- If Xiaomi enters AC vertical, the move will create challenges for brands, as well as for channel partners
- Samsung might start focusing more on the AC vertical in 2020
- Brand and product promoters will play a big role in AC adoption rates
AC (Air Conditioner) industry with seven million units in 2019, is looking up to great season in 2020. Harsh summers facilitated growth of more than 20 per cent in the first half of 2019. Climate change, is another factor fueling the growth for this industry. The fact that ACs have a penetration rate of only five per cent in India is the icing on the cake. Slow down in economy was not able to impact this Industry due to extended summer in 2019. These reasons, put together, give bullish expectations for the upcoming season.
Low penetration, good growth levels for AC products, rural electrification have attracted global brands to set shops in India. Major Chinese players like TCL/Greey/Midea, Japanese brands like Fejestu-O’General(Starting Direct Operations) who were earlier catering to India market through local brands as OEMs, are now planning and exploring options to enter India with own production bases.
Eco-friendly is becoming the new norm
The government of India (GOI) is taking climate change seriously and is working seriously on eco friendly gas R32 and energy efficiency norms. The BEE star rating have been made stringent too. Year 2019’s AC energy saving is almost 100 per cent over 10 years old ACs.
Lots of brands have also started implementing green temperature of 24 degrees as lowest. This initiative of GOI might also help to save energy consumption in coming years.
Customers will have to change their perception of having chilled rooms and setting 18 degrees temp to comfortable temperature of 24 degree atmosphere in the room. This might have an impact on sales of few Japanese brands whose USP is chilled room.
Brands Like Daikin/Havells/IFB have added capacity of approximately one million this year giving very clear idea where AC industry is heading towards It is very imperative that support from Chinese Brands will start coming down on pricing/product/supply to local Indian brands as they have started their Shops in India. This could be good for India as the Make in India might get a boost.
Big plans of Samsung
Samsung, who has not focused on AC business in India seriously so far, has announced big plans this year. The company is planning to sell eight lakh units this year with clear intentions to capture 10 per cent market size which is currently around 3/4 per cent.
After 20 years of entry into India, Samsung now feels that AC business cant be ignored any more. This will have very serious implication on current industry dynamics in terms of brand positioning/pricing and profits. Most of Indian brands are suffering in the AC vertical. MNCs have all ready put serious pressure on profits due to Rupee deprecation and Global markets not doing well.
Current price positioning by Samsung, as per market report, is less than eight to 10 per cent. Number one player Voltas with its 1.5 ton three star models speaks about thhe intention to disrupt the market big time. All brands like Havells(Lloyd)/IFB/ONIDA/Blue star/Carrier/Hitachi /Panasonic/Godrej will have tough time to maintain numbers and profit in given situation.
Consumer Durable (CD) brands will have to come down on pricing and profits in order to stay a float in the current scenario. As most of the brands will have me too products of Inverter and non inverter range portfolio. It is expected that Industry will shift 70 per cent to Inverter ACs. It is to be noted here that the global production of fix speed compressors is coming down drastically. In fact, fixed speed to Inverter transition is fastest in word without any incentives by Government.
The challenges
With entry of all most 70+ brands for AC as till date, occupying shelf space will be a big challenge for smaller brands. CD brands have added advantage of refrigerator product to leverage dependency of retailer for shelf space.
AC business in the summer season is more dominated by retailers than SSD(Sales and service dealers). It will be very critical to have promoters on counters to promote brands as there is natural flow of customers on counters in peak summers. If brands do not have promoters will lose out badly on retail outlets.
This will give advantage to CD brands like LG/SS/IFB/Whirlpool. Please note that most of these are more than only AC brands. South and West market will have major impact for none promoters Brands. Challenges of economy will remain a major factor for growth.
With entry of MI(Xiaomi) in AC business it will be very critical for AC/CD brands to align GTM (Go to Market) strategy as Huge Mobile retailers network which was not selling AC so far will have big exposure to new business who all ready suffering due to online of 40 per cent+ business drop. New channel partners are eager to experiment with any new business opportunity as the target customer is same. Network of 20K retailers may go up to 30/35K. This is an opportunity and Threat to AC/CD brands.
AC is a serviceable product which requires regular maintenance. Brands which can offer quality of installations and Timely after sales service will have advantage. This will give added advantage to CD brands who are already servicing to deep inside rural markets already. Slow down in real estate and construction is restricting the Growth Story for AC business.
Way forward
AC is not a highly technical product any more. It has become a box selling product, and focus on retailing will help big time to all brands. Sell out orientation by brands will be critical. Promoters will be key to drive business in H1, It is a huge expense which is needed to help differentiate product in clutter of me too products to get some additional Margin.
Product differentiation with VRV for 2/3 indoor units/Portable AC/Tower AC for house can give additional Differentiation/TO/Profits. Each and every brands will have high focus on consumer offers to get their pie of share from 8.5 Million+(approx) units AC industry of 2020.
This article has been written and submitted by Maulesh Chhaya. Maulesh is a ACE (Appliances and Consumer Electronics) professional with more than 30 years of experience under his belt. He was previously associated with BPL, Mirc Electronics and LG India.
Note – Views shared by ACE professionals does not express views of EFY Group.
