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Retailer Profile: Michael Levy, Pet Food Express, Inc.

January 30, 2012

Pet & Animal Care Executive

Michael Levy has been ceo of Pet Food Express, Inc. (Oakland, CA) since founding the company in 1986. Previously, he owned Pro-Train, a dog training service, since founding it in 1976; Pro-Train opened its first physical training & retail location in 1980. Privately held Pet Food Express operates 41 stores in Northern California, including the greater San Francisco/Bay Area, Carmel, and Sacramento markets. Pet Food Express is the eighth largest pet specialty retailer in the U.S., according to the company, and provides holistic, healthy, and safe pet foods and treats as well as high-quality accessories and supplies.

In the following interview, Levy discusses recent milestones and the company’s expansion plans.

PACE (Pet & Animal Care Executive): Describe today’s Pet Food Express.

ML: We are a holistic pet food & supply store with knowledgeable employees trained to answer all consumers’ questions. We limit ourselves to selling only
products that we would use for our own pets, so we carry no foods with chemical preservatives or byproduct meals.
Our geographic footprint stretches from Carmel, CA, north to Roseville, CA, above Sacramento. We are currently in negotiations for an expansion into Southern California.

PACE: How does the business break down?
ML: Dog and cat categories constitute about 90% of our sales. The other 10% is small animal, bird, fish, and reptile. We offer self-service pet wash in 39 of our 41 stores, and we have low-cost vaccinations every weekend at all of our stores. We also sponsor dog training classes at most of our locations. We do not sell livestock, but our pet adoption program has helped find homes for more than 54,000 homeless animals. By product, about half of our sales come from food and litter.

PACE: What is Pet Food Express’ competitive advantage?

ML: Our advantage is our unique culture, in which pets come first. Donations in support of pet rescues makes up about 80% our marketing budget, with only 20% going to traditional marketing and promotion. Company leadership is constantly in close touch with every part of the business. About 12 of our senior executives visit stores every weekend, and we conduct five manager meetings per month. Also, new employees receive extensive training at company headquarters.

PACE: What have been the recent milestones?

ML: We moved our distribution center and corporate offices from San Leandro to Oakland a year ago. That increased our floor space from about 105,000 square feet to 147,500 square feet, with taller ceilings that allow us to rack a level higher — effectively doubling our distribution
capacity. Another milestone was opening store number 41 in November.

PACE: Which store outperformed the rest of the chain in the past year?

ML: No single store outperforms the others. Because we stay so closely connected and because of our open-door policy — when we find effective adjustments, we make them companywide.

PACE: How is the pet industry different from when your first retail location opened in 1980?

ML: At that time, there were probably 50,000-75,000 items available for sale in the pet industry; now there are millions. Additionally, pet manufacturers were located predominantly on the East Coast, with few products imported from abroad. The trend of humanization with pets has also changed the industry radically.

PACE: How are consumer trends different?

ML: Consumers’ interest in healthy, holistic food has now extended to their pets. That has been especially true since the pet food recalls of 2007. At that time, we pulled entire categories off the shelf and refused to bring them back until we received scientific reports that they were safe, which built trust with our consumers.

PACE: How is Pet Food Express capitalizing on the trends?

ML: Consumers want to be more knowledgeable. The ongoing intensive training we give our staff enables them to give consumers the information they want.

PACE: Which categories are driving growth?

ML: Food is our primary driver. We have an expanded selection, with single-source meat and allergen-free products. There is also a wider range of ingredients, including venison, bison, and fish. That larger selection can be confusing for consumers, so our employees are trained to explain the benefits of each product.

PACE: What is the most important issue facing the business now?

ML: Our first challenge is to continue differentiating ourselves from other retailers and educating more consumers to appreciate the difference. The second challenge will be our expansion into Southern California. Despite the 300-mile separation, we need to maintain our culture and our connection with our employees and customers.

PACE: How are the issues being addressed?

ML: To increase awareness, we continue exploring ways to effectively reach out to consumers who have yet to visit a Pet Food Express. Once they’re in a store, they understand. To ensure that our culture translates to our Southern California stores, we’ll continue to be in close contact with those locations. Our new headquarters is five minutes from the airport, so we anticipate our senior leadership making regular trips to those stores.

PACE: What else is impacting business?

