Content Published Last Week

1. Howden Kitchens, Independent Retailers, & EU Kitchen Market Structure

2. Intuitive Surgical vs Laparoscopy Cost and Sales Process

3. Evolution Gaming: Aggregator / Operator Relationship

4. Vistry Group: PRS Partnerships

5. TransDigm, HEICO, OEM vs PMA, & Dual vs Sole Source Parts

6. Fulfillment by Amazon vs Wayfair CastleGate: A Supplier's Perspective

7. Amazon & Wayfair: Handling Large & Bulky Goods

8. Palo Alto Networks: Sales Process for SASE

Howden Kitchens, Independent Retailers, & EU Kitchen Market Structure

In the UK kitchen market, independent showrooms are the largest category with ~35% market share by sales value. Trade specialists, including HWDN, have ~30% market share.

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The UK independent market has one major difference to most EU markets: lack of buying group power. Most continental EU countries are dominated by large buying groups representing indie showrooms. Buying groups procure kitchen equipment from OEMs at better prices, offer better credit terms, and help indie showrooms save money across the board. The strength of buying groups has potentially limited trade category penetration across Germany and Netherlands.

And now the large European buying groups are entering the UK to strengthen UK independent showrooms.

This interview explores how kitchen buying groups work across Europe, differences in the UK, and how this may impact HWDN both in the UK and abroad.

Buying groups revolutionized the kitchen selling model. Instead of focusing on individual brands, they concentrate on the support that buying groups provide to retailers and kitchen partners. This is a significant advantage when working with kitchen shops and suppliers. For instance, MHK produces 85% of their kitchens, excluding appliances, with private labels manufactured by lesser-known companies such as Nobilia, Häcker, Schuler, and Ballerina. This means that MHK's advertising not only reaches end consumers but also members of the kitchen industry, increasing awareness and production turnover. This has greatly benefited the kitchen industry. - Former Managing Director at MHK Group AG

Intuitive Surgical vs Laparoscopy Cost and Sales Process

Intuitive Surgical may soon release its next generation robotic system. In the meantime, Johnson & Johnson revealed more about their Ottava platform during their CMD last month. This interview walks through the Da Vinci sales process to net customers with a former VP of Clinical Sales at ISRG:

Intuitive's strategy was to avoid discussing the data and focus on executive-level conversations. However, we noticed a slowdown in our business around 2013, largely due to cost concerns from hospital executives who were looking at these old studies. These studies were flawed and didn't provide a clear methodology for arriving at the costs, making it impossible to reproduce the same costs in a different hospital. This resulted in a wide range of costs. - Former VP Clinical Sales at Intuitive Surgical

A key concern amongst potential buyers is the cost of the robot. The interview explains how sales reps explain the economic benefit of Da Vinci’s vs laparoscopy to hospital administrators.

Firstly, I'm looking for an instrument cost that is disproportionately high for the robot. Based on the instrument cost, I can usually tell what mistake they're making. They might be counting all the instruments in the sterilized tray, including ones they don't use. If an instrument isn't used, it doesn't count a life, so they shouldn't be charging for it. Alternatively, they might be charging the full price of the instrument rather than the per-use charge. There's some mistake in there that I need to identify. The second major hidden cost is a robot fee. They might charge this fee in several ways. Some hospitals simply apply a flat fee. Every time a procedure uses a robot, they charge $4,000. However, this $4,000 isn't a real number. For some, it's $1,500. For others, it's $7,000. They've essentially just picked a number and charge that every time the robot is used in a procedure. - Former VP Clinical Sales at Intuitive Surgical

The interview further discusses how ISRG presents the perceived economic benefits of Da Vinci’s compared lap surgery and potential challenges to drive further adoption.

Evolution Gaming: Aggregator / Operator Relationship

Last month, we published an interview that focused on Evolution's relationship with aggregators that resell their live casino content to iGaming operators. This interview focuses on the relationship between the aggregator and the operator's relationship, how contracts are structured and how content is chosen.

"Today, aggregators are crucial due to the variety of content available. A decade ago, there were perhaps 20 to 30 different game suppliers in the market. As a standard casino website, it's not necessary to have 100 of them. However, to stay competitive, you would need to have 50, 60, or 70, even if the top 20 game providers generate 90% or more of the traffic. - Current European iGaming Aggregator

Due to the increase in suppliers, pace of game releases, and operator competition, aggregators have become a crucial component of the iGaming ecosystem:

"It's like going to a supermarket that offers every possible item, but in reality, 80% of the people still buy staples like milk and bread. This is why I believe aggregators are important. They allow operators to integrate directly with the top game providers, while smaller providers that don't represent a significant share in terms of turnover or GGR are taken through an aggregator to ensure as much content as possible. - Current European iGaming Aggregator

