State of the Industry 2010
Posted Apr 28, 2011 in LMT Surveys
- Survey demographics
- CAD/CAM in the Lab: Up 40% in Five Years)
- Types of Restorations Sent Offshore
- The Global Marketplace: Offshore Outsourcing
- Average Number of Clients by Lab Size
- Top Sources of Continuing Education
- Breakdown of the Average Client Base
- Laboratory Service Across the Board
- C&B Caseloads: Metal-Based vs. Metal-Free
- How's Business in 2009 Compared to 2008?
- Continuing Education: Attending Courses with Dentist-Clients
- CLOSE UP: Restorative Options
- Average Breakdown of Metal-Free Caseloads/Average Breakdown of Metal-Based Caseloads
- A 30 Year Look at Lab Marketing Strategies
- Over 40% of Lab Owners to Retire in Next Decade
- Respondents' Total Gross Sales/Personal Gross Income for 2009 by Lab Size
Our members are aging. Many are preparing to retire. Digital technologies are on the rise. Industry business models are changing. Restorative options are expanding. Technology schools are closing. The economy is shaky. The global market is increasingly competitive. Private equity discovered our cottage industry. Such is the State of the Industry in 2010.
How is all this affecting our community? LMT's comprehensive, multi-issue coverage offers a glimpse at where we've been over the past 40 years, where we are now and where we're going. Part I starts now.
Never before has the landscape of our industry been in such flux.
Much of this change is technology driven. While digital technology is still in its infancy, it's already having a positive and significant impact on the way we fabricate restorations; the materials we use; our internal operations; and how we work with clients, manufacturers and other laboratories. From printed waxups to milled copings, abutments and full contour, digital technology gives us access to the latest restorations and materials and the list continues to expand as the technology evolves. The struggle to cast titanium--touted for its biocompatibility, corrosion resistance and radiolucency--is over now that it, too, can be successfully milled. Digital technology has also given rise to new business models for both laboratories and manufacturers. Some labs are building new profit centers by offering milling, printing and/or scanning services to other laboratories, and their peers are taking advantage of these services; of those State of the Industry 2010 Survey participants who offer digitally fabricated restorations, 67% have the understructures fabricated by an outside laboratory.
Or, by a manufacturer, a few of whom have crossed over into the laboratory realm and are fabricating understructures for their laboratory customers. This is a trend that some laboratory owners resent. "My biggest fear is that our suppliers will soon become our competition. Eliminating the need for the laboratory is within their grasp.
How hard would it be for the manufacturer of a digital impression-taking system to add a button to its chairside software that says 'order crown'?" comments John Wilson, owner, Sunrise Dental Lab, Yucaipa, California.
The new technology is invigorating for some; debilitating for others. Those who embrace it say it's the future, cutting edge, efficient and a viable solution to their staffing challenges. Plus they're happy to never wax another crown again. "New technology has not only impacted my business, but has given a fresh, new vitality to my workday," says the owner of a C&B lab in Ohio.
Those who haven't gotten involved in digital dentistry are offput by the costs, question the viability of the materials and systems, and are happy with traditional methods. "Digital technology is very expensive to own and the results are not as good as conventionally made products. I still have not seen a CAD/CAM system that can produce better margins than the conventional ones we produce," says Troy Cook, manager, Hilltop Dental Laboratory, Virginia Beach, Virginia.
And so the great divide continues, with digital technology being just one in a long list of topics over which our community members are still very much at odds.
The Offshore Divide Offshore outsourcing--though discussed more openly now than it was just several years ago--still remains an incendiary issue. Case in point:
- One-third of our survey respondents say they don't outsource offshore but understand it's part of globalization. "I accept it as just part of business. Outsourcing doesn't fit our business model. I prefer to keep our work local and so do our customers," says the owner of a crown and bridge laboratory in Vermont.
- Nearly 40% say sending work offshore is un-American and unfair to employees. For years, laboratory owners and managers have lamented price cutters, and now fueling even more fire is this new generation of low-cost, overseas operations that they feel is deteriorating their businesses. "In our current economy, small independent labs are being forced to keep prices low to remain competitive with offshore labs. The price of supplies has skyrocketed while offshore labs enjoy lower costs by purchasing in large quantity and exploiting cheap labor in exchange for considerable profit," says a respondent from Michigan.
- In the third camp are the proponents of offshore who maintain that it's an answer to our industry's ongoing labor crunch and provides a means to growth and the ability to offer a more economical tier of services to their dentist-customers. "Outsourcing provides access to additional capacity, which has always been my most serious roadblock to consistent growth. It allows me to have temporary help with costs that are fixed. I can access these services on an as-needed basis," says a manager of a large laboratory in Missouri.
