While appliances businesses till now have been contemplating the future with smart technology, 2018 is the year when buyers are finally seeing what is in store.
The home appliances market for a long time has been dominated largely by manually operated products. The last few years have seen the rise of autonomous products where functions are carried out at the touch of a button. This has been matched by additional functionalities added to the products over a period of time. However, the outlook in terms of the products sold, is expected to be different in the coming years. Despite years of robust profits, the appliances market is undergoing dramatic change. As a result, players in the industry, particularly mid-sized companies, are facing massive challenges. Many manufacturers were long successful with their strategy: engineer for eternity, build production scale, and leave selling to retail. But those times are over. Instead, the wave of competition is growing, especially for smaller brand European manufacturers. While these firms are struggling with falling margins in saturated markets, large Asian players are growing their presence and have been able to significantly expand their position through strong growth in their home markets and strategic acquisitions.
The Indian landscape
The Indian home appliances market has witnessed robust growth trends in the past 5 years and is expected to foresee double digit growth. The market is growing at a CAGR of close to 10 percent during the period between 2017 and 2021. The majority of demand for consumer appliances in India comes from urban India. Volume sales of home appliances in India are dominated by electronics and appliances specialist retailers. However, sales of home appliances through online channels saw the fastest growth in 2017. The growth is reinforced by surging rural consumption, reducing replacement cycles, increasing penetration of lifestyle appliances, and availability of multiple brands at various price points. Rapidly shrinking replacement cycles for consumer durables sustain demand in urban India while existing low penetration rates and increasing usage of consumer durables have catapulted rural India to a high demand (30% annual growth) generating segment. Also, the income level disparities compel alignment of marketing tactics for desired customer segments. High-income groups opt for advanced features, whereas, middle and low income groups are price sensitive.
The government has allowed 100 percent foreign direct investment (FDI) in the consumer electronics and home appliances manufacturing sector through the automatic route and 51 percent of FDI in multi-brand retail. This has become a key attraction for foreign investors. Moreover, the National Policy on Electronics (NPE) that was drafted in 2011 to boost the electronic system design and manufacturing (ESDM) industry plays a vital role in the growth and upscaling of the home appliances market in India. Moreover, in response to the Make in India drive, India is on the path of becoming a hi-tech manufacturing hub of electronics products. In line with initiative, international companies have set up or expanded their manufacturing capacity in India, thereby reducing costs, and compete with local manufacturers in terms of product pricing. As the penetration of appliances is low in India, companies are now working to increase penetration, with many new launches and strong marketing campaigns. In addition, the Indian government is on the path of electrifying 100 percent of the country by the end of 2019, thus, propelling demand.
Over the last 8–10 years, consumer preferences toward home architecture have undergone a considerable shift. Consumers now demand more built-in consumer electronics and home appliances to save floor space. For example, kitchen designs have experienced a continuous transformation to get a more modern look. This is an important factor driving the growth of the home appliances market like built-in microwave ovens, refrigerators, cooker hoods, dishwashers, cooking products, and others. They are heavily investing in kitchen designs that are sophisticated yet easy to maintain. The growing significance of home appliances has led consumers to look out for unique and premium consumer electronics and home appliances. At present, the global economic growth and increase in average dual household incomes have led them to opt for appliances of luxury brands. This is because these premium appliances, which are equipped with smart features, match the societal status of upper-class households. They are in high demand mainly because of the increased number of high-net-worth-individuals in India. These changing preferences among consumers are encouraging the key competitors to add new streamlined appliances to their portfolio. Many such competitors design built-in products based on requirements of the end-users. Until recently, the demand for luxury appliances was limited only to developed economies like North America and Europe. However, with the changing economic environment, the demand for these products is highest in developing economies, such as India.
