Sales: FFr 7.85 billion (1996)
Stock Exchanges: Paris
SICs: 3851 Opthalmic Goods
France’s Essilor International is the world’s leading manufacturer and distributor of corrective lenses for prescription eyeglasses. Essilor’s long-standing global network of manufacturing plants produces more than 150 million lenses each year. While mass production facilities are located primarily in the Far East, the company operates production centers for its up-market, high value-added lenses in nearly all of its primary European and North American markets. Essilor complements its upstream production activities with a robust network of prescription laboratories providing corrective lens-finishing services on a local market basis. The company operates close to 40 prescription laboratories covering all of its Western European markets. In 1996, the company acquired four U.S.-based laboratories, with 45 surfacing and treatment centers, enhancing its presence in that all-important market. The company also operates ten laboratories in the Asia-Pacific region.
Sales outside of France account for more than 80 percent of the company’s revenues, with the North American market representing 37 percent and Europe, outside of France, representing 35 percent of annual sales, respectively. The company has also penetrated the South American market, with a focus on Brazil, but with a growing presence in Argentina as well. During the 1990s, the company has been building its presence in the vast and booming Asian markets. Its share of the large Japanese market, dominated by local companies, remains small however. The company has also been planning its entry into the crucial Chinese market—which, with its 1.2 billion people and annual sales of more than 130 million lenses, is already the world’s second-largest single market—and by the end of 1997 expects to have completed construction on its first production and distribution facility in that country. Together, the Asian and South American markets represent approximately seven percent of Essilor’s total sales, which nearly FFr 8 billion in 1996.
Essilor’s success is based on its commitment to the more technically advanced lens materials, including polycarbonate lenses and other medium- and high-index plastics-based composite materials. The company’s flagship product is its Varilux lens, the industry’s first progressive lens, which allows people with presbyopia (farsightedness) close and distant vision without the need for two or three superimposed lenses. Other Essilor products include its Ormex and Crizal lenses, the later a thin-film, all-in-one lens combining anti-scratch, anti-reflection, anti-smudge, and anti-fog properties, with enhanced transparency. An important addition to the Essilor product line, through a joint venture with U.S.-based PPG Industries, Inc., is the introduction of the Transitions photo-chromatic lens. Launched in the mid-1990s, the Transitions lens, which is sensitive to light and therefore darkens or lightens according to conditions, has enjoyed an immediate success. Boosting the product’s acceptance has been Essilor’s decision to allow third-party lens manufacturers to market and distribute the Transitions lens. In 1997, the Transitions Optical Inc. joint venture prepared to launch a new generation of lightweight, unbreakable polycarbonate-based Transition lenses.
In addition to corrective lenses, Essilor also manufactures contact lenses, frames—including a partnership with the Mont Blanc company of fountain pen fame—and instruments for opticians. These products account for relatively minor shares of Essilor’s annual sales, at five percent, four percent, and five percent, respectively. Corrective lenses remain Essilor’s principal revenue-generator, accounting for 86 percent of its 1996 sales.
Traded on the Paris Bourse since 1975, Essilor has developed a shareholder structure that provides it not only with a great deal of stability, but also protection against the threat of a hostile takeover. While more than 56 percent of the company’s stock is publicly held, more than 16 percent is held by Essilor and its employees, through Société Civile Valoptec, established with Essilor’s incorporation in 1972. Each Essilor employee holds a minimum of five shares in the company. Enhancing Essilor’s shareholder structure is the presence of the French giant Compagnie de Saint-Gobain. After establishing itself as a major investor in Essilor in the 1980s, Saint-Gobain agreed to increase its participation in 1996, raising its share of Essilor’s stock to 25.4 percent and establishing itself as Essilor’s principal shareholder. Together, Valoptec and Saint-Gobain control more than 55 percent of voting rights in the company, lead by chairman and CEO Xavier Fontanet.
A Visionary Merger in the 1970s
Essilor was founded in 1972 through the merger of two major French eyeglass manufacturers, Essel and Silor. The merger seemed an unlikely marriage at the time. Essel’s roots stretched back to 1849, when it was founded as a workers’ cooperative by 13 eyeglass makers, called the Association Confraternelle des Ouvriers Lunetiers. In the 1880s, Essel turned to the international market, opening a branch office in London. Evolving in the 20th century as the Société des Lunetiers, then as S & L, and finally, as a limited partnership under the phonetic pronunciation of these initials, Essel achieved market dominance—battling only Silor for the top spot in the French market—on the basis of its nylon frames and, more importantly, its revolutionary Varilux lens. Invented in 1959 by one of Essel’s in-house engineers, Bernard Maintenaz, Varilux represented one of the most significant developments in the history of prescription lenses since the invention of the bifocal by Benjamin Franklin.
