PETS before profits is the Greencross Vets (ASX: GXL) mentality, which appears to be paying off in light of the company’s rapid growth and recent merger with Petbarn.
GXL has experienced a 25 per cent compound annual growth rate of clinics and stores over the past five years. Since 1994, it has grown from a single Greencross clinic to 107, and has recently taken on 108 Petbarn and 25 Animates retail stores in Australia and New Zealand.
As one of the fastest growing ASX-listed companies, the company figures are increasing on the regular, with the announcement of three new retail stores and acquisition of four clinics just this week.
Brisbane-based founder and GXL’s current executive chairman Glen Richards (pictured) has been at the forefront driving the company to become Australia’s largest pet services business in less than 20 years.
Richards says the Greencross-Petbarn merger earlier this year was a “culmination of a natural progression” – a revamp of a business model in a mature industry. Petbarn’s Jeffrey David and Richards are long-time friends and had been in talks of a partnership for a number of years.
“It’s emblematic of a fragmented industry growing up, requiring increased investment and up-skilling to match client expectations in the communities we serve,” says Richards of the merger, which resulted in a split on the management and executive level of 58 per cent Petbarn to 42 per cent Greencross.
“Our networks and real estate gradually became more complimentary across Australia, which would facilitate collocation.
“Petbarn’s Friends for Life database was also an attractive drawcard for Greencross considering its one-million plus members.”
This figure is significantly higher than Greencross’ 12,000 members, which Richards says is the advantage of having a retail customer base.
“Pet stores have a positive cash flow and more foot traffic – we need to use the synergies of combined business now all the way through.”
A GLOBAL FIRST
Richards says this type of merger is a global first, but successful models in the United States such as Pets at Home-Vets for Pets and Petsmart-Banfield played a role in its conception.
“Similar to overseas models, the idea is a vet-pet model of full-service veterinary hospitals collocated with pet services where it makes sense or exiting real estate is a viable option,” says Richards, who adds that five to 10 trial sites will be rolled out over the next year.
“However, we are a markedly different hybrid – Petsmart have Banfield but the ownership structure is only a 20 per cent crossover. Most overseas models also attend to sickness before wellness.
“We intend to fully service the pet owner by positioning the clinic up the front to better service the urgent needs of 50 per cent of clients.
“We think it’s an exceptional retail execution, highlighting our value of our clinicians and pets.”
The merger facilitates the movement of pet care from the backyard to the business forefront. Richards says this has long been the Greencross focus based on the growing trend of the humanisation of pets.
It was born from a practical perspective, rather than a management background, Richards himself originally a veterinarian from western Queensland. He believes this has made all of the difference with the way he conducts his business.
Richards intends to further capitalise on his practical background going forward, stepping down from the role of CEO to executive chairman, while David takes the reigns of CEO of the merged company.
“I wanted to put more energy into engaging with pet owners, while Jeff drives the strategic aspect of the business.
“Being a publicly-listed CEO for seven years, I was more than happy with this concept, especially because a large part of the Greencross growth has a strong retail component and this is Jeff’s background.
“My view is that professional services are most successful when you have the right people doing it for the right reasons and at the right time.”
To encourage this, GXL has implemented a partnership model where veterinary clinics have the opportunity to operate as a GXL business associate. Richards believes today’s economic climate and generational differences necessitate this greater flexibility in the ownership model.
“The new vets entering the industry are from Generation Y, who we have found typically aren’t willing to commit to a practice for any longer than two or three years because of the time and monetary expense.
“The demography of the industry is changing and we have a situation where young vets are less likely to want to own their own practice and old vets are seeking a succession plan. Our partnership model captures this quite nicely – we are both an employment choice and succession plan.”
The partnership model is generally a three to five year contract where GXL maintains at least a 51 per cent position as an owner-shareholder. Additionally, the company provides the business associate with management services including human resources, bookkeeping, marketing and IT platforms.
“The model de-risks the business associate by supporting them at the corporate administrational level, while also encourages them to focus their vision as they are investing more into the practice.
“There are currently over 30 practices under this exact model, many of which in Brisbane, and these are where we see the most growth and highest level of engagement.
“The model is effective because the business associate is rewarded for extra discretionary effort and their passion, which then flows through the rest of the team for the clientele to pick up on.”
Richards says the vision for this model began when he witnessed burnt out Baby Boomer veterinarians while completing his practical university work.
“It’s far more respectful of work-life balance and takes pressure off the owner from having to do everything in the practice from the clinical, to marketing, to management level. They can focus completely on their relationship with the pet owners.”
PEOPLE & PETS - PROFITS WILL FOLLOW
From the grassroots pet owners to clinic staff, upwards to the management board, a focus on people is evident right through GXL. The company has a specific meeting schedule in accordance with the Rockefeller Habits management philosophy, intended for honing in on ideas through collaboration.
Richards says GXL doesn’t stray from this structure, believing this discipline has greatly contributed to the company’s rise and current position in the investment community.
“We have daily huddles, weekly strategic operational review meetings (STORM) to gauge imperatives and also monthly meetings where senior managers, area managers and management heads come together to discuss progress and feedback from employees and clients.
“Because of our fast growth, the company has been structured for the past three years to reset its focus every 90 days. Regular meetings facilitate this and help us remain forward-focused.”
A 90-day company reset may seem intense, but Richards explains this is a preventative measure to ensure the company’s foci aren’t haphazard.
“We recognise the bigger an organisation becomes, the greater the possibility of losing focus. To overcome this and help us stay nimble, we make a point of focusing on five key issues every 90 days.”
Richards believes growing too fast is the biggest challenge GXL faces, while many companies would fear competition above all, especially considering the growing landscape.
He says the supermarket chains are “absolutely tinkering” with their models, selling over 50 per cent of pet food already in Australia and now honing in on pet speciality. Online retailers are also increasing and then there are a number of other players backed by private equity.
Nevertheless, Richards expresses complete confidence in the GXL business model based on its point of difference.
"Without any arrogance, we firmly believe our pet services are the best executed in the Australian market at the moment and the evolving relationship between Greencross and Petbarn will continue to tie this up.
“We are quantitatively better positioned and engaging on a multitude of levels with pet owners – people will increasingly come on board as they recognise the integrity around our results.”
GXL’s strong foothold in the domestic market begs the question as to what the company’s next step will be. He speaks of potentially entering Hong Kong, Singapore and Taiwan in the future.
However, Richards is approaching company growth step by step, ensured through the 90-day GXL reset.
International growth is therefore not yet a priority, as Richards’ veterinarian mind detects great opportunity domestically, particularly on the training front.
“There is a lot of work to be done here in Australia still to integrate pet and vet training, grooming and behaviour – all of the things relevant to a pet owner.
“We are focused on continuing to roll out stores and clinics, and working on the integration and synergy activities this entails.
“Our goal is to be seen as the ultimate pet-facing company, absolutely relevant to the pet owner during all stages of their pet’s life.”
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