Welcome to Diamdel Pharmacy, Dispensing Prescriptions in Milligrams
July 21, 05Based on rudimentary arithmetic, each of the well over 500 clients of Diamdel worldwide will get an average of about $1 million a year worth of diamonds from the DTC’s rough trading subsidiary. Many clients, if not most, will get substantially less. In spite of these less than impressive averages, Diamdel has just announced it will hit record sales. In terms of the De Beers' commitments to the European Commission, the DTC will channel up to 10% of its total sales through Diamdel. This year’s DTC total sales will likely exceed $6 billion (the first half figures will be announced next week), so the record Diamdel sales will still remain well below the maximum allowed levels. In countries like Israel and South Africa, the number of active clients have respectively doubled or tripled in recent years – more clients are chasing ever fewer goods.
As a matter of fact, talking about Diamdel’s supplies has become a yearly routine: in July the World Federation of Diamond Bourses (WFDB) expresses concerns over rough diamond supplies to the secondary market, and the DTC, consequently, puts their minds at ease - until the next year.
So last week’s press announcement was a predictable one: “Following a meeting with the World Federation of Diamond Bourses (WFDB), the Diamond Trading Company (DTC) announced its intention to increase sales to Diamdel to a record amount of up to $550 million in 2005. The announcement resulted from positive discussions at a meeting in London between a delegation from the WFDB and senior representatives of the DTC (including
This announcement has become almost an annual tradition - and also safe sailing from the DTC perspective, as by July it is pretty clear what the total annual sales of Diamdel will be all about. In July 2001, the WFDB expressed first concerns regarding the impact of Supplier of Choice on the small manufacturers and traders. Rory More O’Ferrall said at the time: “Far from being in any sense indifferent to the prospects for the small and medium units (SMU’s), the DTC recognises that the secondary market also has a very important role to play. Many smaller firms will be more adept than the larger players in dealing with niche markets, producing speciality cuts or devising particular marketing plans, and these need to be encouraged. It is part of our strategy to continue to supply manufacturers in the secondary market, through Diamdel and the other dealers.”
The WFDB was never convinced and every year (sometimes even more than once a year) the organization’s president
For example, in July 2004, DTC’s Derek Palmer, the now retired DTC Global Communications Director, took a step further when he not only “reiterated his organization’s commitment to supply rough diamonds to the secondary market through Diamdel” but also “agreed to continue to investigate the possibility of integrating non-Sightholders into the SOC program.” It is not clear what the last part of the promise really meant - and whether anyone at the WFDB has actually remembered raising it this time around.
In all seriousness: what does the Diamdel supply promise essentially mean for the market? Desmond Cavanagh, then managing director of the worldwide Diamdel network, has gone on record that "Gareth Penny, the [then] DTC’s director of sales and marketing, had suggested in South Africa [in late 2003] that Diamdel will be playing a more prominent role in the secondary diamond market", saying that "it would be supplying up to $500 million of rough diamonds per annum.”
In 2004, the DTC’s rough diamond prices saw a compound increase of some 17% and if the increases of January and July 2005 are added, it is rather safe to say that current rough diamond prices run at least some 20%-23% above the end of year 2003 levels. So if $500 million was the level then, it should certainly be above $600 million this year - in order for Diamdel sales to not have gone down in real terms. Though the DTC doesn’t announce the carat volumes of its sales, the volume of carat sales was significantly lower last year, in spite of the price increases, and it is fair to assume that the same trend holds true with Diamdel. Fewer carats mean less work for cutters. Adding more and more clients means ever smaller allocations.
Approximately $1 Million Sales per Year per Client
Let’s not ignore the fact that nowadays Diamdel operates more offices than it did when the initial $500 million sales level was identified. It now has branches in Antwerp, Hong Kong, Johannesburg, Shanghai, Tel Aviv and Windhoek. India’s Hindustan Diamond Company (HDC) is also an associated member of the Diamdel network. In South Africa, Diamdel had some 159 clients by the end of 2004, sharing some $90 million worth of diamonds. Israel was also getting in the range of $90-$100 million, now also shared by some 100 clients, while there are published reports attributing almost $259 million sales for Antwerp (in 2002). [A business intelligence data network, Thomson Gale, lists $332.5 million for Diamdel N.V. sales for 2000, going down significantly to $191.8 million in 2001, and going up again to $249.5 million in 2002. It has no later data, but it states that these figures were verified with the company. It is unlikely that the increase in Antwerp for the past few years can be significantly.
According to recent statements made by Frank Auger, the current Managing Director of Diamdel NV, the company has now some 500 clients worldwide. As noted before, many of these clients will end up getting minute allocations.
The public pressures, especially by the WFDB, for Diamdel to increase allocations have probably done little to bring the desired results. The DTC has made a commitment to the European Commission’s Competition Authorities that it will sell the equivalent of up to 10% of annual DTC sales through Diamdels and – recognizing that the EC closely monitors the DTC activities, it is simple prudent DTC policy to sell close to that ceiling.
The “dilution” in number of clients, however, has dramatically changed the character of Diamdel. It has now a broad customer base, but the “depth”, the dramatic impact on the customers’ businesses, is lessening. Diamdel has ceased to be a rough diamond supermarket. It has become a pharmacy, providing prescription goods – focused on the niche market needs of the clients. If Diamdel is to supply goods to new countries (such as Namibia and Shanghai) will this effect the level of supplies sold by the other Diamdel branches? Will this exacerbate the dilution?
There is also another factor which has been largely ignored: Diamdel is, yet again, in the open (secondary) market buying rough diamonds. The company is cautions in emphasizing that these amounts are not significant and refers to it as “purchases of very small volume of commercially and ethically robust goods on the open market.” This is something the WFDB ought to consider: if the DTC purchases on the secondary market and then resells the goods to the same market, Diamdel's sales will indeed? Increase - but their contribution to the secondary market, or the overall availability of good at the secondary market, not necessarily will as well.
There is no doubt that in July 2006, when Diamdel/DTC will have a good idea what is in store for the second half of that year, the DTC will once more find an excellent public relations opportunity to announce, again, record Diamdel sales. Record sales which – then again – will probably mean fewer to each client.
Welcome to Diamdel Pharmacy. The fastest growing chain the diamond business in terms of clients. Like any pharmacy, the goods you get are vital to your health – but for growing one’s business, supermarkets are still required. To find these, manufacturers should look into another direction.
Have a nice weekend.