In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Pet Supplies Plus franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Pet Supplies Plus franchise, based on Item 7 of the company’s 2021 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Pet Supplies Plus franchise, based on Items 5 and 6 of the company’s 2021 FDD
- Section IV – Number of franchised and company-owned Pet Supplies Plus outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD
- Section V – Presentation and analysis of Pet Supplies Plus’ financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
- 2020 average weekly gross sales, annual gross sales, gross margin percentage, labor expense, rent, royalty and SAF (System Advertising Fund) fee expense, and EBITDA for the 222 franchised Pet Supplies Plus stores that were open and began operating prior to January 1, 2020 (“Reporting Franchised Stores”), grouped by number of years in operation (1 year, 2-3 years, 4+ years, and all Reporting Franchised Stores)
Section I – Background Information
19 Things You Need to Know About the Pet Supplies Plus Franchise
Acquired by Franchise Group, Inc.
1. In January 2021, Franchise Group, Inc. announced that it had plans to buy Pet Supplies Plus for around $700 million in cash. Franchise Group made a deal for $1.3 billion in new term loan facilities to refinance its existing loan for Buddy’s Home Furnishings, American Freight, and Liberty Tax and provide acquisition financing for the deal with Pet Supplies Plus.
2. The deal to acquire Pet Supplies Plus came when pet retailers saw an uptick in sales. Consumers, more than ever, are turning to their pets or looking to adopt one for comfort while they face uncertainty brought on by the pandemic. Between March 12 and March 18 – right as the pandemic took hold in the U.S. – sales at Pet Supplies Plus shot up 76.4%, according to Earnest Research. For Franchise Group, Pet Supplies Plus may have proved especially attractive given 60% of its 500 locations operate under a franchise model.
3. Brian Kahn, CEO of Franchise Group, said, “Pet Supplies Plus adds another franchise concept with strong unit economics, diversification into an economically resilient and secularly growing pet industry, and a brand that has and will continue to experience robust unit expansion from its franchise system. The additional scale and diversification that Pet Supplies Plus will afford Franchise Group is expected to immediately lead to lower costs of capital and expanded free cash flow generation.”
4. The acquisition was completed in March. Kahn said, “We are excited to welcome PSP, its management team, employees and franchisees to Franchise Group. We expect that PSP’s unit economics, expansion pipeline and execution track record will bring significant scale and diversification to Franchise Group.”
Former Pet Valu Stores to Reopen as Pet Supplies Plus
5. In late December 2020, Pet Supplies Plus announced that it would acquire an estimated 40 previously operated Pet Valu locations throughout Indiana, Kentucky, Maryland, New Jersey, Ohio, Pennsylvania, and Virginia with some locations to reopen with Pet Supplies Plus branding, products, and services as early as January 2021.
6. News of the conversions came after Pet Valu announced the prior month that it was shutting down all U.S. operations, including its 358 stores. By transforming and rebranding some of these store locations to Pet Supplies Plus, many jobs will be saved that might otherwise be lost in addition to keeping pet parents happy by providing a high-touch shopping experience.
7. According to company executives, the former Pet Valu stores will be a mix of corporate and franchisee-owned Pet Supplies Plus locations. These store conversions present a turnkey business opportunity for potential franchisees to step in and operate the stores with a significantly shortened store opening timeline, take advantage of established real estate, and benefit from minimal build out expenses vs. building a brand new brick and mortar location. Potential franchisees will also benefit from inheriting an established neighbor base in need of pet foods, goods, and services.
8. Nick Russo, senior vice president of franchising and store operations for Pet Supplies Plus, said, “I would like to extend gratitude to the Pet Valu team, who have been nothing but professional and supportive throughout this entire process. This exemplifies the type of culture Pet Valu has developed, and we are excited to offer many Pet Valu associates a new home with us.”
9. Additionally, Russo said the company is seeking qualified franchise partners to be the face of Pet Supplies Plus for many of these locations, adding, “When you pair our national resources and established support systems with a passionate owner who knows the community well and keeps the neighbor at the forefront of all decisions, that’s when Pet Supplies Plus truly shines.”
10. Russo noted that Pet Supplies Plus has seen a positive impact from the increased spending on pets throughout the country during the pandemic. The demand for franchising opportunities has also increased. In fact, the company is expected to open an estimated 100 new stores in 2021, which includes the previously operated Pet Valu stores obtained. This more than doubles the number of stores opened in 2020.
