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PetMed Express markets like an attack dog

Marc Puleo
PetMed Express founder Marc Puleo stepped down from the company’s executive leadership team in 2005. [Photo: Miami Herald]

Traditionally, when a veterinarian prescribed medicine for Sparky or Fluffy, the animal’s owner would buy the medication — at considerable markup — from the vet.

The vets, to their great annoyance, lost their near-monopoly in 1996 after Marc Puleo, a Fort Lauderdale anesthesiologist, set up a discount mail-order pet pharmacy, PetMed Express (more commonly known as 1-800-PetMeds) and began selling pet medications, along with flea and tick preventatives like Advantage and Frontline, for up to 25% less than what veterinarians charged. Sales spiked further after big pharma began to venture into pet medicines — in 2007, for example, Eli Lilly launched a version of Prozac for dogs.

Players in the $3.8-Billion Pet Medication Market
67%
Veterinarians
22%
Brick-and-mortar retailers
6%
PetMed Express
5%
Other online/mail-order retailers
Note: Figure includes over-the-counter and prescription drugs for pets only and does not include medications used only in a veterinary hospital setting, such as anesthetics.

Today, PetMed Express, based in Pompano Beach, has grown into an economic monument to the importance Americans put on the health of their animal companions. In 2010, the company’s annual sales reached $238 million.

Many vets still see that revenue as money that ought to be going into their pockets, however, and resentment lingers. A group of veterinarians protested after PetMed Express signed up to be an exhibitor at the 2012 North American Veterinary Conference in Orlando, calling it a slap in the face of the veterinary community.

The company withdrew from the event but participated in a panel discussion at which the veterinarians aired their concerns. The company’s director of marketing told the group it has removed negative references to veterinarians from marketing materials and says its has plans to create a veterinary advisory panel that would screen the firm’s ads.

Since many pet pharmaceutical companies will sell their medicines only to vets, many veterinarians are suspicious about where PetMed gets its products.

PetMed Express won’t comment on where it gets its products but acknowledges in its annual report that because “substantially all the major pharmaceutical manufacturers have declined to sell prescription and non-prescription pet medications directly to us” it relies on “third-party distributors” for its supply.

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.