GN Store Nord & Hearing Aids

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What is the benefit of integrating vertically? It seems you buy a network of clinics, but an audiologist selling this network can easily wait for his 12 months non-compete to expire, then set up his own network. We don't see the penetration of the captive channel increasing because people keep reinventing themselves. Does vertically integrating downstream remove consumer choice because the patient expects a neutral opinion? If an audiologist is part of the Phonak or Demant Network, you are not going to have this independence, so I was very keen to understand how those dynamics play out.

There is a rivalry among those five manufacturers that is all related to technology. They are trying to bring new products out, to sell new products to people who have already bought products from them. Instead of looking downstream to say, what can I really do to this industry to revolutionize it and get deeper market penetration – because they are only penetrating 25% to 30% of the market – they create technologies to enamor the provider who sells the hearing aid. They then can say, I've got something new, come on in, let me try this on you, and sit back patiently waiting for that first time user to walk through the door. There are no geared national marketing campaigns like a new diabetic drug which you regularly see on television.

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In Europe, you need to be part of a network and cannot open independents?

To help you better understand the US market, 4.8 million units were distributed in 2021. The commercial market, which includes university clinics, hospitals, private practice audiologists and non-affiliated hearing aid dealers who are local and make you feel special, they account for 45% of the market. The captive manufacturer-owned retail which is your national brands, direct from the manufacturer such as Beltone, MiracleWear, ConnectHearing, HearingLife and the chain stores, they have 15% of the market. Managed care, which includes United Healthcare, TruHearing, Your Hearing Network from Demant and Nations Hearing which is a new one, distributed 800,000 units or 13% of the market. The government, which is the VA, have 15% of the market. Big box retailers who sell on price such as Costco, BJ's, Walmart and Sam's Club, have 11% of the market, and online retailers have 4% of the market. That gives you an overview of the distribution of units, which is probably the smartest way to look at it, because this industry has compounded annually 2.5% to 3% for the last 20 years. No other industry I am aware of has grown at that rate and not been disrupted. It is prime for it so I believe the consumer is the one who really drives the industry.

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In Europe, you need to be part of a network and cannot open independents?

When you are 65, you join Blue Cross Blue Shield of North Carolina where I live, you go for your first Medicare examination and they say have you had your colonoscopy? You say no, I've never had one. They do that for you because it's paid for. As soon as you get your colonoscopy, you get an EOB or an explanation of benefits, and in there is a little yellow piece of paper that says, if you are having problems with your hearing, call 1-800 TruHearing. We know that if a person has a benefit that relieves that molasses, they start to move. The average age of the first-time user exploring managed care is 66 years old versus 72, so they have expedited that by six years. It is no longer the industry who is controlling the patient coming in, it's managed care. That is a big difference and the reason it is growing so fast. More people are signing up for Medicare Advantage in the United States than they are traditional Medicare. You see that all the time in all of the literature. The second thing is, I am 70. My generation entering into the hearing aid space is the first one who have come in connected. Meaning we have had iPads, iPhones and computers, so we are more likely to do more research to find out which is the best product, we read Wirecutter reviews on things.

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