AAHA - Close Up Look at 2010 Purchasing Behavior

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AAHA State of the at Close-Up Look Industry 2010 Purchasing Behavior

Copyright AAHA 2011

Summary Summary

Veterinary Industry has been impacted by the RecessionAvg. revenue decreased in 2009 vs. 2008

Industry results for 2010

Unique patient visits declined by -1% Most hospitals experienced a decline in revenue 3% Overall revenue increased for 2009 that experienced revenue increases were due to avg. increase per invoice, not increased Hospitals 42% of practices experienced a decline in overall revenue, patient visits while 58% of practices experienced an increase in revenue decreased across many categories RevenuesKey categories Flea/tick and Heartworm experienced Elective surgeries declines Flea/tick and HW sales Client visits Dentistry

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MEDIMEDIA CONFIDENTIAL INFORMATION

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Market ResearchResearch results provided by VetInsite Analytics 2261 Veterinary hospitals 10+ Million pet records Sample population throughout the US

3800+ U.S.Veterinary Practices (30 Canadian) 19+ Million pet records Sample population throughout North America33MEDIMEDIA ANIMAL HEALTH CONFIDENTIAL INFORMATION

US UnemploymentGross Revenue & Retail Sales Economic Results: Average visit Charge%10.5 10.0 9.5 9.0 Civilian Unemployment Rate (%)10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% -7.5% -10.0% Aug-10 Sep-10 Nov-10 Dec-10 Oct-10

Real Discretionary Retail Sales ($)MAT % Change vs YAGO

Average increase in average invoice decrease in gross revenue 8.5 was -3.8% charge was 1.1% 8.0 Changes in average invoices ranged 61% of all clinics experienced a 7.5 decrease in revenue. from -21% to +28% in 2009. 7.0 6.5 Practice revenue change ranged from -34% to +57%. 6.0Nov-08 Dec-08 Aug-09 Sep-09 Nov-09 Dec-09 Jan-09 Jun-09 Jan-10 Feb-09 Feb-10 Jun-10 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Mar-09 May-09 Mar-10 May-10 Jul-10

The US economic recession is exhibiting evidence of improving: Unemployment has stabilized from its peak at 10% in December 2009 and has been reduced to 9.4% in December, 2010. Commentary: Practices increased prices to compensate for reduction in patient visits in 2009. MAT retail sales dollars trends have been improving during 2010 and are positive 2009 a majority of latest MAT (12/2010). Commentary: In (+1.4%) over theclinics experienced a decline in overall sales revenues.

Source: Blytec.com 4 MEDIMEDIA Analytics Source: VetInsiteCONFIDENTIAL INFORMATION

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Industry Economic Overview Industry Economic Overview

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MEDIMEDIA CONFIDENTIAL INFORMATION

Practice Patients & Revenue % Dog vs. Cat

Dogs70.4%

Cats79.1%

29.6% 20.9%

# Pets

Revenue

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Source: VetInsite Analytics, MAT December, 2010

Economic Results: Gross Revenue Economic Results: Gross Revenue35.0%

% Revenue Growth in Practices 2010 vs. 2009

32.5%

Average 30.0% decrease in gross revenue was -3.8% 25.0% 61% of all clinics experienced a decrease in revenue. 20.6% 20.0% Practice revenue change ranged 3.1% from -34% to +57%.15.0%

25.0% 21.9% 5.2% 7.9%

10.6%

8.9%10.0%

14.4% 10.9% 11.4%

5.0%

8.6%

5.8%

5.7%

7.5%

0.0%

< -5% Small 5% Large >$2M

Commentary: In 2009 a majority of clinics experienced a decline in overall sales revenues.

Medium $1M-$2M

58% of all practices experienced an increase in revenue. 42% of all practices experienced a decrease in revenue7 Source: VetInsite Analytics

Source: VetInsite Analytics

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Economic Results: Gross Revenue Economic Results: Gross RevenueAAHA40% Average decrease in gross revenue was -3.8% 35% 61% of all clinics experienced a decrease in revenue. 30% Practice revenue change ranged from -34% 25% to +57%. 22.5% 21.4% 20% 15% 10%

All Other33.7% 31.3% 26.8% 23.7%

21.2% 19.5%

5% 0%

-5% to 0% Commentary: In 2009 < majority of clinics experienced0% to 5% overall > 5%revenues. a -5% a decline in sales 58% of the AAHA clinics increased revenue during 2010

8 MEDIMEDIA Analytics Source: VetInsiteCONFIDENTIAL INFORMATION

Source: VetInsite Analytics

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Patient MAT Trend vs. Year Ago5.0%

