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has a lot of fans among pet owners. Its next stage of growth – in pet health care – will largely depend on the charm of another key demographic: vets.
According to the American Pet Products Association, pet health care accounts for about 30% of the $ 100 billion plus pet industry. Sales of drugs, including over-the-counter and prescription drugs, were about $ 10.8 billion in 2020, according to Packaged Facts, whose data shows the category has grown at a healthy compound average growth rate of ‘around 9% since 2017. Chewy Pharmacy, which debuted in 2018, has only a small share of this market so far. Needham & Co. estimates that Chewy grossed around $ 500 million in drugstore sales last year.
The barrier – and the opportunity – is that companies have to go through vets to get a lucrative market share. Most states require veterinarians to provide pet owners with a prescription or authorization to purchase certain pet medications or other regulated products, such as diet pet foods, just like doctors do. for human patients.
The main difference is that while physicians treating human patients send prescriptions to pharmacies, many veterinary clinics tend to sell over-the-counter and prescription drugs directly to pet owners. Veterinary clinics accounted for 72% of overall prescription and over-the-counter pet drug sales in 2020, according to Packaged Facts. In addition, prescriptions represent about a quarter of a veterinary practice’s revenue, according to Needham, which means a significant number of clinics depend on this channel to keep their businesses afloat.
It raises the stakes. A stand-alone pet pharmacy business such as Chewy Pharmacy requires veterinarian approval for prescriptions, but also competes directly for a quarter of clinic revenues. Chewy, pet retailer Petco, and online pet pharmacy PetMed Express all mention in their respective 10-Ks that one of their risks is the resistance of vets to allow prescriptions or attempts by clinics to deter owners. animals to buy from their pharmacy.
The matter was the subject of a 2015 Federal Trade Commission report which concluded that “better consumer access to portable prescriptions” would likely lead to more competition in the pet drug industry. A bill resurfacing in Congress, known as the “Fairness to Pet Owners Act,” would require veterinarians to automatically provide a free copy of a prescription to the pet owner without having to worry about it. he does not have to ask. It was last presented in both chambers in 2019, but was not voted on. The American Veterinary Medical Association opposes the bill.
Given the slow progress of the proposed legislation, it makes sense that some software companies have decided to allow veterinary clinics to run their own pharmacies instead. Vetcove provides a platform where veterinary clinics can purchase pharmaceutical supplies and products, while Covetrus sells software that allows veterinary clinics to manage their own online pharmacies.
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A lawsuit between Chewy and the two software vendors shows that the fight could turn fierce. In May, Chewy sued Vetcove and Covetrus, claiming the companies were involved in a “hijack scheme” to channel sales from the online pet retailer to internal online pharmacies at veterinary clinics, which use Covetrus software. Covetrus sought to dismiss the lawsuit in August, saying Chewy was trying to prevent vets from giving their clients the choice to buy from their own practice. Chewy has since filed an amended complaint.
In an email, a spokesperson for Chewy said the company views “vets as essential partners” and said they believe Vetcove and / or Covetrus are engaging in “illegal and deceptive practices. . sometimes without the knowledge of veterinarians “. Even if Chewy wins this particular lawsuit, its growth in the pet health care market will almost certainly require a friendly relationship with vets, who wield tremendous influence and are rare.
“There are only about 30,000 veterinarians in the United States, which is nothing compared to the 11 million pets that were added in 2020,” notes Anna Andreeva, analyst at Needham. “It’s a fairly competitive context [for veterinarians’ business], just given the small number of veterinarians and the high demand “for their services,” she added.
Chewy’s latest platform — Practice Hub — appears to be a way to align their business with vets. The retailer last month announced a new marketplace platform that allows vets to operate their own online pharmacies on Chewy’s website. Vets can set their own prices, create pre-approved prescriptions, and generate income through the platform. Chewy acts as a wholesaler to the vet and charges for the fulfillment services, but does not charge other fixed fees or earn a reduction in the vet’s income.
The platform would present a direct challenge for Covetrus, which in its last quarter said approximately 12,000 practices in North America were using its prescription management platform.
Chewy’s growth in the non-medical pet product market seemed like a walk in the park. The pet health care market will require puppy-level charm with vets and fierce competition with others that stand in its way.
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