“Multiple concerns,” said the Competition and Markets Authority about the veterinary practice market. You bet. Semi-captive customers, rapid consolidation, lack of transparency and inflation-beating prices do not necessarily add up to a conspiracy against the consumer, but such a market is definitely worth a closer look. That’s before one mentions, as the CMA didn’t explicitly, the presence of the private equity industry, which tends to have a nose like a bloodhound for easy pickings.
The mini-revelation in the CMA’s initial review of the sector was how far, and how quickly, the independent veterinary practice has declined as the dominant ownership model. From only 10% in 2013, almost 60% of veterinary practices are now owned by large companies. Welcome to the world where two quoted companies, Pets at Home and CVS Group, three backed by private equity plus one owned by pet food (and chocolate) maker Mars are the big names. Rather than big splashy deals, this has mostly been a case of individual practices steadily selling up.
Concentration approaching 60% among six firms isn’t unusual in a consumer-facing market, it should be said – three supermarket chains together have almost as much in groceries – but the possibly tricky element with vets is local domination. Most pet owners are inclined to take darling Fido to a nearish practice and, unlike supermarket-land, the possibility of a thriving online market obviously doesn’t exist.
The CMA’s provisional assessment is that, looked at by postcode, there could be competition issues in 40% of areas. Within that, 12% of the market is represented by postcodes where a large corporate group owns at least two vet practices and has a market share of above 30%. Worse still, perhaps, some practices do not make clear that they belong to the same company.
Price inflation has massively outstripped general inflation over the past 10 years, says the CMA, and its next task will be to study whether profitability has followed the same path. The case for the defence is that the cost of employing vets has shot up, which is plausible since the supply of newly qualified practitioners probably didn’t keep up with the pace at which punters were acquiring dogs and cats during the Covid lockdown. One industry consultant told the broker Jefferies that practice-level profitability has not changed much. But let’s see the CMA, with powers to demand financial statements, test that claim.
One area, though, already looks ripe for reform: the seemingly fat revenues from medicines. “We have seen data from some large vet businesses which suggests that medicines account for around 20-25% of their revenue,” says the report. That is remarkable in itself but, again, one would want to see the profit margins on that revenue before passing judgment. The alarming suggestion from the CMA, however, is that most pet owners are unaware that it is possible to get a prescription from their vet and buy the medicine from a third-party pharmacy. That rather looks like a market that is not working as intended.
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Enforced transparency, plus a cap on a vet’s fees for writing a prescription, would, presumably, remedy the overcharging on medicines problem, if it exists. As for the postcode concentration, that would have to involve disposals, one assumes. We’re not yet at that stage, but the stock market tends to offer a decent guide to regulatory threats. CVS Group was off by 25% and Pets at Home, which has a different operating model, shed 3.5%. It all suggests the competition watchdog is barking up a promising tree.
