1. By Ehud Arye Laniado
www.ehudlaniado.com
Excess fragmentation in the
diamond sector and lessons
from other industries

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Presentation by Ehud Arye Laniado on fragmentation in the diamond industry
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• The excess fragmentation we are facing in parts of the diamond
sector must be addressed to:
 Allow the diamond industry as a whole to operative more
effectively
 Provide the new generations of professionals with more
sustainable opportunities to flourish
• We can draw lessons from more consolidated industries
A full version of this article can be found at:
http://goo.gl/7KYtbr
April 2015

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Excess fragmentation in the upstream and midstream parts of the diamond market
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~ 5,000 diamond companies compete over
$7bn added-value to annual rough production [1]
Midstream marketDownstream market
~ 200,000 retail players compete over a ~$75bn
p.a. retail market ($375,000 p.a. on average) [1]
• Difficult to develop sustainable strategies
when too many players fight over some
profits, as recently: buying diamonds at high
price speculatively or just to stay in the game,
but often ending up selling at low
prices/volumes
• A fragmented midstream is less and less
compatible with rising inventory costs, high
financing costs and banks’ increasing scrutiny.
• How can retailers, who play a key role in
persuading consumers to buy diamonds, be
convinced to make significant investments in
marketing when revenues are spread over so
many players?
[1] http://www.bain.com/publications/articles/global-diamond-report-2014.aspx; https://www.diamondintelligence.com/magazine/magazine.aspx?id=12730
It may be time instead to address the more structural issues, including
what feels excess fragmentation in the diamond industry.

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Benefits of consolidation and example from other industries
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• Greater financial health will help better absorb
shocks and manage increased costs
• More bargaining power with both upstream
rough sellers and downstream jewelry buyers
Midstream marketDownstream market
• Fewer and stronger players gives each a
larger parts of the profits and incentivises
them to make more substantial investments
in marketing
• Top 5 companies have over 50% global
market share (just over 30% in 2003) [2]
• Consolidation allowed companies to invest
more substantially in emerging markets [3]
Example - Beer industry
• 4 largest purchasing alliances share over
33% of the market [4]
• Helps them function as umbrella
companies and provides them with
leverage in regards to parts prices [4]
Example - Automotive services
[2] Quoted in: http://www.businessinsider.com/global-beer-industry-consolidation-2014-2#ixzz3XTwZwL00;
[3] http://www.bain.com/Images/INDUSTRY_BRIEF_Ahead_of_curve_in_emerging_markets.pdf
[4] https://www.bcg.com/documents/file111373.pdf
Experience from other industries suggest that consolidation can offer significant benefits
(provided of course competition does not suffer any harm as a result)

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Prospects for further consolidation in the diamond industry
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• Further consolidation in the diamond sector is expected – McKinsey & Co anticipates the
downstream market to consolidate like the apparel brands industry [5]
• Many ways an industry can consolidate
 Typical mergers & acquisitions
 But also tailored solutions, e.g. alliances between smaller independent companies
 A strong industry can be composed of big and niche players
• But we must all consider our role and how best to adapt to continue adding value to our industry.
• It is our duty to involve the new generation of professionals in this planning process in order to
equip them to succeed in a more consolidated environment and to ensure they can grow in an
industry with inspiring and sustainable prospects
[5] http://www.mckinsey.com/insights/consumer_and_retail/a_multifaceted_future_the_jewelry_industry_in_2020

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Can we afford to wait?
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• Trend towards consolidation in the diamond industry has started:
 Acquisitions in the downstream market - Bulgari by LVMH in 2011, Ultra Diamonds by Signet
Jewelers in 2012 and Harry Winston by the Swatch Group in 2013
 Vertical integrations (Chow Tai Fook and Chow Sang Sang)
• But progress towards consolidation in the diamond industry remains slow overall
• Can we afford to wait?
 Unlike cars and pharmaceuticals, diamonds are not a necessity
 Therefore continued investments are necessary to grow and sustain consumer demand for our
industry’s beautiful product.
 Particularly given that some trends such as the growth of lab grown diamonds, if not managed
carefully, can affect consumer confidence towards natural diamonds
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website
without consulting a professional qualified adviser.