Food Preparation Appliances in Argentina

Headlines

·         With nearly 2.1 million units sold in 2008, food preparation appliances sees 4% volume growth, but almost 17% current value growth as a result of inflation

·         Consumers, influenced by the gourmet food and health and wellness trends, continue to replace or upgrade their food preparation appliances, driving retail sales growth

·         Driven by demand from high-income consumers, grinders and choppers posts 41% volume growth in 2008

·         The unit price of food preparation appliances increases 13% due to unfavourable exchange rates with countries that source these products

·         Food preparation appliances will likely enjoy 8% volume sales growth in the forecast period

Trends

·         Retail sales of food preparation appliances posted another record year in 2008, with nearly 2.1 million units sold, while volume growth slowed to 4% from 20% the previous year. This slowdown resulted from a drop in purchasing by low-income consumers, who were responding to the increase in the unit price of these appliances. Most of the volume growth was attributable to the replacement cycle for food preparation appliances, driven primarily by middle-income consumers looking to upgrade to more technologically-sophisticated units. Food preparation appliances largely avoided the bad economic climate of the fourth quarter of 2008, as a result of available credit from banks and retailers. Moreover, consumers who had intended to purchase large kitchen appliances as gifts for the holiday season opted instead for more affordable food preparation appliances.

·         The trend towards healthier food habits among middle- and high-income customers led to the retail sales growth of juice extractors and citrus pressers in 2008. This trend was embraced by professionals who consider their personal image as one of their most important assets and spend considerable time exercising and maintaining healthy habits. These products were promoted on TV programmes extolling healthy habits and were included in the storyline of TV programmes like Los Exitosos Pells. Philips Argentina regularly advertised its juice extractors and citrus pressers in the newspaper, Clarin, and occasionally sponsored articles detailing the benefits of fruit juices in maintaining good health.

·         Grinders and choppers posted 41% volume growth in 2008 with the sale of more than 5,000 units, purchased mostly by high-income consumers. However, in 2008, the bulk of volume sales continued to be accounted for by food processors with 549,000 units sold and 11% volume growth, blenders with 692,000 units sold and 3% volume growth and mixers with 540,000 units sold amid a 5% volume decline. These appliances tend to be regarded by consumers as more or less essential kitchen tools.

·         Because most food preparation appliances in Argentina were imported from China, Europe and Brazil, their prices were tied to exchange rate fluctuations. As a result, the unit price climbed nearly 13% in 2008.

·         Despite the price increase, the unit price of food preparation appliances remained relatively low, which helped make these products widely available. Even the smallest discounters and independent electrical goods retailers tended to carry these products as a way to enhance their product mix. However, electrical goods retailers (primarily multiples) and hypermarkets were the principal distribution channels for food preparation appliances. Because these items constituted a planned purchase for consumers, neighbourhood proximity was clearly not an essential factor.

·         Hand mixers continued to dominate retail volume sales of mixers due to its lower cost and greater convenience relative to countertop mixers. Excellent product awareness campaigns sponsored by Gillette de Argentina several decades ago made the Minipimer (brand now sold by The Procter & Gamble Co) hand mixer a household name that is still used by many Argentinians as a generic term for the appliance. In blenders, however, the countertop version led hand blenders in volume sales, by more than 100,000 units in 2008. The relatively small capacity and low power of hand blenders made it unsuitable for preparing elaborate dishes.

Competitive Landscape

·         Food preparation appliances was crowded with participants, with more than 150 players in 2008. However, the top three companies accounted for 59% of the retail volume sales in 2008. These included the Dutch subsidiary, Philips Argentina SA, followed by Applica Americas Inc and Groupe SEB Argentina SA. Philips Argentina was the most successful player, with a leading position in every category except grinders and choppers. The company's leadership evolved from its extensive product portfolio, its long-standing presence in Argentina dating from 1935 and its aggressive advertising through TV and the print media.

·         Philips Argentina also enjoyed the largest increase in its volume share, which rose more than six percentage points to 52% in 2008. Its success was a result of having the most complete product portfolio targeting low- and middle-income consumers, and the most advanced products for converts to gourmet cooking, including high-powered mixers and mixers with vertical and horizontal slicers (Philips HR 1372). Groupe SEB Argentina, which led in grinders and choppers in 2007 and was ranked third in food preparation appliances in 2008, suffered a four percentage point decline in its volume share, ending with just a 3% share. The company's focus on products that were not perceived by customers as innovative for their price point caused it to lose share to its competitors.

