Growth Opportunities Amid Corporate Consolidation
Kristen Coppock, MA, Editor
The evolving landscape of veterinary practice ownership doesn't have to mean the end of independent ownership. Here's how to thrive in the face of increasing corporate consolidation.
In a practice ownership landscape that is increasingly corporate, independent veterinary practices can continue to thrive, accordng to Michael Dicks, MS, PhD, chief economic adviser for VSOP Solutions-Calico. At the 2018 NY Vet conference in New York City on Thursday, Dr. Dicks recognized the ownership challenges independent practices face and outlined ways to help ensure a sound future.
There has been significant growth in the number of corporate veterinary practices in the United States, from 2126 corporate practices in 2016 to about 35,000 today. “This is corporate consolidation,” Dr. Dicks said. “We’re losing a lot of independent practices.”
He noted that while corporate businesses represented only 20% of practices in 2016, theose practices provided half of all services to pet owners. Meanwhile, larger practices are growing at a faster rate than smaller practices, which are typically owned independently. Between 2015 and 2017, Dr. Dicks said, tier 1 practices, the largest businesses, grew 16.6% compared with 10.7% growth for tier 4, or the smallest practices.
In a landscape where corporate consolidation and faster growth of larger practices is common, Dr. Dicks said that practice owners have opportunities that can help them better compete in the market.
One way to grow an independent business is to look at providing lower-cost services at a higher volume. Dr. Dicks said there is potential in this type of business model that many owners have not considered. Lowering the cost of some services can help independent practices better compete against corporate practices, which can offer lower prices through bulk purchasing. “Typically, we focus on how we can raise prices to increase profit,” he said. “Low- to middle-income people are 50% of the population. They have pets, too.” A higher volume of services provided to more clients would help keep practices profitable.
Independent owners can also increase the value of their practice—making it less desirable to corporations—by reinvesting in their business, including their employees. “Production benefits profits,” Dr. Dicks said. “Don’t go it alone. You have to find someone to run your business who you trust.”
For some independent owners, hiring a skilled employee to manage the business would help keep it running smoothly. Having administrative help also affords veterinarian owners more time with clients and patients. Investing in practice assets, such as land ownership, also adds value and potential profits to an independent practice.
Dr. Dicks also recommended developing a succession plan that will give associates some ownership of the business. A veterinary stock option plan may be a viable solution, he said.
Overall, independent veterinary practice owners can emulate private equity firms to remain profitable and competitive with corporate practices. Dr. Dicks suggested a focus on making money by building balance sheets and taking stock of where profits and losses are coming from. Private equity firms also rely on what their clients are telling them, as well as examining the competition. According to Dr. Dicks, they are looking at target markets and where there might be opportunities to capitalize, such as where the market can support price increases, cost cutting, and sales growth.