Last year we published our inaugural review of the optical market, which analysed the movement of corporate and independent optical doors and their overall market share. We took into account various sources – the ODMA Eyewear Report, the Eye Talk Survey, the IBISWorld market research report on optometry and optical dispensing in Australia, Medicare figures and data compiled by the Australian Bureau of Statistics – and spoke to leaders in the world of optics to gauge their view of the market. The mivision report was so well received and respected as a reliable, objective analysis of the optical market that we have decided to make this an annual report. This year’s updated analysis includes some surprising results.
On the surface, the optical market has barely shifted in terms of the number of optical doors and revenue over the year (except for a few anomalies), yet look a little deeper and the changes that have occurred are significant and far-reaching.
In gathering our data we stuck with the same methodology as last year. To come up with our base figure of the amount of optical doors in Australia we spoke with half a dozen suppliers who have a large team of reps on the ground, whose job it is to talk to optical retailers on a daily basis and to maintain an accurate database. We also spoke with Aviva Optical who supplies accessories to nearly every optical store.
Their figures varied widely from 2,500 to 3,200, which resulted in an average from the seven suppliers of 2,949. This became our base figure for the amount of optical doors and represents a decline of 7.7 per cent from last year.
The market has shifted from being predominantly ‘corporate vs independent’ into a blur of business models as practices reposition themselves
We then researched and interviewed corporate retailers about their store numbers as at 1 October 2012. The number of corporate doors in Australia has dropped by 9.1 per cent from 1,135 to 1,032 doors, leaving us with a figure of 1,917 for the amount of independent doors.
The decline in corporates and growth in independents is not surprising when you consider a few anomalies this year – Luxottica changed its business model and closed 73 stores, EyeQ sold 13 stores to an independent and a question still hangs over the optical offering from Terry White Chemists.
The repositioning of Luxottica Group, announced earlier in the year, will result in the closure of most Laubman & Pank stores and see the end of Budget Eyewear in favour of a repositioned OPSM brand. Importantly, rather than continuing “the race to the bottom” as Chris Beer, Luxottica Asia Pacific CEO announced at the time, the company has stepped back in terms of pricing and service and decided that a more sustainable way to compete in the current tight market environment is by offering quality clinical eye health services and mid priced eyewear.
In doing so, there could be a risk that OPSM will place more competitive pressure on the mid priced independent practices however, every independent we spoke to said they “respected” the shift by OPSM. Several optoms said they believe OPSM’s strategy will be positive for the entire profession because it will re-establish the credibility of optometry in the eyes of the consumer.
Many independent retailers, who have been on edge since Specsavers first came into the market, are now finally coming to terms with the new world of optical retailing and are either creating their own niche through differentiation and / or increasingly joining buying groups. Today, (as at the 1 October), there are now 864 practices aligned to a buying / marketing group, an increase of seven per cent from last year’s 807 (adjusted to include Optovision and Eyeplus Group).
Corporate vs Independent?
As we spoke to industry leaders this year, what became most apparent was that the market has shifted from being predominantly ‘corporate vs independent’ into a blur of business models as practices reposition themselves.
We now have unaligned independent optical retailers, independents aligned to a buying / marketing group, corporates, franchises, partnerships, collectives and group practices. And while most industry leaders agree that an optical door is an outlet that carries stock, dispenses and is open the equivalent of three days a week, when it comes to differentiating these business models, it seems there’s no line you can draw that is unequivocally straight.
Have we ever been really clear on the definition of a corporate practice and an independent?
Business consultant Mark Overton said he defines a corporate optical retailer as one that is linked commercially with a brand that it does not wholly own and one which is controlled by head office.
“So although Specsavers would say its optical retailers are independent, clearly it is a corporate business structure. Individual optical retailers do not own the brand and head office exercises significant control over the business at a ground level.
“On the other hand, a practice owner working under the banner of a buying / marketing group like Eyecare Plus or ProVision is independent. The Eyecare Plus head office has limited power to tell its optoms what to do – they can recommend, make resources available, provide guidelines, but they don’t dictate stock, pricing, etc.”
