Economic downturn – The resilience of the veterinary profession will once again get tested
The last few months have seen interest rates go up and had global governments talking about a recession. We have also seen a dramatic increase in everyday goods such as food and fuel – so inflation is on the way up.
We have also been telling you for the last 3-4 months that the growth in the veterinary industry has stopped after experiencing a huge boom in the first 2 years of the COVID pandemic.
The month of July brings the same news – a further drop in the revenue of veterinary practices compared to July last year, and an even more significant reduction in the number of patients seen and invoices raised (see chart at the end of this article).
So does it mean that you need to panic? Absolutely not, there are a lot of things that you can do to mitigate the effects of a recession in a veterinary business, and in fact do even better. Research shows that recessions are good at weeding out the weak businesses, leaving the better ones to come out stronger when the economy improves again.
Many of the clinics that we have been working with have had an excellent 2 years and now have a buffer of savings. Wages have gone up but so has invoicing and productivity – so your teams are working better. We are confident that a small downturn in the industry will easily be accommodated in well run veterinary practices.
Remember also that assessing your service quality vs pricing is critical in times like this – If you are an independent/privately owned practice your only option is to maintain profits by providing better service, don’t reduce your prices. If that sounds counter-intuitive then understand that all your suppliers prices are going to increase. Wages have already increased and other generally fixed costs like electricity, telephones, software and rent are likely to increase. If you drop your prices whist all your supplier costs increase this will have an exponentially negative effect on your profit margins. This is why we are regularly assessing and benchmarking the prices and invoicing habits of many practices whilst also carefully monitoring their wages and cost of drugs. In many practices we are now having to review this every 3 months(we also make sure that their clients numbers are not declining because of higher prices, and they never do).
Another reason why independent practices cannot compete on price is ‘supply chain squeeze’. Large equity companies now have significant interests in both corporate veterinary practices and wholesalers. How do you think corporate practices have managed to halve their drug costs in countries like the UK? By having control of the supply chain from manufacture of some products, owning wholesalers and owning veterinary clinics, they can afford to give product to their veterinary practices at cost whist offsetting this discount by charging independent practices more. Furthermore in times of supply shortage, they can provide drugs and supplies to their clinics whilst withholding supplies to competitor practices (If you don’t believe that this can happen, then read the next article).
Fortunately when it comes to pet owners, service always seems to win against price. So once again, focus on your service!
Veterinary industry tracker comparing Jul 1, 2021 to Jul 31, 2021 to Jul 1, 2022 to Jul 31, 2022 (most recent month)