As reported by Pet Age, pet retailer PetSmart has agreed to acquire online pet retailer Chewy. The deal is expected to close later this year.
While specifics surrounding the arrangement have not been formally disclosed by either party, the acquisition price is expected to exceed $3 billion. In an article published by Forbes earlier this year, Chewy’s valuation was estimated to be around $4 billion.
Since its debut in 2011, Chewy has captured a major piece of online pet supply marketshare. Between Chewy and online retail giant Amazon, over 90% of the online pet food market is spoken for. Despite Chewy’s meteoric rise, the company, like so many others in the digital space, is not yet self-sufficient. In addition to its own sales revenue — which topped $880 million last year — Chewy is supported by $235 million in venture capital.
Holding nearly half of the online pet food market, Chewy looks like a good fit for PetSmart, whose own online sales make up less than a tenth of the market. Despite this, some experts don’t see the pairing as a perfect match. Specifically, some have expressed concern about Chewy’s profitability in the face of high operating expenses — especially those related to its customer service.
“I don’t know what the path to profitability will be. For an online service, Chewy’s customer service is second to none. They’re either going to have to reduce their level of customer service or raise their prices, or it will be a combination of both.”
— Frank Frattini, CEO, The Hungry Puppy
Questions about the future direction of the company may have already caused a few side effects. Following the acquisition announcement, Tuffy’s Pet Foods issued a press release stating that it would be ending its relationship with Chewy.