Place your bets: How will the market shift next?

Place your bets: How will the market shift next?

The growing number of players competing in the veterinary marketplace poses new financial—and ethical—challenges for practitioners.
Jun 01, 2012

I am continually surprised at the number of veterinarians who tell me they have not read the Bayer Veterinary Care Usage Study released in early 2011. Without rehashing a report you owe it to yourself to read, I'd like to draw your attention to a number of factors at play that affect veterinary client visits and the veterinary marketplace. If you are not aware of these factors, how will you respond? Indeed, how will your practice survive?

More players at the table

Michael Paul, DVM
One of the key factors cited in the study is fragmentation of the industry. Simply stated, this means that traditional veterinary practices are not the only game in town anymore—pet owners have many choices about where they receive services, products and professional input. Now, a lot of this fragmentation is not new. There have long been not-for-profit programs, such as county and municipal facilities, that offer full care. For-profit mobile vaccination clinics that set up at various retail facilities have existed for years in many areas of the country—there are just more of them now, or at least they're more visible. Online pharmacies and retail outlets that compete with veterinary dispensing have been around for long enough that they're taken for granted as a reality of our business. Most of their impact has been on practices' sales of flea and tick control products and other parasiticides, although some Internet shoppers also purchase ongoing prescriptions such as NSAIDS or endocrine drugs.

In most cases, the cost differential is relatively small, but reality and perception are not always the same. Pet owners may, at times, believe that veterinarians overcharge or make recommendations based on their own financial benefit. Again, it doesn't matter what's true—that belief alone may lead pet owners to seek alternative care and product providers.

Another factor: Patents on a number of veterinary drugs will expire shortly, opening the gate for new generic products. Most veterinarians use and prescribe generics every day. Why? Because they believe these products to be of equal efficacy and know them to be less expensive for them and the pet owner. The marketplace also has a number of parasite control products to choose from, which have become largely commoditized. As a result, the Internet has become a prominent supplier of these products. The lack of almost any value differentiation among products or product sources to the consumer has made it almost inevitable that price would be pet owners' primary decision driver.

In the future, pet owners will purchase drugs and other products from one of three sources: the veterinarian, the Internet or retail superstores. Surveys have indicated, using flea and tick products as an example, that about one-third of pet owners are loyal to the veterinary distribution chain. About one-third primarily shop "elsewhere" and about one-third purchase somewhat by convenience: "I'm here. It's here. I'll take it."

Deal in the big box stores

Recently we've had new entrants into the veterinary marketplace. Big stores such as Walmart, Target and some supermarket chains have begun filling pet prescriptions not only with generic products but also with veterinary-labeled drugs. I'm sure the CEOs of these companies, which see billions of dollars in annual revenue, aren't thinking that a few packets of heartworm preventive will affect their bottom line directly. The impact will come with the "while you're here" factor. Generally, when you go to the market for a quart of milk, you come home with a quart of milk, a loaf of bread, a carton of orange juice and, oh yes, a Snickers bar.

While a prescription is being filled at a superpharmacy, the shopper can wander the aisles. First she loads her arms, then she grabs one of those little plastic baskets and, finally, she graduates to a cart so she can carry the case of Diet Coke that's on sale. That's the impact a free or greatly discounted prescription has. When a pet owner comes to a veterinary hospital for a refill, she waits in the reception area reading expired magazines and guarding herself from friendly pets waiting their turn. Not quite as pleasant, productive or profitable.

The "human model" of drug distribution that's being promoted by consumer protection legislation, chain stores and, of course, some members of the pet health industry is based not only on price but on convenience—and what's wrong with that? Isn't that what you want when you're a consumer making buying decisions?

Now look at what client compliance has been with veterinary recommendations. The emerging manufacturers and retail market chains have absolutely huge marketing budgets. How effective are we at marketing our products or services?

So is it all bad? Do these companies represent the evil empire? Is Walmart or Sam's Club really Darth Vader's death star? One of our goals as veterinarians is to provide healthcare for as many animals and pet owners as possible. Clearly, we reach only about half of pets. Their owners simply don't come to us, don't believe what we tell them or don't value what we do. Our name is in front of them only when it is necessary. Now look at the chains we have mentioned. How many Walmart stores are in your area? How prominent are their signs? How can you miss the Target logo everywhere you go? It's not uncommon to see four Walgreens pharmacies in a quarter-mile circle. Kroger. Publix. Winn-Dixie. All are making an entrance into the veterinary pharmacy and dispensing world.

It is unlikely that the existing prescription model will disappear anytime soon. Change comes fast, but adoption of change comes more slowly. The new model that involves commercial pharmacies will not replace the old—it will augment it. They have bigger marketing budgets and a consumer perception we can only envy.