11. Chris Rowland, CEO of Pet Supplies Plus, added, “We chose locations where we knew Pet Supplies Plus will make the biggest positive impact, especially for pet parents who need a community retailer to depend on for their pet needs. We’re honored to provide these neighborhoods with a large assortment of quality pet products and services with knowledgeable team members ready to help make pet ownership easier.”
Launches Autoship Subscription Program
12. In late June 2021, Pet Supplies Plus launched Autoship, a subscription delivery service that makes it easier to get better products for pets, like food and other replenishable items, including cat litter and puppy training pads. All Autoship orders are packed and delivered by the neighbor’s local Pet Supplies Plus store – shopping local and supporting the community is now even more convenient.
13. Pet parents who subscribe to Autoship will receive a substantial discount on eligible items in their first order, and will continue to receive sale pricing, plus an extra 5% off future orders. In addition to exclusive discounts, Autoship subscribers will receive free delivery on all orders over $35 while earning Neighbor Rewards on qualifying items. Neighbor Rewards enables pet owners to earn freebies just for buying their pet’s favorite brands.
14. Neighbors can set up their personalized Autoship subscriptions online at checkout and select a delivery frequency that works for them, so they’ll never run out of their pet’s favorites. The Pet Supplies Plus Autoship program comes with no commitment, allowing neighbors to skip a delivery or cancel at any time without fees.
15. Chris Rowland, CEO of Pet Supplies Plus, said, “Our goal is to make it as easy and convenient as possible for pet parents to get the quality food and supplies they need for their pets. We now have multiple options for our neighbors. In addition to coming into our stores with their pets to shop or ordering online for curbside pickup or home delivery, now they can get their pet essentials delivered right to their doors on a recurring basis. This is good news all around for neighbors, and their pets.”
16. Pet Supplies Plus was founded in 1988 by by Harry Shallop and Jack Berry in Redford, Michigan. Shallop and Berry wanted to offer a better pet supply shopping experience and drew inspiration from grocery stores. The store had well-stocked wide aisles with organized shelves. Pet Supplies Plus also offers a wide array of products and brands.
17. The first store was a success and Shallop and Berry began franchising the Pet Supplies Plus franchise the following year. Over the next few decades, Pet Supplies Plus continued to grow around the United States and by the early 2000s there were over 200 stores in operation.
18. In 2010, Pet Supplies Plus was sold to Irving Place Capital, a private equity group. Under Irving Place Capital’s leadership, Pet Supplies Plus pushed national expansion further and hit a milestone of 400 stores in 2017. The following year, Pet Supplies Plus was acquired by Sentinel Capital Partners. Just a few years later, in early 2021, Pet Supplies Plus was sold to Franchise Group, Inc. for around $700 million in cash. Today, there are Pet Supplies Plus stores across 36 states.
Entrepreneur’s Franchise 500
19. Pet Supplies Plus ranked No. 21 on Entrepreneur’s 2021 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Pet Supplies Plus franchise costs, based on Item 7 of the company’s 2021 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Pet Supplies Plus’ initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 212
- Outlets at the End of the Year: 234
- Net Change: +22
- Outlets at the Start of the Year: 234
- Outlets at the End of the Year: 261
- Net Change: +27
- Outlets at the Start of the Year: 261
- Outlets at the End of the Year: 302
- Net Change: +41
- Outlets at the Start of the Year: 211
- Outlets at the End of the Year: 218
- Net Change: +7
- Outlets at the Start of the Year: 218
- Outlets at the End of the Year: 218
- Net Change: 0
- Outlets at the Start of the Year: 218
- Outlets at the End of the Year: 217
- Net Change: -1
Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis
- This Item sets forth historical gross sales information for franchised outlets for the measurement period of January 1, 2020 to December 31, 2020 (the “Measurement Period”), which was provided to Pet Supplies Plus by its franchised Stores.
- During the Measurement Period, there were 302 franchised outlets and 217 affiliate-owned outlets, which is a total of 519 outlets.
- Pet Supplies Plus has not audited or independently verified the data submitted by the Stores and no assurance can be offered that the data does not contain inaccuracies that an audit might disclose.
Part 1 – Average Gross Sales, Gross Margin, EBITDA, Rent, Royalty and System Advertising Fund Fee, and Labor Expense for Reporting Franchised Stores (January 1, 2020 to December 31, 2020)
- Part 1 sets forth average weekly and annual gross sales data, gross margins, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), rent expenses, royalties and system advertising fund fee expenses, and labor expenses for the 222 franchised Stores that were open and began operating prior to January 1, 2020 (the “Reporting Franchised Stores”).
- The Reporting Franchised Stores’ performance data is segmented into groups by vintage. During the Measurement Period, there were 302 total franchised outlets.
