Small Cooking Appliances in Argentina

Headlines

·         Small cooking appliances achieves an 18% volume sales increase to reach 1.1 million units in 2008, while current value sales increase 30% due to inflation and greater product sophistication

·         First-time buyers of small cooking appliances drive volume sales growth

·         The increasing popularity of coffee machines among middle-income families accounts for two thirds of the volume sales growth in small cooking appliances in 2008

·         Inflation and greater product sophistication cause unit prices to increase

·         In the forecast period, retail sales of small cooking appliances are expected to increase at an average annual rate of 3%, as the disposable income of low- and middle-income families declines

Trends

·         Sales of small cooking appliances in 2008 reached an all-time high with 1.1 million units sold representing 18% volume growth. This positive performance was due to an abundance of first-time buyers among middle-income families, and replacement purchasers among high-income customers. However, Argentinian consumers still tended to choose non-electrical options in small cooking appliances, such as coffee boilers or pans for toasting bread over hobs and cookers, as a result of ingrained habits and the perception that small cooking appliances are difficult to use effectively. This remains a challenge for manufacturers, as they must continuously try to promote the ease, convenience and time savings offered by these appliances.

·         Toaster ovens posted 44% volume growth in 2008 with sales reaching nearly 8,000 units. The volume sales growth was a result of purchases by high-income consumers seeking an alternative to microwaves for heating and cooking

·         Nearly 69% of the volume sales growth and 53% of the volume sales of small cooking appliances in 2008 was attributable to sales of coffee machines, an appliance that is slowly gaining popularity among middle-income customers. These customers are adopting coffee instead of maté as their hot drink at breakfast, a phenomenon that was the main driver of the 24% volume growth representing sales of nearly 600,000 units in 2008.

·         Limited availability of coffee pods and coffee-pod machines clearly limited growth in this premium segment of small cooking appliances. These machines could be found only at speciality stores representing the Nesspreso brand and department stores orientated to high-income customers, like Falabella SA.

·         The most important distribution channel for the sale of small cooking appliances was electrical goods retailers multiples or chains, which together with independents accounted for the bulk of distribution. The strongest gain was recorded by hypermarkets. Share gains by both hypermarkets and supermarkets were achieved primarily at the expense of electrical goods retailer chains and can be attributed to the fact that the grocery retailers could offer more competitive prices, which is a priority for low-income customers.

Competitive Landscape

·         The leading company in small cooking appliances was Groupe SEB Argentina, which held an 18% volume share in 2008, due to the popularity of its Moulinex line among middle-income customers, and the strong showing of its Rowenta and Krups brands among high-income customers. The company's portfolio includes quality products at reasonable prices and its brands were well regarded due to the durability of its products. Philips Argentina followed with a 17% volume share in 2008, an increase of more than five percentage points. The company's share gain was due to the popularity of its economy products among low-income consumers, and its efforts to introduce products with the latest innovations at an affordable price. This included coffee machines that "remember" the proportions of coffee and water used by the consumer in order to prepare coffee with a consistent taste.

·         Newsan SA also had a strong performance in 2008, grabbing third place in small cooking appliances with a 10% volume share. Its success was due to its Atma coffee machines, the leader in the category because of its strong brand recognition among middle-income customers.

·         Electrolux Argentina suffered the largest volume share decline, dropping from nearly a 6% share in 2007 to just a 1% share in 2008. The company lost sales as it streamlined its product portfolio to concentrate on premium small cooking appliances, like espresso coffee makers.

·         Because low-income consumers tend to prefer non-electrical alternatives for toasting bread or preparing coffee, the most important players, like Philips Argentina, are slowly adding economy products to their portfolios as a way to increase their household penetration among low- and middle-income families.

·         Advertising for small cooking appliances was clearly concentrated in the print media as illustrated by  Philips' kettles advertisements in the Sunday newspapers. However, store promotions that included product demonstrations and product positioning in prime-time television programmes, like the positioning of Moulinex kettles in the programme, Los Exitosos Pells, were also used to build brand awareness and create the desire to upgrade appliances among middle-income customers.

Prospects

·         The retail volume growth of small cooking appliances is expected to slow from 18% in 2008 to an average annual growth of just 3% during the forecast period due to the deterioration of the Argentinian economy. Manufacturers' efforts to reinforce product usage and practicality through marketing campaigns (like promotions in TV cuisine programmes), and stressing the timesaving features and convenience offered by these appliances, will be crucial for stimulating future sales and maintaining growth.

·         Tabletop ovens are expected to gradually grow to be perceived as an essential item for high-income homes in the forecast period, with expected sales of more than 91,000 units in 2013. The trend towards smaller families will likely lead to the search for more convenient solutions than traditional cookers for preparing everyday dishes. By tapping this demand, the Black & Decker and Moulinex brands are expected to gain in small cooking appliances. Moreover, these appliances are slowly being added to the store shelves in hypermarkets and electrical goods retailers, with the expectation that they will become mainstream products in the short term.

·         Coffee machines is expected to post the highest volume sales growth in the forecast period with a 21% increase. Sales of coffee machines are expected to account for more than half the retail volume growth in small cooking appliances in the forecast period as more middle-income families come to view the appliance as an essential item for preparing breakfast. Coffee machine sales will also benefit from price reductions for machines using coffee pods. Nesspreso is expected to aggressively promote the coffee pods models to increase household penetration and raise sales of coffee pods in the forecast period. The growing popularity of gourmet coffee among high-income consumers is also expected to boost sales of coffee machines.

·         Nesspreso SA is likely to become the de facto standard for high-end coffee machines. The company was the first to introduce coffee pods in Argentina and is projected to set up an extensive distribution network of coffee pod machines and supplies that will cover premium shopping centres and high-income neighbourhoods in Buenos Aires City and Cordoba.

·         Private label is expected to suffer a drop in its volume share of small cooking appliances in the forecast period. This is probable given customers' poor experiences with previous private label products and the fact that multinationals, like Philips Argentina, launched products at similar price points in order to discourage brand migration in a negative economic environment.

·         The Argentinian peso will likely be devalued relative to the Brazilian real and Chinese yuan in the forecast period. As a result, the cost of imports from foreign manufacturing facilities that source the Argentinian market are expected to rise. Customers will become more likely to trade down to simpler and less expensive models in small cooking appliances in the face of the anticipated deterioration in exchange rates.