Record Autoship results drive loyalty at Chewy

When it comes to pets, loyalty is a valued trait. Chewy is showing how the same is true for online sales of pet products.

At a time when recurring revenue is more important than ever for brands and retailers, the pet ecommerce marketplace is growing uptake of its program that automatically replenishes goods.

Chewy said sales from Autoship customers totaled roughly 75% of net sales in the first quarter of 2023, ticking up from 73% in Q4. That’s a new record for the program’s penetration. Autoship sales, which reached $2.08 billion, grew 18% over the first quarter of 2022.

Crucially, the program is also driving loyalty, as Chewy eyes bigger baskets and long-term relationships. With consumers pulling back on discretionary purchases, many retailers are eying ways to ramp up engagement with their best customers. Autoship is a long-running example that is seeing gains now.

The Autoship service allows customers to subscribe to regular orders of pet products, with no membership fee attached. It’s a particularly strong fit for pet food and other consumables, which tend to be bought and used in regular intervals.

“Our Autoship subscription service is a powerful tool for us, driving recurring and predictable revenue and long-term customer loyalty,” Chewy CEO Sumit Singh told analysts.

Responding to a question from analysts, Singh recalled a period soon after its 2019 IPO where 60% penetration for Autoship was seen as a positive. Singh said the growth since was a result of improvements to reduce friction in the customer experience, as well as the business model behind it.

The fact that it’s a free subscription is particularly attractive to consumers.

“In fact, it leads to a discount for the customers who sign up for that program, and that discount is funded by our vendors, so we don't have to fund it ourselves,” Chewy CFO Mario Marte said.

A “symbiotic relationship” between the marketplace and brands is at the heart of the program, Singh said.

“It's one of the more effective mechanisms to fuel brand loyalty for our supplier brands,” Singh said. "Their participation greatly showcases the value that both of us find in it.”

Overall consumer trends are also benefiting the program. In recent months, sales have shifted more toward consumables and healthcare as discretionary spending on hard goods softened. The essentials tend to be the products that are sent in the Autoship program, since they are in need of refilling.

At the same time, Chewy has expanded selection within the program. The number of SKUs available for Autoship has increased significantly in recent years. Chewy has also grown the categories of products available through the program. Healthcare was a newer addition to Autoship since its debut at Chewy four years ago.

“When you think about the proposition of a health customer, humans are bad at feeding humans medication. We forget to feed our pets,” Singh said. "So if you have the option of putting that on recurring delivery, combined with an ongoing engaged program and the notification engine put behind it, etc., etc., it fuels even stronger compliance rates.”

The shopper experience through Chewy’s site has also encouraged customers to build bigger baskets.

It all results in a reliable customer pool that is made up on not only repeat visitors to the marketplace, but signed up to a program that keeps them locked in with Chewy.

Ultimately, this is a base from which Chewy can continue to build.

When it comes to defining success of Autoship, Chewy doesn’t only measure the active customers it has in the program, though those are growing. The marketplace is also keying in on net sales per active customer, which grew 15% to more than $512 in the first quarter. Like Autoship penetration, this was a record high for the company. Both the number of subscribers and the amount that they spend are driving growth in the program.

Autoship also helps to drive increased customer lifetime value (LTV), which serves as a measure of loyalty. These customers tend to spend more with Chewy over time, so they are a crucial driver of long-term sustainability.

In the end, Autoship sales are good for the top line, as well as the bottom line. Repeat orders allow the company to better plan for shipping, so it can optimize its fulfillment network accordingly. This is especially important as Chewy expands automated fulfillment capacity through four new centers.

“Seventy-five percent of our sales going through the Autoship program allows a predictable, repeatable base of volume that allows us to fulfill that demand in a manner that optimizes asset utilization across the company and allows us to kind of flow that revenue, you know, into the bottom line,” Singh said.

A reliable revenue stream that drives growth over time is good for a business during any economic period, but it’s especially important at a time when many retailers have shifted from a mentality of growth to meet surging demand to profitability when consumers pull back. It’s also a bulwark against potential competitors who may try to replicate Chewy’s service. They may open a pet marketplace, but they won’t have all of Chewy’s Autoship customers.