PetIQ: Unlocking Access
PetIQ’s focus on providing access to affordable products and services for pet parents is reshaping the lines between veterinary clinics and retail.
Most organizations in animal health may hang their hat on one sector of the industry. There are the service providers (i.e., veterinarians). Then of course there are the manufacturers of products and distributors of those products.
PetIQ has invested in all three, with the mission of helping pet owners provide the necessary care that enhances the lives of their pets. In an interview with Veterinary Advantage, Susan Sholtis, president, PetIQ, discussed the company’s business model, dependence on distributor partnerships, the company’s response to COVID-19, and plans for growth in the coming years.
Veterinary Advantage: Please tell us about your business model and organizational structure. What should Veterinary Advantage readers know about your areas of focus?
Susan Sholtis: It’s fair to say that where we started and where we are today are two very different places. It’s been quite an evolution for our business.
What hasn’t changed is the purpose and mission of our organization. Our purpose is around advocacy for pet parents. In a nutshell, we believe that all pet parents should be able to provide the necessary care that enhances the lives of their pets. That piece has not changed.
This leads to our mission as a company, which is to deliver a smarter way for pet parents to help their pets live their best lives through convenient access to affordable products and affordable services. If I had to summarize it in just a few words, I would say that our focus is on facilitating access to care and continuing to open up avenues for pet parents to be able to care for their pets. Access to care is a theme that we all carry with us during the daily course of conducting business.
We have a unique position in the market. Most companies in animal health are focused on either manufacturing, distribution, or veterinary services. We focus on all three. Going back about 10 years ago, around 2010, our evolution as a company started with our CEO McCord Christensen. His vision was to unlock retail access to quality veterinary products. He could not understand why pet parents shopping the pet aisles in retail would only have available low-quality products. So, he started bringing higher quality products to the retail space. In essence, that’s how PetIQ got started.
Every year since, new products have been added to our product portfolio – all with an eye toward making high-quality products more accessible to pet parents at a lower price.
In July 2017, the company went public on the NASDAQ. It was a pivotal moment for our little organization because we had a purpose and a mission that was needed in animal health. Following the public offering, we’ve invested in acquisitions that have helped us become vertically integrated into animal health.
We purchased both VIP Petcare and Ballard Manufacturing in 2018. Both acquisitions helped solidify our position in both veterinary services and in the manufacturing of supplements and treats. In 2019, we purchased Perrigo Animal Health. That solidified our position in manufacturing and brought up some great brands to work with, like PetArmor, Sentry, and Sergeant’s. In 2020, we purchased Capstar. This allowed us to continue to bring high-quality products to pet parents, but also bring a unique and necessary product back to veterinarians. Capstar has been forgotten over the years. It’s a product that is very relevant for the fast treatment of flea infestation. Moving forward, we’ll continue to look for acquisition opportunities like this to bring unique and necessary products to the marketplace, but to do so in a way that helps us to improve access to care for pet parents.
Veterinary Advantage: How does PetIQ work with distributors?
Sholtis: Distribution plays a valuable role in our business model and our distributor partners are absolute experts in ensuring that veterinary customers not only receive the necessary items to run their practices but distributors add value to these relationships by offering added-value services that help clinics to manage their businesses more efficiently and effectively. We don’t have a veterinary sales force, and we want distribution to serve that role.
If you look at the veterinary side of our business, it’s an incredibly important part for us. We all know that veterinary recommendations are critically important for our pet parents, and I don’t see that changing. The trust that parents have with their veterinarians is absolutely sacred.
So our veterinary services business and the Capstar acquisition have allowed us to start working with veterinary distributors more closely than ever. In the veterinary services business, our relationship is pretty obvious. We purchase veterinary supplies for our clinics from distributors. We have distributor partnerships. And distributors basically help to supply us with products as we operate our clinics.
To give you a sense of the magnitude of the clinics that we operate in, today we operate 126 wellness clinics. But we also operate over 70,000 community clinics or pop-up clinics every year. So, the supplies that we utilize in order to operate in that environment and to serve over 1.3 million pets in 2019, all of those products come from distribution. Again, it’s an important partnership.
Capstar helped open the door to additional opportunities to collaborate with distribution. We recognize that distribution adds tremendous value to a relationship. And that value is rewarded by providing good margins on products. We reevaluated those margins when we purchased Capstar. We looked at the margins that distribution was earning off that product and we made significant changes, again reflecting the value that distribution brings to the equation.
The last piece of the distributor relationship I’ll mention is that we’re also partnering with veterinary distributors on providing private labeling opportunities. We have an 840,000-square-foot facility in Omaha, Nebraska, and manufacture over 1,200 items in that facility. So, it’s fair to say that our relationship with veterinary distribution is evolving in a very positive way. We will be bringing new products to the veterinary market and we will continue to work through distribution to do so.
Veterinary Advantage: What about manufacturers?
Sholtis: We also have partnerships with manufacturers. On the veterinary service side of the business, we purchase brands from our manufacturer partners, and we distribute them to pet parents in our clinics. Our veterinary clinics operate like regular veterinary clinics where people come in to not only obtain their vaccinations and get general health checks, but they’re also encouraged to leave with preventative products recommended by our veterinarians. We work closely with manufacturers on supplying pet parents with those preventative products.
We also have contractual relationships with manufacturers to help facilitate their relationships with retail. So, we partner with manufacturers that essentially look for our help in selling their products into retail. It’s a very transparent relationship. Manufacturers make decisions on where they want their products to be sold and we help them to navigate those channels. We give them data and information, down to where the product sold, how it sold, and how it’s moving throughout that channel.
A lot of PetIQ’s executive team comes from a retail background. It’s an area of expertise that we have as an organization.
Veterinary Advantage: And pet owners?
