Sustainable Investing | since 1999 | zooplus
The Cat in the Bag — How Zooplus Became Europe’s Largest Online Retailer for Pet Supplies
A first mover in e-commerce, driven by customer centricity from early-on
Selling pet supplies online — a casual-sounding business idea that proved pioneering in its execution. The story of online retailer zooplus is a paragon of success, driven by customer focus, data analysis, and process-orientation. As one of the first movers in a €30bn market opportunity, zooplus was founded by Cornelius Patt, Sven Rittau, Florian Seubert, Roland Honekamp & Philipp von Wilmowsky in 1999 in Munich. Today, with customers in 30+ European countries, zooplus is the undisputed market leader in the online segment.
How does a startup become a success? Sadly, there is no secret recipe. But there are some key characteristics that almost all successful businesses share. Apart from the obvious — potential customers; a financial roadmap; marketing; a consistent, measurable, and repeatable sales process — successful entrepreneurs have three common traits: confidence in their business idea, the discipline to execute their strategy, and the courage to take calculated risks with a clear outcome in mind. Yet when it comes to scaling up a successful business in our digital age, two essential ingredients should be added to the mix: information technology and business processes to create predictability.
Especially in vertical e-commerce, cryptically named practices such as “data-driven process optimization”, “process mining”, “cohort analysis”, and “business intelligence” or “BI” are essential. “Today, everyone talks about the importance of data and most start-ups have a BI team from early on,” says Frank Seehaus, Managing Partner of Acton Capital, “but back in 1999, barely anyone knew what that term really meant.” Today — and by definition — the BI team identifies new business opportunities, improves decision making and efficiency, cuts costs, and detects inefficient processes that need to be re-engineered.
“In that sense, in 1999 zooplus was way ahead of its time,” Frank states. And he would know. As an investor for over two decades, Frank focuses on scaling platforms, marketplaces, and FinTechs, implementing growth strategies in several of Acton’s portfolio companies. One of Frank’s early portfolio start-ups was zooplus. The company was founded by five young entrepreneurs from Munich who had obviously done their homework: former executive consultants Cornelius Patt, Roland Honekamp, and Sven Rittau; ex JPMorgan analyst Florian Seubert; and lawyer Philipp Freiherr von Wilmowsky.
“Pets are treated like family members–and spoiled just like kids.”
The five “Pet Shop Boys” — as the German business media would later refer to them — focused on a new and promising e-commerce market: nearly 35 million dogs, cats, hamsters, budgies, or guinea pigs lived in Germany’s households, not counting the less fluffy myriads of animals living in aquariums and terrariums all over the country.
“Today, domestic pets are treated like family members — and spoiled just like kids,” says zooplus’ CEO Cornelius Patt. “We’d always wanted to start our own company”, his co-founder Florian Seubert recalls. “The pet supply market seemed to be the most interesting opportunity. The product is fun — everybody loves pets — and it’s important to a lot of people.”
And the zooplus founders knew exactly what mattered to people. They focused on their customers, took advantage of the benefits of digitalization and technology, and gained insight into the dynamics of the market environment. Historically, the purchasing process for pet supplies has mostly been a convenience buy that drives a natural rebuying cycle over the very long lives of pets. This provides for an excellent customer lifetime value and a loyal customer base.
The starting signal for zooplus’ victorious long-run was fired with the launch of its online shop www.zooplus.de in June 1999. “We were almost too early for the online retail sector in Germany,” co-founder Cornelius Patt remembers. “At the time, we would never have believed just how long it takes for people to change their shopping habits.”
“We were almost too early for the online retail sector in Germany.”
Today, zooplus is the leading European online retailer for pet supplies. Operating in more than 30 European countries and large fulfillment centers with more than 8,000 products permanently in stock, zooplus has more than 8 million active customers, achieved more than €2.1 billion in revenue p.a. and celebrated its 20th anniversary in 2019 (zooplus AG’s Annual Report).
The Acton team supported the e-commerce company on the board for over a decade — from the early seed days in 1999 through zooplus’ IPO in 2008 until the 2012 exit. zooplus’ story is a prime example of the hit ratio and stamina of the Acton portfolio, true to the motto ‘investing in tech-enabled business models that create value for the long-run.’
What set zooplus apart from its numerous competitors was the teams’ awareness that data analysis, efficiency, and process optimization were key. “Even back then, the zooplus team was extremely data-driven,” Frank Seehaus recalls. “They played the game due to their relentlessness. At the same time, they were setting new standards in terms of process-orientation and true customer focus.”
While Fressnapf, the incumbent franchise of pet supply retail in Europe, failed to scale and digitally transform, US company Pets.com engaged in high-profile marketing campaigns instead. Pets.com received a lot of publicity from its advertising during the Super Bowl, while its mascot, a sock puppet dog, appeared in the Macy’s Thanksgiving Day Parade, in People Magazine, Entertainment Weekly, and Time Magazine. Despite the puppet’s success and Hollywood-like recognition, the company lost money. It remained uncertain whether a substantial niche existed since no independent market research preceded the founding of Pets.com in November 1998. In its first fiscal year, Pets.com spent almost $12 million on advertising, while earning only $619,000 in revenue. After only two years in operation, Pets.com was liquidated during the dot-com crash.
All the while, zooplus continued to deliver an unprecedented customer experience. The company steadily increased its superior value proposition to customers, offering broader choice and product availability. Efficient back-end processes based on technology allowed zooplus an unparalleled optimization of the value chain, including sourcing, logistics, selling online, and customer care. Remarkably high customer retention and growth potential from an extended range of products, and simultaneous roll-out into several European countries plus a scalable business model, drove zooplus to the category killer in the European online market. The company has continuously achieved exceptional sales with phenomenal growth and very favorable unit economics.
With its analytical capacities, zooplus provides unique customer intelligence to its suppliers. The high predictability of the business, driven by customer retention, even today gives zooplus a benevolent risk profile for investors, making the “hidden champion” of the e-commerce world a paragon of fast and long-lasting success. The cat is out of the bag — there is a secret recipe after all.
