Author: Mintel Group Ltd.
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Dentistry - UK - August 2015
Executive Summary
 
“Despite the government not yet implementing a full dental contract reform and failing to mention dentistry funding levels in the latest budget, dentists are expected to be pressured into increasing dental activity levels further. The private sector is forecast to take on an increasing burden as the NHS faces one of its most difficult challenges since its inception - providing high-quality dental care amid demanding demographic changes, while also containing overall spending.”
-Lewis Cone, Industrial Analyst

Market size
UK expenditure on dentistry is expected to have increased year-on-year over the last five years, with market value increasing by an overall 9.6% between 2011 and 2015 - ending the review period at just less than £8.6 billion. Approximately 30 million people receive dental treatment from the NHS in England, with more than 40 million courses of dental treatments undertaken by dentists per year.

FIGURE 1: UK Dental Care Expenditure, 2011-15
 
(£ Billion)
 
Source: MBD analysis of Department of Health, ISD Scotland and StatsWales data and MBD estimates

The oral health and treatment needs of the UK population have significantly changed over the last few decades. The population has risen steadily in recent years, with the ONS estimating the UK population grew by 491,000 from mid-2013 to mid-2014.

The NHS still accounts for the largest proportion of the sector’s spend, but has seen its share decline on an annual basis over the review period - from a high of 46% at £3.62 billion in 2011 to an estimated low of just under 40% at £3.42 billion in 2015. Private general dental services expenditure has increased from £2.63 billion in 2011 to an estimated £3.12 billion in 2015. Cosmetic dental treatment, which is unavailable through the NHS, has experienced the greatest growth in expenditure levels over the review period - with a total increase of 29% from £1.57 billion in 2011 to £2.03 billion in 2015.

FIGURE 2: UK Expenditure on Dental Care, by Segment, 2011-15
 
(£ Billion)
 
Source: MBD/Department of Health/NHS Scotland/Welsh Government

Market trends
Approximately 75% of UK dental practices offered a mixture of NHS and private dental services in 2014, with approximately 20% offering exclusively private treatment. More dentists are likely to offer private dental services as they anticipate difficulties in growing business under the prospective new NHS contract, with many moving into the private sector before the contract is implemented. The NHS is also likely to go through another period of restructuring as it seeks to make efficiency savings with dentistry not a leading priority.

The cosmetic dentistry market is expected to continue its recent growth trend into 2015. Following 3.5% value growth in 2013, the market is predicted to expand by more than 6% per year over 2014 and 2015 as it has been less affected by the recent stagnant growth in real household disposable incomes. The higher cost of treatments typically means the market is orientated towards consumers with few dependents, higher income and easier access to credit.

An increasing number of dental patients are starting to explore treatments, such as laser whitening, and are more willing to pay significant amounts of money for perceived ‘cutting-edge’ services. The cosmetic market has also been helped by mergers and acquisitions, with some large private-equity-backed dental groups growing significantly and now operating more than 400 practices. 

NHS treatment is heavily skewed towards Band 1 treatments, which are estimated to have increased by 5% in the four years to 31 March 2015. Urgent treatments are projected to have experienced the greatest proportionate increase over the last three years - climbing by just under 6% from 3,615 to 3,829 between 31 March 2011 and 31 March 2014.

A total of 29.9 million patients were seen by an NHS dentist in the 24-month period ending June 2014, which is 103,000 higher than 12 months earlier and 2.9 million higher than the lowest number of patients seen back in June 2008.There has also been a rise in NHS dentist activity when measured in units of dental activities (UDAs), from 88.1 million units in 2012/13 to 88.7 million UDAs in 2013/14. This represents an overall increase of nearly 600,000 units despite the phasing out of prescription-only UDAs.

The average net profit for a principal of a private practice was £131,000 in 2013/14, compared to £129,000 for a principal of an NHS practice. This is because private practices have had greater control over their income than NHS practices since the recession. However, NASDAL also reported that income and profits have risen in all practice types, with fee income increasing by £7,000 per principal in a typical NHS practice and by £23,000 in a typical private practice.