ML: Increased competition is a factor. The current size of the pet industry is around $50 billion. Right now, 70% of those sales come from the food/drug/mass channel. Of the remaining 30%, two-thirds comes from the national chains, Petco and PetSmart. That leaves about $5 billion for
independents, many of which find competing with the national chains daunting. However, we believe strong customer service and interaction can allow retailers of our size and smaller to outperform those chains.

PACE: How did the company perform last year?

ML: We had double-digit same-store growth in 2008 and 2009, with strong gains in both 2010 and 2011.

PACE: What were the revenues for last year?

ML: We don’t release that information, but I can say that we are projecting double-digit revenue growth for the year.

PACE: Where are the opportunities for the fastest growth?

ML: We are comfortable with our pace of growth, which we have managed without outside investments. Our goal is to continue growing successfully, regardless of speed.

PACE: Where are the longer-term opportunities?

ML: The long-term goal is to continue opening new stores. We have also begun producing our own brands. My business partner, Mark Witriol, and I formed a separate company, Emerald Pet, with Glenn Novotny, the former ceo of Central Garden & Pet. Emerald Pet currently
supplies three treat lines to independent pet retailers, which helps them differentiate from mass retailers and national pet chains.

PACE: Which markets are most attractive for entry or expansion?

ML: In Southern California, our first site will be in Orange County. In Northern California, we have a number of holes where we can put stores, but we are conscious of sales cannibalization.

PACE: What is the expansion plan?

ML: We opened five new stores in 2011, and will likely open five stores this year and then seven or eight in 2013.

PACE: When will the company reach 50

ML: It should be some time in 2013.

PACE: What is the criteria for determining
a new store site?

ML: We try to enter strong neighborhood centers close to high-volume, high-end supermarkets, such as Lifestyle Safeways, Whole Foods, and Trader Joe’s. Essentially, we want to be part of the neighborhood and be convenient.

PACE: What part of the expansion plan includes additional sites outside of Northern California?

ML: In addition to our Orange County store that will open this year, likely three of the seven to eight new stores in 2013 will be in Southern California. Beyond that, we are not considering expansion outside of California.

PACE: Does the expansion plan include acquisitions?

ML: We are not avidly looking, but we are open to proposals. Conversely, we have had companies interested in purchasing Pet Food Express, but it is not for sale.

PACE: How many stores can Pet Food Express eventually operate?

ML: Our limitation is that we want to maintain our culture. As long as we continue to find the right locations and the right people to staff our stores and then execute effectively, we will continue to grow.

PACE: How is Pet Food Express well positioned for the current economy?

ML: We believe we have effectively weathered the worst of the economic downturn, while continuing to grow. We also believe the economy will begin improving over the next couple years.

PACE: What have other pet retailers done recently that you’ve found interesting or surprising?

ML: Actually, very little has been surprising. Petco and PetSmart are both growing, and we continue to see new independent stores emerge.

PACE: How do you interact with Mark Witriol, who has been your business partner since 1992?

ML: Our interaction has evolved over the more than 20 years we have been business partners. We have areas of overlap, in addition to our individual responsibilities. Mark, for example, is more involved with our distribution and inventory management, while I oversee real estate management.

PACE: What are the objectives for food categories?

ML: We are constantly looking for new trends. The raw, freeze-dried category, including some dehydrated products, has recently experienced significant growth. That will continue to evolve as larger suppliers are now beginning to use High Pressure Processing, which will improve food safety.

PACE: What are the objectives for supplies categories?

ML: We would like to feature more U.S.-based vendors. Many of our current hard goods are sourced from China.

PACE: What are the objectives for the homeless pet adoption program?

ML: We will continue our incredible commitment to pet rescue initiatives. We donate all the food for the San Francisco Animal Care & Control shelter. We also recently renovated our Market Street location to add a dedicated cat adoption center. By the end of this month, our My Mutt program will likely have raised $1 million, with all those funds going to Bay Area pet rescue organizations. In 2010, we donated a total of $1.1 million to those organizations.

PACE: What is the most important issue facing you now?

ML: Key for me is continuing to be appreciative of the industry we are in and grateful for the employees and customers that make Pet Food Express what it is.

PACE: Complete this sentence: In two years, Pet Food Express will be …

ML: … continuing to grow our store base, while also continuing our community outreach efforts to increase the number of pets we help to find homes.

My Mutt Program
My Mutt Program

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