The global home appliances market in terms of revenue is estimated at USD 79,700 million in 2018 and is expected to show an annual growth rate (CAGR 2018–2022) of 9.4 percent, resulting in a market volume of USD 114,247 million by 2022. The segment is expected to show a revenue growth of 11.6 percent in 2019. The number of users is expected to amount to 1134.6 million by 2022. As of the current year, user penetration has reached 16.8 percent and is expected to hit 21.6 percent by 2022. The average revenue per user (ARPU) currently amounts to USD 92.56. In the year 2017 a share of 34.5 percent of users are 25–34 years old, 40.5 percent of users are in the high-income group, and 54.9 percent of users are male.
The global home appliances market is experiencing steady growth with the growing middle-class economy, improved disposable income levels in a number of countries, increase in labor costs, busier lifestyles, and the availability of a range of home appliances at competitive prices. With increasing digitalization, consumers have become tech-savvy and have strong knowledge regarding the use and benefits of all modern appliances. Another major factor driving the global home appliances market is the lucrative offers and the easy availability of credit schemes to purchase them. In fact, the purchase decision of nearly 70 percent of potential customers is positively influenced by the presence of such offers.
Opportunities. The major opportunities in the global home appliances market exist in product differentiation and new product development. Almost all the companies focus on providing a wide range of products to meet the needs and price affordability of consumers from different economic strata. This in turn creates the need for product differentiation. Companies try to provide this through the different features offered in the appliances. For example, a one-door refrigerator is more affordable for consumers belonging to the lower end of the economic strata whereas the high-cost side-by-side refrigerators are offered to consumers from the higher end of the economic strata. In terms of new product development, the market is expected to witness the rise of smart and connected electrical appliances. In terms of different supply chain segments, retail chains have an opportunity to expand and sell higher number of appliances. Similarly, an opportunity is emerging for new raw material providers.
Challenges. A major threat facing the market is the fluctuations in the supply of raw materials. While companies are capable of absorbing considerable amounts of fluctuations in the product price, the instability of raw material supply can affect production as well as demand, and hence, the associated revenue, profits, and R&D investments of the companies. Another threat includes the rise of smart appliances, robots, and connected living. Home appliances specifically designed for such purposes present a threat of extinction to the conventional models of various appliances. Another major restraint is the consistent and considerable R&D investment required to develop new, more efficient, environment-friendly, smart, and connected appliances. It is a highly competitive market coupled with increasingly stringent government regulations regarding emissions of environmentally harmful chemicals. In such a scenario, the constant improvement of products is important.
Manufacturers strive to gain a technological edge. The market is defined by continuous improvement to products undertaken by companies. To a lesser extent but an equally important strategy of companies is to acquire rivals or newly-started competitors, either to gain new technology or to expand geographically.
Players present in different countries. The market is a relatively unorganized market with the top players accounting-for ~30 percent of the total market. The rest of the market is captured by local and regional players. These companies may not have the strength to expand into different regions and countries; however, it is difficult for multinational companies (MNCs) to grab a share of national markets from such players.
Proliferation of smart homes. The common trend across various industries is energy efficiency, which can be attributed to the limited resources of power generation that humanity has managed to develop as opposed to the radical infrastructural development for increasing populations. The concept of smart homes tags along similar lines of energy efficiency, but moves beyond too, formulating ease of living applications. The demand in the global smart homes market will multiply at a striking CAGR of 14.6 percent during 2017–2025. Revenue-wise, the market for smart home tools and services is estimated to generate opportunities worth USD 97.61 billion by the end of 2025, mounting substantially from its evaluated worth of USD 30.02 billion as of 2016. The increasing possibilities with the Internet of Things (IoT) are proving to be a boon for the smart homes market. With the prices of sensors and processors dropping, the automation of homes to save energy is turning into a liking for the urban populations.
The emergence of smart homes is aiding the proliferation of smart appliances. Use of connectivity as a differentiating feature by manufacturers’ wireless technologies like wi-fi, buetooth, and ZigBee can be used in or accessed by smartphones and tablets. But the inclusion of these technologies in home appliances is a means of product differentiation by manufacturers which is enticing tech-savvy consumers. The improvement in network infrastructure has translated into better broadband and internet penetration. Therefore, consumers are increasingly opting for wireless and technologically advanced products, mostly for the convenience it offers.
