Earnings Call: Q1 2021

May 11, 2021

Yes. Hello and a very warm welcome to the Zooplus Q1 2021 Result Call. Very happy to have you all with us. Before we go into exactly the number of the numbers for this quarter, Let's briefly go back by 1 year. 1 year ago, we have seen the start of the COVID crisis The capital is busy for longer than we all wanted to. We're still probably not yet completely done with that in many areas of Europe. What did we promise 1 year ago? We said, yes, we're set up with our partners to be resilient throughout the COVID crisis. I think on this one, we have delivered. We're good in all operating KPIs that keep our customers happy, including KPIs like delivery speed, delivery reach and also availability. The second thing that we promised is that we will use the, let's say, the time of the year of 2020 2021 to rebuild the growth momentum. In fact, that operation already had started in the Q1 of from 2020 by focusing on customer loyalty and by focusing on increasing the customer base and also the spend per pet. We'll see that the growth momentum we built is here to stay. So we have to rebuild a lasting momentum. And thirdly, we're putting focus additional focus over the last 12 months on developing the long term earnings drivers of Zooplus Business Model. And that is primarily operational efficiency that leads to supreme levels of cost efficiency, but then also a deliberate shift in where to grow, not regionally, when it comes to customer cohorts, but by product categories and by brands. So we call the sales structure has been a focus of point of development with a particular focus on developing high margin sales. We will also look into this one, have been scoring on this. Lastly, we've seen over the last 12 months that the sector and the channel to Unity. So the pet sector and e commerce as our channel, as our exclusive channel for doing business have shown their relative strength relative to other categories. So in fact, pet has received lots of well deserved attention for being a very interesting consumer category. And at the same time, we've seen that e commerce has been filling in many situations gaps left open by traditional retail models. We do see a special to TH and Zooplus throughout the whole crisis, there was always a level playing field. So operators like supermarkets, like pet stores we're always able to run their offline premises as they would do in normal times. So we see there the channel shift towards e commerce has received a bit of tailwind, but is not benefiting or did not benefit from the skewed situation that we've seen in other categories. So let's begin with the last point first and that looks exactly into the features of our category. So what you would see here, 2, let's say, major forces at work. The one is the overall market, which grows in the current decade at an elevated speed of projected 6% year by year growth rate for the next for the running decade and coming from a level of 3% growth rate between 2010 2020. That itself is very good news. It shows that there is real interest in, let's say, pet ownership, pet parenting. There's also real interest into being as good as possible in feeding and catering for your dog, for your cat or for your other pet. And lastly, it also shows that overall, we see certain markets picking up to the trend of catering with specialized pet food made for pets instead of using, let's say, household leftovers for feeding pets. Overall, we see that the growth momentum is picking up, is picking up quite We'll get also into the details or into some numbers for pet ownership. The second major shift that we can see is that we will see 1 channel of 3 dominant channels for catering for UPET will take further and further of absolute market share, and that is the e commerce channel. In fact, the other two channels are supermarkets, which have been traditionally that if you look back in the year of 2010, the strongest of all three channels with e commerce being e commerce just being, I'd say, minimal and significance in the year of 2010 and supermarkets still capturing almost 60% of the total market opportunity. But we also see that this the category in which we work has always been, let's say, a good home for a specialist sector. And that specialist sector is where we, let's say, see the greatest benefits for pet owners, but it's also the sector where we source most of our new business from. So we take people out of the supermarket, but we are particularly strong at the top end of the market, which is, I'd say, strongly in the hands of a specialist trade. Overall, we will see that e commerce in the year of 2,030 is going to be the dominant overall channel. And in fact, what we'll see is that larger parts of the specialist trade sales will migrate, but also some of the grocery sales in our category will migrate to e commerce. In total, we will see when we look into the total of the 20 years, we see that the supermarket and low interest, let's say, products and brands are probably the category or the sectors that develop the least fast. When it comes to retail sectors, we are e commerce benefiting the most and grow the fastest, but also we see a pronounced shift to better qualities, to niche and craft brands, to specialist products and brands that cater best for the pet. Overall, a wonderful market to be in and then also a wonderful channel to operate because