As your veterinary partner, I'm always keeping an eye and an ear out for trends around the veterinary medical profession to keep you informed. Here’s some of the latest news:
It is unclear if a recession will happen in the US, but it is an important possibility to think about. Are you and your practice prepared?
My key takeaway: Don’t panic. Veterinary medicine tends to do well through recessions. There is no such thing as a truly “recession proof” business, but veterinary medicine tends to be “recession resistant”.
Significant unemployment is uncommon in vet med. Instead, underemployment is generally how recessions are felt in veterinary medicine. However, the currently undersized workforce will limit the damage if a recession does occur in the near term. Even if the demand for veterinary medical services cools down, demand currently outstrips labor supply by such a large margin that it’s hard to imagine that veterinary healthcare workers will struggle to find work at any point in the next several years.
Revenue per clinic and average transaction value have trended upwards this year, but visits per clinic have been down in 2022 relative to 2021.
There are likely many drivers behind the decrease in average visits across the country, including:
“Pandemic puppies and kittens” aging out of puppy and kitten care, where frequent vaccine/wellness visits drive more visits per pet but a lower average transaction value.
Many of the clients who became first-time pet owners over the last two years have started to develop more experience around what issues do and don’t require veterinary care, reducing the number of unnecessary or less-necessary visits. This client sophistication was likely fast tracked due to the increased challenges in accessing veterinary care, especially urgent/emergency care, forcing clients to “figure out” many non-emergent issues on their own when they were unable to get access to care.
As more of the workforce returns to the office, many clients are opting to consolidate wellness care into fewer annual visits (hence the ongoing increase in average transaction value) or lapse on wellness care due to the increased challenge of finding time to schedule a vet visit when not working from home.
Economic challenges caused by rising inflation are causing some clients to elect to forego care, especially preventative care, that they perceive as non-urgent. However, there is a long trail of evidence showing that contemporary pet owners tend to view veterinary care as an essential cost and generally will tighten their belts in other areas before skipping care for their pets that they perceive as urgent or necessary, which is one of the major drivers of veterinary medicine being “recession resistant”.
Pricing power will be reduced as pandemic-situational client discretionary spending cools off.
The bubble of seemingly unlimited pricing power that clinics have enjoyed over the last two years is not here to stay. Cost inflation combined with reduced pricing power may compress margins at veterinary clinics. That’s not a problem if you’ve got a buffer built into your margins, but narrow-margin clinics should think ahead about how they can get ahead of this challenge. Nevertheless, most clinics should be able to offset cost inflation via reasonable price increases.
Valuations for veterinary practices are cooling, especially across the “top” and “bottom” of the market.
Market overexuberance and easy access to inexpensive debt fueled a feeding frenzy for large clinics and encouraged some veterinary corporations to expand their criteria for practices that they would consider buying. Veterinary corporations that over-leveraged with then-inexpensive debt are now struggling with cash flow and slowing or halting their acquisition activity as interest rates have increased. These companies tried to justify extremely high valuations for veterinary practices based on an overly optimistic outlook for growth and margin expansion that would retroactively support those valuations. This has created cash flow concerns for some of those companies as it is becoming clear that growth and pricing power are not unlimited in a cooling market, and they struggle with the significant amount of debt that they undertook. Groups who took a prudent and sustainable approach to veterinary practice ownership like AVP are still active in seeking partners, ensuring that there is a strong foundation for practice valuations even as some groups are being forced to hit the pause button. With economic clouds on the horizon, it is more important than ever to plan for your transition and capitalize on the remainder of the current window of strong valuations for independent clinics.
The expanded relief veterinarian market may be hardest hit as patient visits trend downward.
Relief veterinarians have traditionally been seen as a means for clinics to plug holes in coverage. However, as clinics became oversaturated with demand in recent years and clinics struggled to find associate veterinarians, the relief market surged as clinics looked to relief vets to also provide supplemental staffing (at a premium in price). As clinics become less overburdened with caseload the sense of desperation to find staffing at any price will likely push many veterinarians back in the direction of traditional employment as there are fewer relief gigs and more competition will drive down the cost of relief help. However, the increased work flexibility that most general practice clinics have embraced over the last few years will ensure that the flexible work dynamics that make relief work so appealing are likely here to stay in vet med even as the pendulum shifts back towards traditional employment.
Rural veterinary practices are more likely to feel the impact of inflation, recession, and industry-wide staffing shortages than suburban and urban ones.
New graduate pay will likely stagnate as veterinary clinics become more cashflow conscious.
Like the relief veterinarian market, the “find help at any cost” labor dynamics over the last few years have pushed new graduate salaries up by 50% or more in many areas of the country. However, as clinics become more sensitive to cash flow in a cooler economy, the idea of paying a new graduate a salary that will likely be as much as 30-50% of production in their first year of practice as an investment becomes less appealing. Rising new graduate salaries have somewhat reduced the pressure on veterinary schools to address the irresponsible inflation of the cost of a veterinary medical degree, but the prospect of stagnating starting salaries makes it more important than ever to tackle the rising cost of a veterinary degree.
The benefit of having a strong business partner is amplified in a more challenging economic environment.
Veterinary practice owners don’t have the time and energy to focus on the broader forces at play in the market and how their business can stay a step ahead. Those issues can feel far away, and the daily challenges facing your patients and team members are close and pressing. However, regardless of whether you’re paying attention to them, your clinic will inevitably be impacted by shifts in the economy, global events (as we all found during the pandemic), and broader cultural shifts in pet ownership. At AVP, we’re committed to being the business partner of choice for veterinary practice owners who can help you maximize growth in good times and insulate you from harm during more challenging times.
If you’d like to learn more about partnership with AVP, please contact me at email@example.com.
If you’re interested in joining one of our partner practices as a team member, please visit our career center to view our open positions or contact Deanna at firstname.lastname@example.org to find out more about how AVP is building better careers for veterinary healthcare workers.
Happy Holidays from your vet partner,