How Does Chewy Make Money? The Chewy Business Model In A Nutshell

Chewy is an online retailer of pet food and pet-related products. Founded in 2011 by Ryan Cohen and Michael Day, PetSmart acquired it in 2017 for $3.35 billion.

As an eCommerce retailer, Chewy generates revenue by selling pet food and other pet-related items on its website. These non-food items include health products, toys, training equipment, and animal homes such as kennels or aquariums.

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Origin Story

Chewy is an online American retailer of pet food and pet-related products.

Headquartered in Florida, the company was founded in 2011 by Ryan Cohen and Michael Day. The pair met in a Java chat room and recognized that they had mutual interests.

Cohen was working as an affiliate marketer while Day was trying to find a programmer for his website.

Initially, they launched an online jewelry business with $150,000 of their own money. But with no passion for the industry, the venture proved to be unsuccessful.

This was solidified for Cohen when he visited a pet store with his toy poodle and asked the assistant for the healthiest dog food they stocked. It was also clear that the pet industry was large (but had room to grow) and was transitioning from mass-produced to premium items.

They then pooled their remaining capital into the purchase of pet products from distributors. A website was launched soon after and a third-party fulfillment center was secured.

With extremely limited resources, Cohen and Day acted as their own C-suite. Cohen was CEO while Day was CTO, with friend Alan Attal serving as COO.

Series A funding

Cohen’s vision was to build a large business and realized that this dream would require a significant amount of capital. In an article for Harvard Business Review, Cohen recounted how he went door to door in Silicon Valley explaining Chewy’s business model and how it would ultimately win over customers.

Larry Cheng from Volition Capital was one of the investors he met with. When Cheng asked who was going to take Chewy to $100 million in sales, he was unsatisfied when the 26-year-old Cohen answered “I am”.

Six months later, however, Cohen had surpassed his own sales projections. Cheng was impressed and decided to invest $15 million, with a jubilant Cohen explaining that “After two years of building Chewy – and more than 100 conversations with VCs that went nowhere – I’d finally found someone who believed in me and our business model.”

From that point onward, Cohen was even more committed to making the company successful because he was playing with other people’s money.

Growing pains

The majority of the first $15 million in funding went to recruiting key personnel and developing various technology systems.

With the company growing at 300% per year, fulfillment needed to be operational and any logistical kinks ironed out quickly.

Within a few short months, the company had managed to secure a 400,000-square-foot fulfillment center on the outskirts of Harrisburg, Pennsylvania.

This enabled the company to offer overnight delivery to customers in the populous northeastern United States.

More importantly, it enabled Chewy to keep pace with demand and address a customer experience that had shown recent signs of deterioration.

There were inevitable teething problems, in any case. RF inventory scanners were buggy and staffing took longer than expected. There were also intermittent problems with the warehouse management system and Wi-Fi connectivity.

Early strategy

In the early days, Chewy learned from Pets.com’s failure and avoided lavish Super Bowl Ads with questionable ROIs. Instead, the company focused on direct response ads so that every dollar spent could be tracked.

To expand, Cohen also realized the importance of teams and processes that could acquire “the right customers at the right cost”.

With free cash flow the primary determinant of growth, Chewy doubled its sales from $205 million in 2014 to $423 million the following year.

Cohen and Attal then spent hours trying to recruit staff on LinkedIn, but like their experience soliciting investors, their response rate was very low.

While 98% of candidates never replied to the company’s messages, the 2% that did were team players and business builders who were enthusiastic about the opportunity. In Cohen’s words, “We hired for passion.”

Chewy now offers more than 100,000 products across 3,000 brands for pets including dogs, cats, birds, rabbits, fish, and reptiles.

The company has now managed to raise $451 million over seven rounds of funding from the likes of BlackRock, Lone Pine, T. Rowe Price, and investment bank Allen & Company.

In 2017, PetSmart acquired Chewy for $3.35 billion. At the time, this was the highest-value acquisition of an eCommerce business.

