Mad Paws Discusses the $30 Billion Australian Pet Industry

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Mad Paws Limited (ASX:MPA) Managing Director Justus Hammer discusses the company’s business model, effects of the macro environment, competition and differentiation, the company’s online marketplace and ecosystem, M&A opportunities, the integration of Pet Chemist and outlook.

Tim McGowen: We’re talking today with Mad Paws (ASX:MPA). We have with us the company’s Managing Director, Justus Hammer. It’s got a market cap of around $40m and an ASX code of “MPA”. Justus, thanks for your time.

Justus Hammer: Thanks for having me.

Tim McGowen: Now, we were just talking about the pet industry. It’s fascinating. Can you describe the business model of Mad Paws?

Justus Hammer: Sure. So, Mad Paws is really a pet services and products ecosystem. So, you find pretty much everything for your dog, whether that’s one of our 40,000 pet sitters where you can find somebody to look after your pet when you’re going overseas or on a holiday, or whether it’s, you know, a health product or anything else that you need to keep your dog or cat or any other pet as healthy as possible.

Tim McGowen: And, of course, the industry’s had really strong tailwinds. I’m interested in that business model. You start off with the basics, but people are buying other items for their dogs moving forward. How does the macro picture affect your business? Rising interest rates, does that affect the discretionary spend in the pet industry?

Justus Hammer: I think we’re really lucky in the sense that the pet industry in general is very recession-proof. We’ve seen this in the last recession that there was very little change in the spend for pets. And I think over the last couple of years, the relationship to our pets has significantly changed. Now pets are, you know, sleeping in their owners’ beds. They’re being looked after as good as any other family member. So, we’re feeling very sure where we’re at, even if a recession is coming, with people probably reducing their spend on themselves a little bit more than they would on their pets.

Tim McGowen: And, of course, as I said, it’s a growing industry. I think Bunnings are now talking about allocating 10 per cent of their floor space to pet care, if you like.

Justus Hammer: Yeah.

Tim McGowen: Is it too competitive, the industry?

Justus Hammer: No, I don’t think so. I think there’s still a lot of room. And I mean, Bunnings in particular is a very specific offering. You know, we are very specialised, more in the premium end probably, in terms of the pet owners. Bunnings is probably more a price-saving play at the moment. But I think they all have a space. There’s enough room for us to grow. There’s 25 per cent more pet owners now in Australia than before the pandemic. So, I think the industry is still growing a lot faster than any other industry.

Tim McGowen: You spoke about differentiation. How do you differentiate yourself from those competitors?

Justus Hammer: One of the things we’re most passionate about is kind of data. We are coming from a marketplace perspective. We built the pet services marketplace first. You can’t build a hyper local services marketplace without actually being data obsessed. And so data is kind of what we pride ourselves on. And I think we’ve got a huge advantage over your traditional retailers. Traditional retail, you know, it’s very hard to ask you 50 questions about your pet if you’re just trying to buy the cheapest kibble. But if we’re looking at the marketplace, we’re trying to find the best pet sitter for you. So, you’re very inclined as a client to give us a lot of data about your pets. So, this is not just, you know, the name and breed, or age, but this is about where do you live, what kind of behavioural traits the dog might have, is there any health issues with the dog, do they take any medication? So, all that information is given to us throughout the marketplace, and we then use that to fire up our cross-sell and make sure that we can put the right products and services in front of you at the right time.

Tim McGowen: I think I saw that your online marketplace has an enormous subscriber base. Is that correct?

Justus Hammer: Yeah, so we’ve got over 300,000 customers on the marketplace, over 40,000 sitters. And I think the sitters are particularly interesting for us as well. They’re really kind of ambassadors for us. They love working with us. They love what they’re doing. They’re looking after pets. And so it’s a huge opportunity for us to get them more involved into the ecosystem and actually ultimately also using them to sell other products for us. So, this is certainly something that we’re looking to do over the next couple of years.

Tim McGowen: And in terms of consolidation, is that where Mad Paws sees the opportunity, a roll-up of other businesses? I note that… Perhaps you could discuss your Pet Chemist acquisition and highlight what it means when you’re making an acquisition, what you’re actually looking for.

Justus Hammer: We’ve done three acquisitions over the last two years, some of them bigger, like Pet Chemist. And it was always a strategy for us to acquire businesses to grow the marketplace, grow our kind of verticals that we’re selling. And Pet Chemist kind of fit right in because it’s a health offering. It was very important for us to have an offering in the health sector because it’s a particularly fast-growing sector for us. So, if we’re looking at M&A, we’re always looking to see that we find something that fits into the verticals that we already have, and something that we can cross sell to from the businesses that we already have. And so this is something that we are still active in. Currently, our main concern for the business is becoming profitable. We are looking to be profitable within the next couple of months, and that’s kind of the first milestone we want to hit. And then we’ll see what happens with M&A thereafter.

Tim McGowen: And Pet Circle, for example, one of your competitors, I believe recently announced an insurance product. Is that a vertical you’d consider moving into?

Justus Hammer: Yeah, so we’ve got a small kind of insurance offering at the moment already with Mad Paws, but it’s certainly something that we feel we can improve on, in terms of the offering. I think, for us, particularly interesting from the ecosystem play. You know, people spend a lot more money on their pets now, want to make sure that they’ve looked after as good as possible. So, having the right insurance offering for us can be really a driver to keep people within the ecosystem. So, it’s something that we are actively looking at and want to build on.

Tim McGowen: And those verticals, are they all performing in line with expectations, like marketplace, for example?

Justus Hammer: Yeah, absolutely. I mean, we’ve seen incredible growth over the last couple of years coming out of COVID. We’ve seen pent-up demand for the marketplace. People wanted to travel again. If, you know, they’re anything like me, I’m going to Europe in a couple of weeks, and I haven’t been in four years. So, it’s been a long time. And we’ve seen that in the marketplace kind of play out. People really went back to going overseas, longer stays, which helps the marketplace in particular. But also the other verticals, like Pet Chemist. We’ve seen huge growth there. We’ve doubled the business pretty much from 12 months ago when we bought it. And that’s a sign of kind of what we do best, which is professionalising their marketing functions, making sure they’ve got the right processes, but then, on top of that, cross-selling from the different verticals we already have.

Tim McGowen: And what’s the feedback from the marketplace? You’re out there talking to institutions and investors, I assume. What’s their feedback in regards to Mad Paws?

Justus Hammer: Yeah, so I think we’ve got a lot of interest at the moment. Talking to a lot of new institutional investors that look at the business as well. And I think we’re just on the brink now, where we’re going to get to profitability soon. A couple of people on the sideline probably to look at whether this happens, but I think that’s why it’s an interesting time to get in now. I think, from a pricing perspective, we’re well priced at the moment, and I think we’re getting a lot of interest. A lot of people are getting their head around the pet industry and seeing that this is not a cottage industry, it’s a $30 billion industry in Australia. So, there’s a huge opportunity here to build a much bigger business than we are now.

Tim McGowen: Justus Hammer, thanks for your time.

Justus Hammer: Thanks so much.

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