There is a moderately competitive vendor landscape, which can be attributed to a handful of players connected to the value chain. That being said, the number of participants is expected to radically rise in the near future owing to the sheer profitability of the domain. To maintain their slender position of strength, market leaders are expected to consistently improve their product portfolio as well as indulge into strategic mergers and acquisitions. Additionally, prominent companies are also focusing on devising customized solutions to different segments of end users.
Geographically, the developed countries of the United States of America, France, and Germany are expected to maintain North America and Europe as the regions with maximum potential. Emerging economies in Asia-Pacific, such as China, India, and Japan, are expected to generate substantial new demands, and the players are expected to expand geographically to gain greater demands. Meanwhile, replacement demand is expected to be the major driver of demand in the developed regions of North America and Europe.
The refrigerator as the hub
The refrigerator is already emerging as the communication hub for smart products in the kitchen. Smart refrigerators tout HD touchscreen that can be used to search the internet, play music, or shop for groceries. Built-in cameras allow users to see what items need replacing – one can pull up the corresponding app at the store to view footage on a smartphone. But a refrigerator’s power elevates when it communicates with other appliances. This means, in theory, a blender could download recipes from the internet based on what food one has in stock. Refrigerators can check what is inside, and then reorder what is needed.
Other tech companies are eyeing the refrigerator, too. Amazon has filed a patent application for a smart refrigerator with sensors that detect if items have spoiled. A push notification would then be sent to the smartphone. While the application may seem like a curious move for Amazon, it could serve as a new way to gather data and automatically ship new products to consumers. Drones could also play an important part in delivering items, including food. Amazon has been granted patents for various drone initiatives this year, such as for a special shipping label with a built-in parachute for deliveries. Drones could potentially deliver groceries through special kitchen windows and even put items in the refrigerator for a user.
The humble washing machine
Washing machines are not glamorous; they do not have the shiny allure of the latest smartphone, or the stunning aesthetics of a new 4K TV. Numerous advancements have been carried out in washing machines during the last decade, leading to higher efficiency. What once would have taken a whole day of hand washing and using a mangle has been reduced to around an hour-long automatic process – touching a button is the maximum effort one needs to exert. Washing machines are now cutting washing time up to half. For that alone, washing machines are truly the unsung hero of the home, packed full of reliable and underrated innovations that have quietly been getting better and better over time.
The segment is living in the twin-drum age – be it twin washers or washer and dryer below one another. The latest technologies also help in reducing the usage of materials such as detergents and softeners. The quality of water is monitored. Consumers are getting options to add clothing mid-cycle, lower energy usage, optimize wash cycles, and control cycles remotely. Air refresh technology is also among the most popular technologies in the washing machines. This technology initiates the induction of fresh air into these machines and heating the air too. Washing and drying of clothes is done with the help of this air and steam.
Manufacturers are introducing models that consist of a large main drum with a separate plate at the back that moves independently to decrease time required and increase efficiency. Some washing machines have a washer/dryer that claims to wash and dry up to 0.5 kg in approximately 30 minutes and up to 2 kg in 1 hour, whereas some new machines can wash and dry up to 5 kg in less than 3 hours.
The latest technology now looks set to help with stain removal as well. Manufacturers are developing stain remover pens, which when used with water and detergent, send tiny vibrations through fibers to loosen stains particle-by-particle so they are more easily removed when washed. There are stain removal assistants using mobile apps letting the user photograph the stain and unsoiled area of the fabric, enter the type of fabric and color, and the app will suggest the appropriate wash cycle. Clothes are utilizing smart technology to make sure the user never runs out of detergent. Combined with auto-dosing capabilities, several companies have Amazon Dash support which will automatically re-order detergent when stocks are running low.
The last decade of microwave ovens
A microwave oven is largely perceived as nothing more than a reheating device. The device has been around for over 70 years, and changed very little. In this day and age, it was only a matter of time before the microwave oven would have its time in the innovative spotlight – just not in the way the industry might have hoped. A different method of achieving the same end result could make this longtime reheating method obsolete, and change a lot about how presently food is cooked and prepared.