While there's a lot of debate about how much of the U.S. restorative market is being fabricated offshore, it's hard to get an accurate read, especially since some who do send work outside the country don't want to admit it. Only eight percent of our survey respondents acknowledge they're using the services of an offshore laboratory; these lab operators are sending an average of 18% of their total caseloads overseas. (For a look at what type of work is going offshore, click here to see the graph.)
Where's My License? Licensure also remains a hot-button issue, and opinions haven't changed in the past 15 years. In fact, the exact same percentage of owners--55%--who responded to our 1995 and 2010 State of the Industry Surveys believe that laboratories should be licensed. Proponents argue that licensure is the road to a better future for our industry, increasing professionalism, quality of work and our ability to attract newcomers to the field. Opponents feel there is no need for any regulations beyond what is already controlled by OSHA, FDA and the Department of Labor.
Many believe that licensure and educational requirements go hand-in-hand. "We cannot have regulation without corresponding education. The dentists envision more community college programs and vocational programs but that won't do. We need college programs where technicians are taking the same courses as pre-dental students. We need people who understand the entire head and everything associated with how the mouth functions, not just how to wax a coping," says Loren Ford, Thorn Ford Dental Laboratory, a 20-person lab in Bothell, Washington.
The Onus for Training The U.S. military was once the leading source of training for technicians. However, in the past several decades, there's been a huge decline--60-70%--in the number of technicians learning their skills in the military. Also, in the past 25 years, the number of accredited, two-year programs has dropped from 72 to 20; this means our schools are graduating approximately 220 technicians per year across the entire country.
Given the lack of formal training options, it's fortunate that manufacturers stepped in to fill the void and spearhead educational efforts in our industry. Almost 70% of our survey participants say manufacturer-sponsored seminars at a company facility, regional trade show or other offsite location are one of their top two sources of continuing education, with ceramics, digital dentistry, implants, and partial and complete dentures being the most popular topics.
In a close second are trade magazines, with 65% of participants rating them as a key source of business and management advice, product information and technical strategies. Following a distant third are technical books and reference manuals. Click here to see a chart of the top sources of continuing education.
Simultaneously with the decline in two-year programs for technicians, dental schools have dramatically cut back on the amount of dental technology training its students receive. This means that some graduates have never performed laboratory procedures, may have never met a technician or understand the value of closely interacting with technicians.
Add to the situation the rapid advances in technology in the past decade, the perpetual lack of newcomers into the field and chronic concerns about finding qualified personnel, and we have an education crisis. This is putting two-fold pressure on laboratory owners who are largely responsible for training their employees and, in many situations, are educating their clients as well.
Technician as Knowledge Czar For years, dentists have been increasingly relying on their labs for their product expertise and technical advice but the explosion in new digital technologies has taken this trend to a whole new level of partnership and one-on-one communication. In fact, 78% of respondents--a 20% jump since 2005--believe that being an educator to their dentist-clients gives them a competitive edge and is a valuable marketing strategy.
"As the available technology for dentists increases, we find we are as great a resource as ever to our clients in helping them purchase and integrate these new technologies into their practice," says Jim Thacker, Utah Valley Dental Lab, Provo, Utah. "It's critical for labs to take on this role; otherwise, someone else will lead them to other technologies, and perhaps even away from your lab!"
Another positive trend in the laboratory-dentist relationship is the increasing number of lab personnel attending continuing education courses side-by-side with dentists. About half of our survey participants do so, with 62% saying the number of courses they attend with dentists has increased in the past five years. "To better our position in the dental community, we need to stay abreast of the dentist perspective, and not get too caught up in just the laboratory side of things. Being able to provide dentists with resources that are directly related to their practices, and being able to answer their questions on their level are powerful tools to attracting and retaining clients," says Fred Watson, CDT, Molina/Watson Dental Technologies, Rio Rancho, New Mexico.
Digital communication is also transforming how laboratories and clients communicate and giving us more options to stay in touch. More than half of our respondents frequently or occasionally e-mail clients about cases and 75% regularly send digital photos. On the other hand, there are forms of digital communication that most dentist-technician teams are not taking advantage of, including digital prescriptions and real-time communication via the internet.
Inside the Case Pans Both implants and metal-free restorations gained wider acceptance in the last decade and continue to flourish:
- The number of laboratories offering implant services has more than doubled in the past two decades; 71% of all laboratories now offer implant services--up from 33% in 1989. Thanks to long-term success rates and systems--such as milled abutments and bars and guided surgery--that make implant placement and restoration easier and more predictable, implants have gained broader acceptance from practitioners and patients alike, and have overcome the skepticism of the 90s. "Implants have almost eliminated long-span bridgework. This is a real plus for patients as it improves their quality of life significantly," says Stephen Salmon, Rembrandt Dental Studio, Endicott, New York. "It's also a plus for laboratories because it provides us the opportunity to work on easier, more profitable restorations."
