Until 2020 most independent opticians were probably not unduly worried about their commercial viability. Despite significant competition, they had benefited from a growing optical market worth £3.4 billion – an increase of 17% in five years.
This growth was driven by an ageing population that increased demand for vision correction. At the same time, fashionable frames and technologically advanced lenses, especially for presbyopes, helped to raise dispensing values.
Then Covid-19 struck and required safety measures that lead to a reduction in appointment capacity of up to 30%. Given the high overhead costs of running a practice, independent opticians were forced to look very closely at their financial survival – perhaps for the first time.
Fortunately, government and NHS support kept practices going. Those with monthly patient payment plans also benefited from a regular income stream even though they were only open part-time.
Returning business
Once lockdown was lifted most practices experienced a surge in business as their patient backlog was cleared. Although appointment capacity remained reduced, additional sales of eyewear at higher prices more than compensated.
Grace Haine of Haine Eyecare in Stalbridge says her conversion rate shot up from around 65% to just over 80% from August to October. Furthermore, her average dispensing value increased by 28% to £226. ‘Our patients really appreciated us being open most of the time and giving them more personal attention,’ she says.
Grace Haine
Higher dispensing values were also driven by the consumer spending power that had built up during lockdown. According to the Centre for Economics and Business Research, households saved 19% of their disposable income in 2020 compared to 7% in 2019 – an average of £7,100 each.
Andrew Tremain from Linklaters Opticians in Dartford explains: ‘We experienced a major business surge once people felt safer. In fact, we probably had our strongest six months for years.’
Andrew Tremain
Advising caution
Now that a vaccine is being rolled out, it is perhaps tempting for independent practitioners to look forward to a prosperous year in 2021. Yet this could be over-optimistic for two reasons.
The first is a serious economic slowdown as government support is withdrawn. Already 800,000 jobs have gone and unemployment could reach three million by the end of the year. This will inevitably affect consumer confidence and spending power. Although not as exposed as many sectors, retail optics is not immune to the state of the economy.
The second – and far more significant over the long term – is the steady decline in the market share of independent opticians. Over the past 20 years the number of outlets has decreased by around a quarter. This means at least 1,200 independent practices have closed, mainly because they were not commercially viable or sufficiently profitable.
Yet this situation occurred when the number of patients, eye examinations and eyewear sales were all increasing. A growing market has masked a major deterioration in the commercial position of the independent sector.
The main cause is competition from the multiple groups and supermarkets. According to the latest Mintel research report, the top three multiples now account for 71% of patients buying eyewear – whereas independents represent just 16%.
Meanwhile internet optical retailing continues to grow, especially given the public’s propensity to buy this way since Covid-19. Mintel’s survey gives online retail an 8% share of people buying eyewear. Although this is not the same as market share by value, it is a warning for all practices.
Competition is not about to go away. It will mean constant downward pressure on the financial performance of independent opticians in the years ahead. Yet a high rate of profitability is essential if they are to generate enough funds to invest in new equipment, regular refits, marketing, staff training and a decent income for the practice team.
Strong profitability is also important because it adds to the value of a practice being sold. When purchasing a business, buyers are usually more interested in its profit than anything else, especially if that is rising.
The impact of Covid-19 could prompt many independent opticians to put themselves on a more commercially sustainable footing in the future. Ironically, the pandemic may even show a way forward. It has demonstrated that patients value the reassurance inherent in the high level of personal care available from independent practices – and that they will pay accordingly.
For example, Daeron McGee of Sussex Eyecare Opticians increased his private eye examination fee from £35 to £55 in 2020. ‘Nobody even blinked,’ he says. ‘It shows the success of my business isn’t based on price but on service.’
For independent practices, therefore, a future business model could consist of fewer but more profitable patients. How to improve their profitability will be discussed in a future issue.
- Graham Hutchison is managing director of the Independent Marketing Partnership, a consultancy specialising in patient communications and practice profitability. Contact graham@opticalmarketing.co.uk.
