Sonova Goes Direct with HearingShift.com as Sales Surge
Hearing Aid and Implant Revenues Grow, with a Direct-to-Consumer Investment
21 November 2019
Phonak Marvel Bluetooth-compatible hearing aids continue to drive parent holding company Sonova’s growth. The Swiss hearing aid manufacturer reported revenue in the first half of its 2019-2020 fiscal year of CHF 1.426 billion (USD $1.44 billion), up 9.4% from the same period in the previous year. Reported profits for the period were CHF 279.5 million (USD $282 million), up 16.1% in local currencies and 11.2% in Swiss francs (CHF).
Sonova sells hearing aids and cochlear implants through independent hearing care professionals as well as its own retail network (Source: Sonova Investor Presentation, November 2019)
During the same period, Sonova participated in a quiet launch of direct-to-consumer (DTC) hearing aid sales through Shift (hearingshift.com), a new online-only business serving consumers in Australia. Shift will give Sonova insights into emerging competition from direct-to-consumer and over-the-counter (OTC) hearing aid sellers.
Firing on all cylinders
Sonova’s finances are firing on all cylinders, with increases in its multi-brand hearing-aid business, its retail audiological care retail network, and its Advanced Bionics cochlear implants subsidiary.
- Hearing Aids: Strong consumer demand for the Phonak Marvel hearing aids, launched in October 2018 and followed by Marvel 2.0 improvements in August 2019, helped drive organic 12.2% revenue growth to CHF 1.294 billion (USD $1.31 billion) in the hearing instruments business. Sonova reported market share growth in all sales channels, including independent audiologists and big-box suppliers, as well as the U.S. Veterans Affairs. The company says it is the global market share leader in the overall hearing aids market.
- Retail: Sonova said its audiological care business, with 3,500 company-owned stores and clinics worldwide, achieved 9.4% growth in local currencies over the same period last year. The company said a reorganization and streamlining of much of its vertically integrated retail and digital fulfillment operations helped lead to double-digit same-store growth in the U.S., the U.K., Austria and Nordic countries. Sonova says it has the world’s second-largest share of the market for hearing instruments sold through retail outlets.
- Implants: The Advanced Bionics cochlear implant business increased sales by 20.9% to CHF 132.2 million (USD $133.45 million) over the same period last year. Sonova said product upgrades to new processors and sales of accessories, including a component that enables Bluetooth audio streaming, helped grow sales. Continued success of its HiRes Ultra 3D implant, approved by the FDA in August 2018 for use with MRIs, also contributed to the revenue growth. Sonova is tied with Med-El of Austria for the second-largest share of the global hearing implants market, behind number-one Cochlear Ltd. of Australia.
The strong performance achieved in the first half…drove broad-based market share gains. Phonak Marvel, the most successful launch in the company’s history, was a key driver for the strong increase in the hearing instruments business, while the audiological care business benefited from the growth initiatives we initiated in past years and from our ongoing efforts to enhance consumer access. The continued success of our MRI-compatible implant and strong upgrade sales propelled growth in our cochlear implants business.Sonova CEO Arnd Kaldowski (news release statement)
A Shift to online sales
Sonova has also made quiet investments in the past year in understanding the online hearing aid channel, culminating with this month’s launch of Shift. In April 2019, Sonova acquired Blamey Saunders hears (BSH) of Australia, which had developed an innovative blended model for selling and supporting hearing aids online. In a presentation to financial analysts in October 2019, Sonova said it made the acquisition in order to “gain valuable real-life insight into…new consumer journeys” and to “learn new marketing approaches to consumers, especially younger consumers with higher willingness to spend” (Investor & Analyst Day 2019 Presentation, page 71).
Now Sonova and BSH have teamed up to launch Shift, which sells products online to consumers in Australia and New Zealand for AUD $2,200/pair (USD $1,495). Sonova manufacturers the hearing aids, while Blamey Saunders provides fulfillment support. The platinum-colored Shift hearing aids have a RIC (receiver-in-the-canal) form factor and are for mild-to-moderate hearing loss. They are powered by rechargeable lithium-ion batteries that last all day and come with a charging case.
Shift sells hearing aids online in Australia and New Zealand for AUD $2,200 (USD $1,495) per pair.
Sonova has always sold to consumers through independent audiologists, through its own retail channels, and through large resellers such as the VA and big-box outlets such as Costco. Sonova has also manufactured hearing aids for resellers who sell directly to consumers. For instance, Sonova has supplied hearing aids to Audicus, a popular independent online provider. But Shift is the first true direct-to-consumer online site run by an entity Sonova owns.
OTC hearing aids in the US
With over-the-counter hearing aid sales in the U.S. expected to be approved by August 2020, Sonova and other “Big Five” hearing aid manufacturers are getting ready for the new competition. For instance, GN Hearing is supplying the new Lively direct-to-consumer hearing aid business with hearing aids, and it provides other extensive corporate support. All the majors are also making heavy investments into technologies, such as remote care, that will potentially enable the provision of services to direct-purchase customers.
Not abandoning the traditional model
But Sonova’s investment in Shift doesn’t mean it plans to make major changes to its traditional dispensing-network channel. In fact, Sonova hasn’t promoted or publicized the experiment in online hearing aid sales. Its first-half financial presentation didn’t even mention the launch of the new sales operation.
Moreover, in presentations to financial analysts in the past year, Sonova executives have positioned their investments in digital and online technologies more as a way to help hearing care professionals use digital technology to serve patients more effectively.
For instance, Phonak’s new eSolutions enable remote care with mobile apps that let providers update patients’ hearing aid programs without requiring office visits. Meanwhile, Shift will not be able to sell over-the-counter hearing aids legally in the U.S. until FDA rules allowing OTC sales are finalized in the summer of 2020.
Sonova’s financial reporting period ended before Shift started selling its products, so the experiment in direct-to-consumer sales had no impact on the first-half statement. Perhaps we’ll learn more about Sonova’s plans for contending with the emerging direct-to-consumer channel when it reports its full-year numbers in May 2020—only several months before the OTC market in the U.S. is scheduled to finally come to life.