An early summer and an inspiring growth last year have encouraged consumer durable players to plan aggressive volume expansions. B&E takes a look at the ‘cool’ factors that will enable them to beat the heat by Neha Saraiya
We are also extending a line of 65 AC models, which are 100% BEE star rated.” BMR (bottom mounted refrigerator) technology patent holder and white goods major Haier has earmarked a budget of around Rs.100 crore for its production facilities and is aggressively focusing on product categories like deep freezers and commercial AC’s as a part of its summer plans (besides home ACs and refrigerators).
Then there is the lower penetration level in rural and tier III cities, due to which, consumer durable players are raking their minds planning their distribution strategy to be able to service these markets. Godrej appliances recently launched a slew of entry level refrigerators to cater to such markets as the penetration level in these markets is just 5% currently. Similarly, LG India, whose rural contribution is 15% currently, is hoping to increase it to 20% this year. The company is operating mobile vans across the various grain markets in Punjab and other places in order to showcase its products and pull demand.
Apart from an early summer this year and increasing demand from the rural areas, another reason that has worked in favor of the durable giants is the replacement cycle of durable products, which is getting shorter. For instance, the replacement cycle for domestic appliances was 12 years earlier and has come down to 7-8 years now, which has helped trigger demand further. So durable players are leaving no stone unturned to bank on this opportunity. But it is still relatively hard to markdown their ability to scale up their production capacity and in turn play on volumes. Interestingly the consumer durables’ production, which is principally triggered by discretionary demand, has recorded a high growth in FY10 so far, but experts warn that pricing will play a crucial role in increasing the penetration level of white goods, which is in turn dependent on raw material costs and excise duties, which have already increased in this year and are subject to increase again. However, it may be noted that the widening of tax slabs has also put more money in the hands of consumers; giving a fillip to their ambitions to spoil themselves further.
While most of the input costs have been absorbed by the players in December 2009, it has necessitated a marginal increase in the prices of the products. Thus a marginal hike in prices of categories like refrigerators (by 3%) and ACs (by 4-5%) is unavoidable. Another reason for a hike in product prices is the expected excise duty increase from 8% to 10%, wherein the most affected products in the consumer durables and electronics category will be televisions, refrigerators and ACs, which will eventually escalate the prices further. The call of the hour for the industry is the speedy implementation of GST (Goods and Service Tax), which can lead to a significant diminution in the prices of products.
For that, the best they can do is to continue to lobby and hope that the FM delivers on his promise. But the coming summer months are not about passively hoping for better times. They have to build impressive sales numbers within the coming months, to align themselves better with their long term objectives; because India is a market too lucrative to let such short term blips come in their way.
We are also extending a line of 65 AC models, which are 100% BEE star rated.” BMR (bottom mounted refrigerator) technology patent holder and white goods major Haier has earmarked a budget of around Rs.100 crore for its production facilities and is aggressively focusing on product categories like deep freezers and commercial AC’s as a part of its summer plans (besides home ACs and refrigerators).
Then there is the lower penetration level in rural and tier III cities, due to which, consumer durable players are raking their minds planning their distribution strategy to be able to service these markets. Godrej appliances recently launched a slew of entry level refrigerators to cater to such markets as the penetration level in these markets is just 5% currently. Similarly, LG India, whose rural contribution is 15% currently, is hoping to increase it to 20% this year. The company is operating mobile vans across the various grain markets in Punjab and other places in order to showcase its products and pull demand.
Apart from an early summer this year and increasing demand from the rural areas, another reason that has worked in favor of the durable giants is the replacement cycle of durable products, which is getting shorter. For instance, the replacement cycle for domestic appliances was 12 years earlier and has come down to 7-8 years now, which has helped trigger demand further. So durable players are leaving no stone unturned to bank on this opportunity. But it is still relatively hard to markdown their ability to scale up their production capacity and in turn play on volumes. Interestingly the consumer durables’ production, which is principally triggered by discretionary demand, has recorded a high growth in FY10 so far, but experts warn that pricing will play a crucial role in increasing the penetration level of white goods, which is in turn dependent on raw material costs and excise duties, which have already increased in this year and are subject to increase again. However, it may be noted that the widening of tax slabs has also put more money in the hands of consumers; giving a fillip to their ambitions to spoil themselves further.
While most of the input costs have been absorbed by the players in December 2009, it has necessitated a marginal increase in the prices of the products. Thus a marginal hike in prices of categories like refrigerators (by 3%) and ACs (by 4-5%) is unavoidable. Another reason for a hike in product prices is the expected excise duty increase from 8% to 10%, wherein the most affected products in the consumer durables and electronics category will be televisions, refrigerators and ACs, which will eventually escalate the prices further. The call of the hour for the industry is the speedy implementation of GST (Goods and Service Tax), which can lead to a significant diminution in the prices of products.
For that, the best they can do is to continue to lobby and hope that the FM delivers on his promise. But the coming summer months are not about passively hoping for better times. They have to build impressive sales numbers within the coming months, to align themselves better with their long term objectives; because India is a market too lucrative to let such short term blips come in their way.
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Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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