that in combination is just producing a substantial opportunity, which in the case of Zooplus, we reap all across Europe. So we're not operating in just one of our in some markets of Europe. We do it in all corners of Europe. And as you know, we're market leader also in the online sphere in all corners of Europe and at the heart of Europe too. So This would be the overall market situation. You probably have also heard quite a bit of news about the renewed interest in pet ownership. There is one simple reason for it. Having a pet makes people happy, and that's something that was really helpful as one can see for many people over the last 12 months, which have been, I'd say, rough dire when it comes to other prospects. So we've been trying to aggregate numbers, which are not ultra reliable, to be honest, but they're very indicative for a growing, let's say, customer base. And everybody's talking about the primary customer. That means dogs and cats all across Europe. We will not go through the details, but you can see that there is in all geographies of Europe a renewed and strengthened interest in either having a new pet or just keeping your pet and then other people adding pets, we see that the total pet population is growing or was growing a lot faster over the 12 months than we did in previous years. And it's logical that we will have a larger customer base than for many years to come, with cats and dogs being, say, a member of your household for many, many future years to come. And when you talk about new puppies, when you talk about kittens. The other thing that we will also see is that people that once have enjoyed living with a pet, usually continue to do so. So pet ownership is not just a commitment for 10 to 15 years, it's is commitment for life. Very happy about that, and we do our best to make pet ownership as joyful as possible. So That will be the other important news around the sector. And coming from there, we would now look a little bit more into the Zooplus operation as we've been, I'd say, performing in the Q1, but also sometimes taking a little bit of a broader view. So now let's first start with something which is, let's say, most important for us and that's the sales growth. But at the same time, it's a little bit difficult read if you just do the quarter by quarter comparison. So this is what we are issuing 2 quarterly growth rates now. Nominally, we've been growing by 16 and over the Q1 of 2020. If you go back into the quarter into the Q1 of 2020, you will recall that we've seen special purchases by people that simply felt the need to build a bit of extra stock in order to cater for anything that the crisis might force upon them. So we were roughly, say, quantifying these extra sales in the Q1 of 2020 with €22,000,000 out of the €441,000,000 that we did last year in Q1. So if you adjust the comparison basis 1 year ago, It come with a current quarter performance of €509,000,000 in sales to a growth rate of 22%. We'll go back to this topic of how to read and interpret the sales figures and the growth rate because we think it's very important. That kind of impact by the shift in sales between April May last year front loaded into March is also impacting the revenue retention. And the revenue retention now measured exactly for the last 12 months trailing is stands at 97% as an effect of exactly this €22,000,000 that was shifting, let's say, forward 1 year ago. Revenue retention is up clearly against 1 year before, so 97% to 94%, but also we see that this special effect of the basis being slightly skewed is already showing that in April, the revenue retention bounces back to 98%. And we are fully confident that the growth rate exactly the revenue retention overall and is going to stay as close as possible to the 100% of that green figure. That is the hallmark of our business model. One reason for that is that subscribe and save, our flagship loyalty tool, continues to gain sales share. We are up again by 4% over 1 year ago from 50% to 54%. And that just shows how much of a versus how tool it is for customers. In fact, they're free to choose the moment of purchase and the, I'd say the basket of purchase, but at the same time, a very good reason to continuously return to Zooplus. We'll look into this one a little bit later, too. Another highlight of the Q1 is that our own brand sales growth is again very strong. We now look at a growth rate of 34%, which is, let's say, exactly or a little bit over even doubled the growth rate of our standard business, and it's even up a notch from the growth rate that we had in the Q1 of 2020 of 32%. So I would say brilliant news on this one. We all know that own brands make a real impact on the margin structure of Zooplus and at the same time, our own brands performed extremely well with our customers, boosting also customer loyalty. So let's move to Page 8. Page 8, we see exactly, probably start here from right to left. We see the 12 month trailing sales per account. And as you can see in the middle of that green chart, you see the impact of what we call the COVID stockpile that was done exactly when the news broke out that there is going to be COVID, say, hitting Europe. And what we've seen then is that people were front loading their demand, in fact, squeezing in a sense, the normal demand of maybe 12.5 months into exactly 12 months, and that was boosting that 12 months