Reporting Franchised Stores
- Store Count: 24
- Average Weekly Gross Sales: $30,910
- Average Annual Gross Sales: $1,607,307
- Annual Gross Margin %: 40.9%
- Annual EBITDA: -$18,073 (-1.1%)
- Annual Rent: $163,294 (10.2%)
- Annual Royalty and SAF Fee Expense: $49,449 (3.1%)
- Annual Labor Expense: $296,714 (18.5%)
- Store Count: 46
- Average Weekly Gross Sales: $40,452
- Average Annual Gross Sales: $2,103,491
- Annual Gross Margin %: 37.7%
- Annual EBITDA: $105,491 (5.0%)
- Annual Rent: $174,137 (8.3%)
- Annual Royalty and SAF Fee Expense: $70,598 (3.4%)
- Annual Labor Expense: $252,752 (12.0%)
- Store Count: 152
- Average Weekly Gross Sales: $51,443
- Average Annual Gross Sales: $2,675,057
- Annual Gross Margin %: 37.0%
- Annual EBITDA: $220,231 (8.2%)
- Annual Rent: $174,299 (6.5%)
- Annual Royalty and SAF Fee Expense: $72,688 (2.7%)
- Annual Labor Expense: $306,152 (11.4%)
Average of All Stores
- Store Count: 222
- Average Weekly Gross Sales: $46,946
- Average Annual Gross Sales: $2,441,192
- Annual Gross Margin %: 37.4%
- Annual EBITDA: $170,693 (7.0%)
- Annual Rent: $173,076 (7.1%)
- Annual Royalty and SAF Fee Expense: $69,743 (2.9%)
- Annual Labor Expense: $294,067 (12.0%)
- “Gross Sales” is defined as the total revenue earned by a Store.
- “Gross Profit” is calculated by subtracting “Cost of Sales” from Annual Gross Sales.
- “Cost of Sales” includes the cost of acquiring merchandise including all pet food, pet supplies, pets, and products required in connection with pet grooming and bathing services, net of discounts, rebates, allowances, and freight charges.
- “Annual EBITDA” for each Reporting Franchised Store is defined as the Annual Gross Sales for each Reporting Franchised Store less Cost of Sales and “Store Operating Expenses.”
- “Store Operating Expenses” include all expenses required to operate the Store, including wages, payroll taxes and benefits, occupancy costs, supplies, credit card fees, advertising, royalties, system advertising fees, and other costs, but exclude start-up expenses, depreciation, amortization, interest, and income taxes.
- “Annual Rent” for each Reporting Franchised Store includes all expenses required to occupy the Store, including base gross rent, real estate taxes paid to landlord, building insurance paid to landlord, and common area maintenance paid to the landlord.
- “Annual Royalties and System Advertising Fees” for each Reporting Franchised Store includes all fees paid to Pet Supplies Plus as royalties and payments to the System Advertising Fund (SAF).
- “Annual Labor Expense” for each Reporting Franchised Store includes all direct labor expenses required to operate the Store, including wages, payroll taxes and benefits, and specifically including the salary of the Store’s manager and other supervisory personnel. It does not include salary, distributions, or “interest” taken by ownership, or salary paid to district managers unless those individuals spend at least 70% of their time directly operating an individual Store.
- Revenues will depend upon your location and competitive dynamics.
- This analysis does not contain information concerning all of your potential operating costs. The figures above do not include certain costs associated with the establishment and operation of a Store, including initial franchise fees, build-out, and equipment costs. The above figures also exclude finance charges.
- Interest expense, interest income, depreciation, amortization, and other income or expenses will vary substantially from Store to Store, depending on the amount and kind of financing you obtain to establish your Store, as well as your credit history.
- Revenues and expenses will vary. In particular, the revenues and expenses of your business will be directly affected by many factors, such as:
- (a) the geographic location of your Store;
- (b) competition from other similar stores in your area;
- (c) your local advertising and promotional efforts;
- (d) whether you operate the business personally or hire a general manager;
- (e) employment conditions in your area;
- (f) your product and service pricing;
- (g) vendor prices on materials, supplies, and inventory;
- (h) employee salaries and benefits (life and health insurance, etc.);
- (i) insurance costs;
- (j) your customer service skills;
- (k) how well you maintain your Store;
- (l) your inventory management skills;
- (m) your occupancy costs; and
- (n) customer loyalty.
- There is no assurance you will do as well. If you rely upon Pet Supplies Plus’ figures, you must accept the risk of not doing as well.