News Shop Talk Valu Direct Pet Supplies



Shop Talk: Valu-Direct Pet Supplies
23rd February 2015

By Sandra Pearce

Dee and Matthew run a bricks-and-mortar store alongside a busy e-tail site. Sandra Pearce visits to learn more about how the couple manage both

The taxman does not believe in making things simple. Frozen mice and rats can be classified as non-VAT, but live ones sold as pets are VAT-payable. Working dog food is the only dog food that is non-VAT. Rabbits sold as pets – so long as they are not of an ornamental breed – are VAT-free, but not guinea pigs.

Oh, and rabbit food is non-VAT too, so long as it is not packaged in a way that shows it is intended for a pet. And the same applies to hay, which is also zero-rated unless it is held out for sale as packaged pet food.

And when it comes to bird food, both caged and wild bird food is VAT-payable, but wild bird food can be zero-rated if it has not been pre-packed in a sealed bag or other container of 12.5kg or less. The taxman’s rationale is that if the loose produce has been put in a plain paper or polythene bag, it is not considered ‘packaged’ and therefore VAT-free. Yet food for poultry is VAT-free, unless it contains ingredients similar to food for cage birds.

For long-time pet retailers Dee Fargo and Matthew Caine, this led to them deciding to open a second shop in January 2014 (in addition to their highly successful website, purely to tackle the VAT/non-VAT issue. Fargo Feeds deals with all non-VAT items, while Valu-Direct Pet Supplies handles all the VAT items.

Matthew said: “A large part of our business is now in non-VAT, mainly because of the way people are now marketing their foods. By having two companies, the maths is now so much easier to work out. We have two accounts, one VAT, one for non-VAT. Two invoices, two letterheads. It’s made life a lot easier.”

A bricks and mortar presence
Matthew’s mum used to run a cattery, and about 14 years ago, Matthew started selling pet food and
accessories from a garage there. In fact, Dee and Matthew first met when Matthew stopped by her place with a delivery of dog food.

Footfall was not, however, brilliant, as the cattery was in a somewhat isolated location, but the Internet side which started in 2002 took off. The business kept growing, and at one point, the by-now couple had four shipping containers filled with stock.

Crunch time came when Matthew’s parents decided to close the cattery, and so the couple moved premises to the industrial estate in Bicester, with Fargo seeing light of day. “We get more foot trade here,” says Dee, who loves the day-to-day interaction with their customers and ‘gets licked to death by dogs’. “Word of mouth is amazing. People come here, like us, and pass the information along to their friends.”

They know most of their customers and their pets by name: “We mourn the death of our customer’s pets like you do. You get attached to your customers,” she said.

It goes beyond customer service – it’s about being ‘a human behind your business’ and offering that personal touch, she says. “Too many people forget where they started; you’ve always got to remember your customers. Without them, we would not be here today. And you need to be empathetic; you need to sit and listen to the problem that the lady has with her dog. My kettle is always on.”

Listening is crucial. “We have customers who want a good deal and want what’s good for their pet. So we explain to them what there is and then say, ‘What do you want to do?’

“We do not promote one product over others. We explain the pros and cons and let them decide. Some pet shops push and push one product, but you have to listen to the ailment or requirement of that dog and then let the customer weigh up what they want to do.”

When customers first come to their shop, they do not tend to go anywhere else, she says. It’s little touches that customers appreciate, says Dee. “You let the dog come in, you give him a treat, and talk to customers.”

It’s a cash-only business in the shop with two money boxes – one for VAT sales, the other for, you guessed it, non-VAT sales.

A keen price point
As the names imply, and Valu-Direct Pet Supplies are all about attractive price points and giving customers the best offers available. If a brand does not offer discounts, the range is not stocked. There are so many good brands out there with solid values and which offer discounts, Matthew explains.

“We are always looking for the best deal, and can pay upfront if need be to secure that,” he said. Whatever they stock has to make economic sense on paper. “If we don’t get the best deal, we will walk away from that product or find another supplier. I’m always asking, what’s the unit price?”

As far as possible, they deal direct with manufacturers and suppliers. “I said ten years ago that this wholesaler thing is going to change… they have to accept that companies want to deal direct and also with a wholesaler. In the complicated world that we live in, you have to deal with both.

