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A Stagnant Market

A Stagnant Market

The refrigerator market has been experiencing sustainable growth in recent years due to increasing demand for consumer goods, rapid economic growth, increasing demand for refrigerated food products, easy consumer finance, growth in urbanization, and import and export activities in food and beverage sector. Emerging commercialization and changing lifestyles of humans in line with adoption of smart technologies have also pushed demand. However, low rural penetration and inadequate infrastructure is hindering the household refrigerator market growth. The trends toward smaller families and seasonality in demand are expected to provide opportunities for growth of household refrigerator market.

Indian market dynamics

The Indian market for refrigerators is estimated at 12 million units in 2018-19, valued as Rs 19,550 crore. LG and Samsung continue to dominate this segment. Whirlpool, Godrej, and Haier are the other three aggressive players. Panasonic and Hitachi continue to cater to the premium segment. Empire Home Appliances, selling GEM, is focusing its efforts as an OEM supplier.

By segment, direct cool continues to contribute 60 percent to the refrigerator market by value. However, with declining prices, the share of direct cool by volume is increasing very slightly, and in 2018-19 it is estimated as 78 percent. It is estimated that the inverter models constitute 60 percent of the market. The side-by-side refrigerators, with colorful patterns, and a new lineup from all brands are jostling for space in this extremely competitive market.

The Bureau of Energy Efficiency (BEE) introduced new norms for refrigerators in January 2018, pushing up energy norms by two levels. Sales of four- and five-star models started declining since 2015 when a revision was made. Subsequent tightening of norms in 2017 forced manufacturers to exit the five-star segment completely since last year due to no demand. BEE rating has done a lot of good to consumers and helped in the conservation of energy, especially in the case of ACs. As the energy norms are tightened, they push up manufacturing costs and prices. In case of refrigerators, consumers end up opting for three-star refrigerators since they do not see much difference in energy consumption.

Three-star refrigerators account for 46 percent of sales while two star models, which did not exist two years ago, now make up 26 percent. While the norms are perceived to be stringent, when compared to some international markets by the manufacturers, BEE is firm that it shall continue tightening energy norms to set global benchmarks.

With a hot long summer ahead, it is expected that the Indian market shall see a 10 percent growth in 2019-20 in this segment.

Global Scenario

The global household refrigerators and freezers market size is expected to reach USD 125.68 billion by 2025, progressing at a CAGR of 6.8 percent in the period 2017–2025, according to Research and Markets. Key global players include Samsung Electronics, LG Corporation, Haier Group, AB Electrolux, and Whirlpool Corporation.

Growing investments in innovation of refrigerator units and rising income levels, coupled with decline in product prices with high specifications availability, are some of the key trends stimulating market growth. The refrigerator and freezer market is growing steadily with significant rise in rising consumer spending power and ease of financing schemes. Increasing inclination toward sophisticated brands is also likely to bolster the growth of the market over the coming years. Household refrigerator and freezer buyers are very sensitive about costs associated, and are often prone to buying inappropriate models with low prices and high electricity consumption. In such cases, they often end up buying refrigerators and freezers that are not considered energy efficient. Energy-efficient models help in reducing electricity consumption, and ultimately reduce costs related to units. Easily available consumer loans and other purchase schemes are expected to give a moral boost to price-sensitive consumers. In addition, attractive schemes presented by financial institutions and commercial banks are gaining attention of price sensitive consumers.

Increasing electrification and wide usage of internet sales are expected to propel the market for household refrigerators and freezers in rural and semi-urban areas. Furthermore, increasing nuclear families’ count and environmental changes are anticipated to boost the growth of the overall market. Urban families prefer to cook large meals ahead of time, which augments the necessity of a household refrigerator unit. Also, consumers prefer separate refrigerator units to store beverages.

At present, the market in North America is leading in refrigerator sales, owing to adequate awareness among the customers in preserving. Adoption and usage of refrigerators and freezers for storing and preserving food items is expected to grow in the coming timeframe. The demand is high in the region due to the rise in consumption of frozen food as more people are entering the workforce and the lifestyle patterns have undergone a massive change. Major refrigerator companies are attempting to shift their focus to introduce high-end models. Europe is the second region to lead in refrigerator affordability. The European refrigerator market is expected to fare well in comparison to Asia’s. It is expected to account for over 21 percent and 24 percent revenue and volume share respectively by 2025. China’s refrigeration market has shown a downward trend and the next few years are uncertain. In Japan, the mid-sized refrigerator models are expected to do well. Taiwanese consumers are showing an inclination toward the local refrigerator companies rather than international brands. In Eastern Europe, Russia has a high penetration of refrigeration equipment as these products are manufactured in the country under license from foreign companies. The Middle East and Africa household refrigerator and freezer market is expected to grow at a CAGR of over 7.2 percent from 2018 to 2025. In South Africa, freestanding refrigerators are enjoying popularity in households, the contributing factor for which is consumers’ preference for durable, spacious, and fast cooling refrigerators that are backed with a warranty.

