Air Treatment Products in Argentina
Headlines
·
Retail sales of air treatment
products rise 13% in volume to reach nearly 4.3 million units sold in 2008,
while current value growth soars to 46%
·
Energy-saving features become
the most important factor in purchases by middle-income consumers
·
Air conditioners account for
two thirds of the volume growth of air treatment products in 2008 due to
increasing popularity among middle-income consumers
·
Exchange rates fluctuations and
local inflation are responsible for the 16% unit price rise in 2008
·
Due to the stagnating economy,
retail sales of air treatment products will see the rate of volume sales growth
drop to 7% for the forecast period
Trends
·
Volume sales of air treatment
products increased by 13% with nearly 4.3 million units in 2008, as a result of
the increasing popularity of split air conditioners, especially those with dual
heating/cooling functions. Due to higher energy tariffs, consumers traded their
old appliances for new models with energy-saving features like rotary
compressors, redesigned cooling systems and heat pumps (for heating functions)
with the expectation of saving up to two thirds of their former energy costs.
·
Credit plans were also a major
incentive for lower-income consumers who purchased cooling fans. The ability to
divide payments into small monthly instalments increased the consumer base
among low-income customers, who are equipping their homes with several fans to
deal with hot weather. These credit plans were carried though the last six
months of 2008 because of the low default rate on these relatively small loans.
·
The unit price of air
conditioners increased 16% in current value terms in 2008, due to the
unfavourable foreign exchange rate that raised the cost of imported models and
the imported parts used in domestic production. However, the 30% hike in the
unit price of cooling fans resulted from rising labour costs in local
manufacturing plants, as well as the higher cost of raw materials, especially
copper, which is used in motors.
·
More than 97% of the volume
sales of air conditioners in 2008 was comprised by sales of split air
conditioners. Although room air conditioners were more affordable, split air
conditioners managed to gain share due to its better product attributes, like
simpler installation, quieter operation, increased comfort and temperature
options and remote control adjustment.
·
Cooling fans accounted for more
than 60% of the retail volume sales of air treatment products in 2008, mainly
because it was the most affordable option for consumers. Demand usually spikes
in the summer months, especially among low-income and older Argentinians for
whom it remained the primary cooling appliance. However, more of the younger
and middle-income consumers are turning to split air conditioners, using fans
only as a secondary means of cooling.
·
The primary distribution
channels for air conditioners and air treatment products, in general, were
electrical goods retailers multiples, which also sold installation services,
and hypermarkets, which offered credit plans for middle-income customers. On
the other hand, independent electrical goods retailers was an important
distribution channel for cooling fans, given the proximity of these stores to
low-income customers who did not own cars and had limited access to
hypermarkets or electrical goods retailer chains.
·
The initiation by the
government of usage-dependent tariffs on energy consumption in 2008 caused
consumers to place a higher priority on energy-saving features when purchasing
appliances. Households that used less than 1,000kW per two-month period
incurred a 20% tariff, while homes using more than 1,000kW per two-month period
were hit with a 500% tariff. Approximately one third of all the households in
Argentina fell into the high tariff category, and many higher-income consumers
chose to replace their older air conditioners with smaller, energy-saving
models. This trend proved beneficial for technologically-advanced multinational
brands like Carrier and Electra that offered consumers the potential for
greater energy savings than domestic products.
Competitive Landscape
·
The competition in air
conditioners was clearly fragmented, with the three leading companies
accounting for slightly more than 31% of retail volume sales in 2008. The top
company, BGH SA, held a 13% volume share and was focused on middle- and
high-income consumers. It offered products that competed with the Carrier and
Electra models. Newsan SA followed with a 12% volume share in 2008. This
company focused more on middle-income families by offering split air conditioners
with acceptable efficiency and energy consumption. Noblex Argentina SA held the
third leading position with a 6% volume share, and like Newsan, it targeted
middle-income families with its split air conditioners. The remainder of the
retail volume share, nearly 69%, was split among more than 100 manufacturers,
with a 21% volume share held by private label manufacturers.
·
The retail volume share of air
treatment products held by BGH rose nearly two percentage points to 4% in 2008.
The company's improved sales performance resulted from the successful
resolution of its sourcing problems caused by a fire in its manufacturing plant
in Tierra del Fuego province. BGH was able to lease manufacturing facilities in
the same province, and rebuild its sales momentum among first-time buyers. BGH
is a well-regarded company, with excellent brand recognition owing to its
long-standing presence in air treatment in Argentina and an exceptional range
of air treatment products.
·
Carrier SA increased its volume
share in air conditioners slightly to 3% in 2008, as a result of consumers who
were committed to buying units with lower energy consumption. Carrier offered
these buyers air conditioners that used as little as a third the energy
required by domestic models by incorporating rotary compressors, as well as an
efficient design and electronic controls in the manufacturing of its products.
·
The dominant consumer trend in
2008 was the growing preference for energy-efficient air treatment products,
especially air conditioners. Like Carrier, the Electra split air conditioners
offered similar energy savings (a third the energy consumed by its domestic
counterparts), as well as the option for heating or cooling with a heat pump
and filter technology to purify room air.
·
The competition in cooling fans
was also highly fragmented. It was comprised of an abundance of small players,
like Luxman SA and Clair SA, which offered inexpensive products targeting
low-income consumers.
·
Tecno Aire SA was one of the
main players in premium air conditioners in 2008. The company assembled a new
executive team (with former executives from Whirlpool Argentina and Carrier
Argentina) charged with expanding the company's distribution from exclusive
retailers to electrical goods retailers and hypermarkets. It intends to
reposition its products as mid-price rather than premium to enhance their
appeal to cash-strapped Argentinian consumers.
Prospects
·
The imposition of higher energy
tariffs for excessive energy consumption is expected to trigger further replacement
of old air conditioners with appliances with energy-saving features such as
rotary compressors, since the upgrade could offer a payback in less than two
years.
·
Standing fans will likely
remain the largest contributor in cooling fans over the forecast period, with
volume sales stabilising at or slightly above two million units per year. Its
popularity is based on the products' low cost, portability and low maintenance
costs, all of which appeal to lower-income consumers who cannot afford
higher-cost solutions for cooling.
·
Despite the expected slowdown
in the Argentinian economy, split air conditioners is expected to see the
highest growth in the forecast period with a projected 4% average annual rate
of volume growth. However, this performance is likely to be fuelled by the
replacement of old units with inefficient technology as opposed to the
first-time buyer phenomenon that drove the 69% average annual volume growth
seen during the review period. Therefore, multinational companies with access
to the latest technology like Carrier and Tecno Aire SA will likely gain share
as consumers increasingly prefer products with low operating costs. However, as
energy saving features are incorporated by more players and become more
commonplace in the forecast period, the unit price of split air conditioners is
expected to decline by 6%.
