Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How Chewy Pivoted From Pet Supplies to a Relationship Business
Transcript
- Lucas: There is a metric inside Chewy that most people outside the company have never heard of, and it explains almost everything about why that business works. It is called net sales per active customer, and in 2025 it was roughly $560 per year. Luna: That's per customer, not per order? Lucas: Per active customer. And that number has been climbing steadily for almost a decade. In 2015 it was around $300. By 2020 it was $400. Now it's $560. And that single number tells you that Chewy is not just a pet supply store. It is a relationship business. Luna: So the question is: how do you get a customer spending $560 a year on dog food and cat litter, and then keep them from defecting to Amazon or Walmart? Lucas: Exactly. And the answer is not price. Chewy's prices are competitive, but they are not the cheapest. The answer is something that sounds almost too soft for a business conversation. It is emotional connection, executed at industrial scale. Luna: Give me a concrete example of that scale. I know the handwritten cards are famous, but how many are we talking? Lucas: By 2024, Chewy was sending over 10 million handwritten thank-you cards per year. Each one written by a real employee, not a robot. That is a massive labor cost. And it's just one layer. There is also the 24/7 customer service, which is not outsourced. You can call Chewy at 3 AM because your dog is sick and you need a refund on uneaten food, and you get a human in under 30 seconds. There are no chatbots gatekeeping. Luna: And the flowers. I know someone who had to put their dog down, and Chewy sent a bouquet of flowers with a personal note. She was not expecting it. She told everyone she knows. Lucas: That program — flowers to customers whose pets have died — started years ago and it's not a one-off PR stunt. It is a standard operating procedure. The company estimates that for every flower arrangement, they generate word of mouth referrals worth many times the cost. But the real genius is that this kind of service builds something that price alone cannot touch: switching costs that are emotional, not financial. Luna: And yet, Chewy is a public company. It has to show investors that this expensive service model actually pays off. How do they prove that? Lucas: They point to that net sales per active customer number, and to the autoship penetration rate. As of early 2026, over 77% of Chewy's net sales came from autoship subscribers. That means customers are not just buying once; they are setting up recurring orders. Once you are on autoship, your likelihood of switching to a competitor drops dramatically. It is the subscription moat. Luna: So the high-touch service is really a retention mechanism disguised as kindness. Lucas: Exactly. And it was Ryan Cohen's insight from day one. Cohen founded Chewy in 2011, and he was very public about the idea that pet owners are not rational actors. They are emotionally invested in their animals. If you treat their pet like family, they will give you a disproportionate share of their wallet. That seems obvious in retrospect, but at the time, most pet supply e-commerce was just trying to match the lowest price on a 40-pound bag of kibble. Luna: Right, because pets are expensive. The average dog owner spends over $1,500 a year. So if you capture even half of that, you have a high-value customer. Lucas: And Chewy captures it by being the first call. When you need food, you don't price-check. You just go to Chewy because you trust them. That trust is built through thousands of small interactions. But there's also a hard-nosed operational side. Chewy invested huge capital in fulfillment centers — they have over a dozen across the country — to guarantee next-day delivery on most orders. That's a fixed cost that's hard for a startup to replicate. Luna: And yet, they weren't profitable for a long time. I remember the narrative around the IPO in 2019: 'Great company, no profits.' Lucas: That was true. Chewy lost money for years. But they were growing revenue at 40-60% annually, and they were investing every dollar back into that customer experience. The market finally rewarded them: they turned profitable on a net income basis in 2023 and have sustained it since. But the real story is that they didn't have to pivot in a crisis. They stuck to a thesis from the beginning. Luna: But they did pivot in one subtle way. The early Chewy was more of a general pet store. Over time, they realized that the highest-margin, highest-recurring category was pet food. So they leaned into that, especially premium and prescription diets. Lucas: That's a great point. The mix shift toward food — which now represents over 60% of sales — improved gross margins. And they launched Chewy Health, which includes pet pharmacy and telehealth vet consultations. That's a natural extension: if you own the food relationship, you can own the health relationship too. Luna: It's also a competitive moat against Amazon. Amazon can sell you a bag of dog food cheaper, but they cannot write you a handwritten card, and they cannot integrate a pharmacy with a vet visit that remembers your pet's name. Lucas: Exactly. And that brings us to a fascinating strategic question: can Chewy's model work outside pets? They have tried a few things — like Chewy Plus, a loyalty program — but they haven't really expanded into other verticals. The thesis seems to be that the pet category itself is big enough: it's a $150 billion market in the US alone, and e-commerce penetration is still around 30%. There is a lot of room to grow within pets. Luna: So the pivot, if you can call it that, was not changing what they sold. It was committing to a service model that most investors would have called inefficient, and proving it was a feature, not a bug. Lucas: Right. And that's the lesson for any business facing commoditization. When your product is a bag of kibble that is identical to the one at Petco, you cannot win on price forever. You have to win on the experience around the product. Chewy built that experience at scale, and the numbers prove it works. Net sales per active customer up 85% in a decade. Autoship penetration at 77%. And a brand that people actively evangelize. Luna: Before we get to the next example, I want to say something about the show itself. If these conversations have moved your work forward in some small way, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It's a small way to support what we do, and it keeps the podcast independent. Lucas: Yeah, and we appreciate that more than we can say. It's a simple gesture that goes a long way. So thank you to anyone who has ever done that. Luna: Alright, back to Chewy. One more thing I find fascinating: the role of Ryan Cohen's personality. He's famously intense, famously focused on customers over investors. How much of Chewy's culture is directly his imprint? Lucas: Almost entirely. Cohen was known for reading every customer service email in the early days. He would personally respond to complaints. He instilled a culture where the customer service team had no scripts and no time limits on calls. That is incredibly expensive, but it also creates a kind of employee ownership. When you treat your staff like they can make decisions, they treat customers like people. And that culture outlasted Cohen's departure — he left the board in 2020, but the practices remain. Luna: So the pivot story here is really about a founder who ignored conventional retail wisdom and built a high-touch operation, then proved that emotional loyalty is a defensible competitive advantage in a low-margin category. Lucas: Exactly. And I think the big takeaway for any business leader is: don't underestimate the power of being nice at scale. It sounds naive. But when you look at the numbers — $560 per active customer, 77% autoship, profitable growth — the data says it's not naive at all. It's a strategy.