Considering the rumors of a potential merger between Playup Petsmart and Petco, the pet industry is left to ponder the chances of such a union, as well as the possible implications. Just imagine the year 2020.
Playup between Petsmart and Petco
PetSmart and Petco merged a few years ago, and the newly formed big-box retailer, operating under the PetSmart name, has finally finished restructuring its unified organization. Over the course of this project, a few hundred stores were closed, numerous back-office redundancies were eliminated, and the product offerings of the remaining stores were drastically changed. The company is now focused on growing its business, largely by focusing on services and small-format stores-areas in which the combined big boxes had enjoyed the most success before the merger.
Several pet store chains sell them
According to this fall’s rumors of a potential merger between Playup Petsmart and Petco, this picture may not be too far fetched. What would the rest of the pet specialty retail landscape look like after such a merger, and what would its impact be on vendors and distribution networks? Even though this picture is murkier, it is clear that the effects will reverberate across all levels of the pet care market. Despite living in their own stratosphere, big-box retailers do not operate in a vacuum. A merger between PetSmart and Petco isn’t a done deal. Many experts in both the pet industry and investment banking have expressed serious doubts about the likelihood of such a deal being realized, at least in the short term
There are two private equity firms involved in this combination, both of which operate at the top of the food chain. Leonard Greens and TPG Capitals, Petco’s private-equity investors, are not in the business of selling their companies to other private-equity firms; they are in the business of taking them public or selling them to large strategic buyers. As a result, I believe they would be reasonably unyielding in the area of risk sharing in the transaction.” Another deterrent is that Playup Petsmart owners (a consortium led by European private-equity firm BC Partners) are relatively new to the pet retail market having acquired the company earlier this year for a reported $8.3 billion in one of its largest deals to date.
Playup Petsmart Market Place
Experts say the key is how the FTC would define the marketplace in which Petco and Playup Petsmart operate. In a broader view, including food, drug, and mass retailers, as well as online outlets, regulators are more likely to intervene than if they are limited to looking just at the pet specialty channel, where most estimate that big-box stores have a market share of up to 50 percent. It is impossible to predict which direction the FTC will go in defining Petco and PetSmart’s marketplaces, but Jaffe says it may depend on which pet food brands are found on the big boxes’ shelves.
According to Jaffe
In the pet industry, there are certain channel barriers, such as products that are exclusive to specific channels,” Jaffe explains. While it is true that there are similar products available in other retail channels, I don’t believe that they are direct substitutes for pet specialty-exclusive brands; the quality of pet food that you can buy at Petco or PetSmart is superior to that available at Walmart and supermarkets. The bottom line is that if the FTC believes that premium and super-premium pet foods are inherently unique from mass-market pet foods, it may view the merger as creating an unacceptably high level of market share concentration. As a result, concessions will almost certainly be required..