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The two largest specialist pet supplies retailers in the USA, PETsMART and PETCO, have released figures for 2003, with both companies seeing sales grow robustly amid strong demand for their specialist goods and services. PETsMART has reported net sales of USD3 billion in 2003, 11.1% up on 2002 - assisted by comparable store sales growth of 7%. PETsMART reported net income of USD139.5 million, compared to USD88.9 million in 2002, although results in that year included a one-off charge of USD13.2 million caused by the sale of the Pet City chain in the UK. Phil Francis, chairman and chief executive officer, said, "We accomplished a great deal in 2003. I'm proud of our continued performance." For the full year, pet service sales grew 25.4% to USD193.5 million. In 2003, the company opened 67 new stores, closed seven locations and completed its store remodeling program by reformatting 145 stores, which compares with 27 new store openings, four store closures and 234 store reformats in 2002.

Smaller rival PETCO Animal Supplies, meanwhile, stated that net sales in fiscal 2003 climbed by 12% to USD1.65 billion with a comparable store net sales increase of 5.6%. Excluding one-off items and related tax effects, pro forma net earnings increased to USD68.8 million, a 32% increase over the prior year. Profits improved thanks to the ongoing shift in product mix away from lower margin pet food sales to higher margin categories such as pet accessories, supplies and services.

PETCO opened 63 new stores during fiscal 2003. The addition of approximately 50 new stores (net of relocations and closings) during the period increased the store base to 654 stores. In addition to its new store openings, PETCO completed 50 remodels of existing stores to its latest store format.

PETCO is planning to open 65-70 new stores, or approximately 55-60 new stores net of relocations and closings in 2004, with the company stating that it "will continue to advance its national brand presence". Also during the year, the company plans to maintain its store refurbishment initiative by remodeling up to 75 existing stores to its latest store format. The company will also be busy transforming to 20 Kids “R” Us stores that it recently acquired from Office Depot.

Both businesses, it is fair to say, are benefiting from an extremely favourable environment at present, with spending on pets and pet care accelerating at a rapid tempo in the USA. According to the American Pet Products Manufacturers Association (APPMA), spending on pet food, pet care and pet supplies amounted to an estimated USD31 billion in 2003 - up from USD28.54 billion in 2001 and USD29.5 billion in 2002. This implies that the 290 million citizens of the USA now spend nearly 10% more on their pets than the 153 million citizens of Pakistan spend on feeding themselves.

Pets now outnumber people in the US - there are thought to be nearly 378 million pets in the country - and 62% of households own at least one pet, with around a third of households owning a dog or a cat. As the chart below shows, pet food is the leading category in terms of consumer spending, although it is also the section of the market that is most under assault from the country's leading grocery retailers and mass merchandisers - Wal-Mart's Ol' Roy private label dog food brand is now the largest in the country by quite some margin. Adding to the pressure for the likes of PETsMART and PETCO is the fact that previously niche, exclusive brands such as Iams and Eukanuba are no longer the preserve of specialist retailers as they were until the late 1990s, but are now available through mass-market channels, making it much harder for the specialists to carve out a genuine point of difference in a crowded and competitive marketplace.

It is for reasons such as this that both PETsMART and PETCO are busy rolling out instore facilities such as veterinary clinics, pet hotels, grooming and training services, pet hotels and pet photography - as such features make these chains destinations in their own right, rather than being seen as overpriced alternative channels in which to buy pet food. That said, pet foods still account for more than 40% of PETsMART's sales, although the company claims that 80% of its product range is not available in grocery/mass merchandise retailers' stores - a solid foundation for maintaining credibility, authority and differentiation in the sector.

Both retailers will be anxious to continue their expansion programmes, as the market still appears to have a long way to go in terms of consolidation. Using the APPMA's data, PETsMART's share of the broad pet and pet care market is slightly under 10%, with PETCO securing a relatively modest 5.3%. This suggests that there is still around 85% of the market to pursue. Sure, there will be strong competition from the likes of Wal-Mart and from smaller specialists like Pet Supplies Plus and Pet Supermarket (the latter of which could make a tasty acquisition target for its two larger rivals), but both PETsMART and PETCO are more than capable of driving growth and market share for many years to come.
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