From an academic perspective, Professor Harry Weisinger, Foundation Director
and Chair in Optometry at Deakin University’s School of Medicine and former director of professional services at Specsavers, has a different definition on who, or what, is an independent.
“I would define an independent optical retailer as the traditional, privately owned single practitioner or partnership practice with no affiliations – typically they either rely on product representatives to bring them goods or they source their own either locally or overseas,” said Prof. Weisinger.
“Corporates are, by definition, publicly owned and have multiple sites. Of course, in our industry the term ‘corporate’ seems to apply to privately-owned multiples as well. No one working in a corporate practice has equity, but they would commonly receive profit share or some other incentive package.
“When we think of corporate practice, we typically think of providers such as Luxottica Retail, as well as Big W Vision, Optical Superstores and National Pharmacies”. However, according to Prof. Weisinger, Specsavers, and Luxottica’s franchise models are not corporate.
“As a franchise each outlet is a unique trading entity and the ownership is shared, usually by one or more partners. In the case of Specsavers, ownership is typically between an optometrist and an optical dispenser or optical retailer,” he said.
Prof. Weisinger said although equity is shared among optical professionals, as with any franchise, the franchisor retains voting rights and control of important functions such as marketing, brand representation, retail standards and product sourcing.
“Franchisors control all the high level functions and it’s the franchisees’ responsibility to deliver the vision by providing the required level of service, managing a team and practice-level day-to-day operational issues. A franchisor will rarely have a share in the ownership except in cases where a partner has moved on,” said Prof. Weisinger.
Although established to achieve similar goals, he said aligned independents are very different from a franchise.
“Aligned independents generally come together to develop buying power, and meanwhile will make some effort to develop a collective ‘brand’. They appreciate the practice building and marketing resources that a buying group can offer but they don’t want the legal framework that comes with a franchise, nor do they want to lose any of the rights to make their own buying decisions,” he said.
“There is certainly a place for all styles of optometry practice, covering the spectrum of fly-in, fly-out locum services and consulting only practices, independent practices – aligned or otherwise, licensees and profit share arrangements, right through to full-franchises. This choice is one of the best things about our profession.”
The number of corporate optical doors in Australia has declined by about 9 per cent in the past 12 months. Luxottica’s new business model has resulted in the closure of 73 stores, but the company, which currently has 434 stores, says its plan is to grow to 470 by 2015.
This new realignment of its business model now means Luxottica has 14.7 per cent of the total optical doors in Australia compared to 16.8 last year. The company has reduced its total market share from 29.2 to 26 per cent, a total of 3.2 percentage points which represents a drop of more than 10 per cent of overall market share.
Specsavers has also repositioned several stores and increased its numbers by just six over the past year. They now have 9.1 per cent of the total doors (8.7 in 2011) and have increased their market share by 0.9 percentage points from 17.6 to 18.5 per cent, which represents 5 per cent growth in overall market share. The company plans to open a further 30 stores by early next year.
Optical Superstores now has 60 stores (67 in 2011) and was about to open another three as mivision went to print.
As we predicted last year, Big W Vision has grown significantly over the past 12 months. It now has 48 outlets (an increase of 26 per cent on last year’s 38 and 100 per cent on the 24 Big W Vision stores the previous year). Additionally, Big W Vision has introduced an online vision store. Its overall market share has grown by 10 per cent from 1.8 to 2.2 per cent. This may be small compared to the two main players but its parent company, Woolworths – the largest retailer in Australia and New Zealand – has very deep pockets.
Rowan Carson, the National Optical Operations Manager for Queensland said its growth in the eye health sector is all part of the Big W strategy to close the gap on customer service. “The strategy for Big W is all about being able to provide full service to families. Customers tell us they’re increasingly busy and so the right thing is to give them access to shopping whenever they need it, from wherever they are. This is particularly significant for regional families who may not have the opportunity to get into a store frequently.”
