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Nothing’s too good for our fur babies. Pet Valu and its pug-loving CEO, Richard Maltsbarger, is monetizing that love

Omar was a good dog. A big black standard poodle with a sunny expression despite his advanced years, he lived with his owners in the Beaches district of Toronto. When a new Pet Valu PET-T store opened up in Omar’s neighbourhood in 2012, at Queen Street East and Coxwell Ave., visiting the store became part of Omar’s daily walk. Over the next two years or so, he became so used to the route he and his owner took, so familiar with the turns and the smells along the way, that he started leading the way to the store. Which was pretty remarkable, all things considered, because in addition to being quite old, Omar was blind.

The big poodle became such a welcome regular at that Queen and Coxwell store that the store’s owner, Karthiga Raja, still has a copy of a Christmas photo of him taken there. It shows Omar looking brighter and more cheerful than you could expect of any dog similarly afflicted, especially with his time running short.

There came a day in 2014, just a few weeks before Omar died, when Raja got a call. It was Omar’s owner on the line, saying that somehow Omar had gotten out, and they couldn’t find him anywhere. The owner was wondering if his poodle might be there. Raja said no, she hadn’t seen him. But then she went to the front entrance and looked out. And there was Omar, waiting patiently for someone to open the door. So she let him in, and Omar hung out in the store with Raja and her staff until his owner came and picked him up.

In Raja’s experience, this sort of interaction with the neighbourhood isn’t unusual. It’s one of the things she enjoys most about being the owner of two Pet Valu franchises. “There’s a lot of personal connections,” she says. “Because we’re there all the time, you develop these relationships.” A store’s staff (Pet Valu calls them “ACEs,” for animal care experts) will share in the concern felt by a pet owner (Pet Valu calls them “devoted pet lovers”) when their fluffy companion is sick. They’ll share in the joy when someone gets a new puppy. They’ll share hugs and tears when a pet dies. And of course, it doesn’t make these relationships and moments any less real, or any less important to a dog like Omar, that the parent company, Pet Valu Holdings Ltd., wants to monetize them for all they’re worth. Is working extremely hard, in fact, to harness the love we feel for our pets and use it to fuel a relentless, growing revenue machine.

The world adores its pets. According to Bloomberg Intelligence, the global pet industry—today a roughly US$350-billion market—should be nearing US$500 billion as early as 2030. In Canada, a survey by market research firm GfK found that 61% of Canadians owned a pet, a portion five percentage points higher than the global average. And our rate of spending on those pets is accelerating. From 1994 to 2016, spending increased at an average annual rate of 6% a year, according to Statistics Canada. Since then it’s grown by an average of 8% a year and even faster during the COVID-19 pandemic. The best data seems to come from the Canadian Animal Health Institute, which found that from 2020 to 2022, the population of dogs in Canada increased to 7.9 million from 7.7 million, and the number of cats jumped to 8.5 million from 8.1 million. In 2023, Canadians spent $13 billion on those pets.

All of this spending is a consequence not only of the broad numbers, but also a phenomenon known as “humanization.” Ever since the domestication of wolves began in prehistoric times, humans have drawn their four-legged companions inexorably closer. And the process is deepening. Forty or 50 years ago, it was common for dogs to be kept outside, chained or in cages. Then we welcomed them into our homes, then into our bedrooms, then onto our beds and laps. The closer they’ve gotten, the more they’ve become extensions of us, and the more willing and even eager we’ve become to spend on them as we would ourselves. To buy them shoes and coats and hats. To feed them food that looks more and more like our own.

Pet Valu is arguably better positioned to take advantage of this phenomenon than any other pet retailer in Canada. There is a class system at work in pet food. About 25% of customers live at the lowest price point, which includes the food sold by grocery chains and big-box stores, often featuring corn as a primary ingredient. Next comes premium grocery, which might include a brand like Blue Buffalo that was once considered a higher-end product before it shifted its distribution toward the mass market. Above that come the specialty rungs, including brands targeting special dietary needs (such as Royal Canin) or with higher-quality ingredients (premium brands like Acana and Orijen). Pet Valu offers these and its own proprietary brands under its Performatrin labels. And soon it’ll begin offering food at a higher level still, to serve customers who will spare no expense.

