How is Amplifon going to react?
That is the central question looming in the global hearing device industry, where several major manufacturers, including Denmark-based William Demant and Swizz-based Sonova, are buying their way into the retail segment – the realm of Amplifon.
The Italian company is the world’s largest retailer of hearing devices, which it buys from manufacturers like William Demant, Widex and especially GN Resound. But all of the so-called Big Six on the global market supply to Amplifon to some extent. Aside from the above-mentioned Danish companies, the Big Six also includes Sonova of Switzerland, Siemens of Germany and US-based Starkey.
The Italian company has made massive investments in the retail sector in recent years, now owning about 3,500 stores, and it is no secret that it could prove crucial to sales through Amplifon if the manufacturers push in on the retail giant’s turf.
THE BIG SIX
The market share of the Big Six within hearing devices in terms of value across the 4-billion-dollar market, according to analysts:
- Sonova 24%
- William Demant 22%
- Siemens 17%
- GN Resound 13%
- Starkey 11%
- Widex 8%
- Others 5%
Amplifon could turn away
That is especially the case for the two largest players on the market, Sonova and William Demant, as GN Resound has opted for a strategy without retail stores and Widex does not operate so much through retail but rather through acquisitions. However, Sonova and William Demant’s sales to Amplifon are not as massive as they are for the other major players.
Is Amplifon going to turn its back on the big two?
“If Amplifon feels pressured by the manufacturers' entry into retail, I think [Amplifon] might start focusing only on collaborating with the manufacturers that don’t have their own retail operations,” senior analyst Morten Imsgaard from Sydbank points out.
Senior analyst Lisa Clive of British firm Sanford C. Bernstein is less firm in her assessment of the current situation:
“I think they have preferred historically to use Siemens and GN as suppliers, because these two large companies have less retail activities than Sonova and William Demant. But I still expect Amplifon – at least in certain circumstances – to use hearing aids from the other manufacturers. At the moment, I don’t see a great need for Amplifon to change its purchasing pattern,” she writes in an e-mail.
The market for hearing devices is relatively stabile and it only grows by about 2-4% per year in terms of number of units sold. Consequently, some companies go deeper into related areas, including retail, where William Demant now has more than 1,000 stores and Sonova owns twice that amount.
I an interview with Medwatch at Amplifon’s headquarters in Milan, CEO Franco Moscetti leaves the door open to Sonova and William Demant staying on as suppliers. But he also says there is a risk that the power struggle within retail becomes so intense that he is forced to drop the two suppliers.
Asked if there is a risk of Amplifon turning its back on Sonova and William Demant and refusing to sell their products, the CEO says:
“To remain with a supplier and to have a partner is not mandatory; you have to have an interest in sticking together.”
He adds that he works very well with GN Resound.
“I don’t like to work with William Demant or Sonova if their ambition is to work against me as a retailer. I prefer to work with the manufacturers that have a clear strategic positioning on the market as a manufacturer. The reason it’s working so well with GN is because the strategic positioning on the market is very clear, and at the same time they are investing to launch new products to renew their pipeline. And that’s exactly what I ask for in a supplier.”
Conflict of interest could force a break
But you still want WD and Sonova as suppliers?
“They are both some of the smallest suppliers for amplifon. If you see the breakdown of our suppliers, it goes Siemens, GN and then Sonova.”
Asked if he would consider breaking completely with the two manufacturing giants, he says:
“For sure, if there is a conflict of interest I can surely say: I don’t want to work with you.”
But you don’t see that conflict right now?
“No, not right now. Because I don’t see a very big threat coming from manufacturers who invest in retail activities – honestly.”
Analyst: Risk of pricier deals
Last year, Lisa Clive from Sanford C. Bernstein wrote an analysis about manufacturers' entry into retail, highlighting that it would carry the risk of Amplifon paying a premium on future acquisitions.
Some analysts have said acquisitions could be overpriced because of manufacturers entering the retail market?
“But analysts have never managed a company in the hearing aids industry, I’m not sure they know what they are talking about.”
GN Resound has no stated strategy of entering retail, but the company nevertheless owns a small retail chain in the US as well as Dansk Hørecenter in the home country. But this is a franchise operation, through which GN owns the network, but not the individual stores. It was the previous owners of Dansk Hørecenter who had a wish to retire. They approached GN, whose products they had been selling for many years, and asked the company to take over the reins. It was an opportunistic, defensive move, as former CEO Lars Viksmoen has previously told Medwatch.
GN: Even closer to Amplifon
Michael Bjergby, IR and Communications chief in GN, would like to see an even closer collaboration with Amplifon.
“In recent years, we have reinforced our partnership with Amplifon and at the beginning of 2014 we extended our contract, which ensures several additional years of collaboration. We are very pleased with the partnership as it is today, but we are still working to make it even closer. We are certainly sticking to our overall strategy of not owning retail stores.”
Do you expect Amplifon to turn its back on manufacturers that aggressively pursue retail activities, such as William Demant and Sonova?
“We expect that our opting out of owning retail stores gives us a competitive advantage, in isolation, when Amplifon and other dispensers choose their suppliers – simply because we are not competing with our clients on unequal terms. Whether or not Amplifon will or should turn its back on those manufacturers who aggressively pursue retail, we don’t wish to comment on that.”
GN currently supplies about a third of Amplifons purchases and Franco Moscetti says he expects that share to go up.
Will it increase from the current 30 % to maybe 40 % or something like that?
“In principle yes, but we have to wait and see, because it depends on how able they will be to invest in new products, the quality of the products. But for me the most important thing is to always buy the best existing technology on the market at the best possible price. If there is a lot of competition on the market it’s an advantage for me, as it leads to better quality and better prices.”
Amplifon's other major supplier Siemens is facing an IPO for its hearing aids business, but Franco Moscetti is still not sure what that could mean to his own company and their partnership with Siemens.
WDH: Not in active pursuit of retail
William Demant’s chief executive, Niels Jacobsen, who is usually tight-lipped about things such as corporate strategy, has previously told Medwatch the following about the group’s retail expansion:
“It’s an ongoing process; we are not active, but building relations to our customers, hearing device dealers, through a lifetime. We help them to grow and try to help them when they want to retire and leave the business by facilitating a partial or complete sale. But we are not actively going into retail because we want to grow in that area. It’s maintenance of our wholesale client database.”
Or in other words; you want to ensure that no one else gets in on these businesses?
“Yes, you could say that. It’s because client affairs in this industry are very relation-based requiring continued support to the best dealers around the world.”
William Demant has not wished to comment on recent developments in the retail sector or on the group’s future collaboration with Amplifon.
- translated by Martin Havtorn Petersen
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