The Market of Household Electrical Appliances in India

Introduction:

Durable goods are those which don‘t wear out quickly, yielding utility over time rather than at once. Examples of consumer durable goods include electronic equipment, home furnishings and fixtures, photographic equipment, leisure equipment and kitchen appliances. They can be further classified as either white goods, such as refrigerators, washing machines and air conditioners or brown goods such as blenders, cooking ranges and microwaves or consumer electronics such as televisions and DVD players. Such big-ticket items typically continue to be serviceable for three years at least and are characterized by long inter purchase times. Developing countries such as India and China have largely been shielded from the backlash of the recession, as consumers continued to buy basic appliances. In fact, China has been ranked the second-biggest market in the world for consumer electronics. Despite the recession, their strong domestic economy and growing high-income population have buoyed demand leading to aggressive market growth.

There is growing interest for new age products such as LCD-TVs and DVD players. Meanwhile, the penetration of the basic, largest dollar items such as ovens, washing machines and refrigerators is also increasing. India too, has witnessed a similar phenomenon, with the urban consumer durables market growing at almost 10 %p.a., and the rural durables market growing at 25% p.a. Some high-growth categories within this segment include mobile phones, TVs and music systems.

The sector has been witnessing significant growth in recent years, helped by several drivers such as the emerging retail boom, real estate and housing demand, greater disposable income and an overall increase in the level of affluence of a significant section of the population.. Apart from steady income gains, consumer financing and hire-purchase schemes have become a major driver in the consumer durables industry. In the case of more expensive consumer goods, such as refrigerators, washing machines, color televisions and personal computers, retailers are joining forces with banks and finance companies to market their goods more aggressively. In addition, change in policy, such as the WTO FTA in 2005 resulted in zero customs duty on imports of all telecom equipment, thereby improving the pricing and affordability of imported goods.

Overview of Consumer durable industry: The Indian consumer durables industry has witnessed a considerable change in the past couple of years. Changing lifestyle, higher disposable income coupled with greater affordability and a surge in advertising has been instrumental in bringing about a sea change in the consumer behavior pattern. This industry consists of durable goods used for domestic purposes such as televisions, washing machines, refrigerators, microwave ovens, mobile phones etc. The growth in the consumer durables sector has been driven primarily by factors such as the boom in the real estate & housing industry, higher disposable income, emergence of the retail industry in a big way coupled with rising affluence levels of a considerable section of the population. As per a survey conducted by FICCI on the Indian consumer durables industry, a shift in consumer

preferences towards higher‐end, technologically advanced branded products has been quite discernable. This shift can be explained by narrowing differentials between the prices of branded and unbranded products added with the high quality of after sales service provided by the branded players. The shift has also been triggered by the availability of foreign branded products in India owing to lower import duties coupled with other liberal measures as introduced by the government.

The consumer durables industry can be broadly classified into two segments: Consumer Electronics and Consumer Appliances. Consumer Appliances can be further categorized into Brown Goods and White Goods. The key product lines under each segment are as follows.

White Goods Brown Goods/ Home Appliances

Consumer Electronics

Refrigerator Electric Fan Television Washing Machine Mixer, grinder and blender Mobile phone handset Air conditioner Iron Mp3 Player Speakers and Audio/music system

Microwave/oven DVD Player

Cooking range Computer and Peripherals Electric Kettle Water Purifier Pressure cooker Water heater or geyser Other electrical appliances

Indian Durable Industry

With the bracket of ―The Great Indian Middle Class‖ widening, the average standard of living is rising and durables such as TVs, washing machines, home appliances, computers, refrigerators and ACs are fast turning into utility goods rather than luxury goods.

Consumer Behaviour

Consumer behaviour varies from region to region and purchasing pattern keeps on changing with changing geographical and climatic conditions. A few years back, the average Indian consumer‘s spending habits on durables were value-oriented, family-oriented, celebrity influenced, and traditional. While these attributes are still prevalent in his image, he is also fast turning brand-conscious and quality-oriented. The modern consumer is willing to shell out extra bucks for style and durability.

