Vice President, Senior Credit Officer at Moody's Investors Service, Mickey Chadha, joins Yahoo Finance to discuss if the boom the pet retail industry experienced during the pandemic will persist as owners head back into the office and what growth the industry will experience moving forward.
BRIAN SOZZI: All right, if we have been reminded of anything during the pandemic, it's that pets are a great life companion, and because of that relationship, us humans are willing to lavish our fur babies with many, many gifts. Consider this, folks, in 2020, the national pet industry topped $100 billion in sales for the first time ever.
But will the pampering of Fido persist as we head back to offices and leave Fido all alone at home? Let's check in with Mickey Chada. He is Vice President-Senior Credit Officer at Moody's. Good to see you this morning, Mickey. Happy take your dog to work day. Listen, I mean, we've seen a real pandemic driven boom in the pet industry. Do you think it could continue?
MICKEY CHADHA: Well, if you look at the performance of the pet retailers, yeah, I think that the performance still has some legs to them, and the reason being that in the pandemic, a lot of folks were at home and working from home with stay at home mandates, et cetera. The pet retailers were open. A lot of folks got pets. And so the pet ownership has skyrocketed.
And as you know, pets are part of the family. And so once you have a pet, it's highly likely you're going to keep the pet. And so that is a recurring revenue stream for pet retailers. Once you have a pet, you need pet toys, you need pet food, and all the accessories that go with pets. And with the humanization of pets, that has really helped out pet retailers. So yes, I think there's legs to the momentum here on pet retailers, absolutely.
JULIE HYMAN: And by the way, the photos that viewers are looking at right now are actually pets of Yahoo Finance staff members. So obviously, we are a pet heavy crew here ourselves. Look at that here, Harold there, showing star quality in the middle.
Mickey, as we know as well, there has been a pet adoption boom over the past year if you look at the numbers. So we've seen a lot of growth related to that. What do you think sort of the long term run rate and growth rate we should be expecting for this industry?
MICKEY CHADHA: So that's a great question. If you look at it historically, the industry itself has always been very resilient to economic downturns, even in the 2009-2010 financial crisis during the recession.
When the rest of retail was actually having a very hard time, pet retailers were doing fine. And that's primarily because of the trend of humanization and premiumization of product for your pets and the fact that pets are obviously, as you know, becoming family members.
And so if you look at the 2015 to 2019 growth rate, e-commerce has grown about 40% a year, whereas the longer term total industry has grown at probably 4% to 5%. And when you look at it going forward, we think that e-commerce can grow by 10% a year and the brick and mortar retailers about 2% a year.
So that gives a pretty good growth rate. Obviously, the channels are changing. A lot of consumers are getting more comfortable with the e-commerce part of the business. Chewy, as you know, was a new name five years ago. And today it has over $7 billion of sales and a market cap of over $30 billion.
So e-commerce is a trend. And a lot of folks are buying their pet food and pet products online. But the brick and mortar companies, as well, Petco, PetSmart, et cetera, are doing fairly well, because they have upped their e-commerce capability as well. So there is growth. And because it's a resilient industry, it has done well through downturns.
BRIAN SOZZI: Mickey, look, I think we could pull up a photo of me with the Target mascot dog. There I am on the left with the Target--
MICKEY CHADHA: Very nice.
BRIAN SOZZI: Yeah, Bull's Eye, yeah, I met a real star. You see Julie with her own star, Sparky, over there as well. As a company like Target, do you think they will play in the pet boom? Or perhaps do you think the boom is so good and lasting that a Target could go out there and buy a Chewy?
MICKEY CHADHA: Well, I think that buy Chewy is a tall order for Target. I think Target has other priorities that it's taking care of. Chewy valuation, like I said, is extremely rich. We're talking about $30 billion market caps. So any transaction there would be a huge deal for Target so obviously, we can't comment on that.
But I think if you look at the overall industry, the mass channel, which includes the Targets, Walmarts, and supermarkets by the way, are still around 50% of the overall industry. So you have the specialized retailers like Petco, PetSmart, and the online retailers, like Chewy. But if you look at the industry, the biggest share still is with the mass market.
So a lot of the mass market retailers, like Walmart and even Amazon, is getting into the pet industry, because it's actually a pretty good revenue generator. I think Amazon currently has about 6% to 7% of the market. But it's a good business. And so Walmart is getting into it in a bigger way.
And Target itself, yes, I think pet products are attractive for a company like Target. But I think that a big acquisition in the pet industry would be quite prohibitive, especially if you're talking about Chewy.
JULIE HYMAN: So Mickey, you've talked about how robust this industry is and how so many players are benefiting from it. You know, we have this banner up that says retail winners and losers. I haven't really heard you talk about any losers, though. Are there any companies that sort of are not as well positioned or you don't think are going to get that market share in this business?
MICKEY CHADHA: Well, you know, if you look at about three years ago, Petco and PetSmart were the two big two big specialty retailers. And of because e-commerce penetration, it was always thought that e-commerce was not really very transferable to the pet industry, because people actually like to go to the store and talk to associates, et cetera.
But e-commerce really grew. And PetSmart and Petco were caught flat footed. And then, obviously, they upped their game, and the pandemic happened, which actually was a boom for those retailers.
From a loser's perspective, if you have smaller neighborhood retailers, smaller chains, that and don't have the scale or don't have the wherewithal or the financial capacity to increase their e-commerce penetration, or they don't have the actual market where they can sell a lot of their products in terms of mass bigger consumer base, those are the ones that are probably going to be challenged, because you have a lot of big players that are playing in this game.
And they always have an advantage because they do have a bigger cash reserve and a lot more profitability that they can put towards growth, whether it's e-commerce or brick and mortar. So I do know that I have friends who loved going to their neighborhood pet store.
But a lot of these neighborhood pet stores are closing. And then they're always finding it difficult to get the same food brand that they had at this neighborhood pet store, and they're always saying, why are these stores closing? It's just a game of what capacity you have, what scale you have, what purchasing power you have in order to compete. And that's just happening across the country.
BRIAN SOZZI: Well said. We'll leave it there. Mickey Chada, Vice President and Senior Credit Officer at Moody's. Have a great weekend.