Value Proposition:

Extensive Product Selection: Chewy offers a vast selection of pet-related products, including pet food, health supplies, toys, training equipment, and more. Pet owners can find a wide range of options to meet their pets’ specific needs.
Convenience and Accessibility: The online platform provides pet owners with the convenience of shopping from home, with easy access to a comprehensive inventory of pet products. This accessibility simplifies the pet supply procurement process.
Autoship Service: Chewy’s Autoship service allows pet owners to schedule regular deliveries of pet essentials. This feature offers convenience and ensures that customers never run out of pet supplies, while also providing cost savings.
Exceptional Customer Service: Chewy distinguishes itself through exceptional customer service, going the extra mile to create a positive customer experience. This includes personalized gestures such as sending bereavement flowers to customers who have lost their pets.
Access to Veterinarians: The “Connect with a Vet” service offers customers access to licensed veterinarians, providing valuable advice and guidance on pet health and behavior. This service enhances pet owners’ confidence and care for their animals.

Customer Segments:

Pet Owners: The platform caters to pet owners who seek convenient access to a wide range of pet food and supplies for their dogs, cats, birds, rabbits, fish, reptiles, and other pets. This segment values the convenience of online shopping and reliable pet product delivery.
Pet Enthusiasts: Individuals who are passionate about their pets and prioritize their well-being are a significant customer segment. They are likely to appreciate Chewy’s extensive product offerings and access to veterinary expertise.
Busy Professionals: Busy professionals who may not have the time to visit physical pet stores find Chewy’s online platform convenient for their pet supply needs. The Autoship service is particularly appealing to this segment.
Veterinary Practices: Chewy also serves veterinary practices and clinics that purchase pet food and supplies in bulk for their patients. The platform offers a convenient way for these businesses to procure necessary products.

Distribution Strategy:

eCommerce Website: Chewy operates a user-friendly eCommerce website that serves as the primary distribution channel. Customers can browse products, place orders, and schedule deliveries through the website.
Mobile App: Chewy offers a mobile app for both iOS and Android platforms, extending the convenience of online shopping to mobile device users. The app provides a seamless shopping experience for customers on the go.
Autoship Service: The Autoship service allows customers to schedule recurring deliveries of pet supplies. This feature enhances customer retention and ensures a steady stream of repeat orders.
Customer Support: Chewy maintains a dedicated customer support team to assist customers with inquiries, orders, and product recommendations. Accessible customer support contributes to a positive shopping experience.

Marketing Strategy:

Online Advertising: Chewy invests in online advertising through various digital channels, including search engine marketing (SEM), social media advertising, and display ads. These efforts drive traffic to its website and app.
Email Marketing: The company employs email marketing campaigns to engage with customers, promote products, and offer discounts. Personalized recommendations cater to individual pet owners’ needs.
Autoship Promotion: Chewy promotes its Autoship service as a convenient and cost-effective way for customers to ensure a steady supply of pet essentials. Discounts and incentives encourage customers to subscribe.
Exceptional Customer Service: Chewy’s reputation for exceptional customer service is a key marketing asset. Customer success stories and gestures like sending flowers generate positive word-of-mouth and brand loyalty.
Connect with a Vet: The “Connect with a Vet” service is highlighted in marketing efforts to showcase Chewy’s commitment to pet health and well-being. Educational content and access to veterinarians enhance customer trust.
Community Building: Chewy fosters a sense of community among pet owners by encouraging user-generated content, such as pet photos and reviews. Social media engagement and partnerships with pet influencers contribute to brand awareness.
Data-Driven Insights: Chewy leverages data analytics to gain insights into customer preferences, behavior, and shopping patterns. These insights inform product recommendations and marketing strategies.

Chewy revenue generation

As an eCommerce retailer, Chewy generates revenue by selling pet food and other pet-related items on its website.

These non-food items include health products, toys, training equipment, and animal homes such as kennels or aquariums.

While the bulk of revenue comes from online sales, the company also has a dedicated telephone sales and support team.

Customer service

The pet industry is as competitive as it is lucrative, so the company seeks to stand out from the rest by offering exemplary customer service.

