Brakke Consulting gets a lot of inquiries from investors about pet health insurance.  There are two items of note about pet insurance in today’s newsletter.  Independence Pet Group, which owns more than a dozen brands of pet insurance, has expanded its portfolio with the addition of Spot.  And Nationwide, which is the second largest pet insurance company, has announced the cancellation of 100,000 policies citing inflation and the rising cost of veterinary care.

Pet insurance is one of the fastest growing pet care categories with annual increases greater than 20% for the last four years, according to trade association NAPHIA.  But margins are tight, no doubt contributing to Nationwide’s tough decision to cancel some policies.  Many pet insurance companies routinely lose money.  However, continued willingness of pet owners to spend more at the veterinary hospital, and the innovation of more sophisticated treatment options are viewed as growth drivers for pet insurance.  We expect the rapid growth to continue.

John Volk, Senior Consultant, Chicago

This week we published the latest edition of our annual Pain Management Products report.  It’s a fascinating time in the market segment, thanks to the launch last November of Zoetis’ Librela, a monthly monoclonal antibody injection for treating osteoarthritis; and that of Solensia – the feline equivalent – in late 2022.

This new class of pain management drugs has the potential to revolutionize the treatment of chronic pain.  Most veterinarians are already using monoclonal antibodies in their osteoarthritis patients. But how often are they reaching for them?  Are they stand-alone treatments, or part of a multi-modal protocol? Will Librela completely replace the use of NSAIDs in treating osteoarthritis? Is Solensia creating a new market, much like Rimadyl did so when it was launched in the 1990’s?

Our Pain Management Product report answers these questions and more, with direct feedback from our 350-veterinarian survey as well as PIMS-based dispensing data as of April 2024. If your company is part of the companion animal pain management market, you won’t want to miss out on the valuable insights in this report.

Lynn Fondon

Evaluate and Adapt your business – Sooner rather than later

On Monday I went into town, to visit one of the local Vet Retailers, privately owned and with a long history in the community.  I had my script in hand and on presenting it a very interesting scenario played out.

Last week’s poll yielded some interesting yet not terribly surprising information. Only Gen X and Baby Boomers sometimes indicated their preference was to shop at a physical store, and in both cases it was less than 15% of respondents. Over all generations, the preference to shop only online ranged in a narrow band from 19% – 39%. Folks preferring to mix up online and visiting a physical store varied from 50-75%.

Back to my Monday errand, the store did not have the product on hand, but they could get it for me by Friday to pick up as they had an arrangement with each major supplier to deliver a specific day of the week. I used my phone and within minutes could arrange for a next day drop ship to my home, from a vet distributor with an online system geared to accept a script and payment.

The simplicity of the cell phone has provided access across generations, to a magnitude of online shopping experiences. The simplicity of the procedure to search for a product, upload information like a script and paying has greatly contributed to acceptance, again across generations.

I showed this to the manager at the store and both him and his assistant, commented that they have always done business this way, that carrying inventory is problematic and that increased regulations, requiring more and more products to be under control of a veterinarian is problematic. They have a website and people need to call in and ask for what they need.

I am afraid that very much like Bed Bath & Beyond, not paying attention to the customer and his changing behavior and legal access to a multitude of online product suppliers, may hurt this entity in the long run.

How often do you evaluate your business, to ensure it aligns well with the customer needs?

Lourens Havenga

Exciting news has emerged from the Brazilian market with the announcement of the merger  between two retail pet industry giants, Cobasi and Petz. This new amalgamation could potentially generate revenue exceeding 7.5 billion reais (about $1.4 billion USD) in 2024. The merger prompts a discussion about the changing demographics of  pet ownership, notably with Gen Z taking the lead according to the APPA National Pet Owners Survey 2023-2024.

Gen Z’s shopping habits differ significantly from previous generations, potentially posing challenges for the merged Cobasi-Petz entity on both physical and online fronts. Considering Gen Z’s preferences, the impact can be examined in two key areas:

Physical Stores:
– Emphasis on Experience: Gen Z prioritizes experiences over mere products. Should Cobasi-Petz expand beyond selling pet supplies to offer unique experiences.
– Sustainability Focus: Gen Z is environmentally conscious. Should the merged company emphasize its commitment to sustainable practices in its operations?