Another factor that has played a major role in the changing consumer behaviour is the shift in socio-cultural values. People are no longer averting to the risk of trying new products/brands with innovative offerings. They are not sceptical about newer technologies. They are seeing products as extension of their own personality. The emotional connect and loyalty to a brand is slowly being replaced with rational selection and functionality. Indulgence in comfort has overpowered the guilt in the consumer‘s mind when he splurges on convenience products. Thus, a new liberal set of consumers is emerging in India, which does not hesitate to spend extravagantly on the domestic appliances and electronics in exchange for comfort and luxury.

Current Domestic Demand and Demand Forecasting

According to the government data on national income released in early June, the real per capita disposable income (average income at fixed prices) of Indians grew by 5.6% from Rs.31,821 in 2008-09 to Rs.33,588 in 2009-10 as against a 5% growth in the previous fiscal. This real income is a better measure of the growth in purchasing power than the nominal income (average income at current prices) is, as it broadly factors in inflation and thus indicates change in spending power at the same price levels. Considering a modest average growth of 9% p.a. in the all-India per capita average expenditure on consumer durables and with almost 67% of population of 1264mn people in 2015 forming the consumer class, would translate to a domestic demand rising to Rs.73, 256 crore in 2015 for consumer durable goods indicating an industry CAGR of 18%-20%.

Also this year, the expected normal monsoon is likely to stabilize inflation by decelerating the price rise in food and commodity prices. This, in turn, will boost buying power. Thus, on the whole, the consumer demand for durables will see a robust growth for the next few years. The consumer durables index recorded 29.89% growth in February 2010 compared with 5.78% increase in the same month last year. Due to the crisis last year we have seen fall in demand

which resulted in nominal 4.50% growth for the year 2008‐09. However till February 2010 the

index recorded 25.50% growth rate compared with 5.78% growth in April‐October 2008‐09.

Market Overview The market size (value) of the consumer durables industry has seen an exponential growth in the past few years. The $27.38 billion electronics and Home Appliances Industry in India could become a $ 40 billion Industry by 2012, growing at a CAGR of 15-20%, provided there is support from the government, said a joint study conducted by Assocham and Ernst & Young. The study titled 'Electronics and Appliances Manufacturing - the India Opportunity" said the Industry has growth by 7.1% over the previous year in rupee terms. As said earlier market is primarily categorized into Consumer Electronics and Consumer Appliances. Consumer Appliances is further subdivided into Home appliances and White Goods.

Consumer Appliances

The consumer appliances market is estimated at US$4.34 billion, with imports valued at US$ 1.22 billion.

Air conditioners (including industrial and office conditioners) constituted 38 per cent of the consumer appliances market, followed by refrigerators at 14 per cent, electric fans at 7.5 per cent, washing appliances at 7 per cent and sewing machines at 5 per cent.

Most imports are in the finished goods categories such as watches, electric coffee makers, food grinders, electric heaters, etc.

White Goods

Air-Conditioner•Total market size Rs 10,050 Crores in 2008-2009•AC segment growth declined in 2009.•Split AC growth 22%, Windows AC growth 5%.

Refrigerator•Total Market size was Rs 5324 crore in 2008-09•Total Production increased by 27.28% from FY 09 to FY 10

Washing Machine

•High end segment-Fully automated and Front loaded; Low end segment- Semi automated and Top loaders.•Total market size in 2008-09 was Rs 3337 crores•Total production increased by 26.55% form FY 09 to FY 10

Brown Goods

The major products constituting the brown goods market are mixers, grinders, irons, microwave-ovens, rice cookers, water heaters or geysers, electric fans and exhausts. The branded brown goods market has expanded at a significant pace and is expected to retain the momentum into the future as well. While focus on price competency remains a key priority, players have also started focusing on other product features such as safety and total cost of ownership of the device. The electrical appliances industry, which had been focused on the urban market, is now reaching out to semi-urban and rural markets as well, because of the shift in living style of the population, increasing electrification of villages and relatively higher purchasing power of consumers. As the market penetrates into the core middle class segment in both urban and rural areas, it is expected to expand phenomenally.

