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NEW YORK—It’s not easy being a wholesale lab in 2014. The business climate remains challenging, particularly for independent labs.

A number of factors are shaping the U.S. wholesale lab market and putting pressure on lab profit margins. A major factor is increasing globalization, which has brought more competition from overseas labs in China and other lower cost labor markets.

Another factor is the recent changes in federal health care laws that have allowed managed vision care companies that operate their own labs and partner with medical insurance companies to participate in state health care exchanges. This has been a boon to these labs despite the overall flatness of the prescription eyeglass market.

In addition, new alliances between managed vision care companies and large lab networks—such as the partnerships EyeMed has formed with Essilor Laboratories of America and Walman Optical—have enabled these networks to capture millions of prescriptions that were previously being processed by competitors.

The effects of these changes are being felt throughout the wholesale lab sector, particularly by smaller independent labs.

“From my lab’s perspective the greatest challenge for us and our peers is third-party managed care,” said Hal Singer, co-owner of Superior Optical in Ocean Springs, Miss., which ranks 17th among the Top 20 Independent Wholesale Labs in VM’s newly released 2014 Top Labs Report. “Just in the last year, we have probably lost 10 percent of our gross to various managed care programs, with new ones popping up at an alarming rate. The continuing acquisition of smaller labs by our industry giants also adds to the challenges we face.”

Yet new data from the Top Labs Report shows that despite such challenges, Superior Optical is growing, as are many other independent labs. The report, which is based on an annual survey, ranks independent wholesalers and supplier-owned lab networks according to their projected Rx sales and productivity.

This year’s report shows that Rx sales for the Top 5 Supplier-owned U.S. Wholesale Lab Networks are projected to rise 10.0 percent in 2014, and Rx sales for the Top 20 Independent Wholesale Labs are expected to rise 6.2 percent. Other leading indicators such as the number of Rx jobs per day that were produced and the number of employees also are expected to show increases.

“Business is very good,” said Neil Dougherty, vice president of Luzerne Optical in Wilkes Barre, Pa., the industry’s largest single-location, independently-owned wholesale lab. “We see more opportunities than ever. We are adding 30,000 square feet to our lab to accommodate new growth and technologies.

“I believe it is a great time to be an independent,” added Dougherty. “ECPs value the independent lab more than ever with the continuing consolidation that’s happening. We are a true partner with the ECP’s best interests in mind and provide unbiased information along with the best service available.”

Other independents have also found that positioning their labs as an alternative to supplier-owned labs is an effective business strategy.

“There is no substitution for the owner/operator model of business,” said Mike Tamerius, co-owner of Precision Optical Group in Creston, Iowa, which ranked 10th among this year’s Top Independent Labs. “The more labs that are consolidated, the more opportunities that are created for the independents.

Tamerius said he expects Precision to grow by 10 percent to 15 percent each year. “You can only do that by finding new markets, products or customers,” he said. “We work on all three constantly.”

Industry Consolidation Slows Down

Although consolidation within the wholesale lab sector continues, the pace of mergers and acquisitions slowed this year. One reason is that many of the most profitable mid-to-small sized labs have already been acquired, mainly by Supplier-Owned Lab Networks. (A notable exception is Walman Optical’s acquisition of Rite-Style Optical last year.)

Although the number of independent labs has shrunk from a decade ago, the independent lab sector is still growing. In fact, 15 of the Top Independents posted increases in Rx sales this year, and 14 are producing more Rx jobs than they did a year ago.

Top Lab Performance: 2014 Versus 2013

Combined net sales for all 25 of the Top Labs, including both supplier-owned lab networks and independent labs, are expected to climb to $2.6 billion in 2014, up 11.5 percent from 2013. The total aggregated Rx sales, which is based on the Top Labs’ core business of surfacing and finishing prescription lenses and is the primary measure used to rank the Top Labs, is projected to reach $2.3 billion collectively, a 9.3 increase over 2013. The Top Labs are expected to collectively produce a total of 143,471 Rx jobs per day, or approximately 36.3 million Rx jobs annually, a 6.1 percent increase over year-ago.

Top 5 Supplier-Owned Networks

During the past 12 months, the Top 5 Supplier-Owned U.S. Wholesale Lab Networks collectively produced $1,928 million in total net sales, up 8.3 percent over year-ago levels. Rx sales totaled $1,856 million, a 10 percent increase from year-ago.

The Top 5 collectively produced 113,250 Rx jobs per day, up 5.4 percent from year ago. Uncut lenses accounted for about 32.6 percent of all Rx jobs, slightly below the year-ago level.

The Top 5 currently operate 193 individual lab locations, four more than last year. The Top 5 work force increased to 9,856 employees, up 1.8 percent from 2013.

Among the Top 5, the biggest gains in Rx sales were made by VSPOne Optical Technology Centers. VSPOne’s estimated Rx sales grew to $228 million from $155.1 million over the past 12 months. A company spokesperson attributed the huge rise in Rx sales to the fact that approximately 66 million people throughout the U.S. are now covered by VSP’s managed vision care programs, a sharp increase over the past few years.

To handle the increasing capacity, VSP Optics Group and has opened two new VSPOne Optical Technology Centers this summer, one in St. Cloud, Minn., and the other in Hawaii, and is expanding its main lab in Rancho Cordoba, Calif.

The Top 20 Independents

Aggregate net sales for the Top 20 Independents totaled $625.9 million in 2014, up 8.2 percent from 2013. Total aggregate Rx sales for the Top 20 grew to $449.6 million, up 6.2 percent.

The Top 20 collectively produced 29,621 Rx jobs per day in 2014, an increase of 6.9 percent from year-ago. Uncut lenses, on average, accounted for 39.4 percent of these jobs, down 4.1 percent from year-ago.