BRAKKE CONSULTING VIEWPOINT

Last week we touched on some bumps on the road to 2022: the shortage of labor, falling labor productivity, and rising labor costs. We said would cover what this means, so let’s first start with the P&L.

To keep profits climbing, animal health companies will raise prices next year as high as they can stomach – this is harder for some, almost required for public companies. And every expense line will be scrubbed for savings, because of higher costs everywhere. We predict travel and entertainment will be limited, R&D spending will be scrutinized, and capital spending will be capped.

On to people. Hiring in a tight labor market will require new strategies – higher salaries will only go so far. You might need to change your definition of an ideal hire. That perfect fit might not be found, and you might need to develop them. Business leaders will need to decide how to manage remote workers and hybrid models of working, while keeping focus on costs and productivity. We think investing in automation and technology is probably the best way to increase productivity, along with skills training.

We are learning about hiring from our job board dedicated to the animal health industry, Animal Health Jobs. But we also know that getting the right people on the bus, and then in the right seat, is the best predictor of long-term business success, regardless of the bumpiness of the road.

Bob Jones

Your View

Coming soon…

BRAKKE CONSULTING VIEWPOINT
We are hearing a lot about how hard it is to find workers in our industry. Seems like the Law of Supply and Demand is at work.

The Bureau of Labor Statistics (BLS) reported that last week, initial jobless claims – a proxy for layoffs – fell to 184,000 in the week ended December 4, which is the lowest level since September of 1969.  Hourly private sector wages were up 4.8% in November from the previous year, reflecting strong consumer demand and a tight labor market. Indeed, the supply of labor is down: the civilian labor force is smaller by 2.4 million people, or 1.4%, compared to 4Q2019. So, the Law of Supply and Demand still works.

It is easy to get lost in mountains of BLS data – but here is a number that struck me: Nonfarm business sector labor productivity fell 5.2% in the 3Q of this year (output declined 1.8%, hours worked increased 7.4%), which is the largest quarterly decline in since the 2Q of 1960.

All these numbers portend a real challenge for big and small businesses in 2022 to increase profits faster than revenue – how to manage rising labor costs, a shortage of workers, and slipping productivity. We expect big increases in labor costs in 2022 along with product price increases, which will propel inflation. More on what this means next week.

Bob Jones

YOUR VIEW

Last week we asked about productivity and working from home.  To no one’s surprise, most respondents (85%) said that they had worked from home a significant portion of last year.  63% of those felt they were more productive at home than at the office; and half of those said they were significantly more productive. Just under 20% of respondents felt their productivity was either about the same or less productive.  In contrast, the majority of those who didn’t work from home don’t believe that people are more productive working from home. Let’s hope those latter folks weren’t in management!

The hot acquisition market in animal health seems to be continuing apace.  There have been over 130 acquisitions noted in our newsletter through November of this year – with another 5 in this newsletter alone – and there are no doubt some we have missed.

Growth through acquisition seems to be a primary focus for many animal health companies large and small.  In addition, private equity and other outside investors are paying impressive multiples to get into the animal health game.  Most of these recently have been smaller, more strategic purchases. But now that the dust has settled from the Elanco/Bayer merger, is it possible there is another mega-merger in the offing?  Only time will tell.

Lynn Fondon

YOUR VIEW

Last week we asked if you thought there will be a mega-merger in animal health in 2022 and a majority (56%) said no. A few respondents left responses with their merger candidates, but we’ll keep them under wraps – don’t want to start rumors!