Interview with Nicolò Galante, CEO, Arcaplanet

Since PETS International last spoke to Nicolò Galante, CEO of Arcaplanet, in 2023, a lot has changed. Arcaplanet now has a network of over 590 pet stores in 20 regions, an e-commerce channel and over 3,000 employees.

Although the company is still opening 40-50 stores every year, its online sales have been rocketing. In 2022, this accounted for €40 million ($44M), but Galante tells us he expects this to exceed €70 million ($76M) in 2025.

How has your omnichannel strategy evolved in the past 2 years?

Today, we are among the leaders in the online market. Amazon has gained market share over the past 24 months, but we are particularly proud that we are now gaining share in a very profitable way.

For a retailer, there’s always a dilemma: do I push for growth online and sacrifice profits, or do I focus on profits and slow down growth?

We have managed to achieve both – double-digit growth and double-digit profitability. I don’t think anyone else in the pet sector can consistently claim that.

When I joined, our online channel was losing money because it was seen as a standalone business.

Now, it is fully integrated with our stores. Almost 1 out of every 2 online orders is prepared in-store, and more than half of our deliveries are fulfilled via our stores.

And now you are going a step further?

We will soon be the first pet retailer in Italy to launch a 1-hour delivery service. When customers place an order online, they’ll see if the product is available in their nearest store and can pick it up within an hour.

If they prefer home delivery, we’re partnering with food delivery services to bring it to them within an hour. Even Amazon can’t match this, so it’s a real competitive advantage.

Do you really see a demand for that? It could also reduce traffic in your stores…

Yes, absolutely. At the core of this initiative is a definite customer need – saving time and money. Of course, not all customers prioritize that, but there is a clear segment that does. For us, the fundamental question is always: is there a customer need, or are we just cannibalizing ourselves and giving away value?

In this case, the answer is clear – yes, there is a strong demand.

Of course, some customers will shift from in-store to online purchases, but that’s not a concern. If there’s a real customer need, they will eventually buy online anyway – so it’s better that we serve them through our loyalty program and keep them within the Arcaplanet omnichannel platform.

Our highest-spending customers are also our most loyal, so making their experience more convenient is a win-win.

You are a retailer but also a producer. How’s that going?

We started manufacturing our first kibble in the summer of 2023, and by the autumn-winter of that year, we were selling it in our own stores.

Over the past 18 months, nearly all our dry private label range has been produced in our factory. Our first phase – insourcing what was previously outsourced – is complete.

We are about to enter the second phase, focusing on innovation. The goal is not just to produce, but to lead in product differentiation too.

We are now also manufacturing for third parties, including other retailers and premium brands. Of course, we don’t produce for direct competitors, but we are working with other companies across Europe and beyond. This collaboration brings fresh ideas and helps accelerate our innovation cycle.

Could we soon see a private label brand from one of your competitors in another country being produced by Arcaplanet?

Yes, absolutely. We produce exclusive private label ranges for our clients. In some cases, where we don’t see a conflict, we may also offer our existing private label products for resale.

Today, we produce about 100 different recipes. The range continues to expand, as innovation in this sector is constant.

Our factory has a potential capacity of around 100,000 tonnes per year. Right now, we are operating at about 40% of that capacity.

Arcaplanet alone won’t be able to fully utilize it, so if we want to maximize our factory’s potential, we have plenty of room to work with major players across Europe and beyond.

You have become a producer just as pet ownership patterns are changing…

New dog adoptions are decreasing at a pace you could expect after COVID, but maybe faster than we expected, while the cat segment is still growing very, very steadily.

This combination is currently favorable to the grocery sector, because the specialist sector in Italy – I would say in most countries in the world – has a higher share of dog products, whereas the grocery sector has a higher share of cat products.

This changing mix is happening, so big brands that focus on specialist value propositions, and specialist retailers like us, have to join forces and act quite decisively and purposefully in order to premiumize the cat category through innovation.

Otherwise, this demographic shift in the pet market will be unfavorable for us. Vertical integration gives us an additional tool. We are not just waiting and hoping that big brands do something – we can act ourselves if they don’t.

Last time we spoke, in 2023, Arcaplanet had 2 million loyal active customers and that number was growing quickly…

We have now passed 2.5 million active members and are on the road to 3 million. The most important thing is that we’ve reached what I believe is quite a record, not just in the pet industry but across industries.