trailing per account sales indicator. As you can see, after the peak, it moves back to something that is a normalized picture. So that means people that did purchase in March, we're actually planning to do in April or May, then didn't do the purchases in April, May, and that led to the fact that this KPI of 12 months trailing sales per account did go back a bit in the month from April May, so it normalized again. And what you see is that we have a steady trend upwards with exactly that 12 month trailing indicator. So if you now look into April 2021 March 2021, you see then the kind of flip side of that peak that we had 1 year before. That's logical because all of a sudden, the front loaded sales fall out of that 12 month trailing window. And at the same time, the new march, so the march that we just had passed 6 weeks ago doesn't include stockpiling from April. So this is why you see a mirror picture exactly what happened 1 year ago. And that's so important to understand because that also influences what you see left of chart, revenue retention. The revenue retention, of course, now looks into the 12 months between April 2020 until March 2021. So that is the current 12 months and that benchmarked against 1 year ago. What happens is that in the current 12 months, we have in April a little bit less sales, April of 2020 because these sales were front loaded into the March. And at the same time, the basis of Harrison, the 12 month trailing a year before has been slightly inflated. So this is what we see now exactly for a brief period of time, a dip in revenue retention, but we can also see that in April. It already bounces back and will bounce back further in the course of the year. So what moves more steadily is exactly the growth of our active repeat customer base because whether you're active or not is defined by at least 2 transactions. If you front load a bit or not, it does not influence that indicator. And we see here steady progress of 15% increase in our repeat active customer base. And in fact, that is a very strong figure. Given the fact that we're already 21 years in the business, we keep on growing our customer base at such a consistent rate. We do so better than the year before, and we also do that with increased sales per account. And these are this is the double driver for our growth. It is a consistently growing customer base plus higher transaction intensity or MultiClient to be precise. So what is behind that is a clear focus at Zooplus for doing the best for the best customers. And what is probably the most prominent element of that customer centricity and customer focus is our flagship loyalty tool, subscribe and save. And as you can see, we're expanding the sales share of subscribe and save consistently or continuously. Now it's 54%, 1 year ago it was 50%. We do grow exactly that segment of our sales, not really at the average of 16% with 32% growth speed. Of course, we're happy that this segment grows faster than the rest of the business because we have sales per account of more than €500 exactly in that customer segment. So we generate roughly 80% higher sales per active account compared to the average. You can multiply the two numbers, so everything stacks up. We have €2,100,000 accounts. We have the 5 printed 0 sales per active account, gives exactly that part of the business more than €1,000,000,000 relevant to our business. The good news don't finish here. In fact, the long term activity rate of such customers stands at a staggering 62% after 6 years of doing business. So obviously, we showed that in presentation. As the customers stay with us, the sales per account increased consistently from already high levels, but then also year to year, the loss rate of accounts is very low. And that's exactly the beauty of, let's say, being good to your best customers. The other good thing about a, let's say, very deep customer relationship as we are now more and more able develop it is that customers that stay with you for longer periods of time appreciate the spectrum brands that you offer, including the own brands in which we put, let's say, a lot of care, a lot of love and a lot of attention. And that pays because now our sales exactly with our own brands portfolio for food and snacks is approaching in total. Say 20% of our sales were not yet there. But if you just look at the momentum of growth, which is again increasing over previous periods. It's just a matter of time till we get to more than 20% sales share with our own brands, for sales. Of course, then there is another sector that is very relevant for our margin profile, and this is accessory sales that has been probably not our strongest suite for the years of 2017 to 2019. That's in 2020. We're also making good progress in offering quality accessories that make our customers very happy. So combined, we see that the high margin part of our business is growing substantially faster than the rest of our business and has overall a substantial impact because the size is now entering relevant territory with some combined sales of accessories and own brands are well above 30% and a growth rate of more than 30%. We will see that Once we move to the financial highlights, and that is now, let's say, the next sector of our presentation. Let's start again with the sales number, again, the €509,000,000 is well above the level of Q1 2020, €440,000,000 which includes