Microwaves in Argentina

Headlines

·         In 2008, the retail volume sales of microwaves rise 5% to reach 839,000 units, representing 17% current value growth due to inflation

·         The widespread adoption of microwaves by middle- and low-income consumers helps sustain its retail volume sales, despite the overall decline seen in volume sales of large kitchen appliances

·         Sales of microwaves with grills account for 35% of microwave retail volume sales as a result of the replacement cycle triggered by middle- and high-income users

·         Inflation and increases in raw material costs trigger a unit price jump of almost 11% in 2008

·         While remaining stable in constant value terms, microwaves is expected to post an increase of almost 9% in retail volume sales over the forecast period

Trends

·         First-time buyers from low-income and middle-income families were behind the increase from 797,000 units sold in 2007 to 839,000 units in 2008. Because of its low household penetration, microwaves was able to avoid the slowdown in volume sales that plagued other large kitchen appliances.

·         Meanwhile, middle-to-high-income customers were looking to upgrade their existing units with units featuring digital timers, grills and other attributes, as exemplified by the BGH 28560 and Electrolux EH-34GCI 34LD. In addition, as more single-person households and professional couples embrace prepared food, many are moving to higher-capacity microwaves to meet their needs.

·         Microwaves with grill features accounted for 35% of retail volume sales in 2008, up from just 14% in 2003. A reduction in the price differential between microwaves with grills and those without grills and the larger number of brands offering this option, including BGH, Sanyo and LG, accounted for the increase in sales.

·         Built-in microwaves still had a negligible presence in Argentina at the end of the review period. Despite prodigious volume growth in microwaves over the review period, most Argentinian kitchens were not designed to accommodate a microwave as a built-in appliance. Furthermore, microwaves are primarily used for defrosting meat, reheating food, heating drinks and cooking prepared food rather than for making complex dishes. As such, the use of a microwave complements the other cooking tasks of most Argentinian families, who still prepare complex dishes instead of heating prepared food for lunch and family dinner.

·         Combination units remained a premium product with a limited presence beyond the high-income communities. Nonetheless, these appliances have the potential to take off due to the limited countertop space of new kitchens and the decreasing price differential with other alternatives. Units with toasters, electric ovens and coffee makers from BGH, LG and Whirlpool are slowly gaining acceptance and are likely to leave their niche status in the near future.

·         Due to its recent surge in popularity and its low unit price, microwaves could be found through a variety of retail channels including electrical goods retailers (primarily multiples), hypermarkets and the internet. Microwaves also benefited from offers for additional discounts from banks and retailer partnerships, such as the 20% discount offered by BBVA Banco Frances SA for buying microwaves in Fravega with their financial cards. Other incentives included promotions that offered significant discounts for the purchase of two or more appliances at one time, like refrigerators and microwaves or cookers and microwaves at Garbarino.

Competitive Landscape

·         BGH SA led in microwaves in 2008 with a 33% retail volume share, an increase of nearly 10 percentage points from the previous year. The dramatic rise in share came as a result of it solving its sourcing problem, caused by a fire in the company's manufacturing plant in Tierra del Fuego province. By leasing manufacturing facilities in the same province, BGH regained its momentum among first-time buyers and benefited from its excellent brand recognition and a diverse portfolio that featured an expanded selection of economy products. The company also enticed first-time buyers by offering a free course in microwave cooking that became widely popular.

·         Although sales of microwaves were clearly dominated by economy units as a result of the importance of first-time buyers, mid-priced and premium units slowly gained share among middle- and high-income individuals who wanted to replace existing units. This trend benefited companies with above-average consumer satisfaction, such as BGH, Whirlpool Argentina, LG Electronics Argentina and Electrolux Argentina, which offered microwaves with features like digital timers, grills and higher capacities.

·         Premium microwaves from LG Electronics Argentina and Whirlpool Argentina that can also serve as tabletop ovens were gaining favour with middle-income families who moved into apartments from houses with larger kitchens. However, the high price of these appliances remained an impediment for many families.

·         Due to the relatively low household penetration of microwaves, companies increasingly adopted non-traditional marketing techniques, like product placement in TV series and promotions during cooking programmes, to attract and educate prospective customers. Much potential for future sales growth still remains, as most lower-income consumers are not yet aware of the benefits of owning a microwave.

Prospects

·         Retail volume sales of microwaves are expected to increase at a compound annual growth rate of almost 2% in the forecast period. The deteriorating economy and drop in consumer spending account for the tempered forecast, especially given the 43% volume CAGR observed in the review period.

·         Low household penetration among low- and middle-income families is most likely to continue to stimulate sales, particularly among less affluent consumers. Consequently, the unit price of microwaves is expected to decline to ARS445 in 2013 from ARS480 in 2008. Local manufacturers will likely launch economy versions of their popular models while multinational manufacturers are expected to put more emphasis of their secondary brands, such as Eslabon de Lujo (from Whirlpool Argentina), or launch their own economy products.

·         Microwave replacement, driven by middle-income consumers, will boost sales of units with technological advancements like digital control panels and grill features. Also, many smaller families with busy lifestyles are likely to opt for a microwave as their primary cooking appliance. The greater availability of processed, packaged food products in ready meals and/or frozen food categories will further encourage more families to purchase a microwave as their sole or complementary cooking appliance.

·         Multinational companies like Samsung Argentina and LG Electronics Argentina are likely to enter manufacturing partnerships with local producers in Tierra del Fuego province – a free trade zone – as a way to hedge against possible protectionist measures by the government of Argentina, such as the reintroduction of import quotas.