·         Manufacturers of food preparation appliances were increasingly focused on the economy and mid-price segments as a way to gain share in the deteriorating Argentinian economy. As a consequence, private labels products (like those from Fravega and Garbarino) were increasingly viewed as ultra-economy products that were low-priced but of inferior quality. Consumers began to shun these products and as a result the share held by private label fell four percentage points to 6% in 2008.

·         Retail volume sales of food processors, blenders and mixers were primarily driven by advertising in the print media, through store promotions and through exposure and product positioning in TV programmes on cuisine channels, such as El Gourmet TV, and channels oriented to a female audience, like Utilisima TV. Philips Argentina and Groupe SEB Argentina advertised in the print media exclusively, in order to raise consumer awareness of their brands (Philips and Moulinex, respectively).

·         More Argentinians embraced the health and wellness trend in 2008, and Philips Argentina benefited as consumers were looking for an easy means to prepare healthy food and drinks. The company's volume share in juice extractors rose to 50%, up from 41% in 2007, and its share in citrus pressers increased to 32%, up from 23% in 2007. Philips introduced innovations like citrus pressers that can be stored in the refrigerator and juice extractors with metal knives and micro-filters that provide more juice output. Consumers sought the Philips brand because of the company's continuous promotion efforts, and they were willing to trade up for known brands with a quality reputation.

Prospects

·         Food preparation appliances is expected to see retail volume sales increase by 8% over the forecast period. This represents a marked slowdown from the volume growth seen over the review period. Consumers will be forced to tighten their budget, which will force manufacturers to be more innovative in order to entice buyers. If manufacturers can develop appliances that offer ease of use, timesaving features and a smaller, more compact size, like the Philips HR 7774 (a food processor with a very small footprint due to its vertical design), they will have a distinct competitive advantage.

·         Because food preparation appliances that are deemed most essential, such as blenders and food processors, will likely increase their household penetration in the forecast period, manufacturers would be advised to launch simpler, less expensive models in these categories, while maintaining product quality. Furthermore, larger players, like Philips Argentina, will benefit from their extensive distribution network, aggressive promotional activity (especially for Mother's Day and other holidays) and mass media advertising, especially adverts in the most important newspapers. On the other hand, companies like Liliana SRL will continue to lag behind due to the fact that its limited advertising budget will prevent it from acquiring new customers.

·         Retail sales of juice extractors are expected to see the highest growth in the forecast period, with volume sales increasing 15% as more consumers adopt healthier eating habits. Citrus pressers and food processors are also expected to perform well, with anticipated volume growth of 14% over the forecast period. Citrus pressers appeal to consumers seeking a healthier lifestyle, while food processors are considered essential items in every kitchen for preparing Argentinian cuisine.

·         Mixers, however, will probably realise a further decline in retail sales, with volume sales decreasing 5% over the forecast period. The poor outlook for mixers is a result of product cannibalisation by food processors that perform similar functions, and the lengthening of its renewal cycle due to the slowdown in the Argentinian economy.

·         Philips Argentina is expected to gain market share in the forecast period as it is the only multinational that has positioned its product portfolio to capture consumers trading down from mid-priced and premium products to less expensive alternatives. The multinational introduced more economy models to encourage customer loyalty in the deteriorating economic environment. Groupe SEB Argentina is likely to continue to lose share in food preparation appliances because of its concentration on mid-price and premium products with higher power, more functions and easier-to-use controls, like larger buttons.

·         Private label is expected to see a further drop in volume share over the forecast period. Consumers are unlikely to purchase a private label appliance of dubious quality if they are able to purchase a well-known, multinational brand like Philips at a similar price.

·         It's expected that Argentinian peso will devaluate against the Brazilian real and the Chinese yuan, increasing the import costs from foreign manufacturing facilities that source the Argentinian market. Because of this, the trade-down trend is likely to exacerbate, with more consumers looking for simpler models and economy alternatives in response to rising prices.