Selling pet supplies is a dog-eat-dog industry

vbridges@newsobserver.comNovember 4, 2013 

  • Phydeaux

    • Phydeaux has been on Inc. Magazine’s annual list of the nation’s 5,000 fastest-growing privately-owned companies for four consecutive years. It’s ranked 73 in the state and 2,572 in the nation.

    •  From 2009 to 2012, its revenue grew 138 percent to $5.9 million.

— Frank Papa seemed to have it all.

A wife. Two dogs and a cat. A house on three acres in Chatham County. A Honda Accord for driving around and a royal blue ’98 Corvette for showboating.

He lost it all in 2002 after he decided to trade in his six-figure programming gig to open a 1,200-square-foot Carrboro pet food supply shop he called Phydeaux. Over the first year, he separated from his wife, gave away his pets and sold his home and cars.

“I was really, really broke,” he said.

For nearly two years, Papa slept on friends’ couches, in the store, and places he didn’t want to talk about.

Over time, Papa transformed his small shop that centered on quality pet food and “old-timey” customer service into two nearly 15,000-square foot stores in Chapel Hill and Raleigh. He expects Phydeaux’s revenue to be more than $7 million this year.

Now, he is eyeing an expansion.

“At this point, the money isn’t a problem,” said Papa, who pays himself less than $50,000 annually. With overtime, some of his employees make more than he does. “It is kind of a social experiment for me at this point. Can I grow the business and do things the way I want to do them?”

Papa declined to provide any other expansion details for the company with 27 full-time employees.

Papa is one of the few small-business owners making such leaps and bounds in the $15.9 billion pet store industry, in which 83 percent of the businesses employ fewer than five, according to a September report on pet stores in the U.S. by IBISWorld, a market research company.

Revenue, competition grow

Revenue is expected to increase – about 4 percent annually through 2018 – but so is the competition as big-box specialty stores, supermarkets and mass merchandisers force out smaller retailers and contribute to the overall consolidation of the industry, the report states.

Four companies, including Phoenix-based PetSmart and San Diego-based PETCO, generate 64.5 percent of the industry’s revenue and are expected to grow at the expense of smaller stores, according to report.

During the recession, larger companies attracted “budget-conscious” consumers by offering low- to medium-end goods at discounted prices. However, consumers are expected to return to splurging on higher-quality products as the economy continues to improve, the report states.

“Nevertheless, there are various niche markets available for new players to occupy, specifically those that specialize in premium and innovative food, products and services,” the report states.

Key success factors include attractive product presentation, a range of supplies at different price and quality levels, effective quality control, an experienced workforce and high-traffic locations, according to the report.

Diane Groff and LeAnn Hinson, owners of Other End of the Leash Pet Boutique & Bakery in Durham, tried to hit all those factors when they opened a store on West Main Street near Brightleaf Square in September.

Before opening the store, they looked at household incomes within a 10- and 25 mile radius of the shop, scoped out competition and sought to provide a range of products. Their inventory includes everything from pet food to locally-made dog bowls and handmade bath soaps, along with items for people such as T-shirts with the slogan “I kissed a dog, and I liked it.”

Their niche, Groff said, is to offer pet food that’s made with healthy and quality ingredients in the U.S. or in free- and fair-trade countries and costs from $1.05 a pound to $2.24 a pound.

Dog treats are also baked daily in an on-site, gluten-free kitchen. The owners self-funded the venture, kept their full-time jobs and hired one full-time employee to work in the store during the week.

The business plan calls for the shop to make money within a year, but the owners hope to make that happen sooner, Groff said.

Keys to success

Papa, 40, said his success comes from pinching pennies, listening to customers and treating his employees well.

“The secret, I think, is just that I am scrappier than everyone else,” he said. “I was broke and I fought and it was really, really hard.”

Papa left his programming business after getting burned out. He opened Phydeaux after noting the success of organic grocery stores and the number of pet owners, and he had the idea to marry the two.

“It just kind of hit me,” he said.

His startup costs were less than $50,000, which he funded with a personal credit card and a small loan from his family. He spent the first year learning everything from how to work a cash register to what to feed birds.

“The only retail experience I had was bagging groceries at a Harris Teeter,” Papa said of his first job at 15. “And I didn’t know a whole lot about pets.”

Papa saved money, he said, by buying used fixtures and doing everything himself. That penny-pitching habit, he said, has continued to allow him to offer quality products at competitive prices.

“Saving money was the most important thing,” he said.

He talked to veterinarians and listened to customers. He learned he didn’t want to carry foods with wheat, corn or soy, and that became a mantra he still follows.

By year three, he doubled the size of the store and was able to afford a small studio apartment.

In 2008, he moved the store to a portion of its current space in Chapel Hill and continued to build a quality workforce and employee-friendly company policies. He only hires full-time employees, who receive benefits and two weeks of intensive training.

In 2010, Papa opened the Raleigh location to test whether he could duplicate the Chapel Hill store. He also bought a home in Orange County, where he lives with his dog Jake, a long-haired Rottweiler, and a black-and-white cat named Kissyboots.

“Every day I look around at my stores and the people working for me. Every day I am blown away,” he said. “I remember when I started it was so tiny. I didn’t know anything.”

Bridges: 919-829-8917; Twitter: @virginiabridges

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