Chewy has been known to send bereavement flowers to customers who have lost their pets. On occasion, the company also sends pet sketches or handwritten notes to its customers.

How else does the company differentiate itself? Read on to find out!

Autoship

The company also recognizes that pet food is purchased periodically. As a result, it offers the Autoship service to schedule deliveries.

Here, Chewy customers can select the products they need and decide on a delivery frequency.

This service is similar to the Amazon service Dash. Chewy offers 30% off eligible items in the first Autoship order with a 5% discount on all subsequent orders.

The Autoship service is free to use for the customer, but value for the company is derived elsewhere. Autoship users are essentially signed on to a paid subscription plan which means repeat business for Chewy.

In fact, the company notes that approximately 66% of all revenue came from Autoship customers.

Connect with a Vet

The Connect with a Vet service allows Chewy customers to get access to licensed veterinarians if they have a question about pet health or behavior.

For Autoship customers, this service is available free of charge.

Revenue Model Recap

Product Sales: Chewy generates revenue primarily through the sale of pet products, including food, treats, toys, medications, and accessories. Customers purchase these products directly from Chewy’s online platform, either as one-time purchases or through the Auto-Ship subscription service.
Subscription Fees: Chewy earns recurring revenue from its Auto-Ship subscription service, where customers pay a fee to schedule regular deliveries of pet products. Subscription fees contribute to Chewy’s revenue stream and provide a steady source of income from loyal customers who opt for automatic replenishment of their pet supplies.
Advertising and Promotions: Chewy may earn additional revenue through advertising placements, sponsored content, and promotional partnerships with pet product manufacturers and brands. By featuring sponsored products and promotions on its platform, Chewy generates advertising revenue while offering value-added opportunities for brands to reach pet owners.

Key takeaways

Chewy is online pet food and pet supplies retailer founded by Ryan Cohen and Michael Day. After a chance meeting in a Java chat room, the two pooled their resources to purchase pet stock and secure a third-party distributor.
Chewy earns money by selling pet food and related items on its website. To differentiate itself in the market, it offers exemplary customer service and allows pet owners to speak to a vet free of charge.
Chewy purportedly makes two-thirds of its revenue through the Autoship service, a delivery cadence system for periodic pet food deliveries.

Key Highlights

Founding and Acquisition: Chewy was founded in 2011 by Ryan Cohen and Michael Day as an online retailer of pet food and pet-related products. In 2017, PetSmart acquired Chewy for $3.35 billion.
Revenue Generation: Chewy generates revenue by selling pet food and other pet-related items on its website, including health products, toys, training equipment, and animal homes.
Early Challenges: In its early days, Chewy faced growing pains as it rapidly expanded, but it focused on direct response ads and hiring passionate staff to drive growth.
Product Range: Chewy offers over 100,000 products across 3,000 brands for various pets, including dogs, cats, birds, rabbits, fish, and reptiles.
Acquisition by PetSmart: In 2017, PetSmart acquired Chewy for $3.35 billion, marking the highest-value acquisition of an eCommerce business at the time.
Outstanding Customer Service: Chewy differentiates itself through exemplary customer service, sending bereavement flowers to customers who have lost pets and offering access to licensed veterinarians for pet health queries.
Autoship Service: The company’s Autoship service allows customers to schedule periodic deliveries of pet food and supplies, contributing significantly to Chewy’s revenue.
Connect with a Vet: Chewy’s “Connect with a Vet” service offers customers access to licensed veterinarians for pet health or behavior queries, especially valuable for Autoship customers.