Total Patient MAT Trend % Change vs. YAGO

3.0%

1.0%

-1.0%

-0.9%

-3.0%

-5.0%Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

December 2010 MAT patient change vs. 2009 is -0.9%9Source: VetInsite Analytics

Revenue MAT Trend vs. Year Ago5.0%

Total Revenue MAT Trend % Change vs. YAGO

3.1%2.5%

0.0%

-2.5%

-5.0% Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10

December 2010 MAT revenue change vs. 2009 is +3.1%10Source: VetInsite Analytics

MAT Trend vs. Year Ago10.0% 7.5% 5.0% 2.5% 0.0% -2.5% -5.0% -7.5% -10.0% Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10Sep-10 Oct-10 Nov-10 Dec-10

MAT Trend % Change vs. YAGO

3.1% 1.4%

Vet Channel Revenue

Total US Real Disc. Retail $

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Source: VetInsite Analytics

Economic Results: Gross Revenue Average Transaction Economic Results: Average visit Charge Charge

2010 Avg. Transaction Charge Average increase in average invoice decrease in gross revenue $109.26 was -3.8% charge was 1.1% Changes in average invoices ranged 61% of all clinics experienced a decrease in revenue. from -21% to +28% in 2009. Practice revenue change ranged from -34% to +57%.

$90.73

Dog

Cat

Commentary: Practices increased prices to compensate for reduction in patient visits in 2009.

Average transaction charge is 20% greater for Dogs compared to Cats in 2010Commentary: In 2009 a majority of clinics experienced a decline in overall sales revenues.

12 Source: VetInsite Analytics, MAT December, 2010 MEDIMEDIA Analytics Source: VetInsiteCONFIDENTIAL INFORMATION

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% Dogs Purchasing HW from Veterinarians 2010

West 18% Mountain 20% Midwest 37% Northeast 39%

Great Lakes 43%

Mid Atlantic-SE 41% Texas 47% FL 42%

Total US % Dogs purchasing HW during 2010 is 37%

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% Dogs Purchasing Flea/Tick from Veterinarians

West 23% Mountain 6% Midwest 35% Northeast 33%

Great Lakes 33%

Mid Atlantic-SE 41% Texas 40% FL 44%

Total US % Dogs purchasing FT during 2010 is 33%

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% Cats Purchasing Heartworm from Veterinarians

West 9% Mountain 3% Midwest 11% Northeast 8%

Great Lakes 13%

Mid Atlantic-SE 17% Texas 20% FL 20%

Total US % Cats purchasing HW during 2010 is 13%

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% Cat Purchasing Flea/Tick from Veterinarians

West 22% Mountain 4% Midwest 24% Northeast 21%

Great Lakes 23%

Mid Atlantic-SE 30% Texas 29% FL 31%

Total US % Cats purchasing FT during 2010 is 24%

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Flea/Tick and Heartworm Doses Trend

Category Dose % Change2010 vs. 200910.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0%

-4.3%Flea & Tick

-6.8%Heartworm

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Average Annual Doses (2010)Annual Doses

% PatientsFT Dog FT Cat

1 3 6 12 Other 1 3 6 12 Other

19.9% 14.0% 29.9% 10.3% 25.9%HW Dog

28.6% 14.0% 26.0% 5.6% 25.8%HW Cat

8.5% 5.5% 32.0% 36.8% 17.3%

27.5% 9.9% 29.7% 8.8% 24.1%

About 30% of both dog and cat patients are dispensed 6 doses of FT and HW on an annual basis For cats only 6% of FT and 9% of HW patients are dispensed 12 doses/year

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Source: VetInsite Analytics, MAT December, 2010

Puppy MAT Doses by Month(M)20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -

FT

HW

Both FT and HW categories are experiencing a decline in MAT puppy doses19Source: VetInsite Analytics, MAT December, 2010

Kitten MAT Doses by Month(M)6.0

FT

HW

5.0

4.0

3.0

2.0

1.0

-

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Source: VetInsite Analytics, MAT December, 2010

Alternative Channel Shopping Behavior

A study yielded 2234 total complete responses 1272 dog owner respondents 962 cat owner respondents The study was fielded December 2010. Margin of Error: Dog owners +/- 2.8% Cat owners +/- 3.2%

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Alternative Channel Shopping BehaviorFlea/Tick, HW, NSAID purchases Veterinary Channelpurchased exclusively from their veterinarian during the P12M. Alternative Channel-- purchased products from locations other than a veterinarian during the P12M. Both Alternative and Veterinary-- made at least one purchase from a veterinarian and an alternative channel during the past 12 months.Both Alternative and Traditional Channels 28%

Dog Owners

Both Alternative and Traditional Channels 29%

Veterinary Channel 44%

Veterinary Channel 39%Both Alternative and Traditional Channels 29%

Alternative Channel 28%

Cat Owners

Alternative Channel 32%

Veterinary Channel 32%

Alternative Channel 39%22Base: All Respondents (dogs n=1272) (cats n=962)

Expected Purchase of F/T, HW in the next 12M9-in-10 Veterinary Channel buyers indicated they expect to continue to purchase from the veterinarian. Among those who have made at least one purchase through an alternative channel, relatively few indicate intention to purchase from a veterinarian.Dog Owners Cat Owners

