One year of the pandemic in the European dental sector

Impact on the demand for treatments and the industry business in Europe

The economic impact of the pandemic on the dental sector proved to be dramatic but only during the first phase, which developed from March to May 2020 and in which government measures of lockdowns had often included the closing of dental practices. In this article, we will identify the trends in the dental industry for the consumable products and how these very trends can also help us better understand the dynamics of the demand for dental services.

Before discussing the trends that characterized the year of the pandemic, an introduction must be given explaining some of the market concepts that are taken for granted in the industry and distribution world but which could be less known by dentists and non-commercial operators.

First of all, it must be considered that the sector is divided into two large segments:

  • consumer products
  • equipment.

While the consumption of products is directly correlated with the number and type of dental treatments, therefore, the demand, investments in equipment are strongly conditioned by the climate of confidence and trust of dentists and dental technicians.

Remaining in the field of consumables, another much more technical issue concerns the difference between:

  • the retail business (also called “sell-out”), which refers to the purchases of dental practices and laboratories
  • the wholesale business (also called “sell-in”), which refers to sales through the distribution channel such as dental dealers.

It is true that the two businesses are directly related because as the demand for retail products increases, there is a demand by distributors for supply from manufacturers, however, this correlation is not always in sync because it largely depends on the stock of the dental dealers. This is exactly why sell-in and sell-out do not always move in sync and the purpose of this article is to also analyze how the pandemic has affected these two businesses in a different way.

Impact on demand

Here in Europe, we find ourselves in a condition where precise data regarding the demand for dental services are missing, but the real possibility to analyze the evolution of the numbers and types of dental treatments is to evaluate the trends in the purchases of consumer dental products by dentists.

Therefore, if we consider the evolution of the consumption by dentists during the pandemic (excluding products mainly related to Covid-19, such as those for hygiene, PPE, and disposables in general), we can acquire a fairly clear idea of what the demand for dental treatments was. Even if dentists had possibly reduced their inventories during the period of greatest financial stress, in the long term of a year, the consumptions (of products such as impression materials, cements, restorative products, endodontics, anesthesia, etc.) are strongly correlated to the influx of patients to clinics and so we can declare that the trend curves relating to the business of consumable products can be very similar to those of the dental sector in general.

The Italian and Spanish markets

Currently, the Key-Stone research institute, specializing in dental research at a global level, measures the dental retail markets through the “Sell-out Analysis” research in just four European countries (Italy, Poland, Portugal, and Spain) but with the advent of the pandemic, in particular for the Italian and Spanish markets, a monthly analysis was carried out, based on the sales data of a sample of dental dealers covering over 70% of sales in each of the two countries (the total sales of 2019 of the panel of dealers exceeded 500 million euros in Italy and 220 million euros in Spain).

As we can see in Figure 1, which indicates the monthly trends of the two countries, the evolution of the business activity is quite similar. The trends presented are those of the accumulated value up to December, also indicated as “year to date”, while for January and February 2021 the so-called MAT “Moving Annual Total” is indicated, namely, the 12 months “March 20-February 21″ vs ” March 19-February-20 “, which we would consider the true first full year of the pandemic compared to the previous 12 months.

It is worth noting that these are two countries that have had a very similar digression of the pandemic in terms of timing and with respect to the political choices of confinement, and unfortunately, for the incidence of infections and deaths concerning the population. Italy activated a total lockdown 10 days before Spain did but, apart from this, the similarities are very high. Even dental and welfare systems are the same, with a weight of over 90% of the private sector, even though the DSO (Dental Service Organizations) channel in Spain, namely that of the dental chains, carries a greater weight than in Italy.

Sell out cumulated trend analysis 2020 - Magazine Key-Stone

As can see in Figure 1, referring to the trend in the consumption by dentists, excluding products related to Covid-19, while Spain had already started the 2020 year with a slight decrease, which was a mere 2% in the first two months, Italy instead registered a growth of 2% in the same period. This issue is very interesting since the two markets experienced, and continue to experience, their own development dynamics regardless of the pandemic. Italy was in a stagnant or slight growth situation and Spain was already suffering from a recessionary condition linked mainly to a crisis situation that had emerged in the DSO channel, in particular, with the sudden closing of an important brand. Overall consumptions in Spain were therefore already in decline and, following the lockdown, the business recovery continues to hover around 3 points lower than in Italy.

