In its second-largest acquisition, Amazon buys the company for $970 million.
Catalogers, web content, order fulfillment Bulk dog food sales have presented a problem to online sellers because of the expense of shipping it and consumers’ supposed resistance to paying shipping costs. Online pet supply retailers Drs. Foster & Smith Inc. have decided to just say Pay.
One of the stories that has entered the lore of failed dot-com retailers is that shipping bulky dog food was one of the things that did in Pets.com. But that’s not keeping Drs. Foster & Smith Inc., which derives a third of its revenue from DrsFosterSmith.com, from adding dog and cat food to its site and catalog.
The Internet has changed enough in the two years since Pets.com got buried that Drs. Foster & Smith believes consumers understand shipping well enough that they will be willing to pay a surcharge for the convenience of having 40-pound bags of dog food delivered to their doorsteps. “People understand that if they want the convenience of shopping online, they’re going to spend a dollar or two more for it,” Joe Voellinger, Internet marketing manager, says. “They’ve become accustomed to it online.”
Drs. Foster & Smith declined to participate in the online pet food wars of two years ago because the company saw no way to make money at the levels at which Pets.com and other online competitors were selling pet food. “It was extremely competitive,” Voellinger says. “They were giving free shipping and buy-one-get-one-free offers. The margins on brand dog foods are razor thin and (owners) Marty and Race were scratching their heads trying to figure out how those guys were making money.”
The answer became clear shortly: they weren’t. And now that the irrational competition is gone, Drs. Foster & Smith thinks it can sell dog food online-but the company’s goal is to break even on it. “It’s not a money maker,” Voellinger says. “We’re doing it because our customers requested it of us.”
With the acquisition last year of Pet Warehouse, Drs. Foster & Smith broadened its focus to pets beyond dogs and cats and in that year has learned about shipping bulky products, such as bird seed. It ruled out zone-based shipping because it was too confusing for the customer. Then it tried incorporating the average additional shipping cost into the price of the product and charging just regular shipping. But customers who comparison shopped focused on the stated price and not the price with shipping and that made Drs. Foster & Smith’s prices look high, so the company abandoned that approach.
Now it will just add the surcharge for products over a certain weight to the shipping costs, noting on the product page that bulk food requires an additional shipping charge. “It’s the simplest and easiest for the customer,” Voellinger says.
Because its motivation in selling cat and dog food is customer service, the company isn’t sure if it will lock up the terms “dog food” and “cat food” with Overture Services Inc., where it does the bulk of its online marketing through pay-for-placement search terms. It already has 500 other terms, such as “pet supplies” locked up. “But because of the margins, I don’t think we’ll market the dog food and cat food heavily,” Voellinger says.