Radio frequency cooking is expected to replace the microwave oven because it is capable of not only reheating, but cooking food of quality equivalent to a stove or conventional oven. A radio frequency oven or microwave accomplishes this particular facet using precisely controlled high-frequency radio waves. The process not only heats food evenly but retains moisture, unlike microwave ovens, which can sometimes leave reheated food dry and in varied states of heatedness.
One of the main differences in how this process works compared to microwave ovens is the way both devices generate electromagnetic waves. While microwave ovens use magnetrons, RF devices use semiconductors. Ideally, RF microwaves containing inverter technology can reduce a 1000-W microwave by half, resulting in more operational flexibility. Microwave ovens on the other hand, involve turning the same magnetron on and off, which basically uses the same amount of power to reheat food, regardless of how long it is being used.
The maximum power one needs is 550 W, according to Dr. Klaus Werner. Food manufacturers might be overdoing it with their heating instructions, since they have to make sure any of their frozen meals are thoroughly cooked in any microwave (regardless of power level). RF heating, on the other hand, is so precise that the process is capable of cooking a fish partly embedded inside a block of ice. RF heating technology is, however, still in its infancy, and a lot of information is currently required to heat each individual food on a plate.
The evolving water heating solutions
Hot water heating has always been important with modern versions still the most common type in use. While water heater technology has advanced, these systems have remained essentially the same in concept since they were first invented – heat a tank of water to the desired temperature, and then keep it hot, so it is available when it is needed, albeit there are newer, better, and far more efficient systems.
Traditional tank water heaters have a lifespan of 10–15 years before they begin to require replacement. New technology has made it possible to have on-demand hot water that never runs out with a modern tankless water heater. Even tankless water heaters are advancing to new levels. Earlier versions posed some installation difficulties, produced inconsistent temperatures, or had scale buildup that could reduce efficiency. These problems have been addressed and resolved with new features and designs. Internet-connected, tankless water heaters have been developed. These water heaters use graphite electrodes and the most advanced electronic controls that avoid the buildup of rust and scale. They typically use about 40 percent less energy and can significantly reduce overall water waste.
Renewable energy research has become increasingly important since the signing of the Kyoto Protocol. Solar water heating (SWH) is one of the most effective technologies to convert solar energy into thermal energy and is considered to be a developed and commercialized technology. However, there exist opportunities to further improve the system performance to increase its reliability and efﬁciency. Several SWH designs have been introduced in the market and are more commonly utilized in the tropical regions of developing countries. Recent developments in heat pump based solar collector technology exhibit a promising design to utilize solar energy as a reliable heating source for water heating applications in solar adverse regions. Heat pump based SWH is inﬂuenced by many factors including the nature of the refrigerant. Due to the environmental concerns, the refrigerants with high global warming potential have come under scrutiny and several have already been phased out. Driven in part by these concerns, new refrigerants are being sought out and old refrigerants such as carbon dioxide, ammonia, and propane are being investigated. Apart from the choice of working ﬂuid, there has been a major research focus in improving the performance of various components of the SWH system. These developments would further pave a way to increase its market penetrability along with providing signiﬁcant environmental and ﬁnancial beneﬁts.
The sparkling water purifiers industry
A major chunk of residential water utility customers are concerned about the quality of the water coming out of their taps. It is also the reason why the water purifiers market continues to experience consistent growth and is globally expected to garner USD 45.3 billion by 2022 as companies in the space look to better cater to consumer demand. But concern over water quality is not the only reason for the market’s growth. Some major trends across the globe continue to pick up steam, all of which contribute to the market’s continued evolution and expansion.
Slimmer profiles. Across Asia, people are living in smaller spaces due to increasing property prices and growth in rural–urban migration. As a result, consumers have a lot less counter and storage space for appliances and look for products that will not only save space but help to eliminate clutter. The water purifiers market is addressing this reality by offering products that are smaller in size and have slimmer profiles. In fact, some companies offer purifiers that are no wider than the span of a hand. At the 2018 Appliance & Electronics World Expo (AWE 2018) in Shanghai, companies showcased residential water purifiers that are designed to fit under the counter and out of sight.
