Retail Channels
27 March 2023
Chewy plans expansion in retail media, global markets in 2023
The pet product platform is planning to launch a sponsored ads product in the first half of the year.
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Chewy continues to show that ecommerce can take a growing bite out of the pet product market.
The platform posted a 13.6% increase in net sales for 2022, while expanding gross margin to 28%, according to a recent earnings report.
“Against the backdrop of a rapidly changing operating and economic environment, Chewy produced record-high revenue, profitability, and free cash flow,” said CEO Sumit Singh.
Like many in retail, the company is facing headwinds as a result of inflation and interest rates. That showed up in the metric of active customers, which declined to 20.4 million in 2022 from 20.66 million in 2021.
“We believe the modest sequential decline in active customers reflects the continued softness in discretionary spending experienced across the broader economy as well as the residual impact of attrition from our 2020 and 2021 cohorts,” Singh told analysts.
In 2023, Chewy is seeking expansion through international markets and advertising. Additionally, it is adding automation to fulfillment centers. Here’s a look at initiatives detailed on the earnings call:
International expansion
Chewy is preparing to move into its first market beyond the U.S. Singh said the “time is right,” and the company is building both the capabilities and team necessary to launch internationally in the “next few quarters.”
“We expect this important development to unlock meaningful incremental [total addressable market], and we are excited to introduce Chewy to a broader customer base with whom we believe our brand and mission will resonate strongly,” Singh said.
While no exact geography was identified yet, Singh talked through some of the criteria the company is using for expansion, including size of the market, geographic proximity and consumer behavior that may be similar to the U.S.
Before moving into a new country, Chewy is also taking steps to understand the consumer culture.
“We plan and expect to bring all components of our value proposition to the international market. And at the same time, we are going to be very actively listening to the voice of the customer and designing our launch working backwards from that so that there is no dissidence in the way that we show up in the cultural nuances as Chewy's brand enters the international market,” Singh said.
Sponsored ads
Retail media is exploding, as ecommerce marketplaces realize opportunity to unlock new growth and margin opportunities by introducing advertising onto their platforms. Chewy is joining the ranks of retailers ramping up its ad capabilities. Currently, it is testing sponsored ads with a beta that rolled out in the fourth quarter of 2022. The full product is expected to be live in the first half of 2023.
“Our team is hard at work right now on the supply side of the platform, where we expect to deliver a great customer and partner experience with improvements in ad serving, tracking and relevance,” Singh said. “The reception from brands has been and continues to be positive, including the reception on our ROAS framework.”
Fulfillment automation
Chewy made the decision to invest in fulfillment center automation in 2019. Now, it has three facilities that are automated, with a fourth in Nashville on the way this quarter. In turn, the company closed a pair of older fulfillment centers, including one in Pennsylvania, which did not have automated capabilities.
“Each of the facilities are located near one of our new automated FCs, which allows us to combine operations and offer team members the ability to transfer locations. We believe that this action will enable incremental order volume to flow through our automated facilities.”
The automated facilities are now processing about 30% of order volume, which is double from last year.
The move to streamline operations demonstrates that Chewy is not only employing innovation to drive growth, but also profitability at a time when retailers are watching margins carefully.
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Marketing
09 June 2023
'There's a lot of ways to frame value'
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
Photo by Kelly Common on Unsplash
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.
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