During a recent tour through the aisles of a franchise store in Woodbridge, Ont., with Pet Valu CEO Richard Maltsbarger and senior VP of franchise operations Adam Woodward, pricey food innovations were turning up everywhere. We’d already passed displays of ready-to-make cake mixes and dehydrated ice cream for dogs. Over in the treats section, you could choose from several kinds of collagen stick or beef pizzle (penis). Amid the dog food brands offering the usual beef and chicken, the latest in proteins—kangaroo meat—featured prominently. Somewhere nearby were shelves of what had once been the company’s highest-quality proprietary brand, Performatrin Ultra. But it was as we neared the freezer area that the CEO’s excitement seemed most palpable.

“The biggest growth area is alternative feeding, or what we call ‘culinary,’” said Maltsbarger. “Culinary is primarily frozen raw, or ‘gently cooked and then frozen’ meals.” He motioned to the freeze-dried raw meals, to the frozen quail eggs and goat milk. Nearby shelves featured a display of bone broth for $19.99 a litre. And here was Marie’s Magical Dinner Dust, meant to be sprinkled over a dog’s meal like a pinch of seasoning: regular price $29.99 for a seven-ounce bag—which is a remarkable amount to pay for what appears to be the detritus left over from making dehydrated treats that someone thought to shovel into bright packages.

“You happen to be standing in the most premium of all parts of a pet store,” said Maltsbarger, his eyes agleam. “Which is why we call it culinary.”

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Carmen Cheung/The Globe and Mail

Pet Valu has had a piece of the pet business in Canada for 48 years, ever since it started as a single store in 1976. Today its 783 stores—222 of which are corporately owned, the rest franchised—account for 18% of the Canadian market. It’s the largest pet-supply retailer in the country, with five times the number of stores of PetSmart, its nearest competitor (but biggest nemesis; we’ll get to that later). For the past few years the company has been growing at a rate of 39 new stores a year and now wants to surpass that, aiming to grow at a rate of 40 to 50 stores a year. Maltsbarger wants you to know that number could be higher, but the company refuses to rush and potentially jeopardize quality.

“We have,” he says, “a very specific cadence of timing and process.”

If you were to take that as a sign that Maltsbarger, a 48-year-old American, has his company on a tight leash, you’d be right. Pet Valu, under his leadership since 2018, has had to evolve from the organization it was, just as Maltsbarger himself once had to learn some new tricks.

Pet Valu’s history has seen several distinct phases. The first was an expansion phase under founder Geoff Holt, a math whiz who’d once worked for Consumers Distributing. Three years after that first store opened, there were eight. By 1993, the company had opened 163. Pet Valu went public that summer and three years later was expanding at a rate of two stores per week and pushing for more. It had 244 stores with a goal of 600, and had begun expanding into the United States.

By 1999, it seemed the company might be growing too quickly. It was losing money and needed a US$7.5-million line of credit to cover its U.S. inventory needs. By 2007, it had found its footing well enough to post a US$12.4-million profit and attract the attention of investment manager Goodwood Inc., which accumulated a roughly 20% share. Unfortunately, Goodwood had done so with the intent of pushing out the company’s board of directors. A proxy battle ensued that resulted in Roark Capital Group, an Atlanta-based private equity firm specializing in retail holdings, buying the company in 2009 for US$144 million. It took Pet Valu private and installed board member Tom McNeely, a former Tim Hortons executive who’d been aligned with the company’s pension fund investors, as CEO.

McNeely began pressing Pet Valu’s expansion across Canada—acquiring the B.C. chains Bosley’s, Tisol and Total Pet—and then further into the U.S. By 2018, in addition to its Canadian presence, Pet Valu had opened more than 370 U.S. corporate stores. It had also acquired a specialty retail chain, Pet Supermarket, with 225 U.S. locations. McNeely was proud to say at the time that Pet Valu had grown more than any Canadian retailer but Dollarama.

