Arcaplanet: preparation, learning and long-term relationships create real value

Galante’s experience is a typical example of Cinven’s investment strategy, which is based on preparation, learning, finding the right people and relationship-building.

Preparation started in 2016, long before Galante’s interview, when Cinven’s Consumer team identified the pet care sector as a highly attractive investment opportunity, due to the long-term industry trends of premiumisation and pet humanisation – when owners treat their animals like humans. Cinven began creating a subsector review that examined different pet segments, industry trends and business models, evaluating each opportunity across Europe.

The learnings from the subsector work informed Cinven funds’ first investment in the sector in 2018 – in pet food manufacturer PPF (Partner in Pet Food). This helped Cinven expand its knowledge in the pet space and build further expertise in Italy following PPF’s acquisition of Giuntini – an Italian family-owned pet food manufacturer – in 2021.

Cinven’s next big move in the pet care sector was in 2022, when its funds invested in a leading Italian pet care retailer, Arcaplanet, with German co-investor Fressnapf. Fressnapf owned Italy’s third largest pet care operator, Maxi Zoo, and together they created the Arcaplanet Group.

The roots of this deal go back much further – more than 20 years – when Bruno Schick, Cinven’s region team leader and co-managing partner based in Frankfurt, first met Torsten Toeller, Fressnapf’s founder. Over that time, Schick built a relationship with Toeller that not only resulted in Fressnapf co-investing with Cinven in Arcaplanet, but which just over two years later saw Fressnapf acquiring full ownership of Arcaplanet, having collaborated with Cinven to significantly accelerate its performance. Fressnapf then invited Cinven funds to be its first outside investor, with a minority stake in the Fressnapf Group – underscoring the trust Toeller has in his relationship with Cinven.

The numbers

In March 2022, when Cinven funds and Fressnapf acquired Arcaplanet, the business had around 400 stores in Italy and a nascent e-commerce channel. Maxi-Zoo, the Italian subsidiary of Fressnapf, had over 100 stores and no online operations.

The plan was to create a leading omnichannel player offering products and services to its customer base, through its store network and an e-commerce platform. The two investors also saw opportunities to create value from synergies and applying the experience within the two companies, as well as building a state-of-the art food factory for Arcaplanet Group’s brands. They wanted to create a “pet ecosystem”.

“All our knowledge and experience in the sector meant we were able to build such conviction about the opportunity that we won despite not being the highest bidder,” recalls Giulia Tieppo, associate at Cinven.

In just over two years, Arcaplanet has made substantial progress against that plan. Today, it has more than 560 stores and is on target to reach €700 million in sales by the end of 2024. Online sales are taking a growing share, the pet food factory is operational and it has expanded services with the acquisition of four vet clinics. Arcaplanet has also opened facilities for pet grooming and is offering insurance in many stores. This has translated into significant growth – group profitability is up 45% since the acquisition by Cinven funds and Fressnapf in 2022.

Preparing for growth

According to Tieppo, one of the most transformational aspects of the strategy has been digital acceleration. Arcaplanet recruited Sara Terraneo as head of e-commerce, and Galante and Terraneo quickly identified key measures to unleash online growth.

“After Sara arrived, the team implemented quick wins that would turn e-commerce from loss-making to a profitable channel, and added services such as click and collect,” says Tieppo.

The focus was very much omnichannel. The Arcplanet team strongly believed that growing the online spend did not have to cannibalise the in-store spend; rather it would allow customers to shop when they want, where they want. Today, omnichannel customers spend twice as much as single-channel consumers, confirming the Arcaplanet team’s instincts.

But Arcaplanet was far from neglecting its store network, with the team working to open around 50 new stores per year. Stores remain the beating heart of the Arcaplanet business, providing face-to-face contact with customers. Today, 50% of online transactions are picked up in-store and 30% of store customers come with digital coupons, illustrating just how omnichannel Arcaplanet’s consumer base has become. Higher sales have not been achieved at the expense of margin. Synergies and using Arcaplanet’s own pet-food factory have also contributed to a 45% rise in profitability in just over two years.

A better business

These days, however, a retailer’s top and bottom lines are affected not just by what it sells, but how it sells it. Growth has and will continue to come from careful attention to environmental, social and governance (ESG) issues and to this end Arcaplanet developed a new ESG framework with the help of Cinven’s specialist team.

The framework has helped improve staff welfare. Many temporary contracts have been replaced with permanent ones and training has been increased. “Developing talent and offering a clear career path were key. Satisfied employees translate to happier customers. Last year, Arcaplanet won a customer satisfaction award for best food retailer. I think that’s a reflection of how things have evolved in a positive way,” says Tieppo.

It has also led to increased diversity, with more females in senior positions reporting to the board, increased supply-chain transparency and a new stores policy to promote best practices in sustainability (the new store format cuts energy use by 20%). Arcaplanet also organises charity fundraisers and helps train assistance dogs for blind or visually impaired people. In the longer term, Arcaplanet is educating its customers about the carbon footprint associated with their pets and is working towards transparency and best-in-class standards throughout its supply chain.

Besides improving customer satisfaction, such efforts helped Arcaplanet become a B-Corp last year, meeting the high ESG standards required for certification.

Open communication

All this has been achieved thanks to trusting and open communication between investors and management. Monthly board meetings are supplemented by weekly calls with project leads. For example, for the vet strategy, the team and Cinven organised one call per month, while Maxim Crewe, head of consumer at Cinven, and Matteo Corà, head of Italy, had weekly catch-ups with Galante for business updates.

Looking ahead, thanks to the strategic input from Cinven, Fressnapf and the new investment structure, Galante believes Arcaplanet is today far better placed to ride the growth trends in the pet industry. He also believes that with both his investors’ help it will be able to use artificial intelligence to better serve the customer – and the planet.