But let us see what the trend curves of these two countries tell us. First of all, the lowest moment of the market was reached in May 2020. It should be reminded that almost all of the dental practices in both countries completely shut down, carrying out only some urgent therapies, but in the month of April, product purchases had reached minimum levels. After the reopening from the total lockdown, starting at the end of May, we had witnessed a sudden and positive recovery of the market. To explain this strong rebound in the months following the reopening of practices, however, we must consider that the average portfolio of works that remained suspended due to the lockdown was very important (estimated to be about 112 days of works to be recovered). An estimated value of treatments of about 1.2 billion Euro that was suspended in March in Italy and just under 1 billion Euro in Spain meant a true “economic buffer” useful for the relaunching of the dental business, which, however, was also able to count on the access of new patients in the practices; patients who had problems during the lockdown or who made the decision to carry out new treatments. The recovery of those months looks to be rather robust and was promptly monitored by Key-Stone through the analysis on the purchases of consumable products by dentists.

Following the first strong recovery, the growth trend returned to almost zero in the autumn and with the second wave of the pandemic, despite dental practices remaining open, the overall monthly level of purchases (November 2020 – February 2021) stabilized at around -3% in both countries. If we consider slight inflation with average increases of all prices, precisely measured through the “Sell-out Analysis” research, we can state that the level of the number of treatments during these months is about 5%-6% less compared to those of the same months of 2019 (the year 2019 was used for the comparisons) and this situation may persist at least until the health emergency ends and a substantial share of the population has been vaccinated.

Great opportunities

Remaining on the previously discussed topic, this crisis in product consumption clearly refers to segments that are not related to the pandemic, since the enormous development of hygiene and protection products is offsetting the business of the distribution system. As mentioned in the introduction, we must consider equipment and durable goods, in general, to be a market by itself. In this article, only the trends related to consumables are being considered; a separate article should be dedicated to the equipment. Therefore, we will limit ourselves to saying that until the trust of the operators (dentists and dental technicians) is regained it will be very difficult to return to pre-Covid levels but, paradoxically, thanks to investments in new technologies and the renovations of dental centers, it will be possible to accelerate the recovery of a dental practice’s business and intercept new opportunities that this catastrophe still offers.

In particular, it can be cited as great opportunities:

  • the greater importance attributed to health issues by the population
  • the renewed centrality of the relationship of trust with the dentist
  • the advent of digital technology in the clinical, organizational, and marketing fields.
  • the financial and strategic weakness of thousands of practices.

These weaknesses are especially typical of small practices run by older dentists, generally with a less proactive attitude, with the risk of suffering the crisis in demand as well as organizational and management problems due to the adoption of new safety protocols which, inevitably, lengthen the times of occupation of the practice and reduce hourly revenues.

Impact on the industry

Now, let us return to talking about consumer products and their impact on business, this time, on that of the industry. As mentioned in the introduction, in the case of wholesale sales, the issue of warehouse inventories cannot be ignored. An analysis of 2018 financial statements of the dental dealers carried out by Key-Stone, demonstrates how inventories are worth just under 20% of the total purchases. Therefore, it is pretty standard to observe trends in the purchases of distributors which, although related to the retail sales, can show very different dynamics, especially with regards to the timing with which stocks are replenished.

What occurred during the lockdown was a true stop in the purchases of dental dealers which, in the face of serious unknown economic and financial difficulties due to the sudden block of the market, used as much as possible their stocks, and reduced purchases to the bare minimums, thus taking the risk of a reduction in the level of customer service but guaranteeing good financial resistance.

Key-Stone manages an international panel made up of the main manufacturers in the chemical consumable sector (impression materials, cements, restorations, prophylaxis, etc.), consisting of companies that had a turnover of over 800 million euro at sell-in in 2019 in Europe and it was possible to replicate the same exercise explained previously on the retail markets of Italy and Spain, by carrying out a monthly analysis of the sell-in sales in all European countries. Considering these 800 million euros, we can reasonably assume that approximately 150 million euros of the total inventories were normally stored in the warehouses of dealers throughout Europe.

The six important dental markets in Europe

In this article, we briefly present the results of the six most important markets in terms of business activities, whose total turnover in 2019 was approximately 520 million euros; these are Benelux, France, Germany, Italy, Spain, and the United Kingdom.

First of all, in Figure 2 we can see the sell-in trends on a monthly basis (trend of the month compared to the same month of the previous year, also called “Year over Year”), with a hefty collapse in purchases by distributors of all Europe (this phenomenon does not in fact concern only these countries), which in the months of April and May 2020 suffered its lowest point, after a month of January that had already started with a reduction, even though it was a technical phenomenon given the fact that the month of January is always considered quite inconstant over the years with regards to wholesale sales.

Only in the month of July did we witness the first positive figures of a second-half which, with its ups and downs, continued to grow slightly. It wasn’t until the months of January and February 2021 that we were able to witness a full recovery in the purchases of dental inventories; whose growth is a very evident sign of the replenishment of the inventories.