Yet there were doubts again about the speed of its expansion and the soundness of the supporting infrastructure. Christine Martin Bevilacqua, Pet Valu’s chief administrative officer, who has been with the company for 22 years, admits the retailer was diverting too much attention away from the Canadian business to support the U.S. side. “Canada was still fundamentally our opportunity for growth,” she says. “We probably spent a little more in the U.S. than we should have.”

Pet Valu’s head of investor relations, James Allison, admits that by 2018, it was obvious “the U.S. business was consuming too much cash.” That’s when Roark decided to look for a CEO who could fix what was broken and prepare the company for a possible IPO. It found its man in Maltsbarger, Lowe’s COO of U.S. operations, who’d spent a few years as president of international operations, including Canada and Mexico.

Maltsbarger (who’s owned four pugs but now has a Boston terrier, a multi-mix and two cats) has a lot of fans these days. People who work for him talk readily about the way he brings people with him. The way he expects leaders to leave their egos outside, sets tough goals but wouldn’t ask you do to do anything he wouldn’t do 10 times harder himself.

Even an ex-Pet Valu exec agrees. “I’ve worked for a lot of CEOs and he is absolutely at the top of the list.” So says Jim Grady, Pet Valu’s former CFO, who now heads up finance for the U.S. boating-supply retailer West Marine. According to Grady, Maltsbarger is “extremely low-ego, all about the team and the greater good of the business.” And in the time he worked for him, he was struck by Maltsbarger’s constant habit of self-reviewing his actions and behaviours as a leader.

There was a meeting Grady remembers, when Maltsbarger wasn’t happy with the progress on a project: “He expressed his frustration, in my opinion, in a very appropriate and professional manner.” But speaking with Grady a few hours later, Maltsbarger was critical of himself for letting his feelings show. “I was just shocked to hear someone say that,” says Grady. “He really wanted to make sure what he was doing was productive.”

It doesn’t take long, once you begin talking to Maltsbarger, to figure out what might be driving that need to do better. He grew up in rural Missouri, in a place so small he lived on Maltsbarger Road. He was the eldest of five children in an unstable home, which led to him being raised largely by his grandparents. His grandfather had firm ideas of how a young man should behave and a way of transmitting those ideas in sayings that Maltsbarger can quote to this day. “One I always loved—how did he put it? ‘You never seem to have time to do it right the first time, but there always seems to be time to do it over.’” If he could manage to do it right from the start, his grandfather said, maybe he’d let Richard go out on Saturday nights.

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Pet Valu CEO Richard MaltsbargerSupplied

Maltsbarger learned to live by a get-it-done-right-the-first-time code. As a child, he helped his stepmother clean houses until he turned 13, old enough to begin working with his grandfather, either on his 1,000-acre farm with 400 head of cattle, or at his excavation and sewer business, digging basements, sewer lines and septic lagoons. He also helped raise two much younger sisters. In his spare time, Maltsbarger taught himself computer coding and eventually put himself through university by building software and websites. Graduate-school work in quantitative analytics and neural-network algorithms led to a job at IBM. That, plus an MBA while he was there, led to a job as head of customer analytics at Lowe’s, where in 2006 he rose to VP level as head of research and, six months later, ran smack into a wall of his own making.

The results of an employee engagement survey came in, identifying Maltsbarger as one of the worst leaders in the company. “The reason,” he says, “is I had not yet learned that leaders are not meant to be the smartest person in the room.” His leadership style was perhaps best captured by his habit of sending back employee presentations marked up with notes in bold red ink.

So Maltsbarger applied his trademark work ethic to the job of learning how to lead, going through an intensive period of executive coaching and reading somewhere between 30 and 35 leadership books, references to which now turn up frequently in his conversation. “There’s a great author called Marshall Goldsmith,” he says, “who wrote What Got You Here Won’t Get You There.” Its message: Sometimes you need to learn a new set of skills to take the next step. So he did. Within a few years, the Lowe’s survey ranked Maltsbarger as a top-10 leader.