Unlocking the IoT Potential

Smart home appliances will become increasingly popular with consumers who already enjoy a connected lifestyle. Benefits such as increased comfort, convenience, energy efficiency, personalization, and security will all drive purchasing decisions. Ease-of-use, affordability, and advances in enabling technologies will also boost adoption rates. According to Research and Markets, the smart home market was valued at USD 76.62 billion in 2018 and is expected to reach USD 151.38 billion by 2024, at a CAGR of 12.02 percent during the period. For appliance OEMs hoping to capitalize on this trend, it is important to understand what consumers want and how to create value using the Internet of Things (IoT). Many consumers already own smart home technologies including smart appliances. But notably, adoption of these appliances is trailing other smart home fixtures that demonstrate a more practical value proposition.

Consumer demand and digital connectivity. IoT-enabled smart home appliances appeal to busy consumers who want to spend less time doing chores, perform them with less guesswork, or just occupy a home that actively adapts to their personal rhythms and preferences. Consider fridges that automatically reorder more milk before the bottle runs out; doors that unlock only for the people authorized to go through them; or rooms that automatically adjust lighting and temperature to suit the people present.

Busy lifestyles, emphasis on efficiency, and preference for convenience are not the only factors driving smart appliance adoption rates, however. Consumers have already embraced connectivity. Smart appliances are not new, but many brands have struggled to convey a meaningful value proposition. Sending a refrigerator’s settings to a smartphone is informative, but home owners usually do not do much with this data. That is why it is important for appliance design engineers to develop products that deliver value in three key areas: ongoing customer relationships, revenue streams, and strategic partnerships.

Customer relationships and revenue stream. Makers need to build ongoing customer relationships because appliances are no longer a once-a-decade purchase. Thanks to smartphones and other types of consumer electronics, buyers expect periodic upgrades providing cutting-edge features. Just because consumers wait a few years to buy a new washer or dryer does not mean they are satisfied with their current appliances. Today, keeping customers happy means delivering value throughout a product’s lifecycle.

Determining what consumers want is data-driven. Accordingly, smart appliances that enhance the customer experience can provide advice about how to use the product or supply access to related goods and services. Establishing an ongoing customer relationship helps to build the brand, but this relationship would not work without trust. Appliance makers that adopt a freemium model could further offer customers free services, with option to pay to upgrade to a premium service. Another potential revenue stream, everything-as-a-service, makes smart appliances an essential service provider instead. Predictive analysis, a third potential revenue stream, enables makers to analyze data about appliance’s performance and take intelligent actions, such as preventative maintenance.

Appliance makers and strategic partnerships. Appliance makers who establish strategic partnerships can also build business value. For example, a smart refrigerator manufacturer could partner with a local supermarket that delivers groceries. Instead of visually checking a refrigerator’s contents and then making a shopping list, a consumer could allow a smart refrigerator to track quantities or expiration dates and automatically reorder items. This model provides benefits not only to the appliance maker and the smart appliance owner, but also to the grocery supplier.

Overcoming challenges. Appliance makers must also overcome technical challenges to leverage IoT-enabled business opportunities. These include ensuring security and data protection, and lowering the cost of smart appliances, and the use of legacy components.

Consumers often cite data security as a leading cause of concern with connected technologies, which means appliances manufacturers must be prepared to implement strong data-security practices and enhanced security features in their smart products.

The high cost of smart appliances is another potential hurdle for makers. Fortunately, hardware prices have fallen, and designers can now package hardware within appliances more readily. But makers can also counter concerns over costs by highlighting how smart appliances can reduce energy costs, for example. It cannot be understated how important it is for brands to understand the full potential value that their smart appliances offer to consumers, and to communicate that value. A device is not valuable just because it is connected.

