In which part of the scuba diving industry should I invest? | by Darcy Kieran | Scubanomics | May, 2021 | Medium
This article represents the views of the authors. The article has not been fact checked by myself, the Board of Directors or any member of the USA Dive Club.
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Updated on May 31, 2021.
The scuba diving industry has been hit hard by the coronavirus pandemic and was already facing copious challenges before this ordeal. But running for the hills is not always the only choice in difficult times! In many cases, problems are opportunities — for real! I believe it is the case in the dive industry.
Our biggest opportunity lies in redesign the scuba diving industry business model using a blue ocean strategy. It’s also a big challenge!
But it will happen, so… Where should I put my money to be ready to benefit from a ‘new’ dive industry? Better yet, in which part of the scuba diving industry should I invest if I want to be part of the solution and cash in on a renewed growth trajectory?
Before getting any further into this discussion, let’s clarify that the information contained in this article is not intended as, and shall not be understood as construed as, financial advice. I am not an attorney, accountant, or financial advisor, nor am I holding myself to be. The information contained here is not a substitute for financial advice from a professional who is aware of the facts and circumstances of your individual situation.
Furthermore, in this article, I am looking at investments in different parts of the scuba diving industry, at the macro level, not in particular companies, even if I use some of them as examples of general concepts.
Macro-Trends That Will Lead Growth in The Scuba Diving Industry
For real growth to happen in the dive industry, we need a renewed focus on the experience of scuba diving and much less on c-cards (certification courses) and dive gear which is simply a means to an end.
Currently, our business model relies on local dive shops as the entry door into scuba diving. And for dive store owners to be able to pay the rent and buy groceries for their family, they must sell courses and dive gear. It explains why the dive industry focus has been so much on selling courses and scuba equipment. Local advertising for dive shops is usually about dive certification courses, and competition between dive centers is usually on the pricing of courses and gear.
This model doesn’t work anymore for all the reasons we’ve discussed numerous times in Scubanomics. For the dive industry to grow, we need to adapt to today’s consumers' expectations and deliver experiences worth reliving over and over again instead of peddling c-cards to people who wanted to cross that off their bucket lists.
In fact, we shouldn’t be so focused on the words “scuba diving.”
Hiking doesn’t advertise itself as “walking.” In our case, scuba diving is like walking — it’s a way to do something else. And that “something else” may be many different activities, including discovering reef fish (the equivalent to bird watching) or visiting deep wrecks (much more adventurous).
The market is not homogeneous. People have different interests and aspirations. There may be many different reasons why people would be drawn to experiencing the underwater world. And strictly promoting the act of breathing underwater (which is what scuba diving is) will leave a lot of potential clients behind.
We need to identify these motivations and advertise them — not “scuba diving” — just like bird watching is not promoting walking and breathing. Scuba diving needs to become an “oh, by the way, we need to be scuba diving to do that.”
Similarly, we should stop talking about “the dive industry” and talk about “the underwater world industry.”
In such a renewed focus, where will current stakeholders stand? Who will gain and who will lose?
Scuba Diving Certification Agencies
As we analyzed before, dive training agencies currently maintain a chokehold on the rest of the dive industry. In our Porter’s Five Forces Analysis of the Scuba Diving Industry, we concluded that dive training agencies were extracting and pocketing an inordinate proportion of the dive industry value chain.
It is unlikely that they can maintain such a position and even less likely improve on it. No matter how much we squeeze a lemon, there is a limited amount of juice in it! That’s why we see dive training agencies fighting over market shares in a desperate attempt to please their shareholders during this fiscal quarter. They are not growing the industry.
On top of that, we believe that a renewed dive industry can only be built on a much lesser focus on issuing certification cards. It is not inconceivable to think of a world where there wouldn’t be much more than an entry-level certification course in recreational diving (not talking of tech diving).
The rest of the dive abilities could be developed by spending more on experience and less on the training material.
