Petz founder sees aberration in inflation rates – 06/08/2021 – Panel SA

Sergio Zimerman, President of Petz, says he is concerned about the weight of inflation in the composition of costs, such as packaging, and materials for building new stores.

He complains about inflation rates, says the increase in the IGP-M is “absurd, case of the police”, which has eroded relations between the parties in the rental contracts and that soon some tenants may end up with their vacant properties.

To maintain the expansion plan of Petz stores, all of them installed in rented properties, he says that the network hired a consultancy to review finishes in search of affordable solutions.

A store of 1,000 square meters, can be made in 900, and the use of glass can be replaced by more affordable materials, for example.

“I am concerned about the inflation scenario. Something will have to happen,” he says.

In a market as fragmented as that of pets, Zimerman sees plenty of room for consolidation, but says he won’t make small neighborhood businesses unfeasible.

“There is a distortion of small business in Brazil in this segment today. It has 51% of the total market share. In the next ten years, it should drop to something around 25%. It is still a quarter of the market. But half is much more. a sign of a market not yet professionalized with a very low concentration of large networks”, he says.

Zimerman says Petz intends to grow organically, but has an area looking at small nationwide networks and startups.

Does emergency aid cause any increase in your business? Did they feel the effect when it was high and then its fall?

If we were only in upscale neighborhoods, we could say that emergency aid had no correlation whatsoever with our business. But we have several stores in peripheral places in São Paulo. We watched to see if there was a correlation. We did not see any significant increase in the sales of these stores that did not match the general increase.

But there was always a question, were they following up on account of the emergency aid and what would happen with the end of the aid? And what we found was that absolutely nothing happened with the end of it. In our case and with our stores, there was no evidence that it had favored or harmed consumption.

And does inflation impact your business?

I’m going to talk about inflation, but first I’m going to talk about inflation rates. Theoretically, it was supposed to be the same thing, but unfortunately, we are in an exceptional situation with different realities, in which the IPCA and the IGP-M do not reflect inflation.

The IPCA is detached from reality because it has a very strong influence on services, which were one of the most affected by the pandemic. I don’t see evidence that, when things normalize, there will be no transfer and, therefore, important pressure.

In the IGP-M, the aberration is even greater. It is a real absurdity, in the case of the police, to have the main reference indicator for a rent adjustment contract at 37%. It has caused distortion and wear among owners and tenants.

In our perception, real inflation is neither. We estimate somewhere around 10% to 12%. In the specific case of Petz, we measure on the network, the accumulated inflation for 12 months is at 14%.

We feel an inflation in products and in civil construction. We renovate and build stores. It has strong cement and steel rise. It put a lot of pressure on the cost of building a store. There are increases in the packaging area, which has gone up 3 to 4 times in price. It’s a huge pressure on cost composition. I am concerned about the inflation scenario. Something will have to happen.

Are your stores owned or leased? Did they have any noise with them?

Are 100% lease. It has all the profiles of landlords. Those who have a long-term vision understand that the index would be absurd and the IPCA would be fairer for the readjustment. There is one that asks for a little more than the IPCA. And there is the landlord who, in my opinion, is mistakenly taking advantage of the benefit that the contract confers and is demanding the application of 37%. I don’t think it’s sustainable in the long run. Tomorrow, this kind of landlord who thinks that way can have the property unoccupied.

Does the cost of building stores affect your expansion plan? Has the plan been in place since the beginning of the pandemic?

The expansion plan is maintained. We think a lot about the long term. We hope that this issue of the increase in construction cost is much more a one-off issue.

Anyway, we are revisiting the whole store standard process and seeing where we have opportunities to eventually offset this inflationary effect on construction costs. For example, if today you build a store with 1,000 square meters, can you do it with 900 and offer the same thing? You can give up on glass finishes and make another one that lowers the cost. We are, right now, hiring this type of consultancy to revisit these processes.

But we don’t want any impact on our expansion plan. It is still very important to spread the brand throughout Brazil. We are already present in 17 of the 27 federative units and we hope to reach 27 by 2025.

And what about industry consolidation? It’s a very pulverized market. How far can you grow? Will it make small neighborhood businesses unfeasible and will only the big competitors remain?

In no way do I think the small business will be derailed. On the other hand, there is a distortion of small business in Brazil in this segment today. It has 51% of the total market share. Over the next ten years, this 51% should drop to something around 25%. It’s still a four on the market. But half is much more a sign of a market that is not yet mature, not professionalized, with a very low concentration of large chains. If you take the top three networks, two and one more online, in the products part it has no more than 12% share. For any other segment, and a very low concentration.

How are you looking at this?

All our work to date has been in organic growth. Our base business plan is organic growth. This does not mean that we are not looking at all the opportunities in the market. Not only those that are being offered, but proactively what is not being offered, but that we understand that it could complement our ecosystem. We have an area commanded by our CFO [diretor-financeiro], Diogo Bassi, actively looking at all these opportunities.

There are three major fronts in the market: transformational ones, which are the three most relevant companies that we understand in the market today, which are Cobasi, Petlove and Zee.Dog.

I would have to look at who would be tactical acquisitions, small chain stores spread across Brazil, with four or five stores that could potentially interest us. So, we analyze this punctually, if the price makes sense.

And there is a very large block, which is startups or small companies, which complement our ecosystem.

It’s offering everything we already do but especially what we don’t have yet, as a dog walker [passeador], dog sitter [cudador], hotel etc. Some market players understand that it’s just a matter of building a technology platform, as if it were a marketplace of services and incorporating it. If I were to do that, we would have done it a long time ago. But there is a challenge. Let’s say you are traveling, leave your pet at a hotel, and when you come back, you have an accident. The marketplace will give you the contact of the outsourced person as responsible.

Is this a challenge for marketplaces in general?

The law supports the marketplace. But we don’t accept it because it’s not just a question of legality. It’s a matter of morality. It’s respect for the consumer. If the customer trusts the brand and, when they have a problem, it is turned over to the service provider, deep frustration ensues. We will not act that way. We want to prepare our ecosystem.

It’s not just about offering. What we want is to accredit, deaccredit, follow up to ensure that the chance of you having a problem with a partner or affiliate in our ecosystem is statistically lower than anywhere else. If there’s a problem, Petz will answer. You won’t need to be upset, suing a third party. The consumer is ours and we will treat it.

We still don’t have a hotel, training, in the app, but on the day you have, you can hire, because, if you have a problem, rest assured that Petz will respond. We are in no hurry to do things badly.

We are calm with the movements made in the market because they do not reflect the way we want to do it. We can get in later, but if we get in the right way, we’ll lead. As happened in digital, which we entered later and have a leading position today in terms of new customers.

with Mariana Grazini e Andressa Motter

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