(CORRECTED June 8, 2016, to reflect that Costco slashed prices on its own-brand products, not Sonova’s, in 6th paragraph)
(Reuters) – Hearing aid maker William Demant is looking for more retail acquisitions to increase control over the sale of its products and fight competition from discount chains such as Costco.
The group will not hesitate to buy retail chains if necessary to protect the sale of own-brand hearing aids, Chief Executive Niels Jacobsen told Reuters on the sidelines of the company’s investor meeting in Copenhagen on Tuesday.
“We are looking at what is coming up for sale and if it fits in our strategy then we are ready to buy,” Jacobsen said.
He declined to specify how much money the company had to spend, but said it had strong cash flow.
William Demant’s focus on retail follows Costco Wholesale’s move to become a major player in the retail market for hearing aids in the United States, where about 40% of all hearing aids are sold. Costco now accounts for around 10% of hearing aid sales in that market.
Last month, Swiss market leader Sonova said it missed full-year sales and profit targets, partly because Costco slashed prices on its own-brand products at prices that Sonova’s devices struggled to compete against.
More than 90% of the $6 billion hearing aid wholesale market is controlled by six companies and no new players of significance have come on the scene for the past three decades.
Sonova and William Demant are estimated to control more than 40% of global market. Other hearing aid makers include Denmark’s GN Store Nord and Widex, Germany’s Sivantos and Starkey in United States.
William Demant has already bought French retail chain Audika for 1.3 billion Danish crowns ($198.4 million) and Sonova bought Dutch-based Audionova for 830 million euros ($941.4 million) in May.
“It’s purely defensive moves,” analyst Daniel Jelovcan from brokerage firm Bank am Bellevue in Zürich said about recent acquisitions in the industry.
Analysts have questioned if a move into retail makes sense for William Demant, Sonova and other hearing aids makers because they are newcomers to the retail business and there is uncertainty about the impact on their earnings.
William Demant has defended its plans by saying up to 70% of the money made in the hearing aid business comes from the retail side.
William Demant said it had refused to sell its premium brand hearing aid Oticon to Costco and was only willing to sell its older and cheaper brands to the U.S. group.