The cofounder of Chewy explains how he created a $10.2 billion empire selling pet food to millennials who treat their animals like their firstborn child
- Ryan Cohen cofounded online pet food and supplies store Chewy.com at the age of 25. He sold the company to PetSmart for $3.35 billion in 2017 and stepped down as CEO in 2018. The company went public earlier this year.
- In a conversation with Business Insider, Cohen explained how he and cofounder Michael Day created an online store that was offering something Amazon wasn't.
- He added that the company has benefited from a trend in pet owners feeding their pets human-grade food and spending more money on them.
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Ryan Cohen was just weeks away from launching an online jewelry business when he was out shopping in his neighborhood pet store and a new idea dawned on him: What if he could set up an online platform that replicated the experience of shopping in a pet store like this, without the inconvenience of having to actually go there?
As the owner of a toy poodle, Tylee, Cohen was well aware of how fragmented the market was at that point and how underpenetrated it was online. He saw an opportunity to fix it.
"I thought if I could deliver the same kind of personalized experience as the neighborhood pet store, but do it online and deliver a really convenient value proposition, that we could build a really big business," 34-year-old Cohen told Business Insider in a recent phone conversation, recalling his thoughts in 2011.
Within a few months, Cohen and his cofounder, Michael Day, had pivoted from jewelry and were selling pet food online under the name of Mr. Chewy, which later became Chewy.com.
In the 10 years that followed, the duo defied their critics and built up a $10.2 billion company that is now publicly listed. In 2017, they sold the company to PetSmart for $3.35 billion, which was the largest e-commerce acquisition in history at the time, and Cohen stepped down from his role as CEO in 2018.
He told Business Insider that the key to the company's success was providing an online service that Amazon wasn't, and understanding the emotional connection that pet owners have with their animals.
"I think I was uniquely qualified to really understand that emotional bond," he said. "I grew up having pets and my pet was always there for me unconditionally. I just knew how strong it was and how fanatical pet owners are."
'When you're shopping with them, you're shopping at an online flea market'
When Cohen set out to raise capital in 2011 at the age of 25, investors initially balked at his pitch.
"We literally got turned down from over 100 people because of this one company," he said.
That one company would be Amazon, the e-commerce giant that was flexing its muscles across the retail sector at the time and building up a giant customer base, which was drawing business away from other retailers.
Amazon had been in the business of selling pet food since the late 1990s but at that time, the market for pet food was still largely offline, Cohen said, adding: "It didn't feel like Amazon was super disruptive in the category."
Still, Amazon was already showing its weight elsewhere. In the same year that Chewy launched, the US' second-largest bookstore, Borders, filed for bankruptcy, and Amazon's rise was widely cited as being one of the key contributors to its demise.
Cohen's rebuttal to potential investors was that Chewy was offering a shopping experience that Amazon wasn't: around-the-clock customer service where shoppers could speak to agents who were well-versed in the products that it was selling.
"You can call us if you want to know what the best grain-free foods are, what the best weight loss foods are, or if your dog has some kind of allergy or sensitive skin issue. Call us 24/7 and someone picks up the phone within a few seconds, and we know every product that we sell really well," he said.
Cohen added: "That was really important to me because my pet was a family member, and I had a lot of questions. Pets can't speak, so you need to speak to someone who is an expert."
Meanwhile, Amazon customers lean on reviews from other customers to find out more about the products being sold on the site. While this could, in theory, be a good way to gauge whether these products are suitable for you, Amazon has notoriously grappled with issues of fake reviews for years.
"They are the everything store," Cohen said. "It feels like when you're shopping with them, you're shopping at an online flea market."
He added: "It is the poster child for automation, it's a faceless machine, and I think that there is still a place in retail for providing a personalized experience."
The personal treatment at Chewy extends beyond the 24/7 hotline to include other perks such as handwritten notes when you make your first purchase, holiday cards, or flowers when your pet passes away.
The focus isn't on making one-off transactions but on turning customers into lifelong clients, Cohen said. The idea is to "wow" the customer and to provide a "delightful experience where they would never dream of shopping elsewhere."
But offering this kind of customer service at scale is both challenging and costly. Cohen said that it hasn't always been smooth sailing but maintained that services such as its 24/7 hotline should remain a top priority because it's what sets Chewy apart from other online stores.
"We can only be successful if we continue to be customer-obsessed," he said.
Marketing to first-time customers is also an expensive business for the company. While Cohen would not comment on these numbers, industry publication Pet Business reported that Chewy.com spent $68 in marketing and advertising spend on each new customer in 2017. By 2019, this leapt up to around $148 per person.
The humanization of pets
Chewy has also benefited from being in the right place at the right time. Spending data shows that owners have been gradually spending more on their pet food and taking more interest in the nutritional quality of what they feed their pets. Rather than simply shopping for convenience - and going on Amazon, for example - they are more likely to consider options such as Chewy.
Cohen believes this shift is a natural extension of humans taking more care of what they eat themselves.
"We are smarter about how we take care of ourselves and we are smarter about how we feed ourselves and what we put into our bodies. I think that that's followed into the pet space. You don't want to look at a product and read the ingredient label and it sounds like the products were created in a science lab. You want to look at a label and think, 'OK, that's real food,'" he said.
Sales of human-grade and more specialized food items are also on the rise. According to Nielsen, food claiming to be "free from wheat" represented $4.9 billion in sales in 2018, up by $331.7 million from 2017.
In a recent Wall Street Journal article, the owner of a dog day-care center commented on the rise in spending on more specialized foods, saying that it's because millennials are treating pets like their "firstborn child." This generation is waiting longer to get married, buy a house, and have children, and, in some cases, choosing to become pet owners instead.
Bob Vetere, president and CEO of the American Pet Products Association (APPA), said in a recent report that this rise in spending is connected to the fact that pets are being seen as more "irreplaceable members" of the family.
"We know this generation [of millennials] is willing to pay more for quality products and services to improve the health and well-being of their pets. Today more than ever, pet owners view their pets as irreplaceable members of their families and lives, and it's thanks to this that we continue to see such incredible growth within the pet care community," he said.
With Chewy behind him, we asked Cohen what's next.
"I think the opportunity was Chewy - Chewy was probably my best idea," he joked during the phone conversation before quickly following up on email: "Never say never. Let's see what the future holds."
