EUR 850.00 For Business Accounts Only

Morningstar | William Demant Continues to See Strong Performance in Wholesale Business

William 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. William Demant controls more than one fifth of the world's hearing aid market, 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 direct-to-consumer sales channels. While Demant was behind its key rival in recognising strong growth opportunity in implants, its 2013 acquisition of Neurelec filled this void.We expect William Demant and Sonova to compete in a somewhat rational oligopoly going forward, but we are cognisant that the industry itself is undergoing a transformation, and one that is not too favourable for all the manufacturers. Costco's growing presence in the retail channel puts pressure on wholesalers and is probably resulting in the independent channel ceding customers, particularly new and more cost-sensitive individuals. Products themselves are becoming more homogeneous, with actual differentiation not as pronounced as historically (although perception still strongly favors the top two makers). Finally, the downstream vertical integration carries risk. Sonova's acquisition of AudioNova, while clearly a response to its competitor's sizeable expansion into the retail channel, is changing the operating model. A combined wholesale-retail model has its advantages, namely control over inventory, but carries lower margins and returns and creates yet another wedge between the firm and its independent audiologist clients.