Layoffs at PetIQ after it closes 149 veterinary practices

Petco slows practice build rate, Chewy to open first practice imminently

Published: March 27, 2024

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PetIQ's business is in flux as it closes veterinary practices inside the stores of retailer partners such as Walmart and Meijer but trials a new Walmart-branded format, opened last year in Dallas, Georgia.

Pet medication distributor PetIQ has closed 149 veterinary practices located inside stores of partners that include Walmart, Meijer and Tractor Supply Co., citing a tight labor market for veterinarians even as demand for pet care appears to ease from a pandemic peak.

At the same time, PetIQ is considering adding practices under a new Walmart-branded format following the apparent success of a single pilot practice opened just outside Atlanta last year.

The practice closures, first signaled in November and completed by Dec. 31, have more than halved PetIQ's veterinary practice count from 282 to 133, the company confirmed when releasing its annual financial results.

PetIQ told the VIN News Service the closures resulted in job losses but wouldn't say how many, including how many were veterinarians. Nor would the company specify in which retailers' stores the closed practices were located.

"All impacted employees were offered an aggressive severance package, and more than half of those employees were offered new positions within the company," Kara Schafer, PetIQ's Vice President, Corporate Communications, said in an email.

The closures would "improve future profitability" and generate about $6 million of net cost savings over the next 12 months, the company said in November.

In brief

Based in Eagle, Idaho, PetIQ was founded in 2010 as a distributor of pet medications and supplements, some of which it manufactures. The company expanded into veterinary services in 2018, when it acquired VIP Petcare, which partners with the retailers Petsense, Pet Supplies Plus, Pet Food Express and Pet Supermarket. PetIQ also owns the VetIQ brand, which has practices in Walmart and Meijer stores, and PetVet, which has practices in Tractor Supply Co. stores.

PetIQ refers to its practices as "wellness centers" that provide vaccinations, limited diagnostic services, physical exams and minor surgery. The company also has more than 2,000 pop-up "community clinics" inside partner stores that only open at designated times — such as between noon and 2 p.m. on Saturdays — and don't provide physical exams or surgery.

The downsizing at PetIQ suggests that companies that have built veterinary practices inside retail stores at a blistering speed over the past five years may be struggling to find veterinarians to fill them.

Rival company Petco, while this month announcing a $1.3 billion annual loss and the departure of its chief executive, said it has slowed the rate at which it builds veterinary practices in its pet stores to between five and 10 this year, down from dozens in previous years. (Petco's practice count currently stands at "more than 280," a company spokesperson told VIN News).

Another pet retailer, however, is moving ahead with plans to dip its toes in the veterinary care realm. Chewy said last week that it's on track to build between four and eight practices this year, with the first, located in southern Florida, to open imminently.

Yet another retailer, PetSmart, in June 2022 invited veterinarians to establish practices in its pet stores via a franchise model. The company didn't reply to requests for an update on how that initiative has progressed. Its website lists 44 practices under its PetSmart Veterinary Services brand, with another nine "coming soon." PetSmart also hosts hundreds of practices in its stores operated by Banfield Pet Hospital, a division of Mars Inc.

The companies are grappling with a moderation in demand for pet products and services in the wake of a pandemic pet boom that has since waned. The labor market nevertheless remains tight — though it's unclear to what extent an apparent undersupply of veterinarians could be related to overly aggressive corporate growth ambitions.

Some companies may have overextended when business was booming during the pandemic, according to Dr. Peter Weinstein, a veterinarian and business consultant in Irvine, California.

"What we have started to see economically is a normalization, a recalibration," he said. "And if you ask practices, and I do, they'll say it feels like 2019 again."

The cost of hiring veterinarians, however, has remained high for a variety of reasons, Weinstein said, weighing on company's profits.

Even so, he said any veterinarians laid off by PetIQ shouldn't have a hard time finding work. "They'd have a plethora of jobs each to look at," he said. "There is no reason if you're a veterinarian you can't be working. And right now, you can make a very good salary."

Reversal ends rapid growth

PetIQ's challenges come as little surprise to Dr. Megan Tremelling, a practitioner in Glendale, Wisconsin, who mused about the veterinary business's staffing difficulties last July on a message board of the Veterinary Information Network, an online community for the profession and parent of VIN News.

A VetIQ-branded clinic, she said, had appeared in a local Meijer store one or two years earlier but seemingly had sat empty until a "Temporarily closed" sign appeared.

"I have to admit, as soon as the ‘Coming soon!' sign was posted, my first thought was: ‘Where are they going to find a vet to work there?' and apparently the answer was ‘They aren't,' " Tremelling said at the time. "I suppose it's possible they had a vet lined up who bailed, but my suspicion is that the thing was organized by a businessperson who just assumed the supply of veterinarians was limitless."

Today, the clinic still looks abandoned, Tremelling told VIN News.

PetIQ first announced it was closing wellness centers on Nov. 7 as part of an "optimization" that included assessing the practices' post-pandemic performance in a tough labor market, the company's chief executive and founder, McCord Christensen, indicated on a recent call with investors.

Christensen said PetIQ's pop-up clinics were a "bright spot" but its wellness centers "have challenges because of the labor model." Looking forward, he said the company may convert some of the remaining 133 veterinary practices to pet-grooming outlets.

"… [We] really need to lean into a model that uses kind of a community clinic model, where we can have the vet labor there when it needs to be there, and not have it overstaffed when it's not," Christensen said. He added that PetIQ would have a better handle on how its services business looks by the end of September.

Meanwhile, PetIQ last year piloted a new type of permanent practice format at a Walmart store in Dallas, Georgia — the main difference being that it has Walmart branding. "It is doing better than what we thought it was going to be doing from a production and pet-count perspective," Christensen said. "And so they're happy; we're happy. And I think we're close to announcing that we would open more locations. We're not there yet, but we're close."

For its part, Petco indicated that its temporary clinics also appear to be performing relatively well, given the pop-up model requires less capital investment and "meets the customer where they want to be," Petco's chief financial officer, Brian LaRose, said on an investor call.

Chewy, meanwhile, isn't giving much detail about its planned practice rollout. Last week, it said it will open the first of the four to eight clinics near its Plantation, Florida, headquarters, and "several additional locations" in the first half of 2024. "We are very excited to share that our first clinic is already accepting appointments from friends and family, and we expect it to open to the public imminently," Chewy said in its earnings release.

Business consultant Weinstein, who also is a former executive director of the Southern California Veterinary Medical Association, said pet retailers' strategies may be in flux, as traditional consolidators such as Mars and Thrive Pet Healthcare appear to distance themselves from the partnership model. Banfield, for instance, has been leaning toward building standalone practices, rather than inside PetSmart stores. Thrive, meanwhile, sold its 50% stake in its in-store joint venture with Petco back to Petco in 2022.

Over the longer term, Weinstein said, pet retailers still could remain a major force in the veterinary realm by providing cost-conscious consumers with a more affordable source of care. "We increasingly are seeing a haves and have-nots population of pet owners," he said.

Pet retailers that offer veterinary services also will continue to seek cross-selling opportunities — including by accessing their veterinarians' client lists.

"There's probably a lot more margin in selling food online, in selling toys online, in selling pharmacy online than there is in a veterinary hospital," Weinstein said. "Are the retailers opening hospitals — and this is complete speculation — for a passion for the patient, or a passion for the client's data?"

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