Element	Description
Value Proposition	Chewy offers a compelling value proposition for its users, including: – Wide Product Selection: Providing a vast inventory of pet products, including food, treats, toys, medications, and more. – Convenience: Offering online shopping with home delivery, saving customers time and effort. – Auto-Ship Service: Enabling users to set up recurring deliveries for pet essentials. – Discounted Prices: Providing competitive prices and discounts for loyal customers. – Pet Pharmacy: Offering a licensed online pharmacy for prescription medications. – Customer Service: Delivering exceptional customer service and support for pet-related inquiries. – User-Friendly Interface: Maintaining an intuitive website and mobile app for easy shopping. – Educational Content: Providing pet care advice, articles, and resources. – Pet Rx Autoship: Allowing users to schedule automatic shipments for prescription medications. – Pet Adoption Support: Supporting pet adoption efforts through partnerships and donations.
Core Products/Services	Chewy’s core products and services encompass: – Pet Supplies: Offering a wide range of pet products, including food, treats, toys, bedding, grooming supplies, and more. – Prescription Medications: Operating a licensed online pharmacy for prescription pet medications. – Auto-Ship: Providing the Auto-Ship service for recurring deliveries of pet essentials. – Pet Food: Offering a variety of pet food brands, types, and flavors for dogs, cats, and other animals. – Customer Service: Delivering responsive customer support through various channels. – Mobile App: Offering a user-friendly mobile app for on-the-go pet shopping. – Pet Pharmacy Services: Fulfilling prescription orders for pet medications with licensed pharmacists. – Pet Adoption Support: Collaborating with animal welfare organizations and providing resources for pet adoption. – Educational Resources: Offering pet care advice, articles, and guides. – Veterinary Diet: Providing specialized veterinary diet food for pets with specific dietary needs.
Customer Segments	Chewy serves a range of customer segments, including: – Pet Owners: Targeting individuals and families who own pets and seek convenient pet supplies shopping. – Pet Lovers: Attracting pet enthusiasts and animal lovers who want the best for their pets. – Veterinary Clinics: Supplying veterinary clinics with prescription medications and pet products. – Animal Shelters: Collaborating with animal shelters, rescue organizations, and adoption agencies. – Pet Professionals: Catering to groomers, trainers, and pet care professionals who need supplies. – Small Business Owners: Supporting small pet stores and businesses with wholesale options. – Pet Care Facilities: Providing supplies for boarding facilities, daycare centers, and pet hotels. – Farm and Livestock Owners: Serving farmers and livestock owners with animal care products. – Animal Hospitals: Supplying animal hospitals and emergency clinics with medications and equipment. – Pet Adoption Supporters: Collaborating with those who promote and support pet adoption.
Revenue Streams	Chewy generates revenue through various revenue streams: – Product Sales: Earning revenue from the sale of pet products, including food, toys, medications, and accessories. – Subscription Revenue: Generating revenue from the Auto-Ship subscription service, where customers receive regular deliveries of pet essentials. – Pharmacy Sales: Earning revenue from prescription medication sales through the online pharmacy. – Private Label Brands: Selling private-label pet food and products under the “Chewy” brand. – Pet Pharmacy Services: Charging fees for fulfilling prescription orders and providing veterinary pharmacy services. – Advertising and Promotions: Earning revenue from advertising partnerships and promotions on the website and app. – Wholesale Sales: Selling pet supplies in bulk to small businesses, pet stores, and veterinary clinics. – Affiliate Marketing: Earning commissions by promoting affiliate offers and products to Chewy’s audience. – Data Analytics: Analyzing customer data and trends for insights that can be sold to pet product manufacturers and partners. – Pet Rx Autoship: Charging for recurring prescription medication deliveries.
Distribution Strategy	Chewy employs a strategic distribution strategy to reach users and promote its services: – E-commerce Platform: Operating an e-commerce platform accessible via web and mobile app for online shopping. – Auto-Ship Service: Offering the Auto-Ship service, allowing users to set up recurring deliveries. – Mobile App: Providing a user-friendly mobile app for convenient pet shopping on smartphones and tablets. – Veterinary Clinics: Partnering with veterinary clinics for prescription medication orders. – Marketing and Promotions: Running marketing campaigns and promotions to attract new customers and retain existing ones. – Customer Referrals: Encouraging customers to refer friends and earn referral rewards. – Email Alerts: Sending email alerts and reminders for Auto-Ship orders and promotions. – Social Media Engagement: Engaging with customers and the pet-loving community on social media platforms. – Customer Reviews: Encouraging customers to leave reviews and share their experiences. – Customer Support: Providing responsive customer support through phone, email, chat, and social media for inquiries and assistance.