Re-mineralization for taste and health. Alkaline and pH-balanced water has become a growing trend in the bottled water industry, and now, water purifiers want a piece of the pie. One company offers a smart home water system that not only purifies but enhances water through re-mineralization. Its main selling point? The water is not only pure, but healthy. It is not just health, however, driving the re-mineralization trend. Taste of water, especially of bottled water, is a hotly contested topic, and trace minerals are now recognized as critical to taste. In fact, a company, through its magnesium technology, releases magnesium back into the water during the filtration process to ensure a better taste.
Greater need for disinfection. Globally, an estimated 2.1 billion people lack access to safe water, of which 289 million reside in Asia-Pacific. Many water sources in Asia are heavily polluted with industrial and urban waste, which means the likelihood of encountering E. coli bacteria versus other waterborne viruses is incredibly high. Thus, water purification suppliers have to keep disinfection top of mind, and there are purifier ratings that deviate from NSF class A/B and shift to revised ratings like 3-log E. coli. This provides sufficient continuous protection for drinking water systems yet can be accomplished more cost effectively and at a smaller size than higher levels of disinfection.
Real-time water quality sensing. A newer trend in the proliferation of smart home devices is the connected water filter. By providing continual data to app platforms, connected water filters can perform a host of functions from monitoring water quality to telling consumers their daily water intake. These appliances will only continue to get smarter and have the potential to move from residential to municipal. For example, having sensors across a municipal water system could not only alert officials immediately of a contaminant, but could also monitor water levels more accurately and ensure entire communities have access to safe water.
Keep it sparkling. Water purifiers, as they continue to adopt trends present in the bottled water market, have taken bets on sparkling water as well. Consumers have demonstrated their willingness to pay for higher quality water, and water purifiers are looking to match that willingness with offerings that ensure both water quality and the ability to cater to consumer preference.
The air treatment
With the decline in air quality of both indoor and outdoor environments, there is a demand for innovative and highly efficient cleaning technology among consumers. Companies operating in the global residential portable air purifiers market are focusing on launching advanced air purifiers with improved product functions. They are engaged in product innovation and portfolio extension to gain market share and profits. Product advances by vendors primarily include the clear air delivery rate (CADR) feature, air humidification/dehumidification feature, use of nanotechnology, high-energy efficiency, and reduced noise level.
With growing awareness of health consciousness, consumers are willing to pay a premium price for innovative air purifiers that require limited maintenance. For instance, an air purifier manufacturer offers a model that can clean the air in a large room. This air purifier does not involve heavy usage of electricity, making it an energy-efficient device. It comes with four cleaning levels that help in reducing volatile organic compounds and certain airborne germs. It also helps to capture larger particles and reduce odors. Such product innovations by vendors lead to price premiumization.
Of the three major technology segments, the HEPA technology segment held the largest market share in 2017, accounting for over 79 percent of the market. However, the market share for this application is expected to decrease by around 1 percent by 2022. In 2017, the Americas led the global residential portable air purifiers market with a market share of over 49 percent, and the United States of America was the key leading country in this region. Although APAC held the smallest share of the market, it is expected to witness the maximum growth of close to 3 percent.
It will be a big year for consumers wanting home appliances with the latest smart technology as well as new color finishes. Black stainless steel was the big trend in 2017; this year consumers are seeing that modern kitchens are going for warmer tones and colors. All of the new stainless steel appliances also feature fingerprint resistant finishing. While appliances businesses have been talking about smart technology in the past year, 2018 is the year when buyers are finally seeing what is in store. Brands are releasing their new line of wi-fi-capable appliances. They are starting to train on how these appliances will work so manufacturers can make the transition and help their clients with how they operate.
The government’s efforts coupled with positive transformation of consumer behavior and desire to adopt more modern technologies are likely to create a significant increase in demand for home appliances. However, to unlock the full potential of the industry, an ecosystem of supportive regulations around technology enablement and a strong domestic R&D backbone supported with manufacturing competitiveness is needed to be built.