Online Shopping:
– Seamless Omnichannel Experience: Gen Z expects a seamless shopping experience across online and physical stores. Should Cobasi-Petz ensure their online platform is user-friendly, with features like real-time stock checks, click-and-collect options, and easy returns?
– Social Media Engagement: Gen Z is highly active on social media. Could Cobasi-Petz leverage this by maintaining a robust social media presence with engaging content, influencer collaborations, and responsive customer service?

This merger presents an opportunity to create a retail powerhouse in the Brazilian pet market. By aligning with Gen Z’s preferences for experiential shopping, sustainability, and strong online engagement, Cobasi-Petz can navigate these challenges effectively and excel in the evolving landscape of pet ownership.

While this news focuses heavily on the Brazilian market, the strategies outlined for Cobasi-Petz in adapting to Gen Z’s preferences hold valuable insights applicable to businesses globally, especially in sectors where demographic shifts and changing consumer behaviors are shaping industry dynamics.

Mauri Ronan Moreira

Brakke Consulting’s recent Pet Medicines Home Delivery Study revealed one-quarter of vet clinics in the US don’t have an online store offering home delivery service for pet medicines.  The belief for these clinics seems to be that online store sales equate to less profit for the clinic.  Not so fast.

Traditional inventory management entails significant overheads including storage, handling, dispensing costs, expiration risks, administrative time, and theft coverage. All of this must be factored into the mix. However, these costs are often not mentioned when talking about margins for products sold in-clinic vs. products sold through the online store and drop-shipped from a distributor or home delivery provider.

By partnering with distributors for direct-to-client shipments and leveraging the convenience of home delivery service, veterinary clinics can reduce expenses and offer pet owners more a personalized service. This model not only reduces financial burdens but also enhances operational efficiency, freeing up valuable time for core veterinary services.  More importantly, nearly all pet owners say home delivery significantly improves compliance for pet medicines.

By offering pet owners the options of buying products in the clinic and through the online store, veterinary clinics can capitalize on giving pet owners the medicines they need while walking out the door and help capture the inevitable replenishment purchases while they’re at home.  If you need help with home delivery strategies, we can help.

Richard Hayworth

This past Tuesday, April 23, the Federal Trade Commission announced that it intends to issue a “Non-Complete Clause Rule” with respect to employment contracts.  Such non-compete clauses generally prohibit employees from leaving an employer for a competitor for a certain amount of time.  The FTC says that such non-compete clauses in employment contracts are “an unfair method of competition,” and therefore a violation of law, effective 120 days after publication in the Federal Register, which is likely in a few days.

Senior executives (as defined) will be exempt from this rule.  All other employees covered by such agreements are to be notified by their employer that such clauses are no longer enforceable.  Further, new non-compete agreements, even for senior executives, will be subject to the ban.  The FTC, in Tuesday’s announcement, estimates that up to 30 million workers in the United States currently have some sort of non-complete agreement with their employer.

Years ago, non-compete agreements were widely used by veterinarians when hiring associates to work in a practice; they were used to deter an associate from leaving to join another practice or to start a practice – usually within a certain distance from their employer.  Such agreements, while effective for the employer, were the often the cause of unpleasant litigation between veterinarians and have fallen out of favor over the years.  California, Minnesota, Oklahoma, and North Dakota have also passed laws restricting or prohibiting these agreements ahead of the FTC’s ruling.  The US Chamber of Commerce filed suit on Wednesday in US District Court in Texas to block the proposed rule.

I don’t know what your opinion is of this ruling, and I know that there are many smart people on both sides of this issue, but I do have a question for you: have you ever heard of or known an employee who requested that he/she be covered by a non-compete agreement?  If your answer (like mine) is “no,” then we have an illustration of how the balance of power has now moved a little closer toward the middle between employee and employer.

