Rise of veterinary chain ownership begets Canadian group purchasing

Uniform pricing tradition gives way

April 10, 2013 (published)
By Edie Lau

Photo courtesy of Valley Veterinary Hospital
Dr. Amy Schneider, a clinic owner in Fredericton, New Brunswick, gets rebates by purchasing items ranging from pet food to digital X-ray equipment through the affiliate buyers group Atlantic Vet Alliance.
As a veterinary hospital owner in Nova Scotia with a strong business instinct, Dr. Lesley Steele paid attention when she learned that some of her colleagues had banded together to obtain lower prices from manufacturers for equipment and merchandise.

Impressed by the idea, she tried to join a group out of Halifax. But the small, exclusive gathering wasn’t interested in expanding its membership. So Steele started her own.

Today, the company she founded and co-owns, Vet Alliance, calls itself Canada’s largest “affiliate veterinary buyers group,” with some 200 member hospitals across the nation and a goal of more than doubling that number this year.

Vet Alliance pitches itself to independently owned clinics as a way to compete with chain-owned clinics, which, by virtue of their size, are better able to negotiate favorable terms. “We don’t make any bones about it: Our goal is to help the independently owned and managed practice have a fighting chance,” Steele said.

Her words echo those of executives in group purchasing organizations that have sprung up recently in the United States. A recent report by the VIN News Service identified 10 active veterinary buying groups in the States, half of which were established during the past four years. Most market themselves to independent clinic owners as a way to keep pace with large corporate entities, whether veterinary hospital operators or big-box stores.

Large corporate ownership of pet hospitals is more prevalent in the States than Canada. The biggest American clinic owner, Banfield Pet Hospital, has some 820 domestic locations plus a hospital in Mexico City.

The second-largest clinic owner, VCA Antech, has about 540 hospitals in the States. In Canada, the scale of corporate ownership leapt when VCA in early 2012 bought the country’s largest veterinary chain, Associate Veterinary Clinics Ltd. (AVC), which has 45 clinics in three provinces.

The rise of group buying in Canada highlights one way the growth of bigger owners is changing the veterinary community. “Corporate veterinary medicine is creeping into Canada, and this (forming affiliate buying groups) is what they need to do to compete,” observed Eric Stokvis, general manager of Associated Veterinary Purchasing Company Ltd., a distributor of supplies and services in British Columbia cooperatively owned by veterinarians.

The burgeoning sense of competition threatens to upend a stable purchasing and distribution scheme that for decades provided uniform pricing to veterinary hospitals.

Five distributorships undergird the Canadian veterinary supply system. Four are veterinarian-owned cooperatives; the fifth is a private corporation under federal charter. By custom, the distributors consistently mark up drug prices by 12 percent and pet food by 17.5 percent. As a result, clinic owners, no matter their size, location or which distributor they use, have paid the same price for these staples. Additionally, each entity historically covered its own geographic territory, not competing for customers — although that has changed with the private corporation, Centre De Distribution Et Medicament De Veterinaire (CDMV), expanding out of its original territory in Quebec to Alberta and Nova Scotia.

The organizations buy product directly from manufacturers, store the inventory in warehouses and deliver orders to their clients and client members. They are called “purchasing groups” or “buying groups” by the Canadian veterinary community. However, in structure and function, they are unlike most purchasing groups in the United States. Instead, they more closely resemble what U.S. veterinarians call distributing companies.

At the same time, other than CDMV, they are distinct from American veterinary distributing companies in ownership (most American distributors are for-profit companies); in transparency of pricing; and in their largely live-and-let-live relationships with one another.

“We choose to treat everybody the same: all for one and one for all — we’re (like) the Three Musketeers,” said Brendan Ginty, CEO of Veterinary Purchasing Co. Ltd. in St. Mary’s, Ontario.

Manufacturers are treated equally, too, noted Richard Koster, chief operating officer of Midwest Veterinary Purchasing Cooperative Ltd., which services clinics in Saskatchewan, Manitoba and northwest Ontario. “We do not promote anybody’s product,” Koster said. “We have everybody.”

The distributor buying groups have an enthusiastic following. “They are wonderful,” said Dr. Sophia Fanous, a practice owner in Agassiz, British Columbia, wrote on a message board of the Veterinary Information Network (VIN), an international online community for the profession. “...They are so widely used in this country that when the drug company reps come visiting, their literature just lists the buying group codes for the product. It is just a given that everyone orders from one of them.”

Canadian practitioners say their buying groups carry everything, deliver promptly and, in the case of the cooperatives, pay owner dividends annually.

“The biggest advantage is that you do not need to carry a large inventory. They have a fully stocked warehouse and next-day delivery on almost anything you might need,” Patricia Scott, a practice owner in Mississauga, Ontario, who belongs to Veterinary Purchasing Co., posted in the same VIN discussion.

Collectively, the Canadian buying groups are an institution that originated 40 years ago. Before that, veterinarians ordered goods directly from manufacturers — a labor-intensive chore. “If you wanted Boehringer (products), you called Boehringer,” recounted Greg Hall, president and CEO of Western Drug Distribution Center Ltd., a distribution cooperative serving veterinarians in northern British Columbia, Alberta and Saskatchewan. “If you wanted Pfizer, you called Pfizer. That was a lot of work!”

