OUR industry is changing and many practices are not recognising or evolving quickly enough to respond to these changes.
Only a few years ago, everything a pet owner needed was provided within the four walls of the practice. Now there are other suppliers with different business models vying for a share of the pet owner’s purse.
Vet practices find themselves in a market place alongside competitors – both veterinary and non-veterinary – who are eager communicators and keen to take market share away.
Our analysis of the small animal veterinary sector found the threat of new entrants to be high.
The analysis showed that practices with one of the corporate business models have grown 36% in the last three years whereas independent practice numbers have grown at 9% in the same period. In addition, the current economic environment means that access to capital to fund new businesses has favoured corporate entrants.
Anecdotally, my clients tell me that competition is increasing. Five years ago they would have one neighbouring practice whereas now they have five.
Professional courtesy would also seem to have been diluted somewhat as competitive pressures have increased. This trend is borne out by the RCVS Facts 2014 report which cites a 12.3% increase in veterinary premises since 2010.
While graduating as a vet in the UK comes with significant financial cost, more universities are now offering a veterinary medicine degree. In addition, the economic crisis has created a wave of veterinary economic migrants who are willing to work to zero-hour contracts, putting downward pressure on salaries.
There is no shortage of new vets coming into practice. Again, this trend is confirmed in RCVS Facts 2014, which shows that there were 795 new UK vet registrations and 844 new registrations from vets who qualified abroad. There is a broad spectrum of business models in the small animal veterinary sector, from single-vet low overhead practices at one end to large plc companies at the other – owning their own laboratories and referral centres. Despite interest rates being low, access to capital is challenging for individuals; however, for entrepreneurs and venture capitalists with the funds to invest, there are few barriers to entry from a financial perspective. The speed of acquisitions and the pace of change is mind-boggling.
New traditional independent practices
Opening a new, independent veterinary practice requires considerable up-front investment and it can be difficult to raise finance without a very compelling and well-thought-out business plan.
Furthermore, vet practices have high fixed costs, meaning a reasonable level of turnover is required before the practice can break even. For this reason, returning a profit can be challenging with cost benefits only seen after a number of years.
New non-traditional practices
The UK has seen a rise in the number and visibility of corporate chains with a variety of business models that appeal to different demographics. Increasing in size either through expansions or acquisitions, the business models have been successful to date with their confidence in the veterinary sector running high.
New models likely to emerge
It is likely that new business models may continue to emerge, such as veterinary practices linked to major retailers. This has already happened in the US where Walmart shoppers can collect their veterinary products free from the in-house pharmacist.
The size of the customer’s grocery bill makes this a viable business model for Walmart and the potential decoupling of antibiotics means that the Walmart model could perhaps be used in the UK too.
So to summarise Professor Porter’s model analysis, although the number of small animal-only independent practices has increased by just 9% over the past three years and the number of mixed species independent practices has declined by 6% over the same period, corporate practices are growing.
Joint venture corporate practices have grown by 53% over three years while consolidator and shared venture practices have grown by 38% and 18% respectively over the same period.
Our industry is changing and practices need to evolve quickly to respond to the changes.
