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Business

Markets, mergers and misinformation: Essilor chief sets the record straight

04/06/2018
By Coleby Nicholson
The Essilor-Luxottica merger has been one of the most hotly debated topics in the optical world since it was announced in February 2017. COLEBY NICHOLSON sat down with Essilor Australia’s recently appointed chief operating officer to discuss its impact on the local market and his overall view on the future of optometry.

While the international optical industry and most of the global business world was closely watching the proposed merger of the two optical giants, Essilor and Luxottica, last July Mr Pierre Longerna quietly slipped into Australia to take up the newly created role of chief operating officer at Essilor Australia.

At the time, the proposed $64 billion merger to create an optical behemoth was far from a foregone conclusion given there were many regulatory hurdles to jump, and it was still a controversial issue in the international optical industry.

Gossip, innuendo and misinformation about the deal was rampant so it came as no surprise that many local pundits suggested Longerna’s appointment was a pre-emptive move to get Essilor’s house in order and, perhaps, reshape the business before the deal was approved by international regulatory bodies, including the Australian Competition and Consumer Commission (ACCC).

Although he had arrived from Canada, where he headed the Nikon Optical joint venture, the French born Longerna joined Essilor in 2005. His focus in Paris was managing Nikon for the European markets, which encompassed Northern Europe to Russia and the Middle East to Northern Africa before the Canadian position became available.

“For some historical reason Canada was bigger than the US for Nikon and that’s why I was based in Montreal and most of my activity was in Canada,” Longerna says.


"Today, my understanding is that eyecare online is mainly contact lenses and some plano sunglasses. An IBIS report says CLS are probably close to 90% because this is a huge off-the-shelf-product. You buy a box and you only know your prescription because of an optometrist."
Pierre Longerna, Chief operating officer of Essilor

“The business is a 50-50 partnership started in 2000 to help Nikon develop outside of Japan and at the same to make sure all the good innovations that are coming from Japan could be made available to the rest of the world by leveraging the Essilor Group network.”

The speculation about the merger continued through August, but given neither the US Federal Trade Commission nor the European Commission had given approval, let alone the ACCC, there was little he could say about the deal or its ramifications for Australia.

Yet it came as no surprise to Longerna that he would need to manage the many questions being asked, and scenarios being suggested about how the deal could or would eventually affect the Australian and New Zealand markets.

The Nikon joint venture is one of 60 partnerships across Essilor’s four divisions – corrective lenses, sun and readers, equipment and instruments and product channels – and from his time at Nikon Optical Longerna believed there would be little change in the local market if, and when, the approval was granted.

However, he still spent the ensuing months researching and meeting with major customers and other ‘stakeholders’ to discuss the Australian and New Zealand markets and the proposed merger.

“I spent quite a lot of time in the field meeting with customers trying to understand their needs and how they look at the market, their challenges and the opportunities. At the same time we commissioned [independent] market research, asking people in a survey how they perceive Essilor, what are the good things that they see of us and where they see improvements can be made,” Longerna explains.

“The results were quite consistent with what we observe in other markets and the feedback on the quality of our products and the quality of our service was very good. So the basics were there.”

International comparisons

One of the many things that quickly stood out was the similarity between the Canadian and Australian territories: “I think Canada is very much like Australia. We look at size of the population, the range of the population given the fact that it is a big country and small population but most people are in a few cities.

This is an optometrists market the same as Canada. This is a market where you [also] have a lot of immigration very similar to Canada, the ageing of the population is similar, and there are a lot of other similarities.”

In contrast, Longerna believes the Australian and European markets contain more points of difference due to the structure of opticians versus optometrists, as well as the contrasting population demographics. However, although these differences affect the dynamics of the retail business model, both are mature markets.

Pierre Longerna at the recent Essilor Roadshows
Pierre Longerna at the recent Essilor Roadshows

“Mature markets are facing challenges and opportunities that are very similar. The similarities are that the industry developed around the same time, about 40 or 50 years ago, whether it was in mature Europe, North America or Australia. So the stage of maturity is probably about the same, which means that the level of education of the population about vision, eye glasses and about vision solutions are all similar,” Longerna says.

“When we look at the product mix usually in [all] these markets we have good penetration of progressive lenses for example, whereas when you go to some developing markets then the penetration of progressive lenses is still not there, which means also that the level of maturity in the retail sector is not there. The challenges are on the retail and competition side and there is more competition in mature markets so it is very similar whether you are in Europe, Canada or you are in Australia.”

Once the results of the research started to be received it confirmed many of his views about the state of the Australian and New Zealand industry, as well as feedback about Essilor’s position and reputation in the market.

“We received a lot of positive feedback on what we do on a day-to-day basis. That being said, I think that what they [customers] have expressed is that in changing times what they expect from Essilor, because we are the leader, is to help them adapt to the changing environment,” Longerna says.

“More than that they want us to act as the leaders, to show the path but also to help them capture the growth opportunities. So our customers understand that there is a growth potential out there, however sometimes it’s difficult for them.”

Longerna said the research also indicated that the industry is undergoing substantial change, which will result in more competition for the independent optometrist.

“You need a good partner, a very strong partner to help you [grow]. And that’s probably what they expect a little bit more from Essilor. They don’t expect the same from our competitors but they expect it from us because we are the leaders and we have a global understanding of what is going on in the market. That’s the part on which we are going to focus on more; to help them grow, to continue to invest in their business,” he explained.

Merger impact on Australia

More than 100 people attended each event
More than 100 people attended each event

One of the challenges that has confronted Longerna since arriving in Australia, is the concern from optometrists that the merged entity will have a negative impact on their independence.

Some have also questioned the apparent contradiction of a larger and stronger ‘player’ in the market wanting to foster the role of independent optometry practices, however Longerna has a different view.