More than 90% of our sales, including online – where the percentage is usually lower – are from customers enrolled in our loyalty program. This gives us a rich base of customer insights.

Is Southern Italy a region where you are focusing your expansion efforts?

Southern Italy is still the region where we want to grow the most in terms of expansion. We’ve also discovered that customers in the south have specific preferences and behavior.

Initially, we used a one-size-fits-all approach, applying a similar store format in Milan and Sicily, but we are now developing a more tailored model.

We already have over 50 stores in the south, and we aim to expand to at least 200. However, in order to make that move, we are refining our store format to better suit the region.

Southern Italy has a lower per capita income and a shorter history of pet parenthood, so we’re adapting our approach to ensure long-term success. It’s an exciting challenge and there’s still work to be done.

You have nearly 600 stores. What’s next?

The more, the merrier! However, given the number of stores I mentioned, we need to be increasingly sophisticated in our processes and algorithms, levaraging our loyalty customer data platform.

With 590 stores, expansion requires careful decision making, because opening a new store can impact existing ones.

Apart from the south, there are very few areas where we are planting our flag for the first time. In most medium-size cities, we already have 5 or 6 stores, so we must be much more ‘scientific’ about expansion.

How are your urban concept stores doing?

We first tested a new format in Milan that was more eco-friendly, and now we have 4 locations. The most important part of the test was its environmental friendliness, which we are currently implementing across our entire network.

We are also experimenting with a more urban store model – under 200 sq m, no parking, and located in high-density areas.

For example, we have a couple of stores in Milan’s underground stations and a few at street level. They are performing well, but it’s too early to decide on scaling. For now, we are focused on optimizing them.

You recently launched your veterinary clinic concept. How is it going?

We currently have 4 clinics and our focus now is on balancing professional freedom for veterinarians with commercial synergies with Arcaplanet. It’s a delicate process, but if we get it right, this will be a massive success.

Once we refine our model, we plan to grow from 4 clinics to 20, then 40, and potentially 100. The goal is to establish a clinic wherever we have 5-10 stores nearby.

Could you tell us more about your recent rollback initiative?

It’s called ‘retromarcia’. In Italian, retro means the reverse gear in a car. In the grocery sector, a similar concept exists called ‘rollback’.

Unlike a temporary promotion, which lasts 2-3 weeks, a rollback price stays low for at least 3 months, maybe even permanently.

Since our average customer visits once a month, they need to be able to rely on these price moves remaining stable.

This initiative is crucial for us – we still do traditional promotions, but for core products and top sellers, we aim to lower prices and keep them down as long as possible.

Italy’s Revenue Agency has stated that plant-based pet litter is subject to 22% VAT. Is this impacting your business?

It is affecting us and the whole category a lot. Especially because the plant-based category was not subject to this type of VAT before. It was our fastest growing segment, and it is obviously more sustainable. Now, with the VAT increase, it has taken a hit.

So yes, there is an impact, unfortunately, and it’s precisely the wrong impact on the right category! Somehow, we are managing to absorb part of this.

Are you seeing consumers changing their behavior because of this?

Not all of them, and then of course, we are trying to make an effort to also ensure that people have a better understanding of what the benefits are. So that they realize that, even though the price is higher, the benefit-cost ratio is still a good one.

It is 4 months since Fressnapf announced completion of its acquisition of Arcaplanet. How has the company changed since then?

There are clearly a lot of potential synergies. I mean, there’s – to name just one – the factory where we could produce part of the present ranges. We are sharing a lot of best practices.

With so much experience in so many different countries, Fressnapf has a wealth of experiences to share. I would say that Arcaplanet’s performance is, by many metrics, world-class, therefore we have many good practices to share too.

So I think there are going to be a lot of wins here.

Do you see Arcaplanet being present outside of Italy since Fressnapf’s acquisition?

Prior to the acquisition, we were definitely considering internationalization for Arcaplanet. My personal opinion now is that I don’t think that is a priority anymore.

Where I do see an opportunity for internationalization for Arcaplanet is in bringing our exclusive brands abroad. We have some very interesting exclusive brands that also cover segments which Fressnapf is not fully covering today with its own high-end brands.

So, I can see some of ours being sold in the Fressnapf network in the near future.