Home Laundry Appliances in Argentina

Headlines

·         Home laundry appliances records the first decline in sales since the economic crisis of 2001-2002 as volume sales drops 3% to 1.7 million units sold, while current value growth reaches 2%

·         Slowing sales to low-income consumers and increasing saturation of the middle-income market account for declining volume sales in 2008

·         "Other" freestanding home laundry appliances sees the highest volume growth at 19%

·         Inflation is the main factor driving the 6% increase in the unit price of home laundry appliances in 2008

·         Jose M Alladio E Hijos SA widens its lead in home laundry appliances with a 29% volume share in 2008

·         Home laundry appliances is expected to see a 2% decline in volume sales and 5% drop in constant value sales over the forecast period, as replacement sales slow and consumers turn to economy models

Trends

·         Lower retail sales of home laundry appliances in 2008 with a reduction of 3% in volume sales were attributed to the slowdown of the Argentinian economy and the maturing market for home laundry appliances among middle-income consumers.

·         As a result of the slowdown in sales to low-income customers, the percentage of the retail volume sales of home laundry appliances that was due to sales of automatic washing machines fell from 64% in 2007 to 56% in 2008. This was a consequence of the increasing appetite of middle-income consumers for other home laundry appliances, such as spin-dryers and tumble dryers to complement their automatic washing machines. "Other" home laundry appliances saw sales increase by 19% in volume terms in 2008. Automatic washer dryers also posted more than 8% volume sales growth in 2008, as the new Ariston appliances were well received by middle-income apartment dwellers who have no place to hang out their clothes.

·         Inflation was the main driver behind the nearly 6% unit price increase to nearly ARS1,374 for home laundry appliances. "Other" home laundry appliances posted an increase of 13% in its current value unit price. This was mainly due to inflation but also resulted from a lack of product availability at different price points that prompted consumer migration to economy products. The unit price of automatic washing machines increased by 10% due to the rising cost of raw materials, and automatic washer dryers posted an increase of 6% as a result of exchange rate fluctuations that led to higher import costs.

·         Automatic washing machines is clearly dominated by freestanding units due to the fact that Argentinian households are not suited for the installation of built-in units without expensive retrofits.

·         Front-loading automatic washing machines continued to be the most popular format in Argentina with a 57% volume share in 2008 due to the fact that these appliances can easily fit below kitchen counters without taking up too much space. Top-loading automatic washing machines gained popularity with a volume share that rose to 43% in response to the trend towards smaller apartments with small kitchen areas.

·         Automatic washing machines using tumble technology continued to account for the bulk of volume sales with a 57% share in 2008. Agitator machines held a 42% share, while the pulsator technology was only available in sophisticated, imported models, and held a limited share due to its high cost compared to more traditional appliances.

·         Energy-saving innovations were clearly a product differentiator in Argentina. Such innovations will likely influence middle-income consumers who want to replace their energy-consumptive appliances due to the current energy crisis and expected increases in utilities prices. On the other hand, water-saving technology in home laundry appliances will primarily attract ecologically-conscious consumers with higher incomes, since water limitation is not a concern of most of Argentina's main cities.

·         Electrical goods retailers (primarily multiples) and hypermarkets accounted for the bulk of the distribution of home laundry appliances in retail volume terms in 2008. The logistical cost advantages, the ability to offer credit plans to consumers and the capacity to offer a large variety of home laundry appliances made these larger retailers the preferred channels for consumers.

Competitive Landscape

·         Jose M Alladio e Hijos SA was the clear leader in home laundry appliances with a 29% volume share in 2008, up from 25% in 2007. This was largely a result of its leadership in automatic washing machines, in which it held a 52% volume share in 2008, up from 37% in 2007. The company's growth was due to its product portfolio that focused on economy and mid-priced products, and to maintaining strong brand recognition for Drean, its flagship brand for low-to-middle-income consumers.

·         In automatic washer dryers, Argentron SA was the undisputed leader with a 30% volume share in 2008, up from 18% in 2007. Argentron built on its strong brand awareness, word-of-mouth advertising by satisfied customers and its product portfolio featuring premium products to secure its positioning.

·         Frimetal SA led in automatic tumble dryers, with a 13% volume sales share in 2008. The company strove to develop awareness of its Gafa brand among middle-income customers to gain share in a competitive environment. Frimetal's extensive distribution network developed for refrigeration appliances gave the company a competitive advantage and helped establish it as a leading player in home laundry appliances.

·         Multinational companies focused on the mid-price and premium segments in home laundry appliances. Whirlpool Argentina was in second place with a 6% volume share, while Electrolux Argentina followed in third place with a volume share of 3% in 2008.

·         Jose M Alladio e Hijos continued to advertise its products under the "Gira tu vida" (Spin your life") concept through the print media and radio programmes, in order to emphasise that its products are trustworthy partners in completing household chores. Whirlpool Argentina launched advertising campaigns for Eslabon de Lujo, "tu primer electrodomestico" ("your first appliance") as a way to point out that the simplicity of the brand and the durability of its products are ideal for young consumers. BSH Electrodomésticos Argentina and Electrolux Argentina focused on advertising its promotions, in partnership with major retailers like Fravega, during prime-time television spots.

·         Jose M Alladio e Hijos and Argentron stressed the water-saving technology of their home laundry appliances to middle-income customers. However, the benefits of this sales strategy were not immediately apparent since the tariffs on water utilities remained low and water is not a scarce resource in the main Argentinian cities.

Prospects

·         Home laundry appliances is expected to post a 2% drop in retail volume sales over the forecast period, due to a maturing sales environment and a slowdown in appliance replacement due to negative economic conditions.

·         Consumer credit programmes with rates subsidised by the government are likely to be vital in order to avoid a double-digit drop in volume sales in 2009 due to the increasing interest rates offered to low- and middle-income consumers by private credit companies. Anticipating government action, manufacturers are expected to focus their product portfolios on low-price products, stressing their durability and quality instead of technological features. Retailers will likely offer government-backed credit programmes to low-income consumers wishing to purchase economy products while maintaining their private consumer credit lines as an alternative for middle-income consumers who desire mid-priced products.

·         Retail sales of automatic washer dryers are expected to see the highest growth, fuelled by the trend towards smaller apartments that have less space for laundry facilities. Volume sales growth is expected to exceed 12% over the forecast period. The major player, Argentron, will continue to increase its market share by offering the widest product portfolio while capitalising on its brand image as a durable appliance line and playing up the fact that its automatic washer dryer is no bigger than a regular automatic washing machine. Although this unit is more expensive than a regular automatic washing machine, consumers, usually high-income families or urban professionals, tend to absorb the higher cost when purchasing or remodelling a new home or apartment.

·         Automatic tumble dryers will also likely achieve positive volume growth in the forecast period due to its low household penetration among high-middle-income and high-income consumers who want to replace spin-dryers with a higher-quality appliance.

·         Frimetal is expected to become a more active player in home laundry appliances due to its investment in its manufacturing facility in Rosario, Santa Fe province in 2007-2008. The facility was reconfigured to manufacture 180,000 automatic washing machines per year.