The UK optical retail market continues to evolve and the practices which operate within it are facing new challenges. The market data analysts and commentators also need to review their approach to meet the changing requirements. Back in 1993, Optician and the optical industry were frustrated by the lack of market data which could identify new trends and retail sales patterns as well as monitor the state of the market on a monthly basis. With the support of one of the national multiples plus regional groups and independent practices a members panel was established and Optician Index was born.
Through a monthly data submission, information was used to measure percentage change in Key Performance Indicators over time, with the flexibility to accommodate new panel members and those companies which no longer wished to contribute data. To maintain the anonymity of the contributors and establish a reporting style which just presented the facts, a third party –Business Benchmarks – was commissioned to manage the project and conduct the statistical analysis.
Transitional market
The market has gone through a massive transition from being shaped by the independent practices to being led by the national multiples, giving the consumer greater choice. There have been award winning advertising campaigns which have helped to improve the nation’s awareness of healthy vision. The evidence shows this transition is now largely complete with the independent practices and regional chains serving a more stable market share of around 30%. There are though still winners and losers within the independent sector and practices need to differentiate themselves in some way. As part of the new-look Optician this is the right time to introduce fresh features and recognise the need to support practices by providing more local market data against which they can benchmark their own performance.
Let’s take a look at what has been happening over the last 20 years by reviewing some of the financial and operational indicators. This can be done without going in to the statistical mechanics but consideration should be given to the limitations of a sample which is not inclusive of the market’s biggest player (Specsavers) and any significant changes to the make-up of the panel membership.
The first decade
Total practice turnover (Figure 1) shows revenue growth over the lifespan of the Index to be 69%. The revenue figure takes no account of inflation. Over that same time period the Retail Price Index has increased from 140 to 258 an increase of 85%. In real terms the revenue of the optician practices which make up the sample has failed to keep pace with inflation.
[CaptionComponent="2263"]If we look more closely though for the first 10 years, up to 2004, the practice revenue growth exceeded the rate of inflation. Through this period the make-up of the sample was becoming more heavily weighted towards independents and regional chains as the number of national contributors was static and more independents joined the panel. The whole market was enjoying the growth spurred by deregulation and the NHS funded eye tests for the over 60s, including the independents which understood the new market dynamics. Those independents which were finding it difficult to compete in a price-driven market were closing or being subsumed into growing regional chains.
In 2004 this growth for the sample slowed but at a time when broader market analysis showed it to be still growing at the same rate, apart from the blip during the recession. This could possibly be explained by the ‘Specsavers effect’.
The increase in turnover per eye examination (Figure 2) actually exceeds the increase in the rate of inflation – a 62% increase over the period compared to a 47% increase in the RPI. This does include a step change increase when the sample changed at the start of 2013 to only include independents and regional chains. Revenue per eye examination is a calculated value and not an Index figure so no adjustment is made for changes in the sample. This increase can be explained by the sample selling higher value branded frames and progressive or better quality lenses. As the sample is enjoying an increase in turnover per eye examination and this figure is about £20 higher for the independent sector than the multiples we need to look at another cause for the slowdown in revenue growth.
[CaptionComponent="2264"]The decision to exclude national multiples was taken after it became apparent that the two groups had differing requirements from market data, with the national multiples wanting to know market size and their share of the market and the independents wanting to understand market trends and how their own performance benchmarked against those changing trends. Mintel and, more recently, GfK with point of sale data collection and the inclusion of the markets’ biggest player, now fill the need for market sizing data.
Specsavers effect
Total eye examinations (Figure 3) highlights 2003 as a pivotal year after which the number of eye examinations our sample carried out began to decrease. This could also be explained by the ‘Specsavers effect’ at a time when the machine got in to full stride and Specsavers started to take big chunks of market share from its competitors by attracting new customers.
[CaptionComponent="2265"]During the period 2000 to 2011 Specsavers UK revenue increased from £335 million to £946 million and in 2006 Specsavers performed 5.1 million eye examinations in the UK out of the total 18 million. Data available from the Health and Social Care Information Centre shows how the number of eye tests was increasing through this period up to 2014 and the number of qualified optometrists was increasing at a faster rate. The estimated number of eye tests in the UK has increased from 17.5 million in 2004 to 21.5 million in 2015, a 23% increase. The number of qualified optometrists in England, so not directly comparable, has gone up by 40% in the same time period. It is then to be expected that individual optometrists are conducting fewer eye tests.
The fall in the number of examinations, for the Index panel, may have now slowed but another realisation from looking at the graph shows that there has been relatively no percentage change in the number of eye tests carried out by our sample from 1993 to 2015. Having grown by 20% up to 2003 the practices which make up the sample may well find they now have spare capacity or have already modified their business models.
Those practices which have adapted seem to be maintaining their revenues even though they are performing fewer eye tests either by qualifying those patients better or adding real value to the dispense through higher quality frames and lenses, or adding new revenue streams.
The increase in the percentage of NHS tests is also interesting with an overall increase of 27% between 1993 and 2015 with the abolition of sight test charges for the over-60s in 1999 and the funding of all eye tests in Scotland by the NHS in 2006. The shift in 2013 would suggest that the national multiples carry out a higher percentage of NHS tests than the independents.
[CaptionComponent="2266"]The dispensing rate (Figure 4) which is a function of the number of eye examinations and spectacles dispensed is also falling since 2003 with quite a significant drop through the recession. This figure now appears to be more stable after 2013. Consideration of the volume of spectacles dispensed (Figure 5) would suggest that the significant fall in volume since 2003 is the cause of this; as we have seen, this outweighs the fall in the number of eye examinations. Again this figure seems to be more stable over the last four years.
[CaptionComponent="2267"]In the next article we will investigate the changes in dispensing activity covering spectacle and contact lenses over the same 20 year period.
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