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Like other specialties in the medical sector, the hearing aids market is monopolized by a limited number of players, mainly European players. In the field of hardware production, there are five dominant companies: the Swiss Sonova, the Danish Demant, GN Store and WS Audiology and the American Starkey. But it is a distributor that will interest us today, the Italian Amplifon, often wrongly perceived as a competitor of the five aforementioned companies.
The Milanese company, born after the war, has become a reference in the very fragmented market of shops offering the whole range of services in the sector, from hearing tests to maintenance, including of course the supply and installation of a personalized solution. And if it has a range in its name, it does not produce the hearing aid systems that it sells. At the end of 2022, Amplifon claims a global market share of around 11%, far superior to any of its rivals. Sales are split between Europe, Middle East, Africa (71%), the Americas (16%) and Asia-Pacific (13%). This represents several thousand points of sale in 25 countries and 18,600 employees, half of whom are hearing aid professionals. Some of the stores, approximately 4,300, are directly owned. The others are franchises and outlets integrated into larger establishments.
The market for hearing aids is fueled by on-board growth of 3 to 6% per year, linked to the aging of the population and the increase in the rate of equipment for people, as economies develop. Nothing really new there. Amplifon is thus naturally benefiting from a positive underlying trend, which the transalpine group is improving with a well-established economic development model. What is it precisely? If we look at the customer side, the group very quickly understood the importance of quality and highly personalized support. This dimension is reminiscent of the optical market, but with a technological aspect instead of the fashion effect that dominates eyewear. On the supplier side, Amplifon’s size allows it to negotiate advantageous pricing conditions, which smaller networks, and a fortiori independents, do not have access to. The distributor can also bring into play the competition between the major hardware players mentioned above and have a wider range of products. By adding a layer of marketing and well-oiled processes, Amplifon has pushed back the main limit of the distribution sector: relatively low barriers to entry.
An expansion trajectory that lives up to expectations
As a result of the above, the transalpine has increased its revenues by 8.7% per year on average since 2012, above the growth of its market. Turnover thus rose from 847 million euros to 2.119 billion euros in the interval, that is a multiple of 2.5. Profits, measured in free cash flow, have at the same time been multiplied by 3.7, to reach 247 million euros. The solidity of the progression of the results has naturally placed the company in the category of well-valued companies, but it is clear that the expansion trajectory is up to expectations. We can reasonably think that it should remain so, given the quality of the economic model and the still strong fragmentation of the market.
This is also the management’s promise: to continue to improve business, profitability and market share. The acceleration of acquisitions of independent stores since October is proof of management’s confidence in the outlook. In the uncertain economic environment of the time, Amplifon offered warranties above the market average.