Recently I have seen a few respected market surveys dedicated to the global automotive refinishing market outlook for the coming decade. The key figure in those market researches was a forecasted turnover of … hold your breath, of more than 10 billion USD, from slightly above 6 billion now. While I was desperately trying to calculate what would be the market share (with minimum decimal after zero possible) I would be delighted to achieve with Etalon brand, I suddenly was stricken how small actually our core business market is a niche! Let me bring up to you some numbers. For example, global coatings market is 110 billion USD with predictions for 145 billion USD in 2020, global soft drinks market creates 867 billion USD in sales, while coffee consumption generates 32 billion USD every year in the US market alone. Do you feel the difference?
If you conduct a little search online concerning the niche markets characteristics, you will find a few widely accepted characteristics of a niche. Amongst others like, business-to-business nature of the business, high level of entrance costs, and the need in highly skilled human resources, you will probably stumble upon a parameter of major importance – profitability. A niche market can not boast of revenues of the mass markets, and, for this reason, sustainability within the niche can be only achieved by the high and stable profitability and margins.
Are you profitable enough?
If you visited the last Automechanika fair in Frankfurt last September, you probably had noticed that there were a few “new” brands. Fresh blood is good, however many of our esteemed colleagues actually lacked a clear argumentation why somebody should trust them, putting the lower price aside. I can bet the most of the conversations were around the question “How much do you pay for this or that product?” “We can give you cheaper price.” I know for fact that there are some players in the refinish supplies market who settle upon 10% gross profit simply to grab some share of sales. The fact is that margins in automotive refinishing industry took Acapulco height dive. However, what about fixed costs, management and marketing expenses, new products development costs? Can you cover all the expenses and still have money left for the further development and growth?
It is not a secret that the level of the cost in the collision repair industry has been driven down by the constant pressure from the insurance companies. Insurers know well about finances, margins and costs management. They are organized, with bargaining power and influence. Up to the present time, they have done a “great” job in decreasing the average repair bill down, and, unfortunately, this tendency affects all the chain with service providers and their suppliers suffering the most. Although big four or five global paint manufacturers have managed to keep their profits on a good level, for the smaller players staying profitable is a challenge. The only solution, in my judgment, is in innovation and after-sales service. Re-sellers and smaller manufacturers need to find the way to be relevant and useful to their customers. Simply delivering the goods is not enough any longer for survival. The combination of product and expert consultancy services is the only viable way to increase the profitability. Do not sell the product, sell the support behind it and charge the premium. And, even if it sounds a bit strange, find your niche in the niche.
What is your opinion?