“If you buy in large volumes, you have to buy direct. We pass what we save on to our customers.”
The online side of the business now makes up about 90% of its turnover, with several 100 orders each week being shipped to customers all over the UK. The Internet went from nothing to something in a very short period of time, they note.

Though they are online orders, there is still the opportunity for that personal interaction. For example, with a regular customer in Belfast, Matthew worked out the cheapest way of shipping a regular order of dog treats (10 at a time). Customers will also sometimes leave messages, such as ‘Freddy has only one meal left, please this is urgent!’. Though messages of this sort do tend to annoy the couple. “Why didn’t you order earlier?” says Matthew.

“People are always leaving things to the last minute.”

This is one of the pitfalls of the Internet trade – customers have become used to the concept of next-day delivery, even if an order is placed the night before. But the couple can only offer this if a UK order is placed before 4pm as the courier arrives daily at about 4.30pm.

Running an Internet business can feel like ‘a hamster in a wheel’, he says, both self-admitted workaholics. It’s non-stop picking orders, packaging and sending them off, only to start again the next day. As it is, Matthew works seven days a week, and in the run-up to busy times like Christmas, clocks in from 7am to 1am. Their last holiday was four years ago, when their daughter was born, and so they really look forward to Christmas when they are closed for 10 days for their annual ‘blow-out’.

There’s a war going on
With an Internet business, there are some products for which the maths just do not add up. For example, poultry feed is too heavy to make any money because of the higher delivery costs: the maths has to make sense. “If everyone was willing to sell at a reasonable price, we’d be ok all round,” says Matthew.

However, the Internet is rife with so-called bedroom sellers and some big players who seem more concerned with turnover and market share than profit. “I know of some online businesses that buy at the same price as we do, but they cut their margins so heavily they cannot be making more than £1 a product. That’s not sustainable,” says Matthew. “You can say you turn over a million, but surely it would be better if you can recover your delivery costs! You could end up generating a lot more work for not much more money. It’s fool’s gold; you’ve got to be able to make the money, or the banks will pull the plug.”

Business is getting harder and harder, he says, because companies like Zooplus are willing to trade on zero. “It’s like the war on the high street all over again,” he says. Such as when a supermarket moves in and sells bread at cost or below cost to force the local baker out of business, and then hikes the price once competition is gone.

“These people are willing to run at a loss, which is making it difficult for us. We are all told to ‘compare the market’. So if someone else is doing it for £40, why not you?”

He is highly suspicious of drop shipping and Amazon. “I won’t sign up to Amazon, even though we’ve been approached 20 or so times to set up a retail store with them. Would Tesco tell Sainsbury’s how much it is selling a particular sku for? So why would I sign up to Amazon and give them all my information and my customers’ details? The same applies to drop shipping. Besides, with drop shipping, the terms are not as favourable than if the products are sent to your premises.”

Whenever Matthew is free, he’s either meeting his website designer or hunting out new products, of which there’s not much that has got him excited: “It’s all me-too at the moment. People do not seem to want to take risks.”

There have been a couple of products in the States that he likes the look of, but he is now looking for exclusivity. “It would be nice to get something that we would have exclusive rights for. Something like toys perhaps, which we could get behind.”

He reveals they are thinking about importing (raw pet chews would be nice), and that he has the necessary paperwork for dried mealworms. “The next big thing will be cutting out wholesalers and going direct to source,” he said, acknowledging that doing so will take money and guts. “It’s one of those things. Look at entrepreneurs – you find that most of them have gone bust or they have taken massive risks but got there in the end. And if they’ve got there without going bust, they have always got to the source. No middlemen.

“Mealworms, peanuts, sunflower hearts, they are all commodities, and with commodities, it’s all about the price. If the price is right, I’m interested.” It’s about having the right product in the right volume and at the right price. There is absolutely no point carrying items that chain stores and grocery carry.
“Look at the high street,” he says. “Most are clones, and chains are obliterating the independent. The only way the independent can survive is to have a massive floor space and a massive range of completely different stuff.”

It’s an interesting position to be in, to have both a retail unit and an online offering. Dee says: “People say you must make a lot of money. No, but it pays our bills. More importantly, we are doing something we love. Not everybody can come to work and cuddle a Chihuahua and a Mastiff on the same day. And that’s what we like.”