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BW Businessworld

Summer Bonanza

The ‘above normal’ temperatures and heatwave conditions predicted by the weatherman in most parts of North India this time look set to significantly spur the demand for ACs, refrigerators and other durables

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A harsh summer isn’t always a bad thing; in fact, it always means good business for a section of the industry. Or the cooling solution providers, to be precise. The higher the temperature, the better the business for them. And so, with temperatures predicted to go through the roof, and rains expected to play truant thanks to the El Nino phenomenon, the summer months are likely to significantly push the sale of air conditioners, refrigerators, and air coolers across the country.

Already, there is an incipient demand among the upwardly mobile sections of the population for all sorts of household goods and appliances that are considered necessary for living the good life. Now, with heatwaves becoming more frequent and intense, the demand for these is expected to only soar.

Right at the top of most people’s wishlist are the air conditioners. Considered a necessity for providing instant relief from sweltering heat, whether at home or at work, air conditioners are likely to witness a surge in sales. The sale of energy-efficient air conditioners may see a particular spike, as consumers become more conscious of their carbon footprint.

Ditto for refrigerators, which are essential for preserving perishable food and beverages. As temperatures rise, the need to keep food items fresh and prevent spoilage becomes more critical. Here too, consumers will likely invest in refrigerators with advanced cooling technologies and larger capacities to meet their cooling needs.

The increased demand for cooling appliances can drive innovation and competition among manufacturers, leading to more advanced and energy-efficient products. However, it is essential to address the potential environmental consequences of increased energy consumption and ensure that sustainable practices are followed in the production and usage of these appliances.

The high growth in value in 2022 indicates that consumers are willing to spend more on high-end products. Experts say increasing demand for home appliances along with a fairly low penetration rate has left the Indian air conditioner market with plenty of room to grow. In fact, it is estimated to sell 9.7 million units in FY2023, compared to 8.25 million units in 2022.

Appliances major Voltas sees growth across both mass and premium segments in 2023, driven by an increasingly even distribution of wealth, increased consumer spending power and demand for both high-end and affordable cooling appliances.

"Introduction of ‘all weather ACs’ allows us to cater to the ever-changing climatic conditions with intelligent heating, dehumidification and cooling technology, making our product offering more flexible," says Deba Ghoshal, Chief Marketing Officer of Voltas.

According to Anant Jain, Head of Market Intelligence – India, GfK, "The consumer durables industry reported YoY growth of 31 per cent in value terms in 2022; this was driven essentially by major domestic appliances (ACs, microwave oven, refrigerators & washing machines) which grew at 34 per cent, Small domestic appliances (air coolers, air purifiers, etc.) which grew by 37 per cent."

As per the GfK Market Intelligence Offline Retail Sales Tracking, ACs, refrigerators and air coolers showed YoY value growth of 53 per cent, 34 per cent and 88 per cent, respectively for MAT (Moving Annual Total i.e. 12 months aggregated Mar 22-Feb 23) February 2023. As forecast by the India Meteorology Department, with the hot and oppressive Indian summer just around the corner, these categories may sustain positive momentum, adds Jain.

Eric Braganza, President, Consumer Electronics and Appliances Manufacturers Association (CEAMA) also predicts a healthy growth in the sales of ACs, air coolers, refrigerators, etc. this summer. "We believe that factors such as rising temperature, increasing awareness among consumers, innovative product launches and the availability of a wide range of products at different price points will lead to a revival in sales of cooling products in the coming months," says Braganza. The industry is also focused on improving the distribution and availability of products, as well as offering attractive financing and promotional schemes to customers, he adds.

As to the aggressive pricing strategies adopted by players to gain market share continuing, Braganza says: "The industry is competitive, and companies often use aggressive pricing strategies to gain market share. While such strategies can lead to short-term gains in sales, it is important to ensure that they are sustainable in the long term. We encourage companies to focus on offering high-quality products and services, and to maintain reasonable margins, to ensure sustainable growth in the industry."

Agrees Ghoshal of Voltas. He says: “In our experience, while pricing and inventory management are important factors in improving margins, they are not the only determinants. We believe that our focus on innovation, quality, and customer service has been key to our success in the highly competitive consumer durable industry.”

Sales Dynamics
Manish Sharma, Chairman, Panasonic Life Solutions India & South Asia explains how the market dynamics work in the durable segment. When it comes to cooling products, production typically peaks around September or October, and a lot of inventory accumulates within the warehouses. "Around 30-35 per cent of sales in India comes out of organised retail, another 35-40 per cent through conventional distribution, and the remaining via exclusive or ecommerce channels. Being a country with lower penetration rates for air conditioners and distribution, still contributing 35-40 per cent of the overall demand, it takes a bit of time for the entire value chain to streamline the inventories," says Sharma.

Meanwhile, Daikin India crossed the $1 billion turnover landmark in FY2. A wholly-owned subsidiary of Japan's Daikin Industries, it has so far invested Rs 2,300 crore in India. Under K.J. Jawa, Chairman & MD, Daikin India & Member of the Board, DIL, the company has seen tremendous growth, clocking a turnover of Rs 8,860 crore for the financial year ended March 31, 2023. The company is looking at the India business as its "future treasure" and expects it to double to $2 billion (around Rs 16,350 crore) in the next three years, says Jawa, an industry veteran.

Jawa feels the Indian customers recognise value when they see it, and don’t mind paying 'extra' for it. "In my more than 40-year career, I have never seen any customer not wanting to paying a little extra for a future-ready product that can value add his life. I personally feel that India as a country is moving from service economy to a quality of life economy," says Jawa.

To target the Indian diaspora and drive sales, Daikin India has reinvented itself every year to become the fastest-growing AC company. This year too, Daikin India has a fantastic line-up of products. According to Jawa, the 2023 AC line boasts of patented streamer discharge for clean and pure air. The company's patented swing compressor for higher compressor efficiency is on offer along with dew clean technology for IDU cleaning and smart operations through apps including Alexa, Google Home and others.

Godrej Appliances also witnessed robust growth in AC sales. Says Kamal Nandi, Business Head and Executive VP – Godrej Appliances, part of Godrej & Boyce. "We have witnessed close to 80 per cent growth in our AC category so far this season in comparison to the same period last year. It is notable that the consumption of 5-star rated ACs is rising across all segments including 1-ton, 1.5-ton, 2-ton and window AC as well. the frost free segment within refrigerators continues to grow as well although the mass end is yet to show strong resurgence. Deep freezers are showing very good growth at close to 40 per cent. Going by the rising temperature, we expect May to deliver very good growth over same time last year," says Nandi.

Godrej Appliances says it recently launched an industry-first revolutionary product --India’s first split AC with 'anti leak technology'. The company now offers a range of 25+ SKUs in the AC segment for this summer season, with majority of them manufactured at company's own plant in India.

Power Situation
Without sustained power, no electric equipment can work. With IMD predicting sustained and long summer days ahead, how is India prepared to meet the high demand for powe? Talking to BW Businessworld, Union power minister R.K. Singh said, "We are very well prepared." According to the minister, India has taken steps to ensure that no disruptions in the power supply occurs during the peak summer season. The power ministry expects the demand to increase to almost 230 gigawatts (GW). If that happens, it will be a record for India.

"In the past, our peak demand had increased to 215 GW, which will be 15,000 megawatts more. That is good news. That is an indicator that our economy is growing. For all the critics, the surest indicator of the growth of our economy is the power demand. The power demand has gone up by 10.5 per cent," the minister said. His full interview can be read in the pages ahead.

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Magazine 03 June 2023