Private Equity’s Impact on Pet and
How to Make It Work for You
BY BARRY BERMAN
Leveraged buyouts, mergers and acquisitions have been altering the business land- scape for years. ;arge;scale private equity firms, which raise money from insti- tutions like pension funds and university endowments and invest in large deals,
have been around for a long time, and are behind the buyouts of many of the largest
pet supply companies. What is new over the past 10 years or so is the rise of independent sponsors;firms that raise money, sometimes from wealthy individuals, for
each deal. These firms have e;tended private equity investments into businesses of
all sizes, some as small as retail chains of less than 10 stores. This means that everyone
in the industry, even owners of single stores, has been impacted by the spread of this
type of investment firm.
WINNERS & LOSERS
One obvious group of winners comprises the owners of retail chains or product manufacturers large enough to have cashed in either by selling out or,
occasionally, by accepting an equity investment and remaining in
control. I have heard of investments for as little as the low seven figures. One obvious set of losers, or so it would seem, consist of independent pet store owners, which now have to face a new competitive
threat in addition to big-box stores, mass merchants, supermarkets
and online retailers. In many parts of the country, what were formerly local retail chains, with private equity backing, have been dotting
the map every few miles with new 2,000- to 4,000-square-foot units
that use store design and assortment to try to create the feel of an independent store. These chains, having started out as independents,
have access to product lines that used to protect independents by
refusing to sell to national chains—a tactic whose effectiveness is
diluted anyway if they sell to major websites.
This expansion has been made easier in the past 10 years because
so much retail real estate has become available from a con;uence of
three events or trends: the recession that began in 2008 and hit most
retail categories harder than it hit pet, weakness in retail in general
caused by online retail competitors, and categories consolidating
(banks, supermarkets) or disappearing (video rentals). It has been a
relatively easy time to rent a store in many areas.
Another private equity-based trend that affects independent retailers has been consolidation among distributors. A number of regional family;owned distributors have been absorbed by firms from
other regions that are now national, or nearly national, in scope. As
a result, in many regions, store owners can no longer choose to buy
from more than a half-dozen family-owned distributors. In order
to obtain certain brands, they have to buy from one of these huge
firms, and calling the owner directly to obtain special consideration
is no longer an option. The consolidation among distributors has
also made it more difficult for some smaller manufacturers to find
slots on distributor shelves, as the sheer number of distributor de-cision-makers has decreased and as legacy brands keep expanding
their number of items.
LOOK FOR THE ADVANTAGE
What can small business owners do in the face of these headwinds?
Is private equity creating any opportunities that could help them?
;or one thing, this type of financial backing is driving manufacturers to expand. Capital coming into the industry means more brands
of food and accessories and even aquatics products have become
available. New brands give independents fresh opportunities to differentiate their assortment from competition by adding lines that
they do not carry. If your distributors don’t carry what you need to
differentiate your store, talk to them to make sure you are aware of
their complete assortment, and go to a national trade show to look
for direct buying opportunities.
Although the consolidation of distributors might be uncomfort-
able for independents, large distributors have resources they can use
to help independents that mom-and-pop distributors do not. When they offer marketing
programs, store design services and platforms to help indies compete with online retail-
ers, drop your suspicions and give them a hearing.
;hat does the future hold; ;ne e;ecutive at a firm with a ma;or pet investment
told me there would be few new buyouts of retailers of any kind, with financiers
spooked by internet competition. On the other hand, Jim Goodman of Gemini Investors in Wellesley, Mass., told me that the enthusiasm of his industry for the pet
business was undimmed. ;e and his colleagues see our field growing with younger
consumers favoring pet ownership over parenting, with pet products growing and
children’s products declining.
Barry Berman is president and co-founder of NexPet, a co-op for independent
retailers, and Grandma Mae’s Country Naturals pet food company. He is also
vice chairman of The World Pet Association (WPA). Contact him at barry@