This ran in the Financial Times -- interesting!
Link: http://www.ft.com/cms/s/0/62ad9502-badd-11dc-9fbc-0000779fd2ac.html?nclick_check=1
A dogged attempt to shake up the selling of pills for pets
By Jonathan Moules
Published: January 4 2008 16:13 | Last updated: January 4 2008 16:13
A dog is not just for Christmas. Neither, Ricky Thomas has shown, is an animal business.
The 28-year-old former City IT executive set up Petmeds, an online pet medicine retailer, 18 months ago after a particularly painful vet’s bill for Monty, his Cavalier King Charles Spaniel.
The sale of animal products is in many ways an ideal market for the disruptive effects of a low-cost dotcom operation. Vet practices tend to add high margins to the drugs they sell to cross-subsidise the cost of animal examinations. However, since the law changed in October 2005, there has been nothing to stop animal owners taking their prescriptions to another business acting as a dispensary.
Thomas, who had spent eight years managing IT systems at companies such as Icap, the brokerage, had already registered his Petmeds.co.uk domain name before the UK law changed, having seen e-commerce sites upset the pet medicine market in the US.
He also had the benefit of having just paid off his mortgage with bonuses from his salaried job, and had an additional £80,000 to invest in his business idea.
He found a couple of vets willing to come in with him for a 5 per cent stake in the venture, put his money into the business as a loan and was ready to trade.
The problem is that there was nothing to stop other people doing the same thing, and in spite of Petmeds offering discounts of 60 per cent on vet prices, the company was initially struggling to attract customers.
“It was almost at a point where I had to fold the business,” Thomas recalls, adding that in his first five months he barely made £3,000.
It was when Thomas realised that he had to stop being like his competitors that the start-up’s fortunes changed, he claims.
A key strategic move was to make Petmeds the sole supplier to the UK’s various animal charities.
The business could have gone for similar deals with breeders, but this is a much harder network to tap without the contacts, according to Thomas.
Connecting with charities has also brought Petmeds into contact with insurance companies, a potentially lucrative source of business, although Thomas is still at an early stage in negotiating to supply these organisations.
Thomas has made use of web-based affiliates too, who receive a fee from revenue earned after recommending his service to others.
Technology is clearly not a problem for a man who used to manage multimillion pound budgets for cutting- edge City IT systems.
He admits that he probably overspecified the Petmeds website when he started, but claims that this has since proved an advantage as it has enabled the business to grow fast without the need for additional spending on new technology.
Sales have taken off. Turnover last year was about £2.5m and is expected to rise to £4m in 2008.
Petmeds holds little stock because it can get an overnight delivery of most items from the drug manufacturers, who boast highly efficient supply chains.
But Thomas has also learnt to buy the right stuff in small quantities ahead of time. When he started trading he spent £3,000 on some of the best-selling items from vet practices, thinking that his discounting policy would bring strong demand for these products. However, he sold hardly any.
“I wondered if I had misunderstood the market,” Thomas says. In fact, he realised it was because pet owners bought differently online, preferring to buy the items that were expensive to buy elsewhere.
Physical location is another important factor for efficient supply, Thomas notes.
At the beginning of 2007 he moved Petmeds to a Greenwich business park next door to a large Royal Mail depot.
It might not be the cheapest address, but it enables the company to shift stock fast and enables Petmeds to offer next-day delivery for orders placed as late as 7pm.
The company’s biggest problems now come from real-world issues, such as the Royal Mail postal strike last year, when Petmeds lost £20,000 from just seven days of industrial action.
Thomas says he has considered making use of the competition in postal services and switching to an alternative carrier, but has so far been unable to find another that guarantees overnight delivery.
SStill, he has found success in turning the inevitable red tape involved in selling pet drugs into some sort of competitive advantage.
When he started Petmeds, Thomas would receive almost daily calls from the Veterinary Medicines Directorate, following up on complaints issued by vet practices, concerned about his service.
Instead of railing against these calls, Thomas made a point of answering in person and seeking to solve the problem from his PC while they chatted on the phone.
“I always took the time to talk to them,” he says, adding that he could often rectify the problem as they spoke by adjusting a piece of wording on the website.
As a result, the VMD now often calls Thomas even when there aren’t any problems to update him on new regulations as they come into force.
“I think they really trust us because we consult with them more than they thought we would,” Thomas says.
There is no one on the phone when I drop by. In fact, the atmosphere is more like a library than a fast- growing start-up.
Silence is not a concern, but a testament to the level of customer satisfaction, Thomas claims. No phone calls means happy shoppers because they are doing everything online.
Copyright The Financial Times Limited 200
Link: http://www.ft.com/cms/s/0/62ad9502-badd-11dc-9fbc-0000779fd2ac.html?nclick_check=1