Market factors
Further increases in NHS dental fees weaken value for money 
Having risen again in April 2015, the cost differential between NHS dental band charges and private fees has been further reduced, which could influence demand for private dental treatment. The provision of private and specialist services has become more lucrative for dental companies and investors in recent times. The ageing population, which is traditionally wealthier, has created greater demand for dental treatments, such as implants, which are an expensive alternative to dentures not available on the NHS as they are considered cosmetic.

Lack of full dental contract reform and government direction on the future of the industry clouds market development
The government has yet to implement a new dental contract and failed to mention future dentistry funding levels in the July budget. Dentists are therefore expected to be pressurised into increasing UDA levels in as short a working time as possible, leading to longer waiting lists and going against the industry and trade association-drive for a more preventive approach to dentistry. More advanced reforms are, however, expected to start in Autumn this year. During this new prototype stage, dental practices will test whole versions of a possible new system, rather than key elements needed to design a new system as in the pilots. The earliest roll out of contract reform is expected to occur by April 2018.

Supply of dental workers is mismatched with demand and may lead to oversupply of dental professionals
The number of dental undergraduates in England has increased by approximately 20% between 2004 and 2015 in direct response to increased demand for access to NHS services. Over the last ten years there has also been a largely unplanned increase in the number of overseas qualified dentists working in the UK, particularly from Europe, although this trend declined during 2013. The CfWI released a report in October 2014, commissioned by the Chief Dental Office for England, that forecast and analysed the future supply and demand of the English dental workforce between 2012 and 2040. The baseline projection suggested that if no action is taken, there would be a very significant over-supply of dentists widening to 2040. There have also been recent reports of under-employment among associate dentists, while a substantial number of young dentists find it difficult to secure immediate employment after completing training.

Cosmetic dentistry continues to rise in popularity following the financial crisis
Cosmetic dentistry has become an important part of the dentistry market amid the ongoing economic recovery. More dentists have diversified into offering cosmetic dental treatments at practices as demand for such services has increased with the general public becoming more image-conscious. Younger people are more willing to spend money on treatments, such as laser whitening, veneers and invisible braces, in the hope of having the perfect set of teeth. Toothpick, one of the UK’s largest dentist booking web sites, believes that there has been a 20% increase in cosmetic dentist treatments carried out over the last four years.

Industry structure
Dental practices in the UK are typically either small or medium-sized private businesses owned by an individual, partnership of dentists, or, as the recent trend suggests, a corporate dental group - an incorporated company that operates more than three dental practices. They tend to have a principal dentist and can employ additional associate dentists and dental care professionals.

Driven by economies of scale and energised by local NHS contracts to improve access, most incumbent dentistry groups have displayed healthy growth. A higher number of groups have emerged in a new corporate landscape with different target markets, though most are small and in the early stages of development. Momentum for future corporate dentistry consolidation remains on a clear course going forward - fuelled by a diverse range of business models looking to capture opportunities in NHS and private dentistry, including contracts with NHS England and convenient dentistry from retail outlets.

Dental ownership deregulation has boosted corporate consolidation of the sector, which has resulted in commercial property opportunities for investors. As private equity businesses look to maximise growth through the expansion of their dental operating business, they prefer not to hold property on their balance sheets. However, as a large proportion of dental properties are converted residential properties, many dentists own the properties. Upon selling the practice, dentists also wish to sell the property.

Most dental insurance plan providers in the UK are private medical insurers, including the two largest medical insurers, Bupa and AXA PPP healthcare.

There has been a wave of mergers and takeovers in the sector in recent years. Large private equity-backed dental groups have grown significantly, with some now operating more than 400 practices. Many have benefited from substantial investment in equipment and the working environment since their takeovers.

The consolidation of the dental practice sector, which has been ongoing alongside the increase in corporate dental firms, continued in 2014, albeit at a lower rate than in the previous year. The presence of private equity firms in the dental practice sector is anticipated to continue growing as conditions remain attractive, with a growing and ageing population expected to ensure strong demand for dental services. The sector remains widely fragmented, with approximately 76% of dental practice companies having a turnover of less than £500,000 in 2014.