For domestic manufacturing to flourish in the appliances industry, India needs critical enablers. Creation of large-scale demand occurs by easing the tax structure and encouraging financing firms to provide easy consumer finance. In addition, the export market is needed to be tapped by reducing the paper work for exports, increasing the Merchandise Exports from India Scheme (MEIS) incentives for high domestic value-added products and expanding the free trade coverage to export to attractive geographies such as Africa. Domestic manufacturing will become cost-competitive by lowering the cost of capital, creating a phased manufacturing plan for the products (similar to that for mobile phones) in which incentives will be linked to domestic value addition in India, and ensuring low sourcing costs through development of a good supplier ecosystem. Domestic manufacturing will be made easy by providing easy access to skilled manpower, providing better connectivity through roads and railways to reduce transit time and logistics costs on key industrial corridors, and creating a strong intellectual property rights framework for IoT, among others.
With the adoption of these structural reforms and innovation, the Indian manufacturing industry can aim to increase value add by 2-3x by 2022. The growing domestic demand and the rising labor costs in alternative markets can lead to an increase in the number of jobs in this sector by more than 1.5–2x.
Increasing disposable income and growth in the construction sector have given a boost to the water heaters market in India. The industry is witnessing a 6–10 percent growth every year. Though electric water heaters are currently dominating the market, solar water heaters have also gained prominence among Indian consumers over the past few years. Lately, we have also witnessed the growth of the tankless water heaters with high power. They are compact in size, stylish, and provide a consistent flow of hot water supply, especially suited to the new age requirements of luxurious bathing (shower panels, and jacuzzi). So, whether in terms of design, features, or functionality, the water heaters market has witnessed the launch of energy and task efficient products in the last decade.
The category is rapidly moving toward higher involvement with consumers becoming more discerning toward brands while purchasing water heaters. Consumers look at home appliances not just as devices for a more convenient life but as an extension of their own personalities, and water heaters are gradually falling in this space. With respect to the changing dynamics of urban homes, bathrooms are no longer just a utility space but somewhere to unwind after a long stressful day. We see a rising trend for designer bathrooms and hence for state-of-the-art, premium designed water heaters.
Manufacturers are trying to perfect their products by introducing innovations to the existing technologies, while complying with the requisite eco-standards. Companies are under mounting pressure to continuously innovate and introduce new products and services with faster time-to-market metrics. Challenge for the brands in this category, is to base their product development approach on customer centricity, starting from the needs, habits, and lifestyle of the evolving consumer.
Vice President (Marketing),
Ariston Thermo India Private Limited
There are multiple factors that impact the Indian home appliances market such as pricing, its utility, awareness, retail presence, competitive environment, the approaches adopted by suppliers, and growing interest of the consumers in smart home technology. Coming to the air purifiers market, it is highly fragmented due to multiple new entrants and new business models. In future, consolidation will organize the market. As far as the oxygen optimizer category goes, till 2016 there was no such category that existed in India by the name of oxygen optimizers. It was only as late as July 2017 that this category has sprung up.
Heightened awareness of the importance of indoor air quality and growing concerns on the impact of impure air quality and deteriorating oxygen levels on general well-being of people have raised demand for air purifiers and oxygen optimizers in the last few years. Increasing disposable income, rising hygiene concerns, and aspirations to lead a healthy lifestyle will further boost the growth of the market.
The indoor air purifier industry is growing at 45 percent, but experts believe that with the ever increasing pollution in Indian cities the growth will increase to 55–60 percent CAGR in the next 4 years. Also oxygen optimizers is a new category and still very nascent. Hence, the best we can rely on are proxy indicators, not real data. The size of the air conditioning market is Rs. 25,800 crore (of which Rs. 11,800 crore is residential and light commercial, and Rs. 14,000 crore is heavy commercial). So, one can very well image the growth of this new category in years to come.
Bonphul Air Products Pvt Ltd.