Veterinary Clinic Pet Specialty Store (Such as PETCO or PetSmart) Online Pet Store or Pharmacy (Such as 1-800 PetMeds) Mass Merchandiser or Discount Store (Such as Walmart or Target) Grocery Store Club Store (Such as Sam's Club or CostCo) Pharmacy

93% B

Veterinary Clinic Online Pet Store or Pharmacy (Such as 1-800 PetMeds) Pet Specialty Store (Such as PETCO or PetSmart) Mass Merchandiser or Discount Store (Such as Walmart or Target)

91% B

2%

6%

2%

1%

1%

1%

0%

Grocery StoreClub Store (Such as Sam's Club or CostCo) Pharmacy

0%

1%

0%

0%

0%

Traditional Channel (n=392) (A)

Traditional Channel (n=264) (A)

Q4. Still thinking about the coming year, from which location do you expect you will purchase the majority of your flea/tick medication(s)? Base: Purchased Flea and/or tick medication for Dog (n=1053) Base: Purchased Flea and/or tick medication for Cat (n=888)

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Source Ever Consulted for Flea and/or Tick MedicationRegardless of segment, veterinarians and veterinary technicians are the most frequently consulted source on flea/tick medication. Among those who purchase from alternative channels, friends/colleagues are a leading source, followed by pet store staff and/or websites.Dog OwnersVeterinarian 36% B 25% 39% Friend or Colleague 10% 27% A 20% 6% 22% A 16% 7% 18% A 15% 0% 5% A 0% 1% 2% 2% 0% 1% 1% 2% 17% A 12% Both Alternative and Traditional Channels (n=345) (C) Friend or Colleague 3% 23% A 27% 8% 19% A 23% 0% 3% A 8% 0% 2% A 8% 0% 3% 5% 0% 16% A 4% Traditional Channel (n=264) (A) Alternative Channel (n=356) (B) Both Alternative and Traditional Channels (n=268) (C) 9% 29% A 27% 84% B 54% 74% Veterinary Technician Veterinary Technician 45% B 27% 51%

Cat OwnersVeterinarian 87% B 54% 78%

Pet Store Employee

Pet Store Employee

Web site Mass Merchandiser/Discount Store Employee Pharmacy Employee

Web site Mass Merchandiser/Discount Store Employee Pharmacy Employee

Grocery Store Employee

Grocery Store Employee

Other/None-of-the-above Traditional Channel (n=392) (A)

Other/None-of-the-above

Alternative Channel (n=316) (B)

Q8. Which of the following sources have you ever consulted with or used to help determine which specific brand of flea/tick medication you should purchase? Base: Purchased Flea and/or tick medication for Dog (n=1053) Base: Purchased Flea and/or tick medication for Cat (n=888)

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Degree of Influence of Source for Flea and/or Tick Medication Dog OwnersIn terms of influence over brand purchased, veterinarians and veterinary technicians are by far the most impactful when it comes to flea/tick purchases.

Veterinarian (n=760) (A) Veterinary Technician (n=358) (B) Pet Store Employee (n=143) (C) Web site (n=137) (D) Friend or Colleague (n=190) (E)

88% BCD

12% 1%

67% CD

32% A

1%

25%

70% AB

5% AB

32%

62% AB

6% AB

40%

57%

3%

A high degree of influence

A moderate degree of influence

Very little or no influence

Q9. [GRID SUMMARY] Please indicate the degree of influence each of the following sources have on the brand of flea/tick medication you purchased? Base: Consulted with a source

Associations with Purchasing Pet Health Products from your Veterinarian (Dog Owners)When asked open-ended for specific associations with purchasing pet health products from veterinarians, dog owners were more likely to have positive mentions (68%) than negative mentions (32%)

TOTAL

Traditional Channel

Alternative Channel

Both Alternative and Traditional Channels 72% 27% 12% 10% 6% 3% 3% 5% 40%

Positive (Net) Experts/ they know what's best for my pet Trustworthy Good/ quality products Receive good/ helpful advice Comforting/ I have confidence in them The vet knows my pet/ my pet's history Safety/ security Negative (Net)

68% 27% 11% 8% 6% 5% 5% 5% 32%

80% 32% 13% 9% 6% 8% 8% 6% 15%

44% 19% 6% 6% 4% 2% 2% 2% 50%

Costs more than other placesExpensive

15%14%

8%5%

23%25%

18%19%

Q20. What, if anything, do you associate with purchasing pet health products from your veterinarian?

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Base: All Respondents (dogs n=1272)

Conclusion Overall revenues increased slightly while unique patient visits declined slightly Cats represent an opportunity for growth

Your clients are very aware of alternative channels for purchasing products and this trend will continue Veterinarians and staff are viewed as a trusted source and have a significant degree of influence Veterinarians must actively communicate and educate their clients to strengthen this relationship and continue to add value

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