While Essel remained true to its cooperative roots, the younger Silor took the form of the classical family-run, capitalistic enterprise, founded by an optician, Georges Lissac, and involved in the manufacture of both frames and lenses. One of Silor’s principal contributions was its invention, by René Grandperret in 1956, of its Orma shock-resistant organic glass lens. By the middle of the 1960s, Silor too had captured a dominant position in the French eyewear market.
Faced with the inevitability of a bloody market battle, which, with the growing internationalization of the market in the 1960s, might have crippled both companies, Essel and Silor began eyeing the possibility of joining forces to take on the world market. After some five years of preparatory talks, the companies, with Essel led by Anatole Temkin and Silor led by René Grandperret, agreed to merge in 1972.
Initial reaction to the merger was one of skepticism. With such differing corporate cultures, the merger of the two companies appeared difficult, if not impossible. Nonetheless, the merger went ahead, with the two companies’ names contracted as Essilor. Aiding the transition was the formation of the shareholder group Société Civile Valoptec, placing control of the company—and incentive to see it succeed—into the hands of the combined management and supervisory staff, but also the entire work force. Every Essilor employee would hold, at a minimum, five shares in the company. Meanwhile, in order to merge the two cultures, Temkin and Grandperret decided upon a system of an alternating presidency, with each of the two taking turns at the company’s lead until both were to retire in 1980. At that point, the merger was expected to be finally completed, and a new president would be elected by an administrative council, a third of which was itself composed of employee-shareholders. The employee-owned nature of the firm, which would remain a rarity in the business world, also provided Essilor’s employees with a high degree of job security.
Aiding the success of the merger was Essilor’s strong product base, particularly the Varilux lens, which would capture 70 percent of the European market for progressive lenses, while the Orma antishock lens would lead the company to a pioneering role in developing stronger and lighter composite materials. The company could also build on its long history of international growth—indeed, one of Essilor’s first decisions was to conquer the United States, the world’s largest market for prescription eyewear. As Xavier Fontanet described it in his chairman’s message to Essilor’s 1996 annual report: “Silor began from the East Coast, bringing the U.S. market to accept plastic lenses. Essel set out from the West Coast, converting opticians to Varilux progressive lenses.” Essilor was also consolidating its international network of production, finishing, and distribution facilities. By the end of the decade the company was operating 15 facilities in Great Britain, Austria, Ireland, the United States, the Philippines, Italy, Sweden, Switzerland, Portugal, and Canada. In order to facilitate its expansion, Essilor went public in 1975, listing on the Paris stock exchange. Initial price of a share of stock was FFr 480. Within ten years, Essilor’s stock would climb to FFr 3,000 per share.
Building on its global leadership position, Essilor intends to expand even further by capitalizing on three growth factors in the vision market: increasing consumer demand for comfortable eyewear, which favors higher-value-added products; the aging of the population, especially in the United States and Japan, and the concurrent increase in the number of people with farsightedness; the opening of new markets such as China, India, and eastern Europe.
The Vision Leader in the 1990s
Bernard Maintenaz, inventor of the Varilux lens, was elected Essilor’s chief executive officer in 1980. Maintenaz, educated as an engineer, came from a long line of eyewear makers; his great-grandfather had been involved in the trade in Morez, long the center of eyeglass manufacturing, as was his grandfather, and father, the latter employed by Essel. Maintenaz himself started his career at Essel in 1948. In the 1950s, he had begun looking at improving the design of bifocals, giving rise to the idea of the progressive lens, dubbed Varilux. Under Maintenaz, Essilor’s sales would grow to FFr 2.4 billion by 1984, and would reach FFr 4.4 billion by 1988. If, by the start of the decade, Essilor had already established itself comfortably among the top five makers of corrective lenses in the world (and most likely already among the top three), by the late 1980s Essilor had grown to become the undisputed world leader in sales of corrective lenses.