When he arrived at Pet Valu, with a mandate to get the company in shape to go public again, he applied the same logic. What had been working for the company, and was still its strength, was a large network of boutique, high-service, premium-quality stores. But its support systems were badly outdated. To grow further, it needed a technological transformation.

The retailer decided to attack the customer-facing side first. Maltsbarger hired Tanbir Grover, who’d handled e-commerce at Lowe’s, to modernize its marketing approach. “The marketing here,” says Grover, “was really limited to a flyer, a TV ad in Q4, radio spots here or there, and that was it.”

That was part of the reason, despite having a lot of stores, that the company’s “think score”—a marketing measure of name awareness—paled next to its major competitor’s. People who knew he was working for Pet Valu, even vendors pitching ideas, would refer to the company as PetSmart. He rolls his eyes at the memory. “Come on, man!”

Grover reimagined the company’s marketing approach. He increased the amount of TV advertising, to push back on PetSmart’s ad dominance. The company built a campaign—”Love Lives Here”—that linked the brand’s high-touch stores with the devotion of pet owners. And Grover married Pet Valu’s traditional and digital media efforts in a way that seemed novel, when so many companies separate the two.

But even at the beginning of 2020, Pet Valu didn’t have an e-commerce channel. They had just begun to think about addressing that need when COVID hit. At a time when, for months, customers couldn’t step inside stores but had to transact their purchases through a gap in the door, no one could order from Pet Valu online.

“We went from no transactional website to a fully nationwide transactional website in less than six months,” says Maltsbarger. To do it, the company had to sacrifice some usability, which admittedly went against the Maltsbarger code. “The website itself was a bit clunky,” he says. “It wasn’t necessarily the smoothest customer flow.”

And yet, despite these challenges, it was boom times in the pet-supply business. Coming out of COVID, people yearned for companionship. “There were five times as many pet adoptions during the two years post-COVID than normal,” says Maltsbarger. Beginning in the third quarter of 2020, Pet Valu same-store sales growth hit double digits in nine out of the next 10 quarters (peaking at 28.4% in Q2 2021).

While he was managing the disruptions of a pandemic, a rushed e-commerce rollout and escalating demands on stores, Maltsbarger also had his IPO mandate to deal with. He saw on the one hand a Canadian business producing a flood of cash, and on the other hand a bloated U.S. business wholly unprepared for an omnichannel future. “For the U.S. part of the business,” he says, “we just ran out of time.”

By the IPO in June 2021, the team had spun the Pet Supermarket business back to Roark and shuttered 373 U.S. Pet Valu stores. (Roark still owns a significant minority share, with three seats on the board.) It was now a purely Canadian company about to enter what would be the industry’s best year ever. Its omnichannel sales were growing, giving it a chance to fend off Amazon and the entry of U.S. online retailer Chewy. But it was burdened with an undersized and antiquated distribution system. Warehouse employees were still using manual carts and clipboards with pencils. The company needed more and bigger distribution centres with modern tech, or growth was going to stall.

The vast new 670,000-square-foot distribution centre in Brampton, Ont., built by Mississauga’s Orlando Corp. to Pet Valu’s specs, is the first realization of the new vision. Everything about modern DCs is designed to speed the process of “picking”—getting a product off the storage racks and ready for delivery—by minimizing human involvement. When we toured Pet Valu’s new facility in March, bulk picking—for large items like 25-pound bags of dog food and 40-pound bags of cat litter—involved forklift operators directed up and down storage aisles by computers driven by machine learning. Smaller “piece pick” items (anything smaller than a shoebox, such as pet toys, packages of treats or bottles of shampoo), were being routed out of a Mississauga warehouse while testing was being finalized on the Brampton facility’s new robotic system.

Designed by Norwegian company AutoStore, the system consists of a huge, monolithic arrangement of black bins—3,750 stacks of them, each 16 bins high—with a herd of synchronized robot carts running around on top, lifting, lowering and moving bins to find the ones needed by the human pickers below. At floor level, pickers receive these bins and “pick to the light”—directed by laser lights that shine on the correct items to grab and other lights that show in which totes to put them before they’re carried out to the trucks. Where human pickers can maintain a pace of roughly 50 to 75 picks an hour, this AutoStore system will run at 200 to 300 an hour.

