Add Category
- Amazon poses a major threat to PetSmart-owned Chewy in the online pet-food space, according to a report by Wedbush Securities.
- Amazon’s size and large balance sheet have enabled it to offer steeper discounts on first-time orders, Wedbush found by studying 80 pet food products offered by both companies.
- Chewy went public earlier this year, raising about $US1 billion and surging as much as 88% on its first day of trading.
- Visit the Markets Insider homepage for more stories.
One of this year’s billion-dollar IPOs might find itself in the crosshairs of e-commerce giant Amazon.
Chewy, which raised about $US1 billion in its public-market debut earlier this month, can count Amazon as its biggest threat, a team of analysts at Wedbush led by Seth Basham said in a research note on Wednesday.
“AMZN is the one primary threat to CHWY’s growth, in our view,” Basham said in the report. “AMZN’s aggressive [50% off] offer may lead to slower new customer growth at CHWY or limit margin expansion if CHWY matches it.”
Amazon and Chewy are the largest players in the online pet-food space, but Chewy has seen stronger growth in recent years, according to Wedbush.
Wedbush analysed the prices of 80 popular pet-food products offered by the two competitors and found that Amazon offered lower prices through discounts on recurring and auto-ship orders, thanks to the company’s colossal balance sheet. According to Chewy’s S-1 filing, the company lost almost $US268 million on $US3.5 billion in revenue last year.
A bonus just for you:
Click here to claim 30 days of access to Business Insider PRIME
The analysis also found that Chewy and Amazon had the same prices for almost all of the products included in the study, and both usually offered a 5% discount on recurring orders. But, Amazon’s deep pockets allowed it to tack on an additional 5% or 10% discount when customers ordered a subscription to five or more products within the same month.
The table below compares subscription products from Chewy, Amazon, and other pet-food retailers.
Amazon has also started promoting discounts of up to 50% on customers’ first auto-ship orders on certain brands compared to Chewy’s standard 30% discount, Wedbush’s analysis found.
“Of the 80 items we priced, the effective price for a customer’s first auto-ship order was 17% higher at Chewy than Amazon,” the report said.
This isn’t the first time a smaller competitor has faced the daunting task of taking on Amazon. The e-commerce company has begun to spread into logistics, pharmaceuticals, and other business segments by capitalising on its massive operating budget. Last year, Amazon paid more than $US750 million for PillPack, an online pharmacy startup.
“CHWY has a solid business model and compelling customer economics, but the AMZN threat must be monitored,” the report said.
Chewy shares are down 8.5% from their June 14 debut.
Now read more markets coverage from Markets Insider and Business Insider:
Micron overcomes Huawei ban, jumps after smashing earnings expectations
Wall Street payday: The banks on the massive AbbVie-Allergan deal stand to make $US183 million
Business Insider Emails & Alerts
Site highlights each day to your inbox.
Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.