Product sales, market changes, and the impact on your profits (Proceedings)
It's been a number of years now that your clients have alternatives to purchase their veterinary drugs and supplies. First it was the catalogue houses and then the internet. The first to feel the effects of the change in distribution channels were the large animal practitioners. It has completely changed their business model and they no longer rely on product sales to provide revenue and profitability to their practices. It has changed the fundamental way large animal practices work with their clients and the way they earn a living. Many are now consultants or provide medical care and charge adequately for their services. The internet foothold took grasp with high powered advertising that has driven our clients to their web sites and at first only affected competitively shopped and exposed products such as flea and tick and heart worm medication. Many other products are now purchased from these companies. It has taken some time for these alternative purchase sources to grab hold, and now we are seeing the impact on companion animal hospital's overall revenue and profitability. Pharmacy revenue is flattening out or decreasing in many hospitals.
When these alternative sources of product became available there was panic on the street and many did not know how to react. Our friends have been the drug companies and distributors who indicated they would not sell directly to these alternative sources and would not provide a guarantee for the products distributed through to them. This was an admirable move on their part but the fact remains that the distribution channel still exists and is stronger than ever. The web company's advertisers have paid them dividends by conducting strong advertising campaigns.
So how did we get to this place? Well much has to do with the basic business model of the small animal hospital. The model is structured in such a way that hospitals are an all in one stop and shop for many clients. They come to our hospitals for total veterinary care and to purchase the products they need to care for their pets including prescription medications. Veterinary care includes wellness care, sick care, diagnostic testing and surgery. For some hospitals, ancillary services such as boarding and grooming also play a significant role. Some would suggest this business model is a good one that creates the one stop shopping experience that major retailers have created such as Wal-Mart and Target Stores. What's different in veterinary medicine is that we have let certain of our revenue centers be profit winners and some be losers. For example, lab services and product sales are two of the most profitable areas of revenue for many small animal practices. They make up about 45% of hospital sales.The common small animal hospital business model is to let these revenue areas supplement other service areas where the fees charged to clients have been kept low and do not represent the true cost to provide them. The fees we are talking about run the gamete from the office visit and hospitalization charges to the price for surgeries including spays and neuters.