“I am not sure there is a contradiction here, it’s more the lack of understanding of Essilor as a company and group. As a group we need to go back to the mission in order to understand what we’re trying to do,” he says.

“The mission is ‘Improving lives by improving sight’, which means that it’s not about trying to focus only on one segment of the market. Essilor as a group is looking at the people who have access to vision but also people who don’t have access to vision. [By that] I mean how both of their needs are going to be addressed.”

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Longerna says it will take some time for Luxottica and Essilor to create and operate as a merged entity: “Luxottica is a successful company, Essilor is a successful company, the two companies are going to remain independent for three years, which means that Luxottica is going to look at growing their own business and Essilor is going to continue to focus on their existing business. We are not going to stop doing things that we have done in the past.”

He is also adamant that business will continue unchanged for at least three years with both local companies maintaining their same structures and cultures, emphasising that there will be “no sharing of customer data”.

Interestingly, Longerna says that across the mature western markets independent optometry practices usually account for around half of the practice/store locations while the corporate optometry chains account for around 50%.

Using North America as an example, he explains that the independent optometry segment has even been able to regain some market share over the chains and he believes the Australian market has a positive outlook. With an ageing population, strong immigration and the increased prevalence of myopia, the need for eyecare is increasing with up to 15 million people in need of vision correction.

To qualify this assertion, Longerna cites annual spending on optical products and services at $90 per capita and an appetite for product innovation as the key drivers for future growth. Meanwhile, when it comes to the end consumer he says Australia is no different to the rest of the developed world where customers shop in one of three ways: price, quality eyecare, and/or fashion.

“To understand that you have to understand a little bit about the consumer. I would say that in the mature markets you have segments with offers and you have customers who understand what the options are and are clear about what they want,” Longerna says.

“I think this is common across all the markets; there are people who might have thought that they could get good vision at a low price. They are coming back [to independent practices] because they are realising that this is not the best vision care that they can get. And actually you know that every day when you put on your eye glasses, it’s okay to have saved a little bit of money but actually what you want is only to have good vision.”

However, while increasing emphasis is being placed on quality eyecare, Longerna doesn’t think that one segment will ‘win’ over the others. Instead, with people searching for different things at different times – vision, fashion or price – the task for independent optometrists is to ensure they understand what criteria customers and patients are using and what best suits their needs.

“In Canada the independent segment is quite strong. It was the same in France. Independent optometrists are very dynamic and that’s why, when I am looking at the Australian market, I am looking at all the drivers for growth and so on. I am quite confident that the independent segment can grow by something like, 5–8% for the next three to five years. The potential is there.”

Market disruption in the digital age

Depending on which ‘expert’ you wish to believe, the optical market is ripe for the picking for digital disruption. Whether it’s the, so-called, high margin eyewear products, frustration at long customer waiting times, or the appearance of improved technologies such as online vision tests and 3D printing, some say there is ample room for online disruption.

Contrastingly, some say the disruption is not substantive and is unlikely to have a major impact because of the need for an optometrist in the transaction. Longerna sits in this camp and believes that contact lenses currently account for the majority of online sales.

Essilor product was demonstrated
Essilor product was demonstrated

“Today, my understanding is that eyecare online is mainly contact lenses and some plano sunglasses. An IBIS report says CLs are probably close to 90% because this is a huge off-the-shelf-product. You buy a box and you only know your prescription because of an optometrist,” he says.

“My conviction is that when you buy the power of eyeglasses, you don’t buy just the product, you buy the service. Even when we look at our business, I used to say that more than the product we sell our service to our customers. And that’s why I am going back to the survey [recent customer research], the good feedback that we had was not only on the quality of our product, but also on our service. For me, it is key, because this is the basics of our industry.

“This is a service industry much more than a product industry. When you need to buy a pair of eyeglasses, actually what you need is a good product and a good service and that’s the combination of both. That is, giving a good value proposition and good product and equipment to the patient.”

Longerna goes on to explain that the ‘combination’ comes from a product supplier or suppliers and an optometry practice “doing a good job at supplying the products with the eyecare service, and the professionalism of an optometrist and his team in order to be able to sell and dispense a good product. I think this is the same in all the markets.

“I have been in Europe, I have been in North America and now I am in Australia and New Zealand – we don’t see a business model where you can bring a good vision today without having somebody, an eyecare professional who is doing a good job at identifying, selecting the right product and dispensing and adjusting and so on. So, in a way, the results of the online business [model] today is a proof that the value is the expertise of the eyecare professional.”

12 months on, time to hit the road

Having held the new COO role for nearly 12 months, and armed with the results of the commissioned research and knowing that the merger had been approved, it was time to take to the road.

Beginning in Brisbane in early April and concluding in New Zealand mid-May, Essilor conducted a series of roadshows and product launches in various capital cities. More than 100 people attended each event.

The main focus was the introduction of two of its latest technologies – the Varilux X Series progressive lens, and the new Crizal Sapphire UV lens coating – and it also allowed Longerna to present Essilor’s view of the market and explain many things about the merger, including dispelling misinformation.

Longerna was pleased with the outcome saying that attendance was “outstanding” across both countries.

“It has been quite some time since Essilor has brought to market such significant innovation, and clearly the market was anticipating this. It was a good opportunity to re-engage with our customers, discuss the market growth opportunities, the Essilor-Luxottica combination, as well as bring these exciting new innovations. Our customers appreciated sharing the explanation of the Essilor Group and Essilor ANZ focus on Vision Care.”

Longerna’s appointment, together with the merger’s approval and recent launch of two new key products, has seen Essilor take a more visible position this year than it has previously. And, given that the new COO has identified being a clear leader as Essilor’s mission, it appears this visibility is one aspect of the business that won’t be subject to change in the near future.

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