EUR 850.00 For Business Accounts Only

Morningstar | Demant's Opn Family Portfolio Should Result in Solid Performance in 2019

Demant benefits from favourable trends, including an ageing population, increasing noise pollution, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets. Its broad product offerings should allow the company to capitalise on these trends, while its strong brand and superior technological know-how should yield market share gains. Demant controls more than one fifth of the world's hearing aid market by value, possessing roughly the same share as key competitor Sonova. The two rivals are very similar in their approach to the market. Both tend to focus on the higher end of the spectrum of device sophistication, and both flip their product portfolios fairly frequently and have strong sales and distribution networks, including a notable presence in retail channels. Both firms also have small presence in hearing implants, although they are significantly behind the market leader, Cochlear. The hearing aid industry is undergoing a transformation, and one that is not too favourable for all the manufacturers. Big-box retailers, particularly Costco, are encroaching on the independent channel, which had historically been the most supportive of the premium brand manufacturers. The private-label strategy pursued by Costco as well as the largest global retailer, Amplifon, diminishes brand value and puts downward pressure on pricing. Products are becoming more homogeneous, with real differentiation not as pronounced as historically (although perception still strongly favors the top two makers) and update cycles shrinking. In response to this evolving environment, Sonova and Demant have opted to build up their own presence in retail via acquisitions of retail chains. This vertical integration strategy is largely a defensive move, and while a combined wholesale-retail model has its advantages, namely control over inventory, it also carries lower margins and returns and creates yet another wedge between the firm and its independent audiologist clients.