Petco Buying Drs. Foster and Smith

By Ken Niedziela, News Editor

Retail heavyweight Petco will begin selling prescription veterinary drugs over the Internet upon its acquisition of Drs. Foster and Smith, one of the nation’s largest online sellers of pet medications and supplies.

The transaction, announced Wednesday, will mark a major milestone—but not the end—for a company that started as a veterinarian-owned mail-order business in 1983 and morphed into a website operation in 1998 and a prescription drug seller in 2003.

Co-founders Race Foster, DVM, and Marty Smith, DVM, will still run the company, which employs 500 people at offices, a warehouse and an outlet store in rural Rhinelander, Wis.

Dr. Foster, who will hold the title of CEO, said the moment was right for a sale.

“We’re been at it 31 years,” he said. “We’re busier than we’ve ever been. I think it was time, as we move into the big leagues, that we partner up with people that have more expertise, and I think the synergies we will gain with Petco will help both of us expand our health and wellness platforms.”

The terms of the sale were not announced. Petco did not report any changes, and Foster doesn’t expect a shakeup.

“I think the plan will be to expand the Rhinelander operations,” he said.

Dr. Smith will focus on marketing and the integration of the companies, his business partner said.

“Petco has a very large interest and push into the health and wellness of pets,” Foster said, “and I think that Marty and myself, with our veterinary degrees and expertise, can help them achieve that goal.”

Annual sales at privately held Drs. Foster and Smith were not disclosed. The company sells brand-name and Drs. Foster and Smith-labeled products for dogs, cats, fish, birds, small animals, reptiles and horses.

The acquisition covers the pharmacy operations and the in-house product lines.

Petco CEO Jim Myers said the takeover of Drs. Foster and Smith will help his San Diego-based company “meet the diverse and expansive needs of pet parents.”

“Our values are perfectly aligned with Drs. Foster and Smith, and we’re confident this new addition to our business will help us continue to offer the very best in products and services to pets and pet parents,” Myers said.

Petco’s entry into the prescription drug arena closes the gap with its biggest brick-and-mortar competitor, PetSmart. Each chain has more than 1,300 stores, but PetSmart has enjoyed a longtime partnership with Banfield Pet Hospital, which operates veterinary clinics inside many PetSmart locations, and in August it announced the purchase of Pet360.com.

Drs. Foster and Smith and other catalog or e-commerce companies, such as PetMed Express, have carved out an estimated 13 percent share of the $8 billion-a-year U.S. market for pet medications, according to the research firm Packaged Facts.

Veterinarians sell 58 percent of pet medications, Packaged Facts reported, but their share has fallen during the Internet Age.

Market analyst George Puro of Puro Research Group in White Plains, N.Y., called the purchase an “Internet play” by Petco and similar to PetSmart’s acquisition of Pet360.

“Both Drs. Foster and Smith and Pet360.com have Vet-VIPPS designation, which means the National Association of Boards of Pharmacy has accredited them to dispense pet prescriptions online,” Puro said. “Petco and PetSmart do not have this accreditation.

“With these acquisitions, Petco and PetSmart are clearly betting that the Internet will be a more important revenue stream for them in the future.”

It’s too early to tell what the takeover of Pet360 and Drs. Foster and Smith means for veterinarians, Puro said.

“It remains to be seen how these acquisitions will be integrated into existing operations, or what support the parent companies will give to their new acquisitions,” he said. “This will be the biggest factor in what kind of impact it might have on veterinarians. PetSmart has already said that Pet360 will be run as a standalone operation.”

Drs. Foster and Smith has profited from the growth in out-of-clinic drug sales, a trend Foster said was driven by consumers.

“All you’re seeing is an evolution that is very closely paralleling what happens in human medicine,” Foster said. “That’s why you see drug companies advertising all the human medicine on television—so you can go ask your physician for that medication. That’s now happening in veterinary medicine.

“It’s just something that we’re capitalizing on and taking advantage of and moving with the customer needs,” he added. “It exactly parallels human medicine.”

Drs. Foster and Smith got its start in collaboration between the two business partners and a third veterinarian: brother Rory Foster, DVM, who with Smith operated four animal hospitals in northern Wisconsin. Their clinics, according to the company website, were the first in the United States to offer free rabies vaccinations and free sterilization surgeries.

Dr. Rory Foster died in 1987 from Lou Gehrig’s disease, and the company today continues to donate money toward neuromuscular research.

Race Foster said his brother would be proud of the company’s growth.

“He would be very happy about a couple of things,” Race Foster said. “We’ve been a big supporter of the community, of the Northwoods, of the employees. When he was here we had 10 or 15 employees and today we have over 500.

“I think he would take great pride in what that has done for the community.”