Jul
10
2014

After years of steady growth, PetMed Express is facing stiff competition from deep discounters, including big box stores like Wal-Mart or Target and online giant Amazon. 

The online pharmacy’s growth has leveled off, year-over-year revenue is almost flat, and new orders are declining.  At the same time, margins are being squeezed between higher product costs and ever-deeper discounting. Investors are taking note: PetMed Express shares have fallen by almost 20 percent this year, according to Zacks Investment Research

All that may be small comfort to practices that have watched lucrative product sales bleed off to online and discount retailers.

Parasiticides once formed the core of veterinary retail sales until consumers voted with their feet for the convenience and cost-savings that online pharmacies delivered. Now, PetMed Express is finding other competitors winning on those very points. About 60% of PetMed Express sales are over-the-counter medications including flea/tick preventives like Frontline Plus, K9 Advantix, and Advantage. Prescription medications like Heartgard Plus, Sentinel, and Interceptor account for the other percent.

What doesn’t kill you makes you stronger

Since its founding in 1996, PetMed Express been a lightning rod for veterinarians’ frustrated anger – and the catalyst for innovations that have transformed pharmacies within veterinary practices. 

Many veterinary practices acted aggressively to protect their pharmacy income with competitive pricing, more efficient inventory controls, value-based sales in which team members stress the benefits of purchasing within the practice, and, ultimately, offering their own online pharmacies.

That approach proved justified as consumers demanded and won the right to prescriptions with no strings attached.

AVMA’s Principles of Veterinary Medical Ethics (Section III-C) state that veterinarians should honor a client’s request for a prescription in lieu of dispensing.

State laws and regulations vary. In California, state law requires veterinarians to provide prescriptions to clients who request them. Montana adopted a similar regulation in May. In New York, though not illegal, denying a prescription to a client constitutes unprofessional conduct by exercising undue influence on the patient or client. The AVMA maintains a summary list of state requirements.

Meanwhile, the battle continues on the federal level: The previously defeated H.R. 1406, the "Fairness to Pet Owners Act," was reincarnated in 2014 in the form of H.R. 4023. The bill has been referred to the Subcommittee on Commerce, Manufacturing, and Trade. (Fairness to Pet Owners Act resurfaces, spurs calls for veterinary opposition, NEWStat March 6, 2014). 

And, as recently as June, the US Food and Drug Administration updated its web page urging consumers to use caution when shopping at online pharmacies.

Play to your strengths

Despite the red flags, as of July 1, PetMed Express was ranked a 2 (buy) by Zacks because of the efforts the online pharmacy is making to increase revenue. 

“We note that, in the last reported quarter, as a favorable reaction to promotions, average order size increased to $77 in the quarter from $75 in the year-ago period. We are also encouraged to note that the company is working on issues like limited consumer spending and a change in product mix to lower-priced items, mainly generics. Alongside, PetMed is asking veterinarians to prescribe additional brands,” Zacks reported.

Still, all is not rosy. “The company continues to face competitive pressure in the competitive and fragmented pet medications market. We expect the impending acquisition of Novartis AG’s animal health division by Eli Lilly and Company to create market concentration in the entire economy, leading to an anti-competitive landscape for PetMed,” Zacks reported in an earlier analysis.

Decreased competition among manufacturers typically results in higher product costs. While that creates special problems for discount retailers, veterinarians can expect to feel the effects as well.

Just as veterinarians may be affected by challenges similar to those facing PetMed Express, so they may find a similar solution: Focus relentlessly on your mission and build solid growth strategies around it.

“With our dedicated practice teams, veterinarians have huge value that no one can copy. Pet owners look to us to help them take the best care of their best friend. If we offer the best in medical expertise and our compassion, we become their trusted advisor,” said Michael T. Cavanaugh, DVM, DABVP, AAHA chief executive officer. “It’s not about products, it’s all about service.”

The Standard of Veterinary Excellence ®
American Animal Hospital Association | Copyright © 2017 | Privacy Statement | Contact Us