All arrows point toward dive certification agencies losing their grip on the industry. In fact, it may be a requirement for significant growth for the rest of us. It’s the last place I would currently invest money. We’ve seen numerous private equity firms rushing to throw money at them, but that was based on a very traditional look at past results.
Footnote: These observations are based on the certification part of dive training agencies. These companies could do well if they diversify away from relying on selling course material and online access to training. We see PADI heading in that direction with their acquisition of Bonnier publications and Diviac. They appear to be focused on pocketing more profits from the “activity” of scuba diving by selling dive experiences directly to consumers in competition with local dive shops. I think we can expect further developments in that direction.
Dive Gear Manufacturers and Brands
In a world where our focus is on a wider segment of the population casually experiencing the underwater world, selling dive gear to scuba diving fanatics will no longer be front and center.
Our traditional core market in the dive industry has been — and to a certain extend, remains — the baby boomers. For them, scuba diving was a lifelong dream, and once they learned to scuba dive, they defined themselves as scuba divers. They went on dive trips in which there was nothing else to do but scuba diving and drinking beer.
The younger generations tend to “do” scuba diving without “being” a scuba diver.
They could be interested in visiting the underwater world once or twice in a trip that also includes hiking and stand-up paddling.
This new generation will not travel around the world with a huge duffel bag of heavy scuba gear for a day or two of diving here and there.
We already see a trend toward fewer dive gear sales. On top of a reduction in the number of dive certifications, we see fewer dive gear sales per new student diver trained. Therefore, the future is as bleak for dive gear manufacturers as it is for traditional dive training agencies — if they do not adapt.
But there are new opportunities on that front.
First, we can expect a growing demand for dive adventure operators to provide quality rental gear. We will come back to the importance of consistency in the quality of the experience in the next section, and what opportunities it will create for dive gear brands.
Second, I would invest in a company focused on redefining dive gear to help bring more people to experience the underwater world.
Future dive gear needs to be lighter, easier to use, and much more “cool”.
Nothing has really changed in the basic configuration of the scuba unit in years. Well… Somebody, somewhere, will innovate — and cash in.
One glaring example is surface-supplied air (SSA) that we discussed recently. It looks pretty good on the Eliminate-Reduce-Raise-Create Blue Ocean Strategy’s grid. And with the introduction of the battery-operated surface-supplied air units, SSA gives us a very convenient way of providing air to people underwater for them to experience “the first atmosphere” (up to 10 meters/30 feet), which is where most underwater tourists will find interesting stuff to see and do.
It means that a good investor would keep an eye on innovative companies like Brownie’s Marine Group. It is notable that they had a 53.5% increase in revenues in 2020 — unlike the dive industry! And just like the rest of the outdoor industry!
A good way to make money, in the long run, has always been to invest in innovative companies at the start of their innovation cycle. Remember Apple? Google? Just saying!
In parallel to that, we have companies providing very specialized dive gear like rebreathers and other tech diving equipment. This market should remain a valid one. It’s the casual recreational scuba diving segment that is most likely to witness significant changes in the short term.
With that kind of pressure on recreational dive gear brands, we can expect further diversification and consolidation — which has already been happening very aggressively over the last 10 years.
Diversification is like the recent acquisition of the triathlon wetsuit company Aquaman by French dive, snorkeling, and freediving brand Beuchat. Consolidation is like the acquisitions of Atomic Aquatics, Zeagle, Bare, Hollis, Stahlsac, and Oceanic by Huish Outdoors in Salt Lake City, Utah.
What does it mean in terms of investment?
Whenever a company acquires another one, the shares of the acquiring one drop while the shares of the acquired one jump up in value. We see that in the stock exchange almost every day.
Therefore, a good investment strategy in dive gear brands would be to place money into smaller dive gear manufacturers, especially if they provide something unique — like SSA and dive computers — something that a larger dive gear brand would benefit from adding to their product line-up.
Another option is investing in regional dive gear brands. For instance, a Huish Outdoor is firmly established in the USA but lacks a solid presence in Europe. I would not be surprised to see Huish acquiring a company well-positioned in Europe but with a weak presence in the USA. This could be a Beuchat or a Poseidon, for instance.
