Predictive Location Analytics: The PetSmart Acquisition of Petco
In the fall of 2015 news broke that PetSmart was looking to acquire Petco. Our consulting group Beitz and Daigh Geographic’s thought it would be interesting to look at these store portfolios and study the location analytics of this merger. According to the latest data from AggData, at that time, there were 1,440 PetSmart locations and 1,292 Petco locations (including 127 stores under the Unleashed by Petco brand).
Since this was just a study more geared to marketing our capabilities, we decided to only focus on the stores in the continental United States. Using Esri Business Analyst Desktop GIS software we discovered that 62 percent of Petco locations are within a 10-minute drive time of a PetSmart. Drilling down even further we found that there were 223 Petco locations (17 percent) within 1 mile of an existing PetSmart, and two PetSmart locations contain two Petcos each within a one-mile radius. We next focused our analysis on these 223 “overlap” locations at the 10-minute drive time trade area and noted some interesting findings by looking at the Market Potential Data from Esri.
The Market Potential data showed that PetSmart had a much higher household market share than Petco does, when it came to households who “purchased pet supplies.” Looking at the overlap stores, only four of PetSmart’s trade areas report more customers buying pet supplies at Petco than PetSmart (two of these stores are in Los Angeles and two are in Chicago), while the majority (219 stores) report more customers buying pet supplies at PetSmart than Petco. Revenue numbers seem to validate this data in that roughly over the past 12 months; PetSmart’s revenue #’s was close to $7 billion in the 12 months to February 1, 2015 and Petco’s were close to $4 Billion in sales in the 12 months to January 3, 2015.1 The Market Potential data is provided in Esri Business Analyst desktop and the information originates from consumer surveys complied by GfK MRI.
When retail chains merge, store closures often result. Next, we looked at the population and income for all the 10-minute trade areas for the overlap stores and highlighted the stores that have the lowest combination of population and income. This map in Figure 7.1 shows the top five locations where a Petco would most likely close (assuming the merger goes through and that the weaker market share store would close):
Figure 7.1 PetSmart and Petco merger location analytics analysis
Petco’s stores tend to be smaller and more neighborhood oriented, while PetSmart’s stores tend to be larger and located in big box centers. Also, Petco sells a broader range of animals compared to PetSmart, and Petco is perceived as more expensive in general compared to PetSmart. Time will only tell if the merger goes through and these targeted stores identified in the analysis are closed.