Sholtis: It’s fair to say that a common theme through all our businesses – whether it’s on the products side of our business or the veterinary service side of our business – is providing pet parents with access to care.
On the veterinary services side of the business, we’ve got two operating models. One is providing veterinary services through wellness centers, and the other is providing veterinary services through community clinics. Wellness centers are a store within a store. These wellness centers are located in permanent structures inside of retail outlets.
The veterinary community clinics are pop-up clinics, meaning that we pull a truck up to the front of the store at a predetermined time. We unload all the materials that are going to be needed to conduct the clinic within that retail environment. We unload everything and we’ll operate a clinic with a veterinarian and with three staff members for a two-hour period of time. We hold those clinics in over 2,800 locations and have over 70,000 of these events a year.
I think it’s also important to note that because we focus on providing wellness and preventative medicine, last year alone, we provided over 10,000 referrals to full-service veterinary clinics. So, we also work with local full-service clinics to make sure our pet parent’s needs are met.
Veterinary Advantage: Finally, veterinarians?
Sholtis: We’ve got a fantastic veterinary team led by Lauren Olavessen, DVM, our chief medical officer. Her focus last year was to help put a structure in place to build out the veterinary professional teams in our organization. Veterinarians are critically important to what we do.
Interestingly, in the most recent visits I’ve had with some of our veterinarians, I ask why they come to work for us. They believe very much in our mission as an organization. They like what we do as a company. They like the fact that we focus on providing wellness services at affordable prices.
Veterinary Advantage: How does PetIQ separate the veterinary channel from the retail channel?
Sholtis: Most of our growth has been from acquisitions. We’ve worked hard to centralize our functions in order to realize efficiency across our organization. That being said, we have a very clear delineation between how we operate in both the veterinary and retail channels.
In order to execute this strategy, we have purposely built a team with appropriately, varying backgrounds. Our team is comprised of retail experts, manufacturing experts, and veterinary services experts. As you can imagine, there are times we don’t always speak the same language, but we all recognize one another’s skillsets and we’re very open to learning from one another and we never lose focus on our mission. Having diverse backgrounds within our organizations helps to make us better and helps us to strengthen our vertical integration.
Veterinary Advantage: What is the long-term vision for PetIQ?
Sholtis: First and foremost, our intention is to stay true to our company mission. We won’t lose sight of that – convenient and affordable products and services. With the impact of COVID-19, we believe we’re in the right place at the right time. Just look at industry data. Prior to COVID-19, we already knew that about two-thirds of pet owners believed that pet products were becoming too expensive and they were actively looking for lower prices. Through those same reports, we also knew that 66% of parents believed that veterinary services were becoming too expensive.
What pet parents are looking for hasn’t changed during the pandemic. In fact, their desire for affordability may have grown stronger. Our position in the marketplace is helping to fill a need that is underserved today.
Veterinary Advantage: How has COVID affected this vision, both short-term and long-term?
Sholtis: Like most businesses, prior to COVID-19, we started 2020 with an aggressive goal to grow and serve more pet parents and their pets. Despite the headwinds we experienced during the year from the virus, we still expect double-digit revenue growth this year.
When the pandemic hit in March, we closed down 100% of our clinics because we could not keep our teams and the people around us safe. We did not have the proper procedures in place. We didn’t have the appropriate PPE in place. We had none of what today is necessary to operate.
If you recall me talking about community clinics, our veterinary services model was built around lines and gatherings. When COVID-19 hit, our business model had to change. First, I’m proud to report that we continued to pay our employees and provide them with benefits during the 4- to 5-month period our veterinary clinics were closed. We’re a small company, and it was a defining moment for us. It was important to our leadership team that we continue to provide these benefits during the pandemic and we worked hard to be able to do that.
Second, we proved how nimble and agile we are because we completely redesigned the way we operate. We built a new business operations model for our entire organization in a very short period of time.
Third, the pandemic only reinforced the importance of our diversified business model. While the veterinary services division was closed, the manufacturing and distribution business was ramping up! This allowed us to do the right thing for our employees but also allowed us to deliver a strong year as well.
Veterinary Advantage: Where do you see the business in 5 years? Ten years?
Sholtis: Next year, we’ll achieve a significant milestone for our company, and that is to deliver $100 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization). Eight years ago, we weren’t even making $100 million in revenue, so hitting that 2021 milestone is a big achievement.
Five years from now, I see us continuing to remain true to our mission, first and foremost. Second, I see us continuing to vertically integrate into the animal health space. Continuing to strengthen our position in manufacturing, distribution, and veterinary services. Our focus will remain on the pet parent and facilitating access to care.
To that end, we’ll continue to launch affordable products. Our five-year pipeline is very focused on making sure everything we launch is affordable. As you can imagine, we evaluate and reject a lot of opportunities because they don’t meet that hurdle alone.
Last but not least, we will be well beyond building and operating 1,000 wellness clinics, and as a result, serving in excess of 6 million pet parents each and every year.
Affordability and convenience
Many of the pet parents that come to PetIQ’s clinics haven’t seen a veterinarian for two to three years, said Susan Sholtis, president. “We believe that we are bringing pet parents back into the veterinary service ecosystem, and helping them to be able to provide basic care.”
She provided statistics on the pet parents that utilize PetIQ services:
- On average, over 55% of their pet parents are over the age of 45.
- 40% are baby boomers. “That does not match the national average as the No. 1 cohort nationally are millennials. Our customers are primarily baby boomers.”
- Two-thirds of the pet parents make less than $60,000 a year.
- Over 50% come to the clinics because they’re affordable.
- The average ticket is less than $100.
- Over 30% list convenience as the main reason they come to the clinics.
“Affordability and convenience are very important to what we do and how we operate,” Sholtis said.