Alliance Boots’ merger of its opticians arm with Dollond & Aitchison will create an optical behemoth, but will it be enough to knock Specsavers off the top spot? Jennifer Creevy eyes the prospects
One of Britain’s oldest brands – and some say the oldest opticians in the world – will disappear from the high street over the next few months, following Alliance Boots’ deal to buy a majority stake in Dollond & Aitchison (D&A).
While the D&A brand, which can trace its roots back more than 250 years, has been sidelined in favour of Boots Opticians, the move creates an optical giant that is fast creeping up on market leader Specsavers in an attempt to take a larger share of the£2.65bn market.
The deal appears to be a good fit, with D&A and Boots Opticians being similar sized beasts. D&A had the edge in terms of store numbers, with more than 400, while Boots Opticians’ portfolio brings the combined total to 690. In terms of sales, Alliance Boots health and beauty chief executive Alex Gourlay says: “We are very similar.”
The retailers are also on a par in terms of market share and value. According to Mintel’s optical report published in February last year, D&A had 9 per cent of the market and Boots had 7 per cent in 2007. Both were on a similar playing field to Vision Express, which had 9 per cent. All trailed Specsavers, which boasted 22 per cent (see chart, right).
While Gourlay is quick to dismiss any suggestion that the deal was borne out of need because of the recession, he admits that Boots Opticians was “sub-scale in the UK and this was the best way to grow the business”. He also throws down the gauntlet to Specsavers, noting that while Boots Opticians now sits at “a close second”, he will “do something about that in the next two years”.
Gourlay is quick to add that the retailer’s primary motivation is not about being number one in the UK. Rather, it forms part of parent Alliance Boots’ healthcare strategy and backs up executive chairman Stefano Pessina’s vision to create the leading pharmacy-led health and beauty retailer in the world. “The optical market is very important in our healthcare strategy, after pharmacy,” says Gourlay.
Power of two
Whether or not D&A went cap in hand to Boots Opticians is irrelevant, according to Planet Retail global research director Bryan Roberts, who says the deal solidifies the number two position and “turns two decent businesses into one significant player”.
According to Mintel, the two retailers were overdue some attention. Its report highlighted the dominance of Specsavers and pointed out that Vision Express was edging ahead of its competitors owing to its “clear marketing position”.
D&A and Boots Opticians didn’t fare so well in the report. It said D&A “needs a more unique selling point to attract consumers away from other multiples” and Boots Opticians has suffered a drop in market share because of a “lack of corporate clarity”.
Retail Knowledge Bank senior partner Robert Clark says D&A and Boots Opticians have failed to flourish in recent years. “Dollond & Aitchison used to be market leader with about 30 per cent market share, but this has fallen over the past 20 years as newer kids on the block came up on the inside,” he explains. “And Boots hasn’t been particularly dynamic in the optical market or given this side of its business much attention.”
The fit, therefore, is logical – as long as Boots grabs the task with both hands, says Clark. “There is clear potential in this tie-up but someone will have to shake up the business to get the best out of it.”
Boots Opticians and D&A will complete the deal by April, subject to the approval of the competition authorities. Boots Opticians managing director Pradip Patel will become chairman and D&A chief executive Andy Ferguson will become managing director.
Gourlay says that after the completion of the deal the priority will be to “make sure the stores are all in the right locations”, then “look for opportunities in new locations”. He is adamant that while there will be some overlap in terms of stores where the retailer will be forced to sell off shops, this won’t amount to a huge sum.
He believes Boots is well set up for integrating businesses, having managed the merger of Boots with Alliance UniChem and beginning “with two almost identical brands is a good starting point”. He couldn’t comment on potential redundancies, either from stores or from the eventual relocation of the head office from Birmingham to Nottingham, but gives the assurance that Boots is “ambitious and sees plenty of scope for growth”.
So what do its competitors think of Boots’ grand plans? Some believe the integration will be far from straightforward and will lead to potential opportunities to steal customers.
