New job and employment data seems to suggest continued contraction in the laboratory world—but is the news really all bad?
Since 2007, there has been around a 20 percent decrease in the number of dental technicians in the United States, according to new numbers from the United States Bureau of Labor Statistics (from 44,530 in 2007 to 35,630 in 2017)
In the same span, from data provided by the National Association of Dental Laboratories (NADL), the number of dental laboratories with a payroll has shrunk by 18 percent. The same data also suggests that the number of dental laboratory employees has shrunk by over 7 percent during the same time period.
Along the way, there’s been a financial crisis, competition from a globalizing market, a shift to a digital workflow—which disrupted the entire dental laboratory ecosystem—and a seeming constant race to the bottom for pricing.
News like this can seem overwhelming. It can be discouraging. And it can lead the average dental technician or dental laboratory owner to whisper the question all the authorities—the NADL, the trade magazines, the manufacturers—would never dare to ask:
Is the dental laboratory industry already dead?
Why is this happening?
The answer to that question is more complicated than it might first seem. Is everything really as bad as it seems?
“The dental lab industry is currently experiencing three separate factors that are leading to reduction in dental labs and dental technicians,” explains Tom Taylor, Marketing Director, National Labs, National Dentex Labs—NDX. “First: An industry-wide consolidation—lab-to-lab acquisitions are occurring at an increased rate, which is contributing to the reduction in overall number of dental labs. The acquisitions are taking place in order to provide larger product and service offerings through improved efficiencies and at lower charges to the doctor.
“Second: Ownership and succession planning—Most dental labs are identified as smaller businesses that fulfill a need in a local or regional presence. Considering these businesses have grown through private ownership, some laboratories are experiencing an increase in the age of private ownership which is leading to the demand for succession planning.
“Finally: the demand for emerging technologies—this is a costly endeavor which could lead small laboratories behind as they might not have the capital or focus to purchase and implement these technologies within the daily workflow.”
Other observers, like LabStar CEO Jeffrey Noles point to the rise of dental service organizations (DSOs) as part of the cause. “The big factors for consolidation include the rise of DSOs and the increasing penetration of digital dentistry,” he says. “DSOs require better service and lower prices. Staying on top of new technology requires curiosity and some financial investment. Many labs can’t keep up.”
And, of course, the race toward an ever lower price point has played its role in shrinking the industry. “[For many labs,] it’s a chase to the bottom when it comes to price and that’s why many labs have closed or will close, because that business model is mostly good—if at all—short term, only,” says Shaun Keating, CDT, owner of Keating Dental Arts. “You must set yourself apart [by something] other than what you charge for your services.”
Indeed, trends like the rise of DSOs, a jump in price of precious metals or industry consolidation—not to mention digital tools—are out of the hands of most lab owners. So perhaps the bad numbers aren’t so much bad they are a natural response to a volatile industry. “It would be naïve [to think that] some in the marketplace will not be negatively impacted; many already have [been],” notes Bennett Napier, Chief Staff Executive, National Association of Dental Laboratories. “However, some of the consolidation is happening due to retirement of dental laboratory owners, so the business comes out of the marketplace. Conversely, outside of the large conglomerates, there continue to be smaller ‘roll ups’ where labs in a geographic area are partnering together for several smaller labs coming together to make a mid-size or larger lab. The people and the talent have not disappeared from the profession, but the delivery mechanism for their services has taken on a new form.”
So perhaps the “bad” numbers and the bad news is simply a matter of perspective—a market correcting itself after some upheaval forced it to do some tinkering. “It’s not bad news; it’s just how the demand curve works,” Noles says. “For decades, market economics didn’t seem to affect the lab industry—there were thousands of undercapitalized, one-to-two person ‘zombie labs’ that were always on the edge of folding but somehow survived. Now they’re not surviving because they can’t provide what their customers want. We’re just seeing some healthy consolidation.”
How can labs survive?
So if the declines in dental laboratories and technicians isn’t bad news … what does that say about the life of the lab industry? Is it thriving, dead, or somewhere in-between? And if it’s not thriving, what do lab owners and employees need to do to get there?
“Depending on where [dental labs] are in the ‘change cycle’ will outline how much they have to do make the current market a positive or a negative,” Napier explains. “The basic elements for success continue to be more business related rather than technical. Business focus and understanding allow you to grow and remain profitable. The technical skills are the differentiators and that is extremely important to understand that will not go way. However, just having technical skill without business understanding and diligence in today’s competitive environment is not a sustainable model.”
“People always need teeth and we’re a long way from dentists manufacturing everything in their clinics—decades if not longer,” Noles says. “Dental technicians possess an expertise about building restorations that dentists don’t have, aren’t trained for, and don’t seem interested in learning. Put another way, dentists still rely on dental labs. But this reliance implies that dental labs have the capability to be a trusted vendor to dentists—labs have to be good at communication, practice good customer service, and possess an understanding of emerging technology. We are seeing a consolidation in the dental lab industry around those labs who can provide this.”
