Smartphone screens and heartworm medication for your dog have a lot in common. OK, they have nothing in common, except that pioneers willing to explore new ways of looking at each of them are worth keeping an eye on. PetMed Express [Nasdaq: PETS] aims to break pet owners of the bricks-and-mortar habit in the same way Netflix [Nasdaq: NFLX] convinced movie fans that they need not get in the car to pick up the latest video.
"I love a direct-to-consumer subscription model that's a pain to cancel rather than a pain to renew," David says.
In a nutshell, 1-800-PetMeds bills itself as the country's largest pet pharmacy, delivering prescription and non-prescription pet medications as well as health and nutritional supplements for dogs, cats, and horses at a savings to customers. Taking orders by phone, fax, or the Internet, the company is trying to make the purchase of pet meds easy, convenient, and economical. It offers the exact same stuff that you get from your vet, but you don't have to driver there every month when you run out of flea collars, heartworm pills, or Flys-Off for your horse. Especially for the items that require seemingly eternal refills, this allows PetMed to compete on convenience while its lower overhead and economies of scale allow it to undercut the vet on cost.
And the pet med market is nothing to sneeze at. According to research, 71 million U.S. households own a pet and we are spending nearly $50 billion a year on them. Of the $47.7 billion spent on pets last year, $3.7 billion went toward medication. A decade ago, this market was a near monopoly controlled by vets. Today, PetMed Express and its rivals are taking a healthy chunk, and they're doing their best to maintain customers through conveniences such as reminding you when Fluffy is running out of medicine and calling the vet for you to refill the prescription. Reorders account for 75% of sales. Created in 1996, PetMed struggled to gain traction, but today has a 6% market share, which puts it in the dominant position among mail-order businesses -- all of its competitors combined control 5% of the market.
But vets still own 72% of the pet medication market. Major sellers of nonprescription meds and other pet supplies, such as PetSmart [Nasdaq: PETM], Wal-Mart [NYSE: WMT], and Amazon.com [Nasdaq: AMZN], also compete here. But PetMeds has the advantage of being a licensed pharmacy in all 50 states, which allows it to deal in prescription medications, where these others can't. The extra regulation that comes with being a pharmacy, combined with the 1-800-PetMeds brand and high customer satisfaction, has built the company a burgeoning moat.