Would you consider making your next vet appointment at Walmart (WMT 1.65%)?
The world's largest retailer hopes so, and it's making a renewed push into the pet care market over the next year, complete with an expanded selection of organic and natural pet foods, a new online pet-care pharmacy, and 79 additional veterinary clinics at select stores around the country.
It shouldn't come as a surprise that Walmart sees opportunity in the pet care market. The nature of pet products (which can be bulky) lends itself to e-commerce. Walmart is seeking ways to leverage its investments in e-commerce -- including offering free two-day shipping with a $35 minimum and no membership fees -- and this is a good option to explore.
As more of its sales shift online, Walmart is also looking for ways to repurpose its in-store space. Offering veterinary clinics is a smart way to drive traffic to stores and devote real estate to a business that can't be outsourced online. CVS Health and Walgreen Boots Alliance have made similar moves with their stores, converting retail space into health clinics.
The $72.6 billion pet care market has been steadily outpacing broader economic growth and presents a distinct revenue opportunity for Walmart. Pet product sales are one of the most resilient segments in the American economy. According to the American Pet Products Association, pet industry spending has doubled since 2005, growing at a compound annual growth rate of 5.5%. That's well ahead of GDP or general retail sales growth rates over the same period.
That growth in pet spending looks to continue into the future. In its announcement, Walmart cited a recent TD Ameritrade study of millennials that estimated they spend an average of $1,285 a year on their dogs and $915 on their cats. Odds are good that the spending will only grow as they get older.
The category is also one of the few that has managed to grow even in recessions, as it has done during the last three financial downturns. Even in tough times, Americans don't want to skimp on pet care, because they often see their pets as members of the family.
What Walmart is planning
Let's take a look at what Walmart has in store:
WalmartPetRx.com: Walmart is launching its first online pet pharmacy, WalmartPetRx.com. The online drugstore offers low-cost prescriptions from more than 300 brands for a wide range of conditions, and the meds will be available with free two-day shipping with a minimum order of $35. Walmart is also adding the top 30 most-requested pet meds to its more than 4,500 in-store pharmacies, giving an option to pet owners who need to get their prescriptions that day.
Going organic: It's not just humans that are eating organic these days. Increasingly, pet owners are opting to feed their pets foods containing naturally raised and grown ingredients without artificial additions. Organics popularity in pet products has been evident for a while now. It's part of what led to General Mills' $8 billion acquisition of Blue Buffalo last year, what helped Freshpet stock surge 400% over the last three years, and what encouraged Chewy.com's upcoming IPO. Walmart is finally tapping into the interest as well.
The retailer has added more than 100 new pet food brands, including premium labels like Blue Buffalo, Greenies, and Hill's Science Diet. It has also developed its own private-label brands that offer similar-quality products at a lower price.
Veterinary clinics: In-store vet clinics may be the biggest opportunity to come out of Walmart's new pet care strategy. The company notes that 68% of Americans own pets, and 90% of Americans live within 10 miles of a Walmart. That works out to an estimated 200 million pet owners living within a short driving distance of one of its stores.
To seize on that opportunity, Walmart is expanding on its current base of 21 clinics in six states, adding nine new ones over the next two months with plans to total 100 clinics over the next year. Walmart says its clinics will save customers as much as 40% to 60% on vaccines, exams, and minor illness treatment packages. For customers, that could represent hundreds of dollars in savings in a single vet appointment.
Potentially a smart move
Walmart's strategy could have significant implications for a wide range of competitors, including independent veterinary clinics, dedicated pet retailers like Petco and PetSmart, and online operators like Chewy.com and PetMed Express (PETS 2.32%).
While those competitors could respond directly to Walmart's intrusion, Walmart's size and vast customer base give it a significant advantage in any battle where price, convenience, and accessibility are important. Furthermore, niche brands like Greenies are likely salivating at the opportunity to get into Walmart's network of nearly 5,000 stores across the country, where they'll be in front of millions of new potential customers.
Walmart is making a clever move here. It's leveraging its unique set of assets -- a massive store base, e-commerce network, and economies of scale -- to deliver a combination of products and services that even Amazon can't match. That's worth a celebratory woof or two from investors.