Key Players in Industry

Company Product Category Blue Star Ltd Air-conditioner, Refrigerator, Specialty

Cooling Products. Daikin Air Conditioning India Pvt.Ltd Air-conditioning and Cooling equipment Godrej & Boyce Mfg. Ltd Refrigerators, Washing machine, Microwave

ovens, DVD players, Digital imaging and Audio-Visual products.

Hitachi Home & Life Solution (India) Ltd. Air-conditioner and Refrigerator LG Electronics Pvt Ltd. Television, Home theatre, DVD Players,

Mobile phones, Digital camera, Refrigerators, Air-conditioner, Washing machine, Microwave ovens and Computers, Vacuum Cleaners.

Philips Electronics India Ltd. Television, Home theatre, DVD Players, Audio Product, Personal Care Product, House hold Product, Computers and Phones.

Samsung India Electronics Pvt. Ltd. Television, Home theatre, DVD Players, Mobile phones, Digital camera, Refrigerators, Air-conditioner, Washing machine, Microwave ovens and Computers

Sony India Pvt. Ltd. Television, Home theatre, DVD Players, Audio system, Projectors, Digital camera, mobile phones, In-car entertainment and Video gaming products.

Videocon Industries Ltd. Television, DVD players, Microwave ovens, refrigerator, Washing machine, Air-conditioner, and Power back up system.

Whirpool Of India Ltd. Refrigerators, Washing machine Microwave ovens, Water purifiers and Power back up solutions.

Two Recent Trends in Market

Recent Upcoming Major Investments The high potential of the Indian market has encouraged the durables industry players to expand their presence in several ways

Expanding production base in India. Introducing new products in India from the global product basket. Providing support to global projects from India.

Export- Import Scenario: India is a net importer of electronics and appliances. More that 70 per cent of Indian electronics market depends on import of both finished goods

and components. India imported worth US$ 18.5 billion and exported worth US$ 3.69 billion of electronics

goods between April 2008 and February 2010

Opportunity and Challenges

Challenges

About 65 per cent of Indian population that lives in its villages still remains relevant for some consumer durables companies. This India, at least a large proportion of its constituents, still buys black and white TVs and doesn't know what flat screens are.

Also, foraying into these rural markets has a considerable cost component attached to it. Companies not only have to set up the basic infrastructure in terms of office space, manpower, but also spend on transportation for moving inventory. Even LG and Samsung, which are touted

as having the largest distribution network in the country, have a direct presence only in 15,000 to 18,000 of the around 40,000 retail outlets (for consumer durables) in the country.

Poor infrastructure is another reason that seems to have held back the industry. Regular power supply is imperative for any consumer electronics product. But that remains a major hiccup in India.

On the demand side, customers have increasing choice from both domestically produced and imported goods, with similar features. This homogeneity makes it difficult for players to remain ahead of the competition.

MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions.

Opportunity

The consumer durables market in India is entering a new phase driven by a young population, with access to higher disposable income and easy finance options.

There is an opportunity for integrated product development in India, as the country is now regarded as a preferred designing base for semiconductor and chip manufacturing companies. The growing purchasing power of the rural community has encouraged companies to introduce quality products targeting this low-income consumer segment (‗bottom of the pyramid‘).

Penetration of consumer durables would be deeper in rural India if banks and financial institutions come out with liberal incentive schemes for the white goods industry segment, growth in disposable income, improving lifestyles, power availability, low running cost, and rise in temperatures. While the consumer durables market is facing a slowdown due to saturation in the urban market, rural consumers should be provided with easily payable consumer finance schemes and basic services, after sales services to suit the infrastructure and the existing amenities like electricity, voltage etc.

Conclusion: The consumer durables industry in India is set for sustained growth over the long term, fuelled by favorable consumer demographics, overall growth in services and industrial sectors and infrastructure development in suburban and rural areas. Several Indian and MNC players are looking to strengthen their presence in India to leverage this opportunity. Success in the long-term will require firms to develop a wide and robust distribution network, differentiate their products in areas of relevance to the consumer and innovate in the areas of promotion, product financing, etc. The product and approach to market need to be customized to suit the unique needs of the Indian market.