Demand outlook dips, but sales remain strong

ST. LOUIS — Veterinary product sales are expected to fall slightly in the first quarter of 2005 compared to the fourth quarter of 2004, but overall demand remains strong, according to the Animal Health Price & Demand Economic Report, a compilation by C.F. Grass Consulting.

"Generally speaking, the industry and profession are doing well. The long-term trend of increasing pet ownership and of owners willing to spend money to care for those pets is still in full swing," says Corey F. Grass, president of C.F. Grass Consulting.

The report shows industrywide demand for veterinary products is indexed at 118.8 this quarter, down a statistically insignificant 2.4 points from the preceding quarter, according to C.F. Grass.

The index predicts demand for animal health products in more than 70 specific categories three months in advance. Anything with an index score more than 100 indicates rising demand. Anything less than 100 indicates declining demand, says Grass, innovator of the index and publisher of its subsequent reports.

The Q1 2005 sample collected sentiments from 426 beef, dairy, swine and poultry producers, as well as practicing small animal and equine veterinarians. The demand index measures intended use and not monetary expenditures.

"Among cat and dog veterinarians for example, analgesics have the highest index. Other categories with very strong demand are prescription pet food, FeLV test kits, heartworm test kits and prescription oral antibiotics," he says. "Things such as corticoids, fertility hormones and pregnancy diagnostic test kits have relatively low index scores and demand."

The analgesic, anti-inflammatory and equine vaccines categories are expected to drive much of the demand in Q1; each category showed an index of at least 140, and they were among the top performers last year, too.

Prices remained constant for small animal practitioners from quarter to quarter, but equine veterinarians enjoyed a slight price increase.

Considering pain management and vaccinations likely will remain popular this year, the heightened volume to practices might propel a demand for services, too, says Ron S. Brakke, president of Dallas-based Brakke Consulting.

"There are some growth opportunities in product categories, but we're not sure what that means financially," Brakke says "The demand that veterinarians can expect is the actual dispensing of products will go up, and services might rise due to higher traffic in veterinary clinics."

Diagnostic and preventive services already appear to be surging, Grass says, but demand changes in any category likely will influence several categories in somewhat unpredictable ways.

"When demand for injected pharmaceuticals falls, so does demand for hypodermic needles and disposable syringes," Grass says. "Last quarter what really stuck in my mind was the extent to which the trend among both equine and cat and dog clinics to add greater diagnostic and preventative services is positively impacting everything from the purchases of diagnostic test kits to things such as surgical equipment, X-ray supplies and vaccines for some diseases. As demand for those things goes up, demand for euthanasia preps tends to drop."

Demand for products and services differ in each region, too. The West and Northeast appear to show the slowest demand growth, Grass says, likely due to more abundant information from the Internet.

"For companion animal veterinarians, we are seeing some signs of a weakening demand in the West and Northeast. Things are still growing there — just at lower rates the past few quarters," Grass says. "Vets in those regions seem to be affected a little more than others by Internet pharmacies. It is still (worrisome) in the Midwest and South, but with lower household Internet penetration between the coasts, the Internet pharmacies haven't had quite as much of an impact.

"One of the issues consistently listed by veterinarians in our research as impacting their businesses negatively is the Internet. Whether it is the Internet pharmacies or clients coming to the clinic having been 'educated' on the issue of vaccinations, medications, etcetera — the Internet has brought its own set of challenges."

The aging pet population could be burgeoning worry for the profession in the long term, too. As pets die, it is unclear whether the aging baby boomers will opt for a new companion animal. While geriatric care likely will bolster revenues in the short term, a diminishing client base might prove to be a long-term challenge, Grass says.

But despite emerging difficulties, practitioners have ample opportunities to capitalize on rising demand for certain products, which also might allow clinics to expand services to grow revenue and retain clients.

"We're expecting a fairly good year and a fairly healthy industry in 2005, so our reading is pretty positive," Brakke says. "Consumer demand will hold strong, and expanding services is the greatest opportunity to drive more revenue."