How Will the Potential "Viral Recession" Affect Veterinary Practices?

As US unemployment hits 14.7%, how will the coming “Viral Recession” affect US veterinary practices? It’s not all gloom-and-doom, but it’s still far from sunshine-and-rainbows.

As of May 8, 2020, the official US unemployment rate was 14.7%, accounting for over 33 million Americans. This marks the highest level of workers laid off since the Great Depression of the 1930s. Many economists predict the actual unemployment rate is 20%, citing that nearly one in five US laborers has filed for unemployment benefits since April. 

So why’s the stock market booming?

Seemingly in contradiction, the US stock market continues to maintain near-record highs. A strong stock market performance is primarily because investors look forward, looking to dispel uncertainty. These latest unemployment reports signal that the US economy is certainly in for an extended period of decreased consumer spending. That certainty is enough to spark investors to bet we’ll see additional government stimulus packages and Federal Reserve measures to help speed recovery, at least in the near term. 

Bulls

That certainty also is used by these bullish investors to validate their belief that this surge in unemployment is not directly related to poor economic fundamentals such as we saw in previous recessions of 1999 to 2000, 2008 and 2009, and the Great Depression. Many are calling this an “artificial unemployment crisis,” meaning that a force outside the markets caused the current spike, in this case, forced business closures due to the COVID-19 pandemic. 

These economists assure us that we simply need to be aggressive with unemployment benefits to keep the economy churning long enough for the pandemic to pass and we return to our previous red-hot economy. Easy peasy lemon squeezy. 

Bears

More bearish economists are quick to point out that the US stock market’s best years were 1933 and 1935, gaining 50% both times. However, after 1935, the stock market experienced a long slide in which share values declined by 90% and didn’t return to pre-1929 values for 25 years. Stressed depressed lemon zest.

Potential Impacts on Veterinary Practices

So who is right and how will record unemployment affect pet spending over the next several months? While no one knows for sure, there are some clear trends we can turn to for guidance and help us thrive during this time.

A recent survey published by the AVMA found that revenues were down more than 20% for three-quarters of over 300 clinics, with about a third reporting losses of more than 40%. Appointments were down more than 40% in 43% of clinics and 20% to 30% in a third surveyed. Two-thirds of veterinary clinics said they were “very” or “extremely” confident their business will return to normal by June or July. See? Easy peasy.   

Waves of Good and Bad

Those of us in the veterinary and pet industries need to be prepared for waves of good and bad economic times over the next two years, with various sectors affected disproportionately. The winners will be online and the losers will be legacy business models based solely on in-person transactions and over-priced offerings.   

Online Sales

Online sales of pet food and supplies will continue to thrive. Chewy is expected to report a growth of 35% to 37% during the first quarter of 2020, with 70% of sales going to food and treats. During a recent investor call, Chewy executives shared they observed an acceleration in sales beginning in late February, coinciding with the widespread work-from-home measures.

There will be a continued shift toward online purchasing of all pet supplies, including pharmaceuticals and food. This means in-clinic and in-store sales will suffer and expect more companies to decrease their reliance on selling through the traditional veterinary clinic channel. 

Direct-to-Consumer Trends

Over the next six months, we’ll begin seeing more pharmaceutical and food companies offer their products direct-to-consumer or through strategic acquisitions or alliances with online retailers. How long can Zoetis, Boehringer Ingelheim, Merck, or Mars delay partnering, acquiring, or starting an online DTC channel? I think the market will soon force them to be more aggressive in these growth opportunities. 

If your clinic is not already selling products and prescription medications online and offering home delivery, you need to do it now. Three months later may be too late to recover.

In-clinic Visits up…then Down?

In-clinic visits will likely see an increase in the next few weeks as pent-up demand peaks. Once this initial wave of visits subsides, expect to see a gradual slowdown in the third quarter. If a second, severe outbreak of COVID-19 occurs in the fall, I think the rest of 2020 will be in economic jeopardy and continue until we have a fully-deployed vaccine. If we don’t see a second coronavirus wave, and a vaccine is on schedule for the first quarter of 2021, I believe we’ll see real economic recovery in the first half of 2021. 

Demand for Discounts

Cash-strapped pet owners will seek deals and discounts if unemployment persists more than another few weeks. Annual visits, immunizations, and preventives may take a hit as families are forced to choose between food and heartworm medication. Manufacturer rebates and discounts will likely be needed to keep these pet parents administering preventives over the next several months. 

It’s hard to make up these financial losses. American families will have to make spending cuts somewhere, with discretionary expenses such as dining out, vacations, and preventive pet care some of the first to go. Overall, I think we should expect to see general practice veterinary revenues down at least 10% in 2020. I’d consider that an economic win.    

Telemedicine and In-Home Veterinary Services

Telemedicine, in-home, and increased access to point-of-care are the most promising growth opportunities for general veterinary practices. Emergency clinics and specialty groups will be largely unaffected. ER visits will likely increase as pet parents delay preventive care and lose contact with general practitioners. Specialty clinics will thrive because higher income earners will be able to afford their servings.

Pet Insurance and In-home Diagnostics

Pet insurance will also be an essential element of future general veterinary medicine success. The coming direct-to-pet parent, in-home diagnostic test boom will also compel veterinarians to shift how we interact with clients and could catalyze in-clinic diagnostic growth if we message and frame it correctly.  

There will be unimaginable opportunities to innovate and grow during the next couple of years. Times of resource scarcity serve as the best pressure cookers to create amazing new recipes for success. Stay safe and take this chance to reinvent how you practice veterinary medicine. Good luck!