Heating Appliances in Argentina

Headlines

·         Retail volume sales of heating appliances nearly double in 2008 with more than 1.1 million units sold and 235% current value growth

·         The increased price of gas-fired heating appliances, coupled with serious bottlenecks in the gas supply infrastructure, fuels the demand for electric heating appliances in 2008

·         Convector heaters, the largest component of heating appliances, posts a 250% increase in retail volume sales in 2008

·         The unit price of heating appliances rises 70%, reflecting the increased cost of raw materials, especially copper, and inflation

·         Retail volume sales of heating appliances are expected to drop 4% over the forecast period, due to increased competition from air conditioners with heating/cooling capabilities

Trends

·         Demand for heating appliances in 2008 led to the highest rate of volume growth, 97%, seen since 2004. More than 1,129,000 units were sold mostly to low-income consumers who appreciated the low price, portability and fast response of electric heating appliances. The increase in the price of gas-fired heating appliances, coupled with serious bottlenecks in the national gas distribution infrastructure due to lack of investment, also fuelled interest in electric heating appliances among middle-income customers.

·         Convector heaters achieved another record year with a 249% increase in volume sales in 2008, as a result of its wide assortment of products offering alternative capacities and prices. Convector heaters became the de facto standard for heating appliances due to its low cost, low energy consumption and safety features to reduce the risk of fire. Bottlenecks in gas distribution fuelled massive increases in natural gas prices that prompted consumers to turn to electric heating appliances, especially convector heaters.

·         The unit price of convector heaters rose 70% due to the strong correlation with copper prices in the economy and mid-price segments. However, despite the recent price increase, heating appliances remained up to 50% less expensive than similar gas-fired appliances.

·         Much of the recent surge in volume sales of heating appliances was attributable to low- and middle-income consumers. Most premium houses are constructed with central heating, which is an effective heating alternative for high-income consumers. Also, the strong momentum towards hot/cold air conditioner installations by middle-income consumers is limiting the advent of more sophisticated heating appliances with greater heating capacity.

·         As with air treatment products, the primary distribution channels for heating appliances were electrical goods retailers multiples and hypermarkets that offered credit plans to middle-income customers. Independent electrical goods retailers were especially important for lower-income consumers since the channel is comprised of neighbourhood stores that are accessible to individuals lacking cars to take them to outlying hypermarkets and chained electrical goods retailers.

Competitive Landscape

·         Newsan SA led sales in heating appliances with more than a 26% volume share in 2008, up from 5% in 2007, as a result of its leadership in convector heaters in which it held a 57% volume share with its Atma brand. The company's success was the result of its extensive advertising campaigns in the media, its strong brand tradition and attractive prices to lure low-income customers. Because of this, Atma was positioned as the only reputable brand name in a category dominated by private label products.

·         Due to the increased fragmentation of competition in the economy segment, private label occupied the second leading position with almost a 12% volume share in 2008. Both convector heaters and panel heaters were populated with a multitude of private label products. Private label achieved a competitive advantage from its ability to offer low prices and the limited number of established brands operating in these categories.

·         Electric blankets was monopolised by Arimex Importadora SA due to its recent launches of four models under its GaMa brand in this previously insignificant category of heating appliances. The company created demand through a massive advertising campaign through TV and radio that extolled the benefits of using electric blankets.

·         In the other categories of heating appliances, fan heaters and oil-filled radiators, small players tended to offer inexpensive products targeting low-income individuals. The competition was greatly fragmented because of the difficulty in building brand recognition through product quality or marketing actions.

Prospects

·         The continued purchasing of heating appliances by low-income customers is likely to maintain volume sales near record levels in the forecast period, but it will not be sufficient to overcome the anticipated 4% decline in volume sales growth. Consumers will continue to adopt electric heating appliances to deal with cold winters and problems in the natural gas distribution networks like low gas pressure. Moreover, most of the low-income neighbourhoods lack natural gas services altogether, and will look to these appliances as their primary source of heat.

·         Other alternatives, such as air conditioners with heating and cooling capabilities and central heating, will likely continue to negatively affect the performance of heating appliances in premium platforms, since new construction incorporates these features as standard equipment.

·         As a new category of heating appliance in Argentina targeting consumers living in premium homes in the suburbs, electric fires will likely see substantial volume growth, estimated at 143%, over the forecast period. However, electric fires will maintain its niche status, since it tends to be viewed as a decorative item rather than an effective heating appliance.

·         National companies, like Longvie, that specialise in gas-fired appliances, are expected to aggressively diversify their product offerings in the near term as a way to capitalise on the continuing shift by consumers from gas-fired appliances to electric heating appliances.