HANSE Interim Team Research: The German musical instrument industry is slightly out of tune. HANSE Interim Team Research has analyzed for you the challenges currently facing the industry and the success factors that could be decisive in the future.
The construction of musical instruments has a long tradition in Germany and numerous companies in the industry look back on a long history. This experience helps companies to operate successfully in an industry characterized by competition and globalization. In the context of a restructuring project of one of HANSE Group’s clients for a company focusing on musical instruments, HANSE Interim analyzed the key market developments and looked at the future decisive trends in the industry.
German manufacturers of musical instruments were able to recover well from the corona crisis, relying in particular on high foreign demand. However, the consumer climate is likely to deteriorate further in 2023, which will have a negative impact on domestic demand for instruments.
Market overview
In the wake of the Corona pandemic restrictions, the industry experienced a significant drop in sales of approximately 7% in 2020.
Concerts, events and related rehearsals had to be cancelled and hit the artist and music industry hard. However, easing measures allowed the industry to return to pre-crisis levels as early as 2021.
However, the Corona crisis as well as the outbreak of the Ukraine war led to strong turbulences on various commodity markets, such as the timber market.
The sharply increasing producer price for wood since 2021 increases the material costs for the production of wooden instruments and has a negative impact on the profit margin of industry players.
In the next five years, the industry is expected to experience a slight growth phase according to forecasts by the market research company IBISWorld. Sales are expected to increase by 1.1% per year to €563 million in 2027. Domestic musical instrument makers should be able to continue generating revenue growth due to their strategy of producing high-quality instruments.
However, as digitalization continues, social media, digital games, and other alternative methods of leisure are expected to gain further popularity over the next five years, which is likely to dampen demand for musical instruments. Alongside this, the continued rise in low-cost imports from China is expected to further intensify competition. In 2022, nearly one-third of all imports will come from China. The three Asian countries China, Indonesia and Japan together account for 57% of all industry imports. However, Asian producers are not only competing in the area of low-priced musical instruments. Numerous Japanese companies manufacture high-class instruments of enormous quality.
Competitive situation musical instrument manufacturing
To respond to this competition, domestic companies developed two different strategies. The first countermeasure was to focus mainly on the production of high-class products and instruments. By placing a special emphasis on the high quality and handmade nature of their instruments, domestic players were able to hold their own against competition from Asia. Joint ventures with different Asian companies offer another strategy for differentiation. This has allowed domestic players to benefit from low-cost labor.
Influence of digitization on the music industry
The digitization of society and the population is also exerting an influence on the music industry. While publishers of music titles are already experiencing this development through the rise of streaming portals, the upheaval in the industry of building musical instruments is taking place much more slowly. However, many industry players have already invested heavily in the development of new products. Digital instruments are the main focus of the industry.
The popularity of digital instruments has been rising sharply among musicians and the general public in recent years. A major factor here is the increasing popularity of DJs, who rely primarily on such instruments. This is creating increasing demand and widespread acceptance of digital instruments.
Despite the advance of digitization, playing classical musical instruments is very popular in Germany. According to surveys by the German Music Council, at least 14.3 million people in Germany play an instrument or sing in a choir in their free time. The German Music Information Center estimates that 12.1 million people in Germany play a musical instrument. Of these, around 3.6 million people are active in various amateur music associations. If we look at the breakdown by age group, we see that the majority of the population that plays music several times a week is between 14 and 19 years old.
Conclusion
Despite the stable customer base, however, the popularity of making music with classical instruments is expected to decline in the future as digitization progresses and consumer preferences change as a result. As a result of the associated decline in demand for musical instruments, industry sales are expected to increase only slightly over the next five years, largely driven by higher price levels due to inflation.
In addition, the decline in the number of manufacturers in Germany is also expected to continue as a result of the intensification of price competition from Asian manufacturers.
German musical instrument manufacturing is therefore in the midst of change and faces the great challenge of paving the way for the digital future on the one hand, but not losing sight of its own strengths such as craftsmanship and tradition on the other.
What developments do you see in this market in the future?
With best regards
Your HANSE Interim Management
Andreas Lau
