Supplier of Choice, RIP

You may remember Supplier of Choice. It was the De Beers policy designed to set the industry up for the post-cartel world. It billed itself as transparent, open, and objective. No longer would the Diamond Trading Company (DTC) be a closed club, it proclaimed; under the new policy, any company could apply to become a sightholder. (Executives even held webinars about how to apply.) 

Not that landing on De Beers’ magic list was easy. All prospective and current clients had to fill out an extensive and often intrusive questionnaire, which at one point included essays. (I would often hear ex–De Beers people—and SoC resulted in a lot of ex–De Beers people—who landed at sightholders shake their heads they “had no idea” what was involved in the process until they switched sides.) The applications were then judged on certain “objective” criteria, with marketing spend and skill given particular weight. If picked, clients would stay on the list for the contracted period, and then the whole cycle would begin again.

A decade later, just about all of that is either dead or on its way out. Company sources say it’s not even clear whether the SoC name will be used anymore. (DTC has already been jettisoned.)

Here are some details on the new sightholder selection process—and for those keeping score, this is at least the third revamp post-2000:

– SoC was (in)famous for judging potential and current clients on how much they invested in marketing—in part to fill the void left by De Beers forsaking generic advertising. This led to a parade of sightholder-spawned brands, most of which no longer exist. Under the new setup, marketing will not be part of the criteria at all—although if a company has proven particularly adept at downstream or midstream activities, that might be recognized, under the rubric of strategic sightholder.

– Instead, De Beers will look at a company’s track record buying diamonds—and not just any goods, but De Beers diamonds in particular. Current clients will be judged on what articles they request, and, one assumes, what articles they decline. New customers can prove themselves by consistently winning the company’s online auctions. (This should help auction results considerably.) So, say goodbye to those “so you want to be a sightholder” videos. To enter the magic circle, you already have to be a customer. 

– The other criteria are mostly financial (with the notable exception of adherence to De Beers’ Best Practice Principle ethical code, one aspect of SoC that survives). Clients now have to demonstrate healthy balance sheets, low debt, and let independent auditors sign off on their books, above and beyond their already-instituted auditing requirements. This is, company sources say, to demonstrate financial strength to banks, and to make the industry once again attractive to lenders. Of course, while lack of transparency is certainly a problem, many bankers also say, most recently to Businessweek, that the industry is unattractive because of its low margins, caused by the squeeze between rough and polished. But more on that in a bit. 

– The profiles, known as CPQs, which companies sometimes labored on for months, are gone. No one will mourn their absence.

– Also likely on the way out: the very idea of limited contracts. The current agreement runs for three years, but De Beers has the option to extend it. And with the company now adding sightholders on a regular basis—it’s added 10 in the last two years—no one will be surprised if these regular selections are phased out, and we simply see scaled-down annual reviews, where some companies come on the list and some quietly depart. This is how things worked for decades, before all of this started. 

Speaking of which, to some veteran sightholders, the emphasis on buying history also sounds familiar. With De Beers’ prices squeezing manufacturer margins—and boxes declined at historically high rates—some worry passing on an assortment can be used to build a case against a company. Whether that’s completely true, the perception is out there—which certainly works to De Beers’ advantage. All of which smacks of the old days—and not the good old days, either.

In the last decade, De Beers has asked a lot of its clients. It’s asked them to open up their books. It’s asked them to become marketers. Then it got them to set up factories in Southern Africa. And most of them readily complied—if not without complaint.

But now to keep the prestige and steady supply that comes with being one of De Beers’ anointed, some say they have to accept consistently unprofitable allocations. And who knows? This might be what causes them finally to draw the line.

JCK News Director