Petco Steps Up Value After Being Blindsided by Deal-Seeking Consumers

As shoppers continue to manage their budgets amid years of financial challenges, Petco has found itself caught unaware by the extent of pet parents’ pull back, especially since this demographic was so reluctant to cut back in the first place.

On a call with analysts Wednesday (March 13) discussing the retailer’s fourth-quarter and full-year fiscal 2023 financial results, R. Michael (Mike) Mohan, Petco Health and Wellness Company’s new interim CEO, spoke to this shift in shopper behaviors.

“We have not adapted quickly enough to recent changes in consumer preferences,” Mohan said. “First, we did not anticipate the magnitude of the shift of value in both are consumables in discretionary business, and second, we did not expect customers to pull back as quickly as they have and for this duration when spending on discretionary items.”

The company experienced a decline in market share and profitability due to a failure to align its offerings with changing consumer preferences.

While many retailers have long since grown accustomed to consumers’ deal-seeking behaviors amid years of macroeconomic challenges, it makes sense that a pet retailer might be slower to adapt, given pet parents’ years of reluctance to scrimp on anything when it comes to their beloved fur babies.

According to data from PYMNTS Intelligence’s study last year, “Consumer Inflation Sentiment Report: Consumers Cut Back by Trading Down,” which drew from an April survey of more than 2,000 U.S. consumers, 47% of all shoppers had switched to a less expensive merchant for at least one grocery product. Yet while 33% have traded down on their personal care products, and 32% on their snacks, only 19% of grocery shoppers had switched to less expensive merchants for pet food and supplies.

As economic challenges continue, shoppers have continued to cut back. The recent February/March PYMNTS Intelligence report, “New Reality Check: The Paycheck-to-Paycheck Report: Why One-Third of High Earners Live Paycheck to Paycheck,” finds that 56% of high-income, 66% of middle-income and 69% of low-income shoppers said they have cut down on nonessential spending in the last year due to retail product price increases.

In response to these changing behaviors, Petco is now working on the “reintroduction of value brands” in consumables categories, per Mohan, as well as on offering “more balanced price points” in discretionary categories.

Additionally, as consumers’ shopping habits continue to evolve, the brand is also looking to adjust its omnichannel offerings to meet customers’ demand for both digital and on-site convenience.

“As we think about being an omnichannel retailer, we have this unique position of having our 1,500 stores as pickup locations, but there’s a group of consumers who want merchandise shipped to them,” Mohan said. “And we have work to do in our supply chain operations to make sure that we can find the most effective way of getting products to people.”

Significant shares of consumers demand each option. The PYMNTS Intelligence study “2024 Global Digital Shopping Index: The Rise of the Click-and-Mortar™ Shopper and What It Means for Merchants,” commissioned by Visa Acceptance Solutions and drawing from a survey of nearly 14,000 consumers in seven countries, found that 14% are now pickup shoppers, preferring to make purchases online and collect them in stores. Plus, 29% are remote shoppers, making purchases digitally and expecting them delivered to their doors.