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As sales bounce back, AC playersvie to beat the sweat


In order to grab a slice of this growing market and tap new customer segments, players are rolling out products that are energy efficient, have better technology and deliver an acceptable price-performance ratio for the target customers. By Sanjay Kumar
SANJAY KUMAR | Issue Dated: June 9, 2013, New Delhi
Tags : AC | Air conditioners | Household | AC industry | LG | Samsung | Panasonic | Voltas |

Air conditioners (ACs) are fast becoming must-haves as consumers become increasingly accustomed to air-conditioned environments at the workplace, homes, malls, cinema halls and in their cars. With the consumer durables industry in India growing at 15% annually, and the fact that the air conditioning segment remains among the least penetrated consumer durables segments, at less than 3%, more and more players are entering the AC market with hopes of tapping the growth opportunities. The AC market in India currently has over 20 players who are fighting for a slice of the market amidst high hopes that it will grow substantially in the future.

The fact that 97% of Indian households are still untouched by room air conditioners – while the adoption of comparable products have surged ahead – indicates that industry players are far from realising the full market potential. This has led to players intensifying their efforts to grow the market and reach out to new consumer segments. But despite fierce competition and a sizeable market turnover in the room AC industry, which last year generated sales of 4.2 million units worth Rs.72 billion, there are several issues crimping the growth and potential of the industry. According to industry experts, lack of infrastructure in the form of inadequate power supply is the most important factor inhibiting the growth of the AC industry in India. “Globally, 40 to 50% of the electricity is used by buildings, and out of that 30 to 40% is accounted for by air conditioning,” says Gaurang Pandya, MD, Carrier India. High up-front costs of an AC are also a major barrier to adoption for many Indian households. This is particularly important in India where the traditional air cooler offers a cheaper substitute for households at a time when energy prices are rising. To increase penetration and accelerate market growth, AC manufacturers are now taking a leaf out of the automobile industry's book and offering easy financing and purchasing options with the view to bring ACs within the reach of a much larger percentage of the population. Trade sources say that finance-driven sales in ACs have risen by 7-8% over last year. "Last year, finance-driven sales were 22-23% of total AC sales. This year, it stands at nearly 30%," says Manish Sharma, MD, Panasonic India.

Many players are also banking on innovation and technology to lower their cost of production, which can then be passed on to the customer through a lower ticket price. In fact, several companies have introduced air-conditioners endowed with inverter technology that has a shorter motor run-time and therefore consumes less electricity. Although energy-efficient products are relatively more expensive than the standard variants, a large number of consumers are choosing them to reduce long-term costs. Sanjay Mahajan, Vice President – Sales and Marketing, Carrier Midea India, says "energy-savers, though 15-25% more expensive than the regular models, are now viewed as ‘value for money’ by Indian consumers."

AC manufacturers are also adopting the strategy of offering a portfolio of lower priced products by resorting to economies of scale and focusing on obtaining cheaper components and materials. Currently, Haier and Onida are among the cheapest brands in the Indian market but other players – mainly Japanese and Korean – are also introducing products at cheaper price points. A case in point is the Japanese AC manufacturer Daikin, which in spite of its premium tag, is trying in earnest to tap all segments of the market. "We want to tap all segments, not just the top segment of the market. We have already launched products targeting each segment. And now it is time for us to penetrate the rural and semi-urban cities of India," says Kanwal Jeet Jawa, MD, Daikin India. As part of its strategy to increase its share in the Indian market from 12% to 20% by 2015, Daikin plans to have dealers in all Indian cities with at least 100,000 population. Not only Daikin, which claims the No.1 position in the global air-conditioning market, other Japanese AC makers such as Panasonic and Hitachi have also made a strong inroad into the bulging AC market in India over the past couple of years.

According to industry sources, both Panasonic and Hitachi have maintained a steady growth in the AC market and cumulatively account for more than 15% of the market currently.

The past fiscal year, which saw the overall AC market in India post a negative growth of 26% year-on-year, was particularly bad for the Korean majors Samsung and LG. The market share of LG dropped to 17.3% in February 2013 from 26.3% in March 2011. Samsung's market share, too, dipped to 11.3% by February 2013, from 19.5% in March 2011. On the other hand, the share of home-grown Voltas increased to 18.3% in February this year from 17.5% in March 2011. The company has attributed its latest growth to aggressive marketing of its new all-weather air conditioners introduced early last year. But its success has deeper roots than that. Over the past five years, Voltas has built its brand, introduced new products and expanded its retail presence to a total of 6,000 outlets. Fast-growing smaller towns and cities now contribute about half of Voltas’ sales and the company sees them as its main source of future growth.

For an industry that has been hit particularly hard over the past two years owing to weak demand, the delayed arrival of summer, rising inflation, increased raw material prices, and a fluctuating rupee, the current year is expected to offer some welcome respite. “Last year, the rupee had depreciated almost 4% and this had led to a 10-15%  increase in prices, affecting the demand for ACs,” says Mahesh Krishnan, Vice President – Consumer Eelectronics, Samsung India. But the tide seems to have turned favourable again this year. "Unlike last year, prices have remained stable this year, and this is in turn boosting sales," says Krishnan.

In fact, AC manufacturers are expecting 10-15% growth this summer, driven by rising mercury levels. One more reason for sales shooting up this year is that prices are set to rise by 8-10% from next year when new energy labels for ACs kick in. Dealers, therefore, have been pushing hard at the store level to drive sales, using this point as a hook. Manufacturers, in a bid to make the most of the selling opportunity this season, are also out to change the widely-held perception of ACs as a seasonal purchase by focusing on their products as a complete air-conditioning solution rather than a cooling device.

But while year-round functionality offers clear advantages to the customer, manufacturers need to ensure that their efforts in innovation are equally focused on delivering these new products at an acceptable price-performance ratio for the target customers. With the availability of so many brands and products before consumers, manufacturers who launch cheaper AC models without compromising on new features and technology will stand to gain and increase their market share in the lucrative AC market.

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Issue Dated: Feb 5, 2017