The true status of the dental laboratory market also greatly depends on if and when the consolidation visible in the contraction of labs and dental technicians will stabilize. And that’s currently an open question. “Looking at other industries, studies suggest that consolidation gets to a point then it normalizes,” Taylor says. “Speed is everything, especially during the middle stages of consolidation. Laboratories that evaluate each strategic and operational move according to how it will advance will move up the curve the fastest. Slower laboratories eventually become acquisition targets and will likely disappear. Most laboratories simply won’t survive to the endgame by trying to stay out of the contest—or worse, by ignoring it.”
The in-office question
If it’s clear the industry isn’t dead yet, there is still the question of whether it’s on life support—if dentists, seeing the consolidation and contraction, will begin to turn overseas or to in-office solutions for the lab work. And yet, most observers don’t see that as a long-term (or even current) trend.
First, the cost and time investments to go fully in-office with lab work are high. “The dentist typically [demands] a larger hourly rate for the services they provide,” Taylor says. “In order to bring laboratory services in-house, this would require additional equipment, employee onboarding, additional overhead, increased responsibility, and diminishes the opportunity to use multiple labs (based on desired product or services).”
Noles echoes this sentiment, and notes that the drive to lower prices has perhaps inadvertently undercut the allure of overseas lab work. “it doesn’t make economic sense to build a deep expertise in dental lab work in a dental clinic,” he says, “and overseas labs aren’t that much better on price anymore when compared with domestic labs. In fact, the industry is already seeing a decrease in overseas work, with volumes down. Also, the work being sent out to overseas labs is ‘less desirable’ for domestic labs since it’s more commodity-based: posteriors and PFMs.”
However, as dental practices go to a DSO model and become much, much larger, it may make more economic sense for them to embrace an in-office solution. Napier argues, however, that the effects on the dental lab industry will be limited, thanks to simple math. “Even if we assume DSO-type models will be 25-30 percent of the dental marketplace over the next 10 years, that still leaves a lot of general practitioners that likely will want and need to work with a close-knit laboratory partner,” he says. “Dental laboratories and technicians actually will be even more sought after for their skills/experience given consumer demands on different treatment plans, material choices, etc. This bodes well for our profession’s growth.”
Tough choices ahead
So if the bad news isn’t all that bad, where does that leave the dental laboratory market? For most observers, it means the industry is in pretty good shape—as long as its willing to adapt and make some tough choices.
First, the demand for dental work is, by and large, going to grow, thanks to a massive, aging generation of Baby Boomers who are about to need a lot of dental work. “As the population ages, dental work will increase,” Taylor says. “The challenge facing dental laboratories today is how to properly manage and maintain high-quality, swift turnaround times, and ongoing strength within customer care. Looking at other industries, it is very difficult to manage these core principles unless proper efficiencies and technology are in place to assist.
“Yes, the market is growing now, and much of that’s driven by baby boomers,” Noles says. “But a growing population and higher penetration of dental insurance and access is also helping. It’ll be interesting to see much more the growth curve steepens due to baby boomers, though.”
And, as Napier points out, the fewer labs there are, the more work there will be for them, particularly as an aging population demands more dental solutions. “There clearly is an upside to the overall laboratory marketplace,” he says. “Dental laboratory sales are predicted to maintain steady, 2-3 percent growth, and with fewer laboratories in the marketplace, the ability for dental laboratories to grow is present for the long term.”
So a decade from now, will we look back and see 2018 as a marquee year when the dental industry was in its death throes, or a year when the lab industry came back to life? “There will clearly be [a smaller number] of physical laboratories [in 10 years],” Napier says. “Overall, though, it looks positive as the number of technicians in the workforce is increasing, and average technician wages are increasing. Those are key indicators bucking the assumption that domestic labs are going to disappear.”
Noles also sees additional contraction—and reason for optimism. “[There will be] probably about half as many labs (around 3,500?) and the average lab will have more employees,” he predicts. “A large proportion, maybe a majority, of restorations will be made using CAD/CAM technology, and the relationships between dentists and laboratories will improve.”
And, as always, there is also the personal touch of a dental laboratory that no amount of market volatility can touch. Keating believes that, as long as a laboratory stays nimble and is willing to invest in technology, education and marketing, there is plenty of reason to hope. “For the smaller labs out there that are nervous and concerned: Don’t be!” he says. “Be strong and courageous and embrace the changes that are occurring in our field, especially the digital aspect. If you can’t afford the mills or the printers, just outsource to a reputable company. It’s probably wise to purchase your own scanner if possible, or at least lease one. So many dentists out there want to work with small, quality-orientated dental labs—they just have to find out about you. Just take pride in your lab, and try to get your name out there.”
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