Large Cooking Appliances in Argentina

Headlines

·         Replacement of older appliances and the massive construction of new homes for low-income families drive the 7% volume growth and 24% current value sales growth of large cooking appliances in 2008

·         Retail sales of ovens, built-in hobs and cooker hoods reap the benefits of the gourmet food trend among high-income consumers

·         With a 51% rise in volume sales, freestanding hobs sees the highest growth in 2008

·         Inflation and rising raw material costs raise the unit price of large cooking appliances 16% in 2008

·         From 2008-2013, retail sales of large cooking appliances are expected to increase 9% in volume terms and 6% in constant value terms

Trends

·         Sales of large cooking appliances posted another record year in 2008, with 7% volume growth driven by a strong replacement cycle and the construction of thousands of properties aimed at low-income families as a result of government programmes initiated in 2007.

·         Interest in gourmet food among high-income consumers drove retail sales of ovens, built-in hobs and cooker hoods. This trend was embraced by high-income families with a growing interest in premium cuisine who wanted to cook restaurant-like dishes at home. Many well-to-do Argentinians moved to gated communities in the suburbs to escape rising crime in and near the main cities. The availability of fine restaurants is more restricted in suburban areas and potential patrons are often deterred by the lack of safety when going back and forth at night. These factors inspired a burgeoning interest in culinary classes and the opening of several cooking academies. To capitalise on the trend, Whirlpool Argentina SA and Argentron SA opened showrooms in construction specialist stores as a way to demonstrate their large cooking appliances to newly-inspired cooking enthusiasts.

·         Freestanding hobs saw a surge in sales with volume growth reaching 51% in 2008. These units were popular for camping and as a secondary cooker in large, suburban homes.

·         Large cooking appliances endured a unit price increase of 16% in 2008, mainly as a result of inflation, and increases in steel and other raw material costs. In addition, higher-income consumers, fuelled by enthusiasm for gourmet cooking, sought upgraded cookers with better construction, larger cook space and auto-cleaning features. Special features, such as digital timers and digital temperature controls, also gained adherents among gourmet food lovers due to their usefulness in preparing complex dishes.

·         Built-in large cooking appliances continued to be considered a premium category, with sales in 2008 composed of built-in hobs (19,000 units) and ovens (27,000 units). The built-in hob and oven combination is a more elegant, but also much more expensive, alternative to a freestanding cooker. The added expense comes from the need for additional preparation – an interior decorator or architect is generally called upon to design a built-in kitchen – and installation costs. As a result, the penetration of both built-in hobs and ovens failed to make significant gains in 2008, even in higher income households.

·         Cookers continued to be the largest component of the retail volume sales of large cooking appliances with almost 714,000 units sold in 2008. Cooker hoods followed, with 80,000 units sold, although sales were still hindered by the abundance of less expensive alternatives, like vent exhausts, which are simple fans built into the wall above the hobs. With 59,000 units sold in 2008, hobs (primarily freestanding hobs) were the third largest component of large cooking appliance sales. Ovens, as mentioned above, remained a premium appliance group that only a fraction of households could afford, with just 27,000 units sold in 2008.

·         Dual-fuel cookers (gas/electricity) continued to gain share among middle-to-high-income groups in 2008. These consumers were anticipating an increase in gas prices after the surge of energy tariffs and the dual fuel appliances offered flexibility but were very similar to the traditional, and familiar, gas cooker.

·         Electrical goods retailers, primarily multiples, and hypermarkets accounted for the bulk (86%) of large kitchen appliance volume sales in 2008. These items were simply too expensive for stores with low volume sales to carry. Moreover, consumers want to see a large variety of appliances to select the size, features and price they want. Low- and middle-income consumers also desired store-sponsored credit plans, even with 30-40% annual interest rates, which were only feasible for the larger, high-volume channels.

Competitive Landscape

·         Longvie SA led in volume sales of large cooking appliances and achieved the highest increase in volume share, from 19% in 2007, to 22% in 2008. The company led in cookers with a 26% volume share in 2008, and was in second place in built-in hobs with an 11% volume share. It also held an 11% volume share in ovens, as the fifth leading player. This company's success was the result of its extensive advertising campaigns in the media, a strong brand tradition and a product portfolio that spanned the price spectrum, from economy to premium offerings.

·         Orbis Mertig SA achieved the second position with a 12% volume share in 2008 as a result of its strong portfolio of products appealing to low- and middle-income consumers. In contrast, Whirlpool Argentina suffered the biggest share drop, from 16% in 2007 to 11% in 2008, as sales of premium appliances underperformed relative to replacement cycle sales of more economical appliances driven by middle- and low-income consumers.

·         Longvie and Domec SA are slowly modernising their new traditional models with features like digital timers and digital temperature controls. These features were increasingly demanded by middle-income customers after their experience with other appliances that included them, like microwaves.

·         Due to their strong concentration in premium and mid-priced offerings, multinationals like Whirlpool Argentina and Argentron lost share as a result of not being active participants in the boom of sales to low- and middle-income groups. Other companies with a product portfolio more geared to mid-priced products, like BSH Electrodomésticos Argentina SA, were able to maintain their share levels in 2008.

·         Longvie's advertising clearly concentrated on the company's brand tradition and the durability of its products. The company's TV spots only showed images of its products with messages regarding their tradition and durability. Domec, on the other hand, always stressed the innovation of its brands as well as the durability of its products. Most of its advertising was through the print media, including adverts in major magazines.

Prospects

·         Large cooking appliances will likely continue to benefit from the replacement cycle led by middle-income families, the growing number of new properties constructed by the government for low-income consumers and the demand for upgrades fuelled by high-income consumers embracing the gourmet food trend in their homes. Large cooking appliances in general will be slightly more resilient to a slowdown in the economy than other large kitchen appliances. These are viewed as essential appliances that already have an established presence in most homes, as compared to newer products, such as some home laundry appliances.

·         However, economy products are expected to take the lead in the slowing economy, dropping the unit price of large cooking appliances from ARS1,817 in 2008 to ARS1,742 in 2013. As a result, local companies, like Longvie and Emege SA, will likely gain market share at the expense of foreign players. The multinationals are expected to maintain their focus on mid-priced and premium products to remain profitable amid competition from other foreign companies like Argentron.

·         Freestanding hobs is expected to post the highest increase in retail volume sales (12%) over the forecast period due to the appliance's popularity in camping and its role as a secondary cooker in homes. However, because these products have limited usefulness in apartments, freestanding hobs will likely retain its niche status.

·         Multinational companies with idle industrial facilities, like Whirlpool Argentina, are likely to resume their manufacturing activities in Argentina since they are currently excluded from participating in government buying incentives as a result of not producing their products locally. Other multinationals are expected to establish partnerships with local companies to facilitate local production as a way to hedge against potential protectionism measures like import quotas. Rumours that Argentron and Domec would establish a partnership were afloat in 2008, but these may have died as the global financial crisis took hold in the second half of 2008.