What dental lab owners need to know to navigate future of the lab market, Q&A with Terry Fine, President of AMG Creative
Terry Fine is President of AMG Creative, a leading marketing agency that specializes in dental laboratory marketing. His wealth of knowledge in the area of dental laboratory trends, market volatility and successful strategies to grow a laboratory business provide him unique insight into the current realities facing dental technicians and laboratory owners. We asked him to tell us what he thinks about the latest numbers from the National Association of Dental Laboratories and the U.S. Bureau of Labor Statistics, and how dental laboratory professionals should respond. Here’s what he said:
The latest data from the U.S. Bureau of Labor Statistics was just released. Over the last 10 years, there has been a drop of nearly 20 percent in the number of dental technicians in the United States. Additionally, the National Association of Dental Laboratories’ research also shows, as of 2017, an 18 percent drop in number of labs over the last decade. Should dental technicians and lab owners be worried? Why or why not?
Yes, they should be worried. Whenever there is industry consolidation coupled with newly introduced technologies that disrupt and change traditional processes, it is time to start worrying.
Why is this happening?
There are multiple factors that have played into the decrease in dental labs. First, the Great Recession caused a lot of work, including around 40 percent of fixed restorations, to be sent to offshore labs, which grew due to the globalization of the economy.
Second, dental technology schools and programs began to close, which caused a decrease in the amount of people entering the industry. That directly impacted the number of employees and CDTs in the country.
Third, older lab owners are retiring or selling their businesses to larger labs, which has led to a decrease in the number of labs nationwide.
Finally, the proliferation of Dental Service Organizations (DSOs) and the increase in lower insurance reimbursements has driven the demand for lower priced restorations, making it difficult for smaller labs to compete.
What does this massive drop mean for the dental laboratory industry? Is the industry—as we know it—already dead?
With change comes opportunity. There is now a greater focus on advancing dental technologies, including subtractive and additive manufacturing processes and the continued evolution of materials (e.g. esthetic, anterior zirconia and digital dentures). This emphasis on new technology will fuel growth for the labs that have positioned themselves to take advantage of this newfound opportunity.
In your opinion, what do lab owners need to do to stem the tide? Or, do they need to think completely differently about what a dental laboratory business looks like in 2018?
If lab owners want to keep up with the changing industry, they need to make investments in digital technology. The appeal of hand-layered porcelain restorations has been erased by the strength of zirconia and the speed of CAD/CAM technology. Laboratory owners also need to actively bring in new clients, whether that be through email, social media, print pieces, a website or all of the above. Those channels will also allow a lab to maintain customers by building brand recognition and strengthening the relationships with doctors.
Do you think lab owners are, by and large, prepared to make the changes you think need to happen? Why or why not?
There are lab owners in both camps, those who are prepared and those who are not. The ones who are prepared will, for the most part, be able to successfully navigate the changing industry. Those who have not made the necessary investments in the last five years are now going to be in a very precarious position. Those labs are vulnerable to the retiring of their clients and being bought out by a larger production lab. Unfortunately, with the growing nature of large production laboratories, even making those investments does not guarantee long-term success.
The labs still in business today have already experienced dramatic change within the industry. The dental lab of today would not be recognizable to someone in the industry 30 years ago. There are many labs that do not have any casting equipment or burnout ovens. In fact, cast restorations are quickly becoming a thing of the past. Now all fabrication is driven by CAD/CAM technology with very little manual labor or intricate hand work, such as wax frame buildup or porcelain layering.
We all know that an aging boomer market should increase the demand for dental work. How can current lab owners leverage their current offerings to prepare for the influx of boomers?
Baby boomers will be a huge customer base for restorative care. There will most likely be two distinct kinds of baby boomer patients. Firstly, there is the boomer who is only interested in routine, preventable restorative work that they can receive at a low cost. This type of boomer is one reason why digital dentures have become such a huge topic in the industry today. Clinicians and lab owners are going to need to focus on the fabrication of cheap digital dentures, because they are currently not an affordable option. The second kind is the affluent boomer who will drive demand for high-end cosmetic restorations, such as All-on-4 and zirconia hybrid restorations. People are willing to spend upwards of $40,000 on their teeth.
Do you think the decline in the lab marketplace is reversible—and, do smart lab owners want it to reverse?
No, 7,000 labs will never return to the 15,000 we had. Smart lab owners do not want it to reverse, because they are not interested in more competition.
The future of the industry is going to have a portion of labs grow extremely large to serve DSOs. Since DSOs view their supply chain as a traditional, business supply chain, they utilize their purchasing power to demand extremely cheap prices.
This will leave other labs to service independent practices and small chains, as well as cater to specialty dentistry, such as cosmetics.
How can labs communicate to their customer base to show they still serve a value, particularly in a market that is going to see a lot more boomers soon? In other words: why should a U.S. dentist choose a given U.S. lab when they have the choice of going to in-office lab work or overseas for their lab work?
As with any industry, a consumer has many choices. A clinician needs to ask themselves what their core competencies are and what they want to dedicate their chair time to. What supply chain decision delivers their practice the best value? Some will put emphasis on same-day dentistry, which will lead them to investing in in-office milling. There will also be those that service lower cost markets, which will require them to send their cases offshore. That leaves the rest of clinicians to choose U.S.-based laboratories for their restorations. To differentiate themselves from their competition, lab owners need to offer value-added services, like chairside conversion or complex implant case planning. The demand for those services will present a huge opportunity for labs with the right skills.
As recent trends have shown, the percentage of offshoring has declined, and the majority of restoration work remains in the U.S.
LabWorthy can help you be competitive in this volatile market. Learn more about our Net Promoter Score tools that will measure your customer loyalty, help you stop losing customers, and turn your happiest customers into your best marketing strategy.