Mr. Carson said the site, which launched in June attracts “thousands of hits” each week and has been particularly effective for booking eye tests. “Our customers request to book an eye test online and the appointment is arranged for them, customers can then drop into the store for the exam then head home to choose their frames online. They can also virtually try on frames using a photo of themselves, place the order and we’ll mail the completed spectacles directly to their door. Then they can drop back into the store for any required adjustments free of charge.”
He said Big W Vision has solved the issues of getting the correct measurements when ordering multifocal lenses online with purpose built technology.
“We’ve just launched a new television campaign which also promotes the online service. Our main focus is ensuring customers get the service they need when they want it wherever they are, so the addition of the online service completes that circle and complements our store network.”
Another major change in the corporate sector is the recently delisted Eye Q, which sold a number of stores and has reduced its presence from 35 to 22 doors.
Then there is Terry White Chemists, over which there remains a question mark. We contacted the head office many times but were never put through to anyone who could give us a clear answer about the company’s optical offering. When we called their stores we were told they “don’t have optometrists in store” but if customers “bring in a script after seeing their optometrist” they will provide a “prescription version of the ready readers – a cheap customised vision solution… single vision only”. Last year we reported Terry White Chemists had 50 stores but mivision believes it is now about 30. This is an estimate only as no reliable figures could be obtained.
As to the health funds, their numbers have stayed relatively flat. The number of optical stores operated by health insurers has remained reasonably stable. Westfund and Teachers Eyecare have both closed two stores and Health Partners Optical in South Australia has opened a few purpose-designed new practices.
There are many different models for buying groups that offer different levels of service and cost structures. The commonalities are access to supplier discounts and the ability to leave the buying group with little impact on the ongoing viability of the business.
Where the buying groups differ is in the fees payable (if any), the ability to buy outside the group’s supplier list, the level of marketing and business support offered and the opportunity to earn rebates based on purchases made through the groups’ suppliers.
Steven Johnston, CEO of Provision questions how unaligned independents can survive, much less thrive, in the current market.
“I don’t know how they can survive without a collective behind them supporting them with supplier deals and business systems. That doesn’t mean that as a buying group, we’ve reached our zenith – we’ve got a long way to go. But we do offer a reliable supply chain and we’re now working on an electronic transactional platform using a standard product code that will enable our members to get a better handle on the ranges that sell, and will go a long way towards eliminating the laborious administration that occurs in an independent practice.
“In the corporate world it’s all electronic. But as independents, we spend too much time working manually – processing invoices, orders and goods received. This all takes time and it takes focus away from patients.
“When I ask the Provision guys what drives them to get out of bed, it’s not the profit motive – it’s because they want to help people see better. The commercial side is secondary – so we need to help them make the money so they can purchase the equipment, and pay the staff they need, to provide the level of care they aspire to deliver.”
Michael Jacobs, CEO of Eyecare Plus, says this level of patient care is one of the key differentiators between a corporate or franchise structure and the model Eyecare Plus and others have created for their aligned independents.
“We insist on clinical independence – optometrists should be allowed to take as long as they need to do a consultation. Franchise and corporate operators often dictate consultation times for their optometrists,” said Mr. Jacobs.
“It all comes down to the profit motive and while we all need to make a profit, there is a limit – that limit is when profit comes at the expense of best clinical practice.”
While buying groups like Eyecare Plus offer members resources and the opportunity to be positioned under the umbrella of a well-established brand, there are other buying groups with a lower public profile. These groups don’t offer business-building resources, they simply offer the benefits of buying power, and they’re making significant inroads into the market.
The Eyeplus Group was established in January 2010 and although it has remained under the radar, it already has 95 members and has grown by 55 per cent in the past year.
“Our buying group is more directed at independent practitioners that know how to run a business and don’t need the bells and whistles,” said one of Eyeplus Group’s founding partners, Matt Garratt.
He said the group is free to join and their offer is all about helping optical retailers increase their gross profit margins by securing deals with suppliers on their behalf. Optical retailers are not compelled to buy all of their stock through the buying group.
