Companies turn to consumer durables market in their quest for growth

Advertisements for Voltas Beko, the joint venture appliances brand from the house of the Tatas and Turkish major Arcelik, have been visible for a few weeks now in newspapers and television channels.
 
It is the latest entrant in a competitive market, joining a host of newbies testing the space.
 
In the last two years, a cross-spectrum of players have entered the consumer durables market in India in their quest for growth. This includes smartphone majors such as Xiaomi, Intex and Micromax to cable and wire companies such as Havells, lighting and security solutions firms such as Syska and large equipment manufacturers such as Liebherr.
 
The trend, experts said, is expected to stay as higher disposable incomes and lower penetration of durable products in India drive diverse players to explore the market. “The category is in an exciting phase where most appliances are not beyond 10-15 per cent in terms of penetration rate,” said Kamal Nandi, executive vice-president and business head at Godrej Appliances. “So, growth prospects are there. I am, therefore, not surprised to see the interest coming from players to get into this market,” he said.

 
Godrej, along with at least five to seven major manufacturers, including names such as LG, Samsung, Whirlpool, Panasonic, Onida, Bajaj, and Philips compete for a share of the consumer’s wallet in a market estimated to be Rs 430 billion in size. This consists of segments such as refrigerators, air conditioners, washing machines and microwave ovens. If flat-panel television sets are added to the list, the number of manufacturers will shoot up (including names such as Sony) and so will the size of the overall market, said experts.

The flat panel TV segment in India is pegged at Rs 200 billion. The total consumer durables market in India (including all the above categories) is estimated at Rs 630 million, according to industry experts, with the rate of growth of the overall market around 10-11 per cent per annum.
 
While the penetration rate of air conditioners stands at 5-6 per cent, air coolers is at 9 per cent, washing machines at 10 per cent and microwave ovens at 1-2 per cent, sector experts said. Refrigerators, meanwhile, have a 12-13 per cent penetration rate in India, with TVs being the only category with 30-35 per cent penetration, owing to their status as a source of information and entertainment.

 
“Some companies that have stepped into the durables market recently have expertise in one segment of the market such as smartphones or air conditioners,” said CM Singh, a consumer durables expert, who has worked earlier in companies such as Videocon.
 
“Their foray becomes easier because the distribution channel is similar for larger durables,” he said. “The second reason for the interest shown by new companies is that the investment needed is not very high in the initial stages of business, since manufacturing can be outsourced to third-party makers. Once the business stabilises, companies can then invest and set up a plant if required,” he added.
 
Liebherr, for instance, which began pushing its presence aggressively in home appliances around two years ago, has now invested Rs 5 billion in the Indian market, setting up a plant for refrigerators in Aurangabad.
 
Xiaomi, the country’s largest smartphone maker, too, is taking a similar approach to mark its presence aggressively in consumer durables, starting with TVs. It is not only pushing its presence online, but also launching company-owned-and-operated stores as well as tying up with franchisees for its ‘Mi Home’ outlets.
 
Executives at Voltbek Home Appliances, which is the 50:50 joint venture promoted by Voltas and Arcelik, said that they plan to launch over 100 products over the next three months.
 
By 2020, Pradeep Bakshi, managing director and CEO, Voltas, had said that the JV company would manufacture most of its products at Sanand, Gujarat, where it has recently commissioned a new plant.