TransDigm, HEICO, OEM vs PMA, & Dual vs Sole Source Parts

This interview with a Former VP at TransDigm explores the differences between products that are sole and dual-sourced, the respective pricing power, and how this translates to durable earning power for HEI and TDG:

Let's say you have two different companies supplying seats, Collins and Safran. Both produce seats and tray tables. However, the way the tray tables for Safran attach might be different from the ones for Collins, and they might not work together even though they're both tray tables. This is a system-level issue. Third parties can come in and replace parts, but the individual components, the line replaceable units (LRUs), might not be interchangeable, even though the systems could be selected by either an airline or the OEM to be installed. Everyone focuses on LRUs. However, it would be challenging for someone to do that with Korry. If we consider the systems that Korry provides, for example, for the Boeing 787, the cockpit's overhead panel is delivered as a whole to Boeing for installation, unlike the older models where each switch was installed independently. This makes it more difficult for someone to replace parts because the individual switch is unique and can be replaced and fixed, but it's part of a larger system. - Former VP at TransDigm

Vistry Group: PRS Partnerships

Vistry Group, the UK-asset light homebuilder, has undergone a transformation since the merger with Countryside. We have published a series of interviews discussing the partnership business model with a focus on affordable housing. This interview with a Portfolio Manager at L&Q explores the UK PRS market and potential demand for Vistry:

"I believe it's a supply chain issue. I was looking at a 10-year trend. In 2012, on average, there were around 800 to 900 BTR and PRS units being developed and deployed in the London metropolitan area. This number peaked in 2018 at over 5,000. Then there was a slight slowdown due to the pandemic, followed by a significant peak in 2021 with around 8,000 units. However, since then, there has been a downward trajectory, reducing to around 4,000 units. In Q1 2023, only 700 units were developed, which could potentially be half of the 2022 numbers in the UK." - Commercial Director at L&Q

One perspective from the interview is that UK housing supply is not held back by the lack of capital but by a lack of building capacity on the developer side. One potential implication is strong, sustainable demand and pricing for Vistry Group.

Amazon vs Wayfair: Shipping Large and Bulky Items

This week we published two interviews covering the logistics and delivery process of large and bulky items and how Wayfair competes with AMZN in this specific category.

Through Amazon FBA (Fulfillment by Amazon), furniture return rates tend to be higher and supplier experience tends to be poorer than with Wayfair CastleGate.

With Wayfair and CastleGate, you have more leniency because you're dealing with real people. They provide pictures, you can dispute issues, and often have a more positive experience. On the other hand, with Amazon, they will charge you back and you are at their mercy. You have to absorb the cost. It's important to have someone disputing when necessary, especially when reviewing customer experience comments. Whenever a return is made on Amazon, the customer has to input the reason and provide details about packaging or damage. It's up to your personnel to diligently review these to ensure there isn't any misconduct because Amazon will charge you even if it's clear a product has been damaged and it's their fault. You have to dispute these issues. - Furniture 3P Seller on AMZN and Wayfair

The first interview explores the differences in the logistics process that lead to different return rates and the differentiation point of Wayfair CastleGate.

The second interview walks through AMZN’s process with a Former Director of Operations at AMZN involved in building its XL/bulky warehouse infrastructure and the logistics challenges with the category:

This is what makes this space more challenging. For instance, treadmills and grills are not going to sell in the summer. They sell a lot more in the winter. So, how do you manage that inventory throughout the year? You might have a kayak or a canoe stored in your warehouse, but it won't sell during the winter season. - Former Regional Director of Operations at AMZN

We’ve surveyed multiple Wayfair suppliers to understand exactly how differentiated Wayfair’s logistics network really is. We’re planning to publish a piece of research walking through the unit economics of dropshipping furniture vs CastleGate vs FBA and large box physical retailers.

Palo Alto Networks: Sales Process for SASE

Over the past months, we have published multiple interviews around Fortinet and its SASE strategy. In this interview, a Former Palo Alto Networks sales manager discusses PANW strengths and weaknesses:

"No, it's not exactly half the price. Especially in the SASE market, I can't say that I directly competed against Fortinet. However, I know that Fortinet has positioned itself well. They have a 5G router in their product portfolio and other features that make their offerings more customizable for the mid-market. This allows them to offer a better price point for mid-market customers than Palo Alto. I see Palo Alto as a solution for larger enterprises that have a higher risk appetite than mid-market companies. Mid-market companies are unlikely to pay for a solution that offers 99% security at a high cost when Fortinet can offer them 92% to 95% security at half the price. - Former Sales Manager at Palo Alto Networks