exactly the previous year's comparison, the €22,000,000 that we were mentioning before. So the growth rate is dependent on how you look at it, nominally 16% adjusted or with a normalized comparison basis 22%, very strong sales in the Q1. We also see that the gross margin has been reacting positively, very positively on three factors. The one factor is accessory sales. The other factor is exactly the strong sales of our own brands portfolio. And lastly, we've been less promotionally intense, which usually is short term a drag on margin. So we see that the gross margin is within that bandwidth of 30%, plusminus 1%, but here at the upper end of exactly the bandwidth that we see as very appropriate for our business short and mid term. What we see is that this, combined with a high level of cost efficiency in sales and marketing and in logistics, translate to a record EBITDA of $25,000,000 which is almost a 5% EBITDA margin. So I think we have plenty of proof in that quarter that we're consistently growing and at the same time that we operate a business model that has powerful levers for structural earnings capability. We also do so with a cash flow profile that continues to be positive. So that is the direct consequence of a lean business model to start with, very efficient setup of operating in 28 different countries, but using a shared infrastructure, shared and common, let's say, merchandise stock. And then also, it comes as an effect of Clever Strategic Partnering. So we have very good working relationship with our industry brand partners, with our own brands partners And lastly, also the logistics operators, which allows us to grow the business at such speed while maintaining cash flow positive positivity. So put together, I would say that is the best ever quarter in the history of Zooplus. Now we keep on going back exactly to the question of how to interpret best the growth numbers. And we show you on Page 13 14, 2 more, let's say, attempts on this one, not attempts, but I think carefully designed views, since last year has been impacted by special, I think, movements in sales or shifts of sales between the quarters. We took now an approach of looking into the 2 year CAGR. And here, on Page 13, you would see the 2 year CAGR in Q1 2020. So then over Q1 2018, that CAGR was 15.8% or in absolute over the 2 years combined, we had a growth of 36.4%. If you look into the Q1 of 2021 and compare against the Q1 of 2019, leaving out that special situation that we had in Q1 2020, do you come up with a CAGR, a 2 year CAGR of 18.3% or combined over these 2 years, we've been growing by exactly 40%. And that is something that shows that sales momentum is only increasing, and that's very good news. It also increases if you do the comparison against the quarter before. Again, the 2 year CAGR in the year and in the Q4 of 2020 over the Q4 of 2018, it was standing at 16.9%, equivalent to roughly 37% of the growth rate. 1 quarter later, the growth rate, the 2 year CAGR, which is immune to exactly that special sales peak that we have seen, that indicator goes up from 16.9% to 18.3% or if you take the 2 year growth rate, we come from 37% and we go to 40%. So we see this as very important because it just shows that we have real confidence for the remaining year because exactly the growth momentum is strong as a You can see the same thing in yet another view where we kind of simplify things. We just do one thing here on Page 14. We take out these $22,000,000 of the extra purchases stockpiling in the Q1 of 2020. So we adjust the Q1 to the EUR 480,000,000 that would come normally and now we calculate exactly the growth rates the classic way against the previous year's quarter. And what you see here is that for the last six quarters, we've been consistently, as increasing the speed of growth from levels of 14% pre corona and after a kind of slightly problematic year of 2019. We're ending with 14% of growth rate. 15% already, let's say, first impact of better care for our premium customers and better care of some of our loyalty programs. That trend continues throughout the summer. So growth rate is at 16% 16%. We've been doing particularly good in using the growth opportunity that they have in the winter months in e commerce. So the growth rate then really accelerated to levels of 20% 22%, respectively. So we see that all things eventually pay off, both for the top line performance and for the bottom line performance. And that takes me on Page 15 to our, let's say, strategy when it comes to margin management. In fact, we spoke about the impact of above average growth rates exactly for our own brands. We spoke about the stabilization of accessories, we also see that the share of loss making orders and the share of subaverage margin sales has been, let's say, kept steady. And we see that as we go now into post COVID situation, we might have the need for doing a little bit more sales promotions. So we just want to inform you that there is always a natural kind of volatility in the margin. And as mentioned before, on a 12 month trailing basis, Zooplus feels perfectly comfortable with margins at around 30%, I'd say short term plus or minus 1% corridor. Of course, long term as explained when during the outlook for 2025, we see a clear upwards long term trend. And that's because the own brand share continues to accumulate over time. And that's going to have a