- A whopping 92% of C&B and full service survey participants now offer some kind of metal-free restoration, and 30% of their overall C&B caseload is metal-free. The all-ceramic market is being driven by the success of CAD/CAM and pressable systems but also coming into play are the record-high gold prices we've been experiencing since the fall of 2009. "The CAD/CAM explosion was taking off just as the price of gold went up, so it was easier to convert dentists to zirconia. Even if gold goes back down, we will stay with zirconia," says Randy Saunders, CDT, owner, Natural Arts, San Antonio, Texas.
Yet, at this juncture, the tried and true maintains its dominance: metal-based restorations still make up the majority--70%--of the industry's overall C&B caseload. However, this dominance is eroding: in 2005, metal-based units accounted for 83% of C&B workload and, in the past year alone, the share dropped from 75% to 70%. (Click here for a breakdown of the average metal-based and metal-free caseloads.)
The Economic Slump Given that the world is experiencing its weakest economy in years, it's no surprise that the economy is first and foremost on the minds of many of our survey participants. Business is down, down, down say just over half of the 250 lab owners and managers who participated in the How's Business segment of our survey. For 28%, business in the last quarter of 2009 was markedly down compared to the rest of the year; for 24% it was only slightly down; and it was level for another 21%.
All in all, 2009 was hardest hit--over 60% say business in '09 was down from '08--by the Wall Street scoundrels who shot shrapnel into the global economy. (See chart for details.) Even for those whose businesses remained stable or were slightly up, it's been a year of belt tightening and careful budget planning.
As more and more indicators point to the healing of the U.S. economy, almost half of our respondents are at least somewhat optimistic about 2010: 36% anticipate that business will be slightly up and 13% predict it may even be markedly up this year.
Are You In or Out? Industry analysts have long predicted the demise of the small and/or mid-size lab, and if ever economic conditions were ripe for attrition it's now. However, thus far, our data shows no attrition; LMT's circulation figures have remained consistent during our 26-year history. Just as in 1984, there are still approximately 11,200 laboratories (including in-house) in the U.S.; about 77% are one- to five-person labs.
What is changing, however, is the increasing number of owners at or nearing retirement age: 43% of laboratory owners are planning to retire within the next 10 years. The problem for the majority of owners is that their small laboratories are often too dependent on their skill and presence and, therefore, aren't as attractive to a buyer as a larger lab. In fact, our survey shows that the larger the lab, the better the chances for acquisition: in the last five years, only 12% of one- and two-person laboratories have been approached by a potential buyer, compared to 78% of those laboratories with more than 20 employees.
For those who operate a profitable larger laboratory, the good news is that there's been a flurry of merger and acquisition activity--by players from both inside and outside the industry--since the beginning of the new millennium. Group laboratories have made a considerable number of acquisitions, with some of them being the largest purchases in our industry's history. And even more remarkable, private equity firms--such as Bolder Capital (Dental Services Group); Welsh, Carson, Anderson and Stowe (Geodigm); HealthpointCapital LLC (DTI Dental Technologies); and Birch Hill Equity Partners (NovaDent)--have entered our industry.
With dentistry being one of the fastest-growing segments in the medical technology field, private equity firms see financial potential in dental technology. They're also enticed by the fragmented nature of our industry that lends itself to conglomeration and the rapidly shifting market conditions such as the growth in digital technology and global competition.
Our cottage industry has been discovered. The difference between now and the last time this happened--in the late 1970s--is that this time these firms are likely to stay. The fact that this is happening is very telling in and of itself. Big businesses' interest is a compliment to our industry and how far we've come. Even 20 years ago, many laboratories were considered "mom and pop" operations. Today, there are many--of all sizes--that are professionally managed, high tech and business savvy.
Admittedly, now is a time of tremendous change and challenge. We're battling chronic issues as well as new ones. We're growing older and there's potentially a new world order on the horizon. But many are optimistic and see a bright future, including the 23% of survey participants who have opened their labs during the last 10 years. Says Mike Girard, RDT, founder of Diadem Digital Solutions, who opened his doors in Troy, Michigan and Windsor, Ontario early last year, "This is the most opportunistic time ever in this industry. If you have the energy, the vision and a sound plan, there's never been a better time to roll up your sleeves and take some bold moves."
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