Things began to change in 1972. That year, the Quebec Ministry of Agriculture established CDMV in Saint-Hyacinthe, Quebec. The purpose, according to CDMV spokeswoman Helene Ringuet, was "to reduce the irrational use of veterinary drugs; restrict abuse in sales of these drugs; avoid endangering the public health through their uncontrolled use; and provide livestock producers with uniform and favorable rates, regardless of their location in Quebec."

According to Hall, that was the origin of the 12-percent drug markup.

Meanwhile in Ontario, 36 veterinarians banded together to create the nation’s first veterinary supply buying cooperative, Veterinary Purchasing Co. Ltd.

In time, the concept spread. In 1983, veterinarians in British Columbia formed Associated Veterinary Purchasing Co. Ltd., at the same time that another group of veterinarians formed Western Drug Distribution Center Ltd. in Edmonton, Alberta.

In the Prairies, a purchasing group established by the Manitoba provincial government to aid large animal veterinarians serving the farm sector was converted in 1990 into the veterinarian-owned cooperative Midwest Veterinary Purchasing Cooperative Ltd.

Stokvis said he worked for 20 years for the drug companies Pfizer, Merck and Novartis before joining the veterinary cooperative in British Columbia. From a manufacturer’s perspective, he said, “I can assure you, the Canadian system is far superior to what’s going on in the U.S. You get these distributors fighting among each other. To get the message (from the manufacturer) to the veterinarian is a lot more difficult ...

“We were lucky in Canada that we had forward-thinking veterinarians in the ‘70s and ‘80s that got these buying groups before the (U.S.-style) distributorships got set up,” Stokvis said.

The largely cooperative relationships among Canadian buying groups are facilitated by geography — the fact that Canada is a large land mass containing relatively few people, said Hall of Western Drug Distribution Centre. Warehouses, he said, need to be within one or two days’ drive of the clinics they serve, and it’s an expensive risk to open a warehouse in territory already served by another buying group.

However, CDMV — the only distributor not owned as a cooperative by veterinarians — has entered other groups’ regions. The Quebec-based company owns warehouses and distributes products in Alberta and Atlantic Canada, Ringuet said. They've made forays in Ontario, as well, according to Vet Purchasing's Ginty. “They’ve sent salespeople to solicit our clinics,” he said.

On top of emerging competition within distributor buying groups come the new affiliate buying groups. They do not compete with distributors; member clinics continue to order from their warehouses as usual. Affiliate group members later receive rebates on purchases from vendors with whom their group has a contract. In that way, the affiliate groups carve valleys in the pricing landscape.

But it was chain clinics that started the trend toward variable pricing, the groups’ executives say. “Our members want to retain control of their business while being able to enjoy the benefits that were often only available to large institutions,” the Cooperative des Veterinaires du Quebec says on its website.

Established in 2010, the cooperative has 122 member clinics out of approximately 400 small-animal clinics in the province, according to Alain Aspirault, the group’s general manager.

Speaking of other veterinary groups in Quebec that negotiate deals with manufacturers, Aspirault named four companies that own multiple clinics.

Then there is Central Vet Alliance, one of three regional groups that comprise Vet Alliance, the national affiliate buyers group. The other two are Atlantic Vet Alliance and Western Vet Alliance.

Dr. Amy Schneider was among the first Atlantic Vet Alliance members, joining in 2010. A clinic owner in Fredericton, New Brunswick, Schneider was recruited by Steele, the Vet Alliance founder and a fellow clinic owner whom Schneider knew from veterinary school. Schneider said she found the concept of “the small practitioner (getting) the big-hospital advantage” appealing. But it wasn’t until she joined that she realized the full benefit of having a focused purchaser and negotiator work on her behalf, she said.

In a testimonial posted on the Vet Alliance website, Schneider says, “I’m now saving tons of money on the price of syringes and needles.”

She explained in an interview, “They did a bunch of price-checking with a lot of companies, and found out — ‘You know what, these syringes are a quarter of the price of the others and my techs use them, and they’re great.’ Wow, I never even thought about it,” Schneider said. “We experimented with a couple, and they were fine. You go through a lot in a day, right? And there’s bandaging and all kinds of different items (for which) the prices are really different.”

Distributor buying group executives acknowledge that prices for items aside from drugs and pet food are not necessarily uniform. Ginty of Veterinary Purchasing Co. said hospital supplies may vary by 12 percent to 20 percent; and instruments by 12 percent to 40 percent. In addition, he said, sometimes high-volume purchases qualify for discounts.

One aspect of belonging to an affiliate buying group that’s notably different from simply ordering from a distributing purchasing group is secrecy. Affiliate buying group members are required to sign confidentiality agreements that they will not divulge the discounts or other benefits they receive. They’re also encouraged to do business as much as possible with the companies that offer deals to their respective groups.

At the same time, said Steele, “We absolutely do not mandate what our members have to buy, nor do we mandate what products they use in their hospital for individual cases. I would hope every veterinarian will make an ethical choice on what the best product is, and that people aren’t using stuff because (the price is) cheap.”

The rules associated with affiliate buying groups give some veterinarians pause. “Any sort of restrictions put on you would definitely make (a buying group) less attractive,” noted Scott, the clinic owner in Mississauga, Ontario.

Fanous, the clinic owner in Agassiz, British Columbia, has a similar view. “All the reps who come to my place know better than to show me their ‘buy X quantity and we’ll give you Z’ types of promotions,” she said.

Steele is confident, though, that so many practice owners will be attracted by group bargaining power that Vet Alliance plans in 2014 to expand to the United States, and to Latin America after that.

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