long term very strong on the margin, I'd say baseline or the mean for the average, whatever you prefer for the margin. Right now, the news is we are pretty much stable with the gross margin the last 4 years. And in the next 4 years, we're going to tilt the margin upwards as promised till 2025. That translates exactly into EBITDA numbers that look very, very good on absolute terms. But also when you look where we come from, you can see the strong momentum in rebuilding the earnings potential at Zooplus. We come from the Q1 of 2019 with an EBITDA of, say, slightly above 0. We took it to an EBITDA level already with a bit from, let's say, cost efficiency as a driver optimization as main driver, we took the EBITDA level around 2% in the Q1 of 2020. And now in the Q1 of 2021, we're clocking in a very strong first quarter with €25,000,000 EBITDA and almost 5% EBITDA margin. This gives us very comfortable position when looking into the ambition set for the full year. Of course, the first What was also, say, almost perfect constellation of supreme levels of cost efficiency, high sales and accessories and a low level of promotions. So on this one, we'll comment when doing but we're commenting on our guidance for the current year. The free cash flow, as mentioned before, continues to be very strong and puts us into a very comfortable position that we can afford to grow as fast as we currently do without having to challenge. As mentioned before, I think now let's compare how does that 1 Q1 fit into the big picture for the full year? We have been guiding to a sales performance of SEK 2,040,000,000 to SEK 2,140,000,000 for the full year. And we're very confident that we are not already within that guidance, but that we will also be in the mid to upper range of that guidance excuse me, for sales. The same is true for EBITDA. For EBITDA, we're announcing €40,000,000 to €80,000,000 of EBITDA. Of course, everybody is quick in doing the mental math. If you take the €25,000,000 of the Q1, it would take us to €100,000,000 but that's exactly what we say that now for post COVID situation, for the normalization of some consumer behavior, We would like to keep the sleeve up for a bit for the unexpected and we would like to be able to invest a bit into sales promotions that stabilized the growth momentum that we have. So we would again here say on EBITDA level, we're comfortably within that range, we already made quite a good start, the €25,000,000 already in the books after the Q1. So we can also expect there the EBITDA for the full year to be in the mid and upper range of that guidance. So I'd say All good news around, and that's particularly important because we are on a mission here. And the mission is to be, say, a 10% total market share company by the end of 2025. And we wanted to take sales and Zooplus to a level of SEK 3,400,000,000 to SEK 3,600,000,000 in the year of 2025. We see a marked opportunity, which we would like to embrace. We see own brands as extremely value driving activity, both for our financial performance and for our top line performance, but also for our customers. And you simply see that all the KPIs that we've been showing for the Q1 paid towards being fully on track exactly for the admission 2025. So Put together, I think we have only good news. And we'll finish that with showing you a bit of a bit of a view on how we see the long term earnings potential of Zooplus. We've been explaining in detail that the 3 main drivers exactly for the structured profitability the sales and marketing efficiency. The other one is operating leverage. And lastly, exactly the sales structure and the continued development of high margins and sales is driving the profitability in, I would say, a perfect quarter as you've seen it in the Q1 of 2021. You can already see how close we are to the lower end of our EBITDA charted margins. So we say, Given these building blocks for structural probability, we're perfectly convinced that we can do a minimum of 6% or well beyond 6% as we have time to build in particularly the high margin sales over time and with our business model. And that Q1 showed that with, say, supreme level of marketing efficiency with already substantial operating leverage and with, let's say, continuously growing impact high margin sales, we can do a 5% EBITDA. So that's 6% and 6% beyond is clearly, I would say, something that is well within reach. As we explained before, we put a focus on growing the business as fast as fast as we think the market opportunity, we think the channel opportunity and the category opportunity. We just wanted to share with you that whatever we have there as a long term target earnings model is perfectly backed up by exactly the operational numbers that you see in the Q1 or in other quarters we've been to it all works as advertised, I would all say. And on that note, I would hand over to Q and A. So the moderator, please take over and collect the calls from our audience and then handing them over to us. We'll now move to our first question over the phone, which comes from Alveria Reo from Barclays. Please go ahead. Your line is open. Good morning. Thanks for taking my questions. I've got 2. So the first is, as discussed, you spent very little on marketing this quarter. How should we think about the amount and Cadence of marketing spend in the remainder of the year. And the second is just around logistics