Year over year trends 2020 - Magazine Key-Stone

The analysis of the cumulated sales values allows us to observe how the slight overall recovery in the second half of 2020 and the large increase in the first two months of 2021 are certainly not enough to fill the negative gap accumulated in the full year of 2020.

Figure 3 allows us to observe how, thanks to the purchases during the first months of 2020, the lowest point of the total business is indicated at the end of the first half, while the retail sales analyzed previously for Italy and Spain indicated its historical minimum levels in May. However, and once again, this is determined by the purchasing policies of dealers across Europe, who at the most serious moment of the crisis had reacted by almost completely blocking their purchases, therefore, using their inventories to respond to the very weak demand during the months of lockdown.

Y2020 year to date and 2021 MAT trends - Magazine Key-Stone

Despite the good performance of the channel in the first months of 2021, it is interesting to point out that in February the overall value of the last 12 months of analysis shows a trend of -16%. This signifies that, most likely, the warehouse inventories of European distributors have been restored and during the 2021 year the sell-in sales will be consistent and aligned with retail ones, net of any new extraordinary situations due to the pandemic. In any case, we have isolated the sell-in of Italy in the graph in order to closely observe the correlations with the retail analysis shown previously. Once again, the trend curve is consistent but Italy shows a worse trend than the average and its retail one, indicating the strong phenomenon of destocking in this country. In Italy, the final result of the December sell-out at -15% (see Figure 1) is better than that of Spain (-18%) but despite this, the result of the Italian sell-in is much worse than the Spanish one as shown in Figure 4 (-31% vs -20%). This is simply another sign of the large warehouse inventories that were used by Italian dealers during the pandemic. On the other hand, the sell-in of Spain is consistent with the European average trend.

2020 trends per country - Magazine Key-Stone

For now, if we carefully look at the analysis of the results of the full year, we can see how 2020 was truly a disastrous year for the dental industry, with closure at -22% in the total of the six markets analyzed and a -17% in all of Europe, thanks to the positive performance of Russia (+6% in local currency and -8% in euro) among the other main countries not analyzed in this article.

At the end of the year, the UK and Italy are the countries with the most evident collapse and, without a doubt, the two countries that also experienced the most dramatic impact of the pandemic during the first part of 2020, with the highest incidence of Covid cases and deaths. However, apart from the health implications in these countries, a certain weakness of the distribution system and a high level of inventories had probably contributed greatly to the sharp reduction in industry sales. In the UK, even the weight of public services, heavily involved in the management of the pandemic, may also have played an important role.

In any case, in February 2021 we can already see a big recovery in all the markets. In the green bars of Figure 5, we see the result of the first two months of 2021 compared to the same of 2020 (2021 Feb. YTD) and we can observe growth rates that are not compatible with those of the retail sales but clearly related to the replenishment of inventories. However, all of this will not be sufficient to recover all the business lost in 2020: in the red bars, in fact, we can see the trend of the last 12 months (2021 Feb. MAT) compared to the overall sales of 2019 and returning again to the -16% (OVERALL) already presented in Figure 3.

February 2021 trends per country - Magazine Key-Stone

However, it is worth noting there is a certain heterogeneity in the recovery: markets such as the Benelux and France in particular, indicate acceptable overall declines for the rolling year (2021 Feb. MAT), and it is likely that in 2021 they will recover the values of 2019. However, it would be useless to deny that in absence of a true recovery in retail sales, and without a robust increase in the demand for dental treatments, a slowdown could inevitably occur starting in the spring of 2021.

A new phase

There is no doubt that as soon as the pandemic situation improves, reasonably in the second half of the year, a new phase will open. However, we must not think there will be an immediate recovery because, on the one hand, there will be another new economic rebound for just a few months, due to the essentiality of the dental treatments, for which an interruption or reduction of those treatments generates a subsequent expansion phase of a certain amount, but on the other hand, we will find ourselves in the face of a medium-term scenario (from 3 to 5 years) featured by a structural economic recession, with several economic sectors in severe crisis and a very severe impact on the employment levels of all the countries of the European area, especially those that were already structurally weak from a macroeconomic point of view.

In this regard, Key-Stone is preparing a new “post-pandemic outlook” report in which more precise forecasts will be made on the future dynamics of the market, but we can anticipate that a recovery of the 2019 value levels is estimated (even in regard to implantology – which had experienced a dramatic decline – and investments in technologies) only partially in the year 2022 and fully in the year 2023 throughout Europe.

Roberto Rossohttps://www.key-stone.it/
Business strategies consultant, Roberto Rosso is the founder, chairman and CEO of Key-Stone, a company specialized over twenty years in marketing and market researches, in particular in the dental sector, where it operates internationally and includes almost all the main international companies among its customers.

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