Specsavers joint managing director John Perkins says: “All mergers have some significant challenges and it’s an interesting dynamic. Both businesses carry a great deal of franchisees and their needs may not be aligned with that of the merger.”
But Vision Express chief executive Bryan Magrath is more forthright. “In the short term, it is a great opportunity for us,” he says. “Boots and D&A will now face huge distraction in terms of merging two large businesses and closing stores, and we’ve got about 18 months to take advantage before the dust settles.”
A question of brand
Magrath points out that ditching the D&A brand may not be popular with customers. “Boots is an internationally recognised name and from that point of view it makes sense,” he says. “But in the UK, the D&A heritage is phenomenal. Boots has a great brand in terms of its chemist, but I’m not sure whether that is seen as an umbrella for all its services.”
One area of the business Boots has big opportunities to develop is fashion. In recent years opticians have shaken off their dusty images and glasses are now considered a key fashion accessory. Specsavers has led the pack in this area, breaking new ground with celebrity stylist Gok Wan fronting its campaigns and staging events such as the Spectacle Wearer of the Year Awards.
Clark says: “It’s clear that opticians have become increasingly part of the fashion market and Boots has to take note of this and become more brand savvy. The middle of the road approach which Boots sometimes takes won’t work in the fashion industry.”
The deal will also propel Boots Opticians on a global scale, through its parent Alliance Boots. Gourlay says the first few years will be focused on integration and growth in the UK, but “there is plenty of opportunity overseas”.
Roberts believes that while the optical market should remain fairly resilient to the recession there is scope for Boots to take advantage of further global consolidation. He says: “Boots has a trusted and well respected brand and that will travel.”
However, he does point out that competition is fierce. Specsavers has stores across markets that include Norway, the Netherlands, Australia and New Zealand, and Vision Express is owned by the French company GrandVision, which also operates retailers such as GrandOptical and Solaris. The global leader is Luxottica Group, which has more than 6,200 stores across the world, operating brands such as Sunglass Hut and Pearle Vision.
Clark agrees that “overseas potential is huge” but Boots must first put its house in order in the UK. “Boots is a formidable player and can benefit from its parent’s international operations but they need to put the effort in to get on the right track. Now they are a private company, they can easily get on and do this.”
Boots will also be keen to add on extra services such as hearing clinics, in the same vein as Specsavers. But for Perkins, the sector is as competitive as it can get anyway without the merger of the two businesses. “We constantly have to improve our offer and give more value and this deal won’t change that,” he says.
Boots already puts customer service at the heart of its pharmacy business and if it can instil as much loyalty into its optical business it will become an effective player. And while the sector kisses goodbye to one brand, the world will open its eyes to another.
Dollond & Aitchison: past to present
1750: Peter Dollond opened a small optical business in Vine Street, near central London’s Hatton Garden. He was joined by his father John Dollond in 1752 and early customers included King George III and the Duke of York.
1851: the Dollonds were awarded a medal of excellence at the Great Exhibition for their optical instruments.
1889: James Aitchison opened his first opticians business on Fleet Street in London.
1927: Dollond & Company merged with Aitchison & Company to form Dollond & Aitchison (D&A).
1967: D&A was taken over by investment group Slater Walker. The company merged parts, restructured the business and sold it to tobacco manufacturer Gallaher in 1970.
1970-82: D&A built up the business by acquiring smaller chains throughout the UK, Italy and Spain. The retailer maintained the mantle of the UK’s largest retail optician, but with increasing competition its market share fell from some 30 per cent in 1990 to 9 per cent just four years later.
1994: D&A was sold to a management group led by CVC Capital Partners.
1999: the optical business was sold again to Italian eyewear player De Rigo. It bought D&A to sit alongside its other brands such as General Optica. De Rigo also operates licensed brands such as Celine, Givenchy and Jean Paul Gaultier.
2009: Alliance Boots takes a majority stake in D&A for a disclosed sum, with all its shops to be rebranded to Boots Opticians.