The number of dental companies with turnover in excess of £500,000 climbed by 4% in 2014, accounting for just over 23% of the industry total. However, the core of the sector is still comprised of companies with annual revenues of between £100,000 and £500,000 - 68% of all dental firms are included in this bracket.

Consumer
58% of people have visited an NHS dentist in the last 12 months, while 54% of those surveyed reported that they have never had a dental appointment with a private dentist. In direct comparison, only 20% of people have had a private dental appointment in the last 12 months, while only 6% of respondents have never had an appointment with an NHS dentist.

The two most important factors for choosing an NHS dental service were because they have always used it (39% of respondents) and it was close to where they work or live (36%). Nearly three in 10 people who have used an NHS service in the past five years said they used it ‘on principle’.

33% of private dental patients said that a previous experience of good service quality had led them to visit a private dentist. There is also low consumer approval on getting appointments quickly with the NHS - just 19% of NHS users cited it as a reason for using the NHS, which translates into a quarter of private dental users listing it as a factor behind their decision.

A clear majority of respondents are satisfied with the duration of appointments (77%), the explanation provided by dentists for required and optional work undertaken during the appointment (71%), and waiting times in the dental surgery (70%).

However, respondents were not completely satisfied with the number of payment plans available to help spread the cost of treatment (40%), nor the availability of online information on costs and services (38%). A quarter of service users over the last five years were also not satisfied with the availability of dental services on a weekend.

When provided with a choice of statements regarding general feelings toward dentistry,41% of respondents said that it was important to see the same dentist on each visit - highlighting that familiarity remains a key factor for patients when receiving dental treatment.

Forecast
The value of the dentistry market is forecast to increase by between 2.5% and 3% per year until 2020
Expenditure on dental care is expected to experience fairly stable growth over the next five years, at between 2.5% and 3% per year, and will end the forecast period at just below £9.8 billion - an overall increase of just under £1 billion, or 11%, from the £8.8 billion forecast in 2016. As public finances are expected to be restricted until at least 2017, growth in the market will largely be driven by private dental services. The anticipated new dental contract, which will probably be implemented during 2017 or early 2018, is expected to slightly dampen the market, leading to a slowdown in growth before activity picks up in 2020.

FIGURE 3: Forecast UK Expenditure on Dental Care, 2016-20
 
(£ Billion at 2015 prices)
 
Source: MBD forecasts

Cosmetic treatment expected to gain the most from improving economic conditions
Demand for cosmetic dentistry is forecast to grow faster than any segment over the next five years due to the rapidly developing variety of treatments, with technology improving the quality of orthodontic and dental implants. Increasing awareness of cosmetic dental treatments and rising cultural demand for improved appearance is also expected to continue in the forecast period. Demand is expected to outpace private GDS, with cumulative expenditure projected to increase by just over 21% between 2016 and 2020 from £2.14 billion to £2.6 billion. The sector’s share of total dental expenditure is expected to increase from 24.2% in 2016 to a forecast period high of 26.6% in 2020. In comparison, the NHS’ share of overall dental expenditure is expected to fall by 3% to just under 36% in 2020. Private GDS will therefore becomes the most valuable sector, predicted to account for around 38% of total market expenditure by 2020.

FIGURE 4: Forecast UK Expenditure on Dental Care, by Segment, 2016-20
 
(£ Billion at 2015 prices)
 
Source: MBD forecasts

What we think
More people view dentistry as a lifestyle purchase and distinct niches are beginning to emerge as practices want to profitably satisfy the needs of consumers. This is evident when searching for dentistry online, with a large number of dentists rebranding to encourage specific groups of patients. More NHS dental contracts are also expected to be taken up by the corporate dental sector, which will lead to single, smaller practices passing up new contracts as available margins decline and remuneration becomes further integrated with wider access. With the growth of cosmetic dental treatments, more dentists could be tempted to start offering them as standard as a means of guaranteeing income - especially with uncertainty surrounding the future benefits of dentists remaining solely tied to NHS dentistry.

M B D | © MBD Limited.