Local vet care markets are becoming more concentrated, and – as Aldwych Partners recently noted – this is driving increased competition risk for corporate consolidators of vet care practices. (Our most recent analysis of M&A activity and merger control risk in the UK vet care sector is here.)
Competition risk also appears to be increasing elsewhere in the vet care sector. In particular, out-of-hours vet care services seem to be even more concentrated than daytime (or in-hours) vet care services.
Data issues mean that it is difficult to be definitive about the level of concentration in out-of-hours vet care. But, as a starting point, the number of out-of-hours vet care practices seems to be much smaller than the number of daytime practices. For example, Norwich Night Vet, which offers an all night service, describes itself as ‘the only service of its kind in Norfolk’. This compares to around 85 daytime vet practices in Norfolk. Vets Now, recently acquired by IVC (the UK’s largest vet care chain), operates around 50 out-of-hours practices, and appears to be the largest out-of-hours vet care provider in the UK by some distance.
Highly concentrated markets, in any industry, always have the potential to raise a competition-related red flag. They can constrain future M&A activity, raise risks around anti-competitive behaviour, and have the potential to lead to market-wide investigations by the Competition and Markets Authority (CMA).
Whether high levels of concentration in out-of-hours vet care is characterised by these risks, however, depends – to a large extent – on the dynamics of how competition works in this market.
If out-of-hours vet care is directly accessed by pet owners, and choice is limited, then this could impact on customer prices. Moreover, customer choice in relation to out-of-hours vet care might be further constrained if vet care emergencies mean that customers have to rush their pet to the nearest out-of-hours clinic. (There are parallels here with the CMA’s analysis of A&E services at NHS hospitals in recent cases on which we have advised.)
On the other hand, there is the potential for the market power of out-of-hours clinics (e.g. to charge higher prices) to be constrained by both daytime vet clinics and pet insurers.
Daytime vet clinics are obliged, under RCVS guidance, to have out-of-hours care arrangements for their customers. These generally seem to involve referring their customers to a specific out-of-hours provider (e.g. via a recorded message on their telephone system or their website). If an out-of-hours provider charges prices that are too high, then daytime clinics may have an incentive to put in place an arrangement with another out-of-hours provider that charges lower prices (or risk losing their customers to another vet practice). Pet insurers will also be interested in keeping out-of-hours prices down and might put pressure on out-of-hours providers to keep customer charges to a minimum.
Whether these constraints on out-of-hours providers are effective, however, will depend on numerous factors:
- Daytime vet care providers will only be able to restrain out-of-hours prices if they have the ability to switch their referrals to another out-of-hours provider. If no other out-of-hours provider is in their locality, they would need to be able to encourage a new entrant into their area. It’s not clear how easy this would be.
- Daytime vet care providers will be much more interested in restraining out-of-hours prices if they themselves have to compete for customers. Highly concentrated local vet care markets for daytime services could have knock-on consequences in the out-of-hours market.
- Pet insurers may not be an effective constraint if most of the out-of-hours business is from self-pay customers, or if there is limited competition between pet insurers for customers.
To the extent that large vet care operators are integrating across daytime services, out-of-hours services and pet insurance, there may be even more complications and potential for competition-related risks.
Vet care operators should bear in mind that short-term advantages in market positioning could be put at risk by a CMA investigation (as happened in vet medicines in the early 2000s). Such an investigation would itself impose significant costs, even before the costs of implementing any remedies required by the CMA.
Readers are welcome to get in touch if they want to further discuss the issues raised in this blog. Contact details for Aldwych Partners are here on our website.