De Beers Plans to Expand Diamond Market by 50%

De Beers has sky-high hopes for the future: It wants to enlarge the diamond market by some 50% in the next decade.

De Beers managing director Gary Ralfe stated this ambitious target at a teleconference following the European Commission’s official okay of the company’s “Supplier of Choice” strategy. Ralfe called “Supplier of Choice” a “suite of strategies to grow demand” by, among other things, encouraging sightholders to invest more in marketing.

Sales and marketing director Gareth Penny said the increased marketing has already had an effect, noting that diamond jewelry outperformed other types of jewelry at retail last Christmas. “In general, retailers have done pretty well,” said Penny. “2002 wasn’t a great year, but they have certainly kept their heads above water.”

He said sightholders “are starting to see some early success [with their marketing programs], and that’s encouraging. ? We believe the diamond industry is now better positioned to cope with some of the challenges this year will throw at us.”

EC does it. While the EC’s green light was expected, it was still greeted with jubilation at De Beers headquarters. “This is a red-letter day for De Beers,” said Ralfe. He noted the decision would not have any direct impact on the company’s status in the United States but added: “De Beers would like to be legally compliant in all the major jurisdictions, including America. We hope obviously that legal compliance [in Europe] might be an avenue in due course to legal compliance in America.”

Not everyone was as enthusiastic about the program’s implementation. Rumors have floated for months hinting that when “Supplier of Choice” is launched, De Beers will dramatically prune its list of sightholders, leaving only larger sightholders that can afford the expensive marketing programs it now favors.

“I think the likelihood is that the sightholder list will get shorter,” Ralfe said. “We have developed a set of objective criteria which now have the blessing of the EC. It’s perfectly fair to assume that larger companies will score more positively [against those criteria], whether [that] be in terms of market size or capability.”

But he added: “We are only at the beginning of a systematic process to be aligned with the best. That does not necessarily mean biggest. There are niche players in our industry who are small sightholders who could [be viewed] very positively.”

He added that its subsidiary Diamdel would continue to sell to the secondary market and be a “talent scout” for future sightholders.

Others worried about De Beers’ dictate that sightholders should take “efficient routes to market,” which could cut out many of the industry’s traditional middlemen.

Penny stressed that De Beers “is not going through this process to disenfranchise any part of the pipeline. What we are looking for is value addition. The practice of selling a sight box unopened isn’t adding to efficiency and takes money away that could be better spent on marketing.”

He added that when De Beers first did its strategic review, it “couldn’t find any other industries that had as complex a distribution system and as great a disconnect between the major suppliers ? and the consumer.”

Russian to judgment. As with the EC’s last verdict, the good news was tempered by word that the commission had issued a “Statement of Objections” to De Beers’ new contract with Alrosa, the company that markets all of Russia’s diamond production. An EC statement bluntly accused De Beers of “abusing” its dominant position.

Ralfe looked on the bright side, calling the Statement of Objections an “important part of the process,” and said it will give De Beers a chance to answer their concerns.

“I wouldn’t read anything into the strength of the [commission’s] language,” he said. “I recall to you that some months ago, the commission issued a statement of objections to Supplier of Choice. We believe we [can] persuade the commission this contract is good for the whole of the diamond industry, including the consumer.”