Disclaimer: I have no financial investments in any of the companies mentioned above, and I used them only to represent a general idea and direction.
Dive travel is very segmented at the moment. Numerous travel agencies are specializing in scuba diving adventures. The destination can be one of many dive resorts or liveaboards. Local dive shops also sell dive travel. And any tourist resort or regular travel agency can add scuba diving to their offerings.
Scuba diving can be done anywhere there’s water, and therefore, the dive operators will most likely remain a series of independent operators. The biggest opportunity on this front is not on consolidation or vertical integration.
The two biggest opportunities on this front are related to diversification and branding.
Diversification means offering more than scuba diving, as we discussed above. Growth would come if we manage to offer the experience of the underwater world to a wider segment of casual divers. This can be achieved by providing the experience in more destinations outside the traditional dive-focused resorts. Surface-supplied air units could be a useful tool to achieve this goal, as is the development of a reliable brand.
Consistency in the quality of the experience has been a recurring problem in the dive industry. It fuels a huge drop-out rate, as we have seen in a recent Scubanomics survey on scuba diving and snorkeling.
Therefore, the biggest opportunity in dive travel — and the dive industry as a whole — is the development of a trusted brand offering consistency in the quality of the experience at all locations operating under its flag. I do not see any company currently investing in that direction. That is what I will keep my eyes (and wallet) open for!
Dive Gear vs. Dive Travel
Consistency in the quality of the experience means that I would expect quality dive gear at every location. Not only that, I would expect the gear to be pretty much the same so that I know how to best operate it — and I know that a size ML Tall is what I always fit best into.
That requirement for increased reliability in the quality of the experience and the fact that younger generations tend to be more casual divers, open up an opportunity for a dive gear brand willing to satisfy these needs. For instance, here is one: a rental dive gear system allowing divers to have access to the same gear everywhere they dive, without having to travel with it and without having to take care of the annual maintenance.
Time to think outside the box!
Local Dive Shops
Traditionally, local dive shops have been the entry door to scuba diving. Yet, they’ve also been the weak link.
I don’t want to insult anybody here! I owned and operated dive shops, and I know how difficult it is to offer quality in all six of the business units we try to operate under one roof: a school, a retail store, a travel agency, a fill station, a garage for dive gear, and a rental business.
A local dive shop is a tiny business, and that level of diversification naturally leads to sub-par performance in all 6 business units.
On top of that quality issue, these small businesses do not have the financial means to maintain a level of dive gear inventory that would satisfy today’s consumers.
Therefore, the opportunity on this front relies on a complete re-design of the business model.
Purchasing or investing in a local dive shop is not a smart money move at the moment — if it ever was!
If I want to offer scuba diving in an urban (non-tourist) location, I would invest in developing my personal dive instructor brand around the quality of the experience and forego selling dive gear.
Eventually, training agencies and dive gear brands will all be selling directly to my clients. Therefore, the investment should be in my personal brand (my name), not on promoting PADI, SSI, Aqualung, 10W30, or XYZ.
Once a global brand has established itself as the one providing consistency in the quality of the experience (as discussed under dive travel), that is the brand I would want to operate under and invest into.
The only big investment needed in this local diving scenario is a fill station, but we can skip the heavy gear inventory and the expensive commercial lease. And if the market is too small for a full-blown fill station, I would look at surface-supplied air units and/or portable compressors.
Summary: Investing In The Dive Industry
I would not invest in:
· Traditional dive training agencies
· Large, established, and non-innovative dive gear brands
· Local dive shops
· Dive resorts offering only scuba diving
I would invest in:
· Innovative dive gear brands
· Specialized dive gear brands
· Dive gear brands with a strong presence in a region not well serviced by large brands
· Locally: My personal dive instructor brand (my name)
And the big investment would be in a project to develop a global experience brand offering consistency in the quality of the experience.
Let’s make a good living out of our passion for scuba diving!
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