Jim Kroman

Let’s face it, many of us have called or have been called team members after hours. A call before dark is one thing, but when’s the limit? California has proposed a “Right to Disconnect” law which calls for fines of $100 if your manager calls you after the latest hour you set. (The draft proposes a fine after 3 calls.) Australia’s similar law is about to go into effect. France, Canada, and other countries already have these on the books.

There are exceptions: emergencies, scheduling changes that would take place in the next 24 hours, etc. Remote employees working for a CA company would also be included. (Spring forward, fall back?) Not surprisingly legislators point to intrusions on personal time having increased during COVID.

Most of us can take a practical approach to this issue, and it seems that nearly every manager tries to minimize after-hours intrusions. But there are exceptions. Would you support a law to this effect?

Jeff Santosuosso

I am writing this in the early days of April, but we are finishing now the period of what we call ‘March Madness’ for the college basketball championship tournament period. For me, one of the most exciting sports events of the year. It’s always especially interesting to see who the ‘Cinderella team’ turns out to be (hopefully the NIL and transfer portal will not damage this event, but I have my concerns).

Every year it seems that a group of people start believing in themselves, so much so that they overcome all odds to defeat teams that appear better, at least on paper. And from my view, this starts with the coach who is inspirational, but also helps the players perform at their best levels with a clear winning strategy. How about you and your company? Are you that sort of leader, and does your company provide that leadership?

‘March Madness’ also occurs in business, when we look at performance at the end of Q1 (March) and compared to budget: you are either ahead (good conservative planning), on target (lucky), or behind (oops). And if you are in a publicly traded company, the noise starts, both positive and negative.

How are you doing at the end of Q1? Do you have a realistic plan the rest of the way?

Paul Casady

In the newspaper business, this would be called a “slow news day.”  Perhaps it’s a reflection of spring break season.  Or maybe many are distracted by the NCAA basketball tournaments.  Exciting stuff, eh?  Regardless, the items in today’s newsletter are important in their own right, and reflect the expanding role of technology in animal health.

Another item notes that the American Association of Colleges of Veterinary Medicine has published a new report on the future need for veterinarians.  It’s an important topic that’s getting a lot of attention.  Clearly the 2020-2022 period was a bubble of veterinary demand and workforce shortages caused in part by the fact that the government pumped $5 trillion (yes, trillion) into the economy during the pandemic. People had money to spend and pets got lots of attention.  Since then veterinary visits have started easing back a bit, and the percentage of veterinary practices with openings has declined, according to our most recent survey.  But the veterinary job market is still strong.  The fact that a dozen universities have announced plans to start veterinary medical colleges also introduces a new wrinkle.  I’m sure it’s not the last we’ve heard on this topic.

John Volk

What do you think of when you see a pig?  Do you start to salivate thinking about bacon, ham, a big juicy pork chop or a slab of ribs?  Rick Slayman, a 62-year old Massachusetts resident with end-stage kidney disease sees pigs as a potential ticket to a dialysis-free life.

On March 21, doctors at Mass General Hospital performed the first transplant of a genetically modified kidney from a pig.  According to the Organ Procurement and Transplantation Network, approximately 27,000 kidneys were transplanted in 2023.  However, the waitlist for human kidneys has approximately 89,000 individuals on it.  Just think about how many people could live a productive, happy, healthy life if this operation proves to be a complete success.  This could potentially eliminate the largest barrier to transplantation which is organ supply.

The most critical obstacle to the use of animal organs in humans is organ rejection.  The kidney used in this procedure was genetically modified by eGenesis Bio to increase human compatibility.  eGenesis employed new technology to make 69 precise edits to the pig’s DNA (snipping certain characteristics out and adding others) to try to prevent the human body from seeing the kidney as a foreign body.  That, combined with monoclonal antibody treatments to reduce the likelihood of rejection, provide a possible pathway for animal organ transplantation.

Think again as you stare at that slab of ribs smothered in barbeque sauce.  Pigs might not only be a sustainable food supply but might provide a hugely critical source of organs for critical care human patients.

Randy Freides