costs. So the logistics cost ratio increased in the quarter versus both Q1 last year and Q4 last year. Is that due to higher freight costs? And if so, how do you expect these costs to trend in the remainder of the year? Thanks. Thank you very much for both questions. The freight cost would be part of the margin. So What happens with the fixed cost is that we continuously invest into developing the best possible product. So what we do is that we not only hire, but also retain the best possible IT people, that we continue to build our team, for example, so the private label, our own brands team. And so we've seen a little bit of an uptick in personal cost, but that is perfectly in line with our growth strategy and it pays towards creating more value for our customers. What we also see is that personnel costs are slightly impacted by the higher share price that makes the adjustment for our stock options program a little bit more expensive. The other highlight when it comes to the cost structure is clear. We do work with a very high level of efficiency in marketing or in traffic acquisition. We see 2 things coming up on the horizon. We might have slightly elevated marketing spend for the rest of the year as a result that organic traffic might be a little bit less, let's say, less strong in growth than it was over the last 12 months. And we also will see that we will be a little bit more promotional when it comes to sales. So expect both of that to be impacted. We will have a bit more market spend, we will see a bit of detrimental impact on the overall margin due to increased sales and marketing activity. Thanks. And just on the logistics costs, we struggle a bit to really get your point there because what we see is that we are, I'd say, more or less perfectly in line with logistics costs. We fluctuate between 18% 18.5%. The main impact there is basket size. There is an impact coming from exactly changed shipping terms and conditions, we still have been operating in the Q1 of 2021 with certain restrictions due to COVID. And one prominent example, easy to understand example is that the maximum weight for what you can put into 1 parcel has been decreased by some parcel operators because they simply say one guy can only lift 1 parcel up to 23 kilos. So where previously they were able to lift the parcel together up to 30 kilo, you now have to pack it smaller simply because 2 people shouldn't stand so close together for listing parcels directly. Stuff like that is impacting, but in fact for us is practically speaking fully within target. That's really helpful. Thank you. We'll now move to our next question over the phone, which comes from Fausto Korolan from EAS Capital 1st of all, thank you for the results. Very, very good. I wonder if you can give us a little bit more color on your sales and EBITDA long term target. Because if I'm not wrong, in your target, there's 0 contribution to a better Revenue contribution from subscription revenues. Now you have less than 50%, if I'm not wrong, subscription revenues on sales, your, let's say, main comparable is in the region of 70%. Given the much higher contribution of sales per customer, if you run the subscription revenues model, This could help you to grow to outgrow a lot the rate of growth of your sector. If I'm not wrong, if you catch up 50% vis a vis Chuy means another 3% Revenue contribution more. If you reach the same level of Chuy, slightly less, is 6% In the year 2025, we had a much better, I believe, EBITDA margin contribution. Could you tell us if in your targets does a higher contribution of subscription revenues you stick to More or less 45%, 46% of percentage of sales. Yes. I think it's worth going into both aspects. Let me first take the your question around sales. In fact, you're absolutely right. To increase the share of some subscribing sales is very important. As you can see from the data, we've been improving. We took it from 50% to 54% in just 1 year or in the last 12 months. Of course, for new customers, subscribe and sales is relatively low. This is what we take it out of this KPI. The 54% we see as a stopgap to even higher values exactly for subscriber sales. And we see 2 drivers at work when it comes to the top line performance, build a loyal customer base. So acquire good customers and keep your customers tightly with you, but also increase the sales per account. This is exactly what subscribe and say is doing. Let's probably Look at it specifically for Zooplus, we don't feel that we should do a direct comparison to Chewy. They work in different market, and they also have a different advertising strategy, spending a lot more money exactly on short term customer acquisition. We feel perfectly comfortable with gradually but consistently growing the number of subscribe and sales customers. And this is what we've been doing with the 3rd and with a short glitch, I would say, in the year of 2019. We've been gradually and consistently building the Subscribe and Save share. But at the same time, we made sure that the positive impact, the leverage of subscriber sales over the average account is still there. So you can also try to give everybody subscriber sales, but then it would come at the expense of not being an impactful per account as it is. So this is why we take it a little bit slower, but we take it consistently to better levels of penetration in our customers. When