“It’s almost as if we’re moving from the covered-wagon stage to sci-fi,” says the CEO. Soon this distribution centre, serving stores in Ontario and all points east, will be echoed by new centres in Vancouver and Calgary. Together, at a total cost of $110 million, they should set up Pet Valu for the next 10 years of growth.

Maltsbarger clearly loves the high-tech aspects of modern retailing. He’s a data guy, after all. His office features a larger computer screen than you’d typically find in the vicinity of a CEO, a curved one, in fact, where he prepares for speeches and presentations by working on his own PowerPoint pages. “I find,” he says, “that I’m actually faster at PowerPoint than most of my people.”

It’s the end of earnings day. It’s dark outside, the offices are deserted, and after a day of calls with analysts, Maltsbarger looks across his desk. “You are my 15th meeting of the day,” he tells me. But he refuses to admit to any fatigue. He’s still got work to do. For each of the past 727 days—he doesn’t hesitate on the number—he has been teaching himself French. Pet Valu recently bought the Quebec pet supply company Chico, and he has a presentation to give, in French, in a few days. This is nothing new for Maltsbarger. When he ran Lowe’s Mexico, he became fluent in Spanish. Though he admits, “French is harder than Spanish, by far.”

It’s all part of the job of lifting Pet Valu above the marketing noise of PetSmart and fending off online competition. Part of keeping its stores the first choice of pet owners like the ones who used to bring Omar to Queen and Coxwell each day, and making sure the company keeps growing—growing “the right way,” as his grandfather might say.

Franchising 101

About 72% of Pet Valu’s 783 stores are owned by franchisees, most of whom own either one or two stores. An exception is Jason Malley, who now owns all four Pet Valu stores in Kingston and one in Gananoque, Ont. His first store, one of the very first Pet Valu stores in Canada, originally belonged to his parents. He worked there as a youth, acquired it in 2010 and kept adding. “I think I might be done at five,” he says.

The company has an “owner-operated” clause in its licensing contract, which stipulates that an owner must put in a 40-hour week working in their stores. That keeps franchises out of the hands of corporate ownership groups, and ensures that owners stay involved and connected to the stores and their communities.

So how does it work? What does it take to acquire a Pet Valu location, and what are the numbers?

In 2023, Pet Valu received 1,600 inquiries about becoming a franchisee. Prospective owners go through a rigorous vetting process that whittles the number down to a final 1%. Last year the company opened 39 stores but only 16 of those went to new franchisees; the rest went to existing owners.

New store locations, which average about 3,750 square feet, are selected by the company using anonymized cellphone data to find high-traffic areas narrowed down to the city block or intersection.

Owners pay a $40,000 franchise fee, $30,000 of that upfront, which cannot be financed. On top of that they reimburse the company for: a) construction costs of roughly $500,000, depending on the location, which includes the installation of elaborate dog-washing stations to drive traffic; and b) the store’s opening inventory, about another $200,000. Usually 70% of these costs will be financed.

Five weeks before opening, new store owners begin training. The first week is spent at the head office, the following three weeks with a veteran owner at their store. One week before opening, the new owner gets the keys to their store, and the veteran owner accompanies them to the new store for a final week of preparation.

Operating costs include:

  • Rent, paid to Pet Valu, which holds a 10-year-lease on the property. The amount is either a base rent or 8% of sales, whichever is more. (Last year, about 2.6% of franchise sales came in as profit on rent.)
  • A 6% royalty fee (which is introduced gradually: 0% for the first six months and 3% for the next six.)
  • A promotion fee that averages 2.3%, depending on sales.
  • Ongoing wholesale costs for store inventory, over 90% of which comes from Pet Valu’s warehouses, delivered weekly.
  • The average new Pet Valu franchise store takes about four years to ramp up its sales. The average mature store generates annual revenue of about $2 million, with an owner’s draw or “four-wall EBITDA” of about 12.5%.
  • All told, the owner of a typical store might generate an annual after-tax, take-home profit of a little more than $100,000.

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