Two products in particular provided the fuel for the company’s growth. The first, Varilux, long a best-seller in Europe, where the market for progressive lenses reached as high as 70 percent of all glasses sold to treat farsightedness, had gained increasing acceptance in the United States as well. By the mid-1980s, Varilux had captured 50 percent of the U.S. market for progressive lenses. This market, which yet accounted for only eight percent of the total 135 million pairs of glasses sold each year in the United States, would soon enter a new era: the first of the baby boom generation were turning 40—and the average age of developing presbyopia was 43. Varilux’s light weight and more comfortable—and more subtle—design would appeal strongly to this new generation of eyeglass wearers.
The second product in Essilor’s growing repertoire was composite lenses, which it pioneered and in which it had was an industry leader. Stronger and lighter than traditional glass lenses, the new material could also be fashioned into thinner lenses, proving not only more comfortable, but more attractive as well. The lighter, thinner lenses were also more amenable to a wider variety of eyeglass styles, leading to the development of eyewear as a fashion statement, including the introduction of frame designs from the world’s leading design houses, such as Calvin Klein, Giorgio Armani, and others.
By the end of the 1980s, international sales had already grown to represent two-thirds of the company’s sales. The company’s strong growth would continue into the 1990s, reaching FFr 5.6 billion in 1992, and topping FFr 6.3 billion in 1994. The company had also shown consistent profit growth, with net profits growing steadily in the same period. Pricing pressures, particularly with the move of Japanese leaders Seiko and Nippon into the European markets, prompted Essilor to move its mass production activities to Asia, and to increase its reliance on automated manufacturing techniques. Yet the company maintained its local manufacturing facilities in its core local markets, which were focused on the production of up-market, high-value-added lenses.
During the 1990s, the company continued to expand into new markets, developing a position in the booming Asian economies, while also extending into South America, particularly Brazil, and to a lesser extent, Argentina. Supporting this move, the company began building production, distribution, and finishing centers to serve its new local markets. In the mid-1990s, the company also worked on strengthening its position in the United States. In 1995, the company acquired the leader of the polycarbonate market, Gentex Optics. The following year, Essilor moved to establish a position in the U.S. prescription finishing market, acquiring the Omega Group, the largest chain of prescription laboratories in the United States, and three Varilux specialty laboratories: Southern Optical Co.; Wisconsin Optical Services, Inc., and Duffens Optical.
Essilor also followed a policy of developing strategic partnerships. The most notable of these was the formation of its joint venture with photochromatic lens leader PPG Industries of Transitions Optical Inc., combining the PPG-developed Transitions lens technology with optics production and marketing expertise. The Transitions product proved an immediate worldwide success, and, together with the company’s recent acquisitions, helped boost revenues from FFr 6.5 billion in 1995 to nearly FFr 7.85 billion in 1996. Meanwhile, Essilor saw its shareholder base strengthen with the purchase, by Compagnie Saint Gobain, of more than 25 percent of the company’s stock.
Essilor’s growth, coupled with a strong commitment to research and development of enhanced lens products, looked certain to continue for the near future. The rapid aging of the world’s population presented the prospect of even stronger demand for Essilor’s lenses and eyeglasses in general. The increasing economic development of much of the Asia-Pacific countries also promised to open new markets for Essilor’s products. Essilor prepared to open its first production and distribution in China in 1997—a market which could prove to become the world’s largest in the early years of the next century.
Bangkok Optical Distribution (Thailand); BBGR (Canada; 99.9%); Brasilor Participacoes Sc Ltda (Brazil); Canoptec Inc.; Essidev; Essilor AB (Sweden); Essilor Austria GmbH; Essilor Australia; Essilor Belgium; Essilor Canada Ltd.; Essilor Denmark A/S; Essilor Ehinger GmbH (Germany); Essilor España S.A. (Spain); Essilor Far East Ltd. (Hong Kong); Essilor Hong Kong; Esilor Italia Spa (Italy); Essilor Ltd. (U.K.); Essilor Nederland Holding BV (Netherlands); Essilor of America Inc. (U.S.); Essilor Optik GmbH (Germany); Essilor Portugal; Essilor Sanayi Ticaret As (Turkey); Essilor Suisse S.A. (Switzerland); Essilor Singapore Pte Ltd.; Gentex Optics Inc. (U.S.); Varilux Japan.