August 9th, 2005
By Charles Wyndham.
It must be the time for another dose of happiness as all and sundry are gently roasting themselves on some beach somewhere working themselves through Champagne to Cognac brown.
I have never known Antwerp to be as dead as it was this past week, I just hope that it is not another sign that rigor mortis is setting in.
You may recall that I touched upon Gareth Penny’s first stream of happiness as he set out in his address to the Israeli industry before the big shut down, and also before the sombre interim figures from De Beers.
The first topic or first of the work streams that Gareth referred to was driving demand
The good news about this piece is that I have decided to combine two streams, consumer confidence and PoC (Purchaser of Choice).
I do this as there is not much to say about the first, consumer confidence, except that it is key to the whole industry that the consumer’s faith is kept. DTC has over time spent a great deal of time and money on this issue. An issue to which the industry has been more than willing to avoid making any real commitment and instead has preferred to hide behind the DTC’s skirt.
Ours is an industry which delights in its ability to ‘manipulate’, if the industry carries through this ethos to consumer confidence, say in particular in relation to synthetics, it will without doubt be the most enormous own goal.
About PoC there is a bit more to say.
PoC is one of those ghastly acronyms that have been flooding out of DTC as the ability to speak at the industry in ever increasing layers of management non-speak, where the absence of meaning is in direct proportion to the number of words, and in particular the use of these sound bite acronyms. Heavens we have even got to BHAG’s, an antidote might be GHUA (God Help Us All).
The first was SoC (Supplier of Choice). This was so successful, witnessed by De Beers still wallowing in a legal morass and the imbalance between rough and polished continuing on its undisturbed pitter-patter into the next season.
Still I must not anticipate too much the pleasures of discussing this as SoC is to receive its own discussion paper.
So De Beers decided to transpose its supply success to the producers to become what it termed the Purchaser of Choice (PoC).
As with Supplier of Choice the first question is whose choice?
The recent agreement that De Beers has signed with the Botswana government renewing the Jwaneng and Orapa mine leases was remarkable.
That is remarkable for all the wrong reasons for De Beers and all the right reasons for the Government, who have most successfully skinned De Beers alive.
The impact on the DTC’s profits have already started to be felt as effectively the take for De Beers/DTC has been halved from the staggeringly profitable mines, 80% plus profit to cost ratio as confirmed by Gary Ralfe.
The pressure on the organisation to generate or replace these lost profits is going to be huge.
PoC is yet another slide into a world of complacency where reality is kept firmly outside the blissful and cosy land of dreams.
Simple, at the interim results press conference Gareth lashed out at what he termed the unrealistic prices in the secondary market.
As Gareth himself said in Tel Aviv, “ …the DTC has been a moderating influence in the froth that there is in the that rough market… You know and we know that today we could charge much higher prices …..and … that over the last three or four years we could consistently have charged higher prices than we did.”
This apart from anything else would appear a slightly injudicious statement for a company that is fighting so hard to claim that it is no longer a monopoly.
But keeping our eye on the ball, the launch of SoC has seen constant and substantial premiums on DTC boxes. DTC rough has been the cheapest in town. That is not to say that doing business with the DTC has been a bed of roses as it has loaded its customers with a whole raft of additional direct and indirect costs. But here we are focusing on straight rough prices.
It is that impertinent force the ‘market’ which is setting the price way above DTC.
Now DTC is trying to divert increases in rough from the rough to services so that it benefits from all the increase, aka VAS, and does not have to share it with producers.
In this circumstance why should producers view the DTC as their Purchaser of Choice?
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