September 16, 2014

Profile of a public company in Florida

PetMed Express markets like an attack dog

Discount mail-order business PetMed Express tops $200 million in revenue. Consumers love it, but vets have never gotten over the competition.

Amy Keller | 6/26/2012

Corey Drew
PetMed CEO Menderes Akdag says he plans to continue the company’s aggressive pricing while increasing advertising and expanding its product line. [Photo: Miami Herald]
While it’s unclear which third-party distributors PetMed uses, there are some distributors who buy their supplies directly from vets. In what’s called the “gray market,” some vets buy medication in bulk from the manufacturers, then resell the medications either directly to retailers or to third-party distributors who sell to online retailers and others — at prices that still undercut the other veterinarians.

To date, only one manufacturer has reversed its veterinary-exclusive sales policy. In 2010, Bayer Animal Health began selling its flea and tick products to brick-and-mortar and online retailers. PetMed Express says it will continue to try to establish direct purchasing arrangements with the major pet pharmaceutical manufacturers.

Meanwhile, PetMed Express faces challenges, including increased competition both from online vendors like Amazon.com and retailers like Walmart, Costco, Target, Kmart and Kroger. Economic pressures have also affected sales in the $3.8-billion market for pet medicines. In an investor presentation last fall, PetMed Express acknowledged that cost-conscious consumers have been “trading down” and purchasing less expensive medication brands.

To boost sales, the company has spent more on advertising and slashed prices — moves that in the short-term have taken a toll on its bottom line. Profit fell to $16.7 million in fiscal year 2012 from $20.9 million in 2011.

PetMed Express continues to aggressively protect its economic turf, filing trademark or copyright infringement lawsuits against almost any online competitor that adopts a name anything like its own or uses its trademarked terms in advertising.

PetMed Express
Sales/Profit (in millions)
Year
Sales Profit
2007
$162.2 $14.4
2008
188.3 20.0
2009
219.4 23.0
2010
238.3 26.0
2011
231.6 20.9
2012 238.2 16.7
And with spending on pet medication projected to reach $9.3 billion by 2015, the company is likely to remain a player in the market. CEO Menderes Akdag told analysts in a recent conference call he plans to continue PetMeds’ aggressive pricing and increase advertising while expanding product offerings to include more generic and private products and other pet supplies. “Generics have much higher gross profit margins so they will help us stabilize the margins,” Akdag said.

Akdag has seen the Pet Meds-veterinarian dynamic before. Before joining Pet Meds in 2001, he was CEO of Lens Express. When the online retailer of contact lenses and supplies went into business, it undercut optometrists and ophthalmologists, who had enjoyed a near monopoly on contact lens sales to that point.

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