Small Kitchen Appliances (non-cooking) in Argentina

Headlines

·         With more than 431,000 units sold in 2008, small non-cooking kitchen appliances achieves 18% retail volume growth, and 45% current value growth as a result of inflation

·         High-income families drive volume growth in small non-cooking kitchen appliances

·         Kettles continues to grow in popularity among middle-income consumers due to the Argentinian habit of drinking maté, a traditional hot drink

·         The unit price increase is as a result of inflation and rising raw material prices

·         Over the forecast period, retail sales of small non-cooking kitchen appliances are expected to grow 16% in volume terms, with 500,000 units sold in 2013

Trends

·         Retail sales of small kitchen appliances peaked in 2008, with 19% volume growth to reach more than 431,000 units sold. Much of the growth was a result of kettles sales to middle-income customers, while high-income families were instrumental in driving growth of coffee mills (to grind gourmet coffee) and electric knives (included in "other" small non-cooking kitchen appliances along with electric knife sharpeners).

·         Sales of coffee mills and electric knives remained largely restricted to high-income consumers, who want to equip their kitchens with essential items for gourmet food cuisine. However, manual versions of these appliances are still popular in Argentina among the middle class, with large knives being sold in a wide variety of retail outlets, and coffee bean grinding available in coffee stores. In addition, food outlets and/or street vendors often perform tasks like cutting and slicing food products, which also limited the retail sales growth of electric appliances with these functions.

·         Kettles posted 20% retail volume growth in 2008 as its popularity increased among middle-income Argentinians who enjoy maté, a traditional hot drink. Its low price and ease of use helped boost the household penetration of electric kettles, which still faces resistance from maté lovers. The vast majority of the population still relies on traditional ways of heating water, although acceptance of kettles is growing as a way to keep water hot for a longer period of time.

·         The unit price of small non-cooking kitchen appliances increased 23% in 2008 as a result of inflation, rising raw material prices and the devaluation of the peso relative to the currencies of source countries in Europe, and China and Brazil.

·         Due to their low unit price and growing popularity, kettles are widely available. Even the smallest hard discounters and independent electrical goods retailers tended to carry these products as a way to enhance their product mix. However, other products, like coffee mills and electric knives, were harder to find due to their niche status. Their distribution was clearly concentrated in speciality stores and outlets in premium locations.

Competitive Landscape

·         Competition in small non-cooking kitchen appliances in 2008 involved more than 100 players. Products imported to Argentina came from a diversity of sources, although most were from Southeast Asia and Brazil. Argentina also has an active "grey" market composed of small entrepreneurs that import well-known brands, like Moulinex or Oster electric knives and knife sharpeners, and sell them primarily over the internet through auction sites like Mercadolibre.com. However, the share of private label is minimal at less than 1%, with most private label sales occurring in the "other" small kitchen appliances category.

·         Philips Argentina led with a 50% volume share in 2008 (down from 55% in 2007) in small non-cooking kitchen appliances as a result of its leadership in kettles (a category brought to the mass market by Philips Argentina in 2005). The company's enormous product portfolio, low prices and advertising through TV and popular magazines made it the clear leader. Nonetheless, aggressive competition from companies like Groupe SEB Argentina resulted in the five percentage point share loss in 2008.

·         Groupe SEB Argentina SA occupied the second position with a 5% volume share in 2008, up from 2% in 2007, largely as a result of its well-recognised Moulinex brand. Due to the popularity of Philips products and a limited advertisement budget, Groupe SEB Argentina tried to be creative and efficient in its advertising by positioning its products in prime-time TV programmes like Los Exitosos Pells.

·         One of the major new product developments was the introduction of the new line of Philips kettles in the first six months of 2008, which addressed several problems affecting durability, such as the inclusion of scale filters to limit hard water damage. However, these measures were insufficient to maintain the volume share of Philips Argentina in the face of new launches from Groupe SEB Argentina and other companies.

Prospects

·         The retail volume sales of small non-cooking kitchen appliances are expected to reach 500,000 units in 2013, largely due to the continued growth in sales of kettles to middle-income maté lovers. Nonetheless, the rate of volume growth will decline substantially from the 19% recorded in 2008, as the average annual volume growth in the forecast period is expected to be 3%. Sales of kettles to first-time buyers will remain an important growth driver as household penetration remains low, with a rate in the single digits. Maté is consumed by more than 98% of households and because electric kettles enable people to boil water even if gas-fired appliances are not available, demand will likely continue to grow.

·         Constant unit prices are expected to decline in the face of increasing competition and the trade down to economy models in kettles prompted by product commoditisation and the deteriorating economy. Philips Argentina is expected to be the main beneficiary of this shift as it is the only company with a product portfolio that covers all price segments from economy to premium. As such, it is well positioned to attract consumers looking for less expensive alternatives, while companies focused on mid-priced and premium products, like Groupe SEB Argentina, will likely suffer as consumers trade down.

·         In the retailer space, electrical goods retailers and supermarkets are expected to see their distribution share increase. Consumers in a tough economic environment want to see a variety of options, which puts discounters at a disadvantage since the product selection is too restricted to lure many customers.

·         Kettles are expected to continue to garner sales from maté drinkers in the middle-income groups. However, electric knives and electric knife sharpeners will probably continue to be niche products with sales relegated to high-income consumers. These small kitchen appliances are more expensive than their non-electrical alternatives, and this combined with a small distribution network and the lack of consumer awareness of important brands will limit sales.

·         Philips Argentina SA is expected to gain volume share in the forecast period, primarily through sales of kettles. Its long association with the product, its extensive advertising campaigns through TV and the print media and innovations like a digital temperature selector all make it a formidable competitor. Philips Argentina is also likely to gain share as many smaller competitors are forced to withdraw due to deteriorating economic conditions.