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Sometimes a great notion isn't good enough. Ten years ago, Dr. Marc A. Puleo quit his job as an anesthesiologist to launch a business selling discount medications for pets.
Customers loved the savings, just as he figured they would when he first heard a nurse complain about the high price her veterinarian charged for antibiotics for her dog. But vets hated PetMed Express, which underpriced them. They often refused to write prescriptions if they knew pet owners planned to walk out the door and then fill them at PetMed. Vets also complained to pharmacy regulators that PetMed's in-house veterinarians prescribed drugs without examining pets. By 2001, the startup was under investigation in 10 states and losing more than $50,000 a week. Puleo needed help.
He got it from fellow entrepreneur Menderes Akdag. As president of Lens Express Inc., Akdag had just triumphed over opticians and contact lens makers who had fought his mail-order outfit. In 2001, as PetMed's new chief executive, Akdag settled with state pharmacy boards by agreeing to minimal fines and ended the controversial "Alternative Veterinarian Program," which allowed prescriptions to be written without actual examinations.
The tactical reversals and a tighter focus on PetMed's best-selling products are paying off. Sales, which stood at just $10 million in 2001, hit $137.6 million in fiscal 2006, making PetMed the nation's largest pet pharmacy. The Pompano Beach (Fla.) company swung from a $2.8 million loss in 2001 to $12.1 million in profits for the year ended Mar. 31 as consumers leaped at prices 10% to 15% below what vets charge. PetMed's share price has rocketed from 2 in early 2003 to about 13, helping it win the No.27 slot on the Hot Growth list.
PLAYING BALL. The Turkish-born Akdag, 45, broke into the contact lens market by playing tough, but he has boosted PetMed's fortunes by playing nice. He and Puleo, who stayed on as chairman, used hearings before state boards as forums to alert customers of the right to have pet prescriptions filled in places other than a vet's office, and to remind doctors of their legal obligation to respect this right. The American Veterinary Medical Assn. reinforced that point by modifying its ethical guidelines in 2001, while PetMed extended an olive branch through donations to vet associations. “The bashing is long gone,” says Donald N. Schaefer, executive director of the Florida Veterinary Medical Assn.
Akdag's winnowing of the line of products from thousands to 750 lets the company concentrate on its most popular, profitable items. And PetMed, which sells through its Web site and a toll-free number, now places a higher premium on customer service, immediately shipping replacement products if there's a problem. It counted more than 1.3 million customers over the past two years, each spending an average $76.
PetMed may be out of the doghouse, but it faces new challenges. Many vets are lowering prices to compete, and big drugmakers like Pfizer (PFE), Merck (MRK), and Novartis (NVS)refuse to sell directly to PetMed, preferring to work with vets. Indeed, vets and animal hospitals control 78% of the pet-medication market. But PetMed is a clear hit with consumers. “Great prices and easy to order!!!” exclaim Monique and Bob of Tiverton, R.I., on PetMed's Web site. Woof!
By Coleman Cowan
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