Each smart appliance has a product lifecycle, and so do all of the components used in these devices. As components become obsolete, manufacturers must have a steady supply of replacements or upgrades. Otherwise, a brand’s reputation can suffer over the long term. Makers would be wise to make product redesign an ongoing part of their strategy to stay ahead of the curve in a constantly evolving industry.

Enhanced technology is an essential factor, which has impacted today’s household refrigerator market. In a fast-paced lifestyle, the use of AI assistants to perform minor tasks offers convenience and saves time. These smart refrigerators can help anyone connect to Wi-Fi for real-time feedback, optimized performance, alerts and more. Alexa, Siri, and Google Assistant allow the input of voice commands to control the refrigerator. One can activate the ice maker or air filter or adjust and monitor the fridge’s temperature, and use voice commands to initiate the ice making process. With summer approaching, the refrigerator companies are expecting a boost in refrigerators equipped with intelligent technology. To add to it, the companies have further worked for the comfort of the customers by making it possible for them to access their refrigerators from a remote location. Smart functions can be utilized to control the functioning of the refrigerator through a mobile app which will send a push notification in case anything is amiss with its functioning. Some of these have built-in cameras, which allow users to keep a check on the food stock from a remote location through an app and monitor the expiration dates by digitally labeling them. These refrigerators have been enabled to read out the latest news, weather, and calendar updates when instructed using AI voice input, and create grocery lists that are in sync with the smartphone app. Families can create an individual profile for family members to coordinate schedules and food habits. Refrigerator companies are incorporating recent technology to offer comfortable everyday assistance to their customers. Present-day smart refrigerators sync up food storage, keep family members better connected and organized, and serve as entertainment portals, which can be activated with an internet connection. The evolving refrigerator technology has transformed refrigerators to entertainment hubs where one can command the refrigerator to play music using a smartphone app and mirror their customers’ favorite TV shows on the fridge’s screen to help them make the most out of their kitchen time.

Companies are tapping the customers’ need for comfort and assistance by introducing artificial intelligence in refrigerators. With the lessening family members due to emergence of nuclear family system, a smart refrigerator has become a trustworthy companion, which is keenly welcomed and equally desired for its manifold benefits.

Environmental concerns

The Kigali amendment to the Montreal Protocol on substances that deplete the ozone layer came into force on January 1, 2019, following ratification by 65 countries. The UN Environment Programme announced the entry into force, and noted that it will help reduce the production and consumption of hydrofluorocarbons (HFCs), potent greenhouse gases (GHGs), and thus avoid global warming by up to 0.4°C this century.

The need for the Amendment emerged from the 1987 Montreal Protocol process, which controls ozone-depleting substances. With HFCs’ use as an alternative to ozone-depleting substances in cooling equipment, their role in warming the atmosphere became a greater concern. In 2016, the parties to the Montreal Protocol adopted the agreement on HFCs at the close of the 28th Meeting of the Parties (MOP 28) in Kigali, Rwanda. Governments agreed that it would enter into force on January 1, 2019, provided that at least 20 parties to the Montreal Protocol had ratified it. On November 17, 2017, Sweden and Trinidad and Tobago deposited their instruments of ratification, bringing the number of parties above the required threshold. By December 21 2018, ratifications from 65 countries were recorded, with more expected.

Under the Amendment, all countries will gradually phase down HFCs by more than 80 percent over the next 30 years and replace them with more environment-friendly alternatives; specified group of developed countries will begin the phase-down in 2019. Several developing countries will freeze HFC consumption levels in 2024, followed by additional countries in 2028. The Amendment also includes agreements on technologies to destroy HFCs, data reporting requirements, and provisions for capacity building for developing countries.

Developed countries will start reducing HFCs as early as 2019, while developing countries will start later. Phasing down HFCs under the Protocol is expected to avoid up to 0.5°C of global warming by the end of the century, while continuing to protect the ozone layer.

Outlook

The refrigerator companies in developing and developed countries are expected to take up the challenge of being ecologically responsible, and providing the consumers with safe and efficient models. The introduction of smart technology in refrigerator has established an internet-enabled ecosystem that benefits the lifestyles of households in the long run, which might prove to be beneficial for the global market players in the long run.

“Even if consumers are buying three-star models, it is good enough, since in 2017 these were the highest-rated five-star. The rating change is done through a scientific and consultative process. Once the market transitions to higher energy-efficient models, the sales volume will lead to a reduction in their prices.”

Abhay Bakre
Director General,
Bureau of Energy Efficiency

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