Online pet retailer Chewy won over many pet owners through service and convenience—but the lucrative pet health care market will be tough.
The obstacle – and opportunity – lies in the fact that businesses must go through veterinarians to get a slice of the lucrative market. Most states require veterinarians to provide pet owners with a prescription or authorization to purchase certain pet medications or other regulated products, such as pet food food, that physicians make for human patients.
The main difference is that while doctors send prescriptions to pharmacies for human patients, many veterinary clinics sell over-the-counter and prescription medications directly to pet owners. Veterinary clinics accounted for 72% of total prescription and OTC pet drug sales in 2020, according to Packaged Facts. In addition, according to Needham, prescriptions make up about a quarter of the veterinary practice’s revenue, meaning a substantial number of clinics depend on that channel to sustain their business.
It raises the stakes. A stand-alone pet pharmacy business such as Chevy Pharmacy requires veterinarians’ approval for prescriptions, yet competes directly for a quarter of the clinic’s revenue. Chevy, pet retailer Petco and online pet pharmacy PetMed Express all mention in their respective 10-Ks that one of their risks is efforts by prescriptions or clinics to discourage pet owners from purchasing from their pharmacy businesses. There is resistance to authorization.
The issue was the subject of a Federal Trade Commission report in 2015 that concluded that “better consumer access to portable prescriptions” could lead to greater competition in the pet drugs industry. A bill that keeps re-emerging in Congress, known as the “Fairness Act for Pet Owners,” would allow veterinarians to automate a free copy of a prescription to a pet owner without a pet owner’s request. will need to be provided. It was last introduced in both houses in 2019 but did not go ahead for vote. American Veterinary Medical Association opposes the bill.
Given the slow progress on the proposed legislation, it is understandable that some software companies have taken the business of enabling veterinary clinics to run their own pharmacies. Vetcove provides a platform where veterinary clinics can purchase supplies and pharmaceuticals, while Covetrus sells software that allows vet clinics to run their own online pharmacies.
A lawsuit between Chevy and the two software providers suggests the fight could be fierce. In May, Chewy sued Vetcove and Covetrus, saying the companies were involved in a “diversion scheme” to direct sales from an online pet product retailer to veterinary clinics’ in-house online pharmacies, which Covetrus Software uses. makes use of. Covetrus sought to dismiss the lawsuit in August, saying that Chewy is attempting to prevent veterinarians from giving their clients the option to buy from their own practice. Chevy has since submitted a revised complaint.
In an email, a spokesperson for Chewy said the company views “veterinarians as essential partners” and that it believes Vetcove and/or Covetrus “engaged in illegal and deceptive practices . . . .. at times without the knowledge of veterinarians.” Even if Chevy wins this particular lawsuit, its growth in the pet health care market will certainly require a friendly relationship with veterinarians, which hold substantial sway and are rare.
“There are only about 30,000 veterinarians in the US, which is less than the 11 million pets added in 2020,” notes Needham analyst Anna Andreeva. “It’s a very competitive background [for veterinarians’ business], simply given the small number of veterinarians and the substantial demand for their services, he said.
Chewy’s latest platform—Practice Hub—seems to be a way to align its business with that of veterinarians. The retailer last month announced a new marketplace platform that lets veterinarians operate their online pharmacy stores on Chevy’s website. Veterinarians can set their own prices, create pre-approved prescriptions and earn revenue through the platform. Chewy acts as a wholesaler to the vet and charges for fulfillment services, but does not charge other fixed fees or deduct the vet’s revenue.
The platform will be a direct challenge to Covetrus, which said in its last quarter that about 12,000 practices in North America are using its prescription management platform.
Chevy’s growth in the nonmedical pet products market seemed like a walk in the park. The pet health care market will require puppy-level fascination with veterinarians and brutal competition with others standing in its way.