it comes to target earnings model, please specify a little bit what kind of of color you would like to have? Sorry. But is it true that your Subscription model gives you 30% higher sales per client, right, vis a vis, let's say, normal client? Well, 80%, 80%. So not 30%, 80%, 80%, yes. So it means that if you're able to increase the level of your subscription from the current 54% to 60 Your tax in 2025 would be, I mean, easily reachable. But the thing is, we set ourselves targets, which are, I would say, ambitious but reachable. And the thing is nobody knows exactly how many new customers you can acquire efficiently. And we put a lot of focus In keeping our customers, we put a focus on making them more transactional. And that gives us quite a bit of, I'd say, room to maneuver when it comes new customer acquisition, many people mistake that the number of new accounts opened up is the best proxy to your future growth. You're taking a different approach. You look into the sales per account and the size of the customer base being the prime drivers, and we're perfectly with you. This is how you should look at our business model. But thank you very much for the question. Thank you. Call. We'll now move to our next question over the phone, which comes from Anubhav Malhotra from Liberum. Please go ahead. Your line is Hi, guys. I have a couple of questions, if you don't mind. You're talking about increased trend of pet ownership in Europe. I would like to see if that is reflected in your new customer acquisition pace, if it is matching that increased trend of pet ownership or are you lagging behind or are you leading that? And then secondly, on the low level of promotion that you saw in the quarter. Was it a company's specific decision to decrease promotion given that you were probably a bit more promotional last quarter? Or was it a market level thing that you saw all other competitors going a bit slow on promotion because there was just so much organic growth coming in the market? Thank you. Yes. Good question, both. If you look at the number of new accounts, In fact, one could say, couldn't you have acquired more new accounts? When we say this is secondary as an objective over getting quality accounts and increasing exactly the loyalty of the account and the spend per account. So the true value of new customer acquisition is not visible in the moment of the acquisition. It is visible when you look into consecutive quarters. And this is why we're quite happy to say that our, let's say, loyal customer base grows faster than the new customer acquisition. So we are more targeted, which at first, it looks as if we're not probably not fully utilizing an opportunity of new pet owners out there. But in fact, it's much more important that out of the new pet owners and other people moving from offline to online, you get the best ones into your system. And this one, we're perfectly on it. We would, as mentioned before, not rule out to increase gradually but carefully the marketing spend in order to optimize reach, but we will be very careful in this one. We've seen in the year of 2019 that if not done right, you can practically increase the marketing spend without any material benefit to the company. So we won't do that. When it comes to promotional activities, I think everybody was happy that the market was, let's say, taking a more, let's say, relaxed approach to promotions. We are in the business primarily of demand coverage and not that much of demand creation. So for example, if you do an overfiller promotion of 12 kilos instead of 10 kilos. There is one sure impact. The bag of dog food will last longer. So quite often the promotional activities might be helpful for, say, creating attention to specific brand, but overall, they do not increase the level of sales. And quite often, promotional activities also incur extra logistics costs. So we would see that there is some need for promotional activities. But much like in the marketing field, we would be more focused than in previous years on doing promotional activities. Thank you. Can I just ask a follow-up on how do you define and how do you find what a good long term customer would be for you when you are trying to acquire new Any thought process that you can share with us? Well, what you can do is you take the total market figures as published, for example, by open source like Euromonitor and you divide it by the number of pets that are out there. And then you would come to a certain level spend per pet. And the numbers here for Europe are, let's say, well below €200 spent per pet per year. If you look at our subscribe and save customers with a spend per year of €530, you clearly see that we massively over indexed. So the spend per pet there is much higher with our customer base. And that proves two points that we are extremely strong with quality focused customers that are willing to spend on their pet health and pet well-being. And secondly, that we have a high share of wallet. It doesn't make sense to pin an absolute, let's say, maximum number on this one. We are, I'd say, happy that overall the spend per account does go up and we also see that on the individual account, it does go up over time. These are 2 very important quality indicators. So we have a customer base that gets better over time rather than having problems of declining average revenue per user, that will be an indicator