Optovision has a similar model. Tom Moore, the Chairman of Optovision who owns a practice in Rockhampton, says Optovision has about 125 members who own 190 to 210 practices between them (this includes the 1001 Optical corporate group, which owns 23 practices). He said some of the group’s members are part of another buying group but this would only be a handful. The Optovision model is “a very lean mean machine. We don’t meddle in the running of the practice and expect our small amount of suppliers to do the legwork for us. We want the reps working for our suppliers to be our reps,” he said.
He added that by keeping the costs of running the buying group low, members gain more benefit. “We’re in the process of writing out dividend cheques based on earnings from the commission we charge to our suppliers. We’re returning 60 per cent of that commission to our members. Individual payments are based on how much they’ve bought through the buying group over the past financial year.”
Optipro also returns a dividend to its members, based on 50 per cent of its profits. This buying group operates within a two-tiered model made up of shareholder and non-shareholder members. To become a shareholding member, optometrists must buy 3,000 AUD$1 shares in the buying group (which are fully redeemable upon exit) and there are no further fees payable. Since offering the non-shareholding membership option a year ago, the group has grown by 15 per cent and now has 48 members with 50 doors. Optipro offers supplier discounts and access to branding, training and marketing.
It’s Business Time
Collective partnerships are another business model experiencing growth.
The Optical Company works with a mixed business model that comprises partnerships and wholly owned practices. CEO and major shareholder Colin Kangisser said the Optical Company has recently devised a clear strategy for growth, which has proven to be positive. “We’ve undergone some very big changes in the last few years but now we’ve taken a clear view of what our business is and we are presenting a consistent message to the market based on quality eye care and eyewear,” said Mr. Kangisser.
“Across our stores we have synergies and we’ve been able to build economies of scale which have contributed to our positive growth,” he added.
The eyeclarity group has five practices and is headed by Jim Papas. “The advantage we have in our business model is that we can pool our resources to enable us to provide full scope optometry, quality of care and be competitive,” said Mr. Papas.
“It has been a challenging year to be in business never-the-less. Increased input costs such as occupancy costs, wages, heat, light, power, government regulation coupled with deflating product prices have affected us all. In addition Australia has a small population so consumers brand switching, purchasing overseas, online or delaying their purchasing decisions affect the optometry sector considerably.
“With only four product groups we can sell – frames, lenses, sunglasses and contact lenses – anything which erodes this affects practice performance,” he added.
Only One Path Forward
In last month’s issue of mivision we reported results from Eye Talk’s annual survey of 276 optometrists from around the country, most of which are independents. The average revenue reported from these optoms was just AUD$357,582, down 4.3 per cent from the previous year’s average revenue of AUD$373,649. Net profit (after all salaries) was around AUD$10,000 for the year.
It begs the question: “why would you bother turning up?” and it reinforces the direction that many optometrists are taking by joining a buying group or entering into a franchise arrangement. Andrew McKinnon, Chief Executive Officer of the Optometrists Association of Australia’s NSW division says independents who join buying groups are doing the right thing.
“Results from the past few years have shown that returns on investment have been consistently sliding – it’s a downhill drift. This year’s Eye Talk Survey is most concerning – a return of three per cent is extraordinarily tight in any business – it’s absolutely wafer thin. My guess is that at some point practices are going to have to look at amalgamating to get their overheads under control because if they don’t, they’re on a hiding to nothing,” said Mr. McKinnon.
“You don’t want to get into a discounting war with the big guys in an effort to attract new customers – they’ll kill you. It’s important to create something unique for your practice – be different – but also make sure you focus on getting those overheads under control, otherwise you’re going to have serious trouble.”
One thing that is clear is that the increased competition at all levels is not going to let up. There is no guarantee of success anymore and this is particularly so for independent optical retailers. Whether practices are independent, franchised or under the corporate umbrella, the path for future success is one that involves developing a well thought out vision and business plan, making the necessary changes, then sticking to it. To achieve this initial change, and compete effectively, you need to be well resourced.
Working together with like-minded businesses can provide the support and resources required… and over time lead to a “culture of achievement”.