year they saw a profit for the first time, but the lower marketing budgets did cost them some clients. GlobalPETS (4) reported that Chewy had a slight decline in active customers (0.9%) in the first quarter of 2023, and analysts at Bloomberg (5) suggested that Chewy is expanding into Canada to combat waning sales in the US.

In a letter to shareholders, Chewy executives promised the move to Canada would be done without any “material commitment to capital spending.” To maintain profitability, Chewy has to keep their market costs down and no longer has the luxury of bottomless pockets to buy customers in Canada like they did when they were starting in the US.

Canadian consumers are different

Consumers in the US have historically purchased online more than Canadians. Before the pandemic, 7.7% of retail sales were done online in the US compared to 4.5% in Canada (6). When Chewy comes to Canada, they will have to work twice as hard to acquire each customer.

Canadian veterinarians are different

One of the biggest differences between veterinary hospitals in Canada and the US is pet food sales. In Canada, pet food is responsible for 12 to 15% of total revenue (7) compared to 2 to 4% in the US (8). Canadian veterinarians focus more attention on nutrition and diet sales than veterinarians in the US. Most Canadian veterinarians recommend prescription and maintenance diets to their clients and offer outstanding customer service during the transaction.

When Chewy was establishing market share in the US, most pet owners were not aware that their veterinarian even sold pet food and if they did, few were offering direct to home delivery — Chewy became the only option for home delivery. In Canada, Chewy will face a better-informed consumer who already purchases 3 to 4 times as much food from their veterinarian, and savvy veterinarians who have been offering their clients Chewy-like home delivery services for several years. Canadian veterinarians have already offered their clients automatic reorder, home delivery, and the opportunity to purchase pet food online from their veterinary-backed webstore.

The pandemic is over

When the pandemic hit, consumers went online. The average consumer was forced to learn how to shop online, and according to McKinsey Consulting (9), 10 y of digital adoption took place in the first 100 d of COVID-19. When veterinarians and pet food retailers were forced to close their doors, pet owners searched for on-line options and, in the US, Chewy was waiting for them. Chewy’s growth over the last few years was a result of riding the pandemic e-commerce wave. They were fortunate to be at the right place at the right time. Now that the pandemic is over, people are going back to stores and e-commerce is slowing. According to Statistics Canada (10), E-commerce almost doubled during COVID-19 going from 3.9 to 6.9% of retail sales but it is falling. Last year, year-over-year sales fell for the first time, dropping to 6.5% of total retail sales for 2022.

Chewy is coming to Canada 2 y too late. With consumers happily going back to bricks and mortar retail, Chewy will not experience the same pressure to buy online like they did in the US. Canadian consumers will be more excited to go back to their veterinary hospitals then look online to buy their pet food.