Investors bark. Coles backpedals on ‘peak pooch’ price for $4b Greencross pet business
Idea
Updated ,first published
Updated ,first published
Twenty years ago, Coles’ then boss John Fletcher had an epiphany: People were starting to treat their pets like humans. Coles revealed in 2006 that pet owners spent $15 more per store than those without pets.
The strategy wasn’t enough to save Fletcher. In 2007, although pets remained a trend, they too fell out of the game as Woolworths dominated the supermarket wars. Twenty years later, everything old is new again. Earlier this month, Coles was on the verge of acquiring big box chains Greencross veterinarian and Petbarn for around $4 billion.
Then last week Coles boss Leah Weckert decided to tackle the problem. There are many reasons why Coles’ investors are not keen on the prospect of Coles making a major investment in Greencross; The most important of these was the price.
The widely speculated $3.9 million price is a large capital patch; An amount that may represent the “peak.”
Coles said his decision was a disciplinary one. This certainly became easier after the news leaked and investors voted with their feet, putting pressure on the company to preserve its capital.
Four years ago Woolworths spent $586 million to gain a foothold in Petstock, which provides pet food, toys, vet clinics, grooming salons and even animal adoption centres.
The Woolworths deal valued Petstock at (it seemed at the time) a staggering $1 billion. To provide some context, the Petstock deal was made the same week that private equity operator Anchorage Capital acquired 100 percent of high-end department store group David Jones for just $130 million. In the intervening years, David Jones has struggled financially and Petstock has grown, so the valuation disparity now makes sense.
Woolworths’ then chief executive Brad Banducci was all smiles as he posed for celebratory photos with his beloved cavalier cocker spaniel cross Juno.
Meanwhile, Greencross generates $2 billion in annual revenue and reportedly makes $400 million in profits before interest, taxes and depreciation.
It’s hard to deny that growth in the supply of pet products and services is a trend that maintains some momentum.
The company’s current owner, TPG Capital, paid $675 million for the business seven years ago; So if the Coles deal had gone through, it would have been a big payday for this private equity seller, who is now considering taking the business public.
This would be a particular salve after the private equity firm’s local boss, Joel Thickins, was soon found guilty of negligent driving and refusing a breath test. Thickins’ Greencross payment was not.
It’s hard to deny that growth in the supply of pet products and services is a trend that’s maintaining some momentum – and Coles already stocks plenty of pet food and accessories – but there’s a strong argument to be made for the supermarket industry to spend its capital and management resources focusing on the current, not inconsiderable, challenges it faces.
The industry will remain capital-hungry as major players continue to integrate technology into supply chain and logistics to better manage digital distribution channels that are increasingly adopted by customers.
They are up against Amazon, the masters of online logistics and fulfillment, whose infiltration into grocery retailing continues to grow.
Major supermarket operators are also currently engaged in a fiercely competitive battle for market share, and this battle has come with expensive investment in reducing prices.
And despite Woolworths’ successful foray into the pet business, the two major supermarket groups have a checkered track record when they expand beyond their core competencies.
Woolworths completed the last of its bottle shop and pub investments in 2024, Big W’s ownership has been largely unregulated and its attempt to launch major hardware box chain Masters 10 years ago was a legendary and very costly disaster.
And then there’s the army of yield-obsessed investors who would rather see profits pumped into dividends before the dogs.
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