of a saturated market. And also what you see is that as the customer stays with us, we are able to develop the customer, which tremendously good news, not only for us as a business, but it is also very value creating for our industry partners because we are the ones that make customers aware of high quality products and the benefits of spending more for YUPET. Thank you. That's very clear. Just to confirm, Doctor. Pat, there are no further questions queued over the phone at this time. So I would like to turn the conference back over I do apologize. We now have one further question queued, which we'll now move to which comes from Till Diten from Just two quick questions, if I might. One is wondering where do you stand in terms of rolling out medical products or insurance products. I know you're doing it in some countries, but just doing this on a broader basis. And just in terms of your capacity adds, if you could just update us on what's the latest in terms of capacity as you had several plants you have plans for several new centers. So if you could speak to that. Thank you. Yes, thank you. So that's we're almost getting perfect because we have another 3 minutes to answer these two good questions. And let me ask, I'll start with the capacity addition first. Of course, when we have from a network design that allows us to, let's say, plug in the extra capacity quite easily. We stand at 10 fulfillment centers at present, for large sized to medium sized and for what we call market fulfillment centers, which are, let's say, speeding up delivery in certain geographies of Europe, like in Spain, like in Italy and in the UK. We are planning over the next 12 months to add capacity by adding 3 more fulfillment centers. Let's say, give us 12 to 15 month for that. And these additional capacities offer 2 benefits. 1 is exactly more throughput, but also we expect that the additional capabilities will come at a slightly better cost position than the overall network as we have it now. So it helps us because some factor costs like the shipping cost and transportation cost do have a bit of a tendency to creep up. So we're entering now, Wood is aware of that, a bit of inflationary phase for all kinds of commodities, starting with oil, but many other raw materials. So we're happy that we are adding capacity while improving the structural cost efficiency. When it comes to rolling out the additional or offering additional products which go beyond what you would usually sell in a specialist store and you end up clearly with medical and prescription products. We have a bit of a challenge here because the regulations are not harmonized all across Europe. So it is much a country by country I'd say, battle to get the legal approval and fully compliant ways of selling these products away from this one. And secondly, Of course, we see after having brought valuable service when it comes to selling products and access of food and accessories, we also see an opportunity to use the trust that our customers have in order to be a market maker, intermediary or platform operator when it comes to the services that you need as a pet owner, be it insurance and Speed Veterinary Services. So stay with us, you would hear news this one in the short and mid term future, But right now, nothing we can reveal in detail. So you're suggesting it would be more like a marketplace approach? But we're looking into various options. The main thing is how do we create a maximum benefit for the greatest number of customers. So we come from a customer centric approach. With the marketplace, we want to make sure that if you operate a marketplace, It's a well curated marketplace, so you make sure that customers have a consistent consistently good customer experience. We see that as very important for the business model that we operate. We talked a lot about loyalty. We talked a lot about the confidence that customers have with us. And any marketplace concept also for services would need to acknowledge that it needs to be consistently a good customer experience. Sure. And one last, if I may, very quickly on hardgoods. Where do you stand on hardgoods? On hardgoods, as explained previously, we had a declining share of hard goods, of accessories in the years between 2014 2018, we've been stabilizing into 2019. We've been stabilizing now the accessories sales share compared to all sales. So that means we all of a sudden have a growth momentum in accessories that previously we didn't have. Again, here, we focus on high quality products, which are helping in making the best out of your pet parent ship or your pet life rather than going for the quick buck and selling something that eventually gets down to people. So we take exactly that, the customer centricity very, let's say, seriously in all of activities. And that's the reason why customers continue to increase their spend, increase their loyalty and their Zooplus. Perfect. Thank you so much. Okay. So I would say really it's So exactly 60 minutes after we have started the conference from our side here from Zooplus. Thank you very much for dialing in. Thank you very much for the competent questions and thank you for the coverage. We'll hear you, I think it's 17th August that we're going to have the quarterly presentation for the Q2 of 2021. But for the moment, enjoy a moment with us the very good results on the Q1. Thank you and bye bye.