The consumer appliances retailers’ business success and resilience increasingly depends on their ability to adopt new strategies.
When looking at 2016–2017 turnover and sales figures, the performance of consumer durables retailers seems to be satisfying at first sight. Sales increased and is expected to do so again in 2017–2018.
However, the margins of most retailers remain tight, as competition between brick-and-mortar shops remains fierce, and is exacerbated by the rising challenge online retailers pose to the traditional high street: price transparency made available to consumers by online retailers maintains pressure on margins along the whole value chain. Therefore, the retailers’ business success and resilience increasingly depend on their ability to adopt new strategies, for example, building-up and expanding their online business and/or offering additional services. However, this requires the willingness to change as well as financial investments, and it remains to be seen if many of the smaller, already struggling retailers have those means to realign their businesses in order to remain competitive.
The lack of willingness or means to adapt to a volatile and fast-changing market environment can immediately result in serious troubles for large and small players alike, regardless of how established in the market they are or how successful they have been in the past.
The Indian economy performed well even under economic duress and conditions improved alongside a recovering global economy. India registered a robust economic growth rate in the previous financial year and the demand for home appliances (HA) is expected to continue to surge further owing to the increasing disposable incomes and a significant rise in the demand in rural areas. HA sales showed robust growth in 2016. About two-thirds of retail revenues are generated from the urban population in India.
A 400-million strong Indian middle class has been instrumental in driving the demand for various consumer electronics devices. Low household penetration of appliances in India will provide opportunities for companies to expand their reach. In addition, government initiatives and the presence of a number of companies in India have also fueled the industry’s growth. Government initiatives, such as Make in India campaigns, have caused many manufacturers to enhance their local production capacity and set up new production facilities in the country. Furthermore, the increase in working-women population has contributed to the rise in the demand for electric cooking appliances and automatic washing machines.
The government’s decision in November 2016 to abolish cash by withdrawing Rs.500 and 1000 bank notes had a negative impact on sales, as cash transactions have traditionally been high in the retail sector. Across regions, smaller retail outlets were more affected than large retailers. Since January 2017 consumer durables retail sales have started to rebound again, especially in the urban areas where consumers have been fast in adapting to alternative payment channels. Sales are expected to increase 10–15 percent in the fiscal year 2017–2018. Retailers would benefit from the implementation of a Goods and Services Tax (GST), which would help to reduce the tax burden and lower logistical and transactional costs. Government investment in rural electrification should help to boost demand for appliances in the future. However, market liberalization in some appliances segments has already attracted a large number of foreign players, which will increase competition in terms of efficiency and price struggles. Payment delays and insolvencies are expected to level off in 2017.
Expansion of modern, retail, and exclusive company outlets across regions is expected to increase the penetration of HA. Though supermarket and departmental stores have been a favorite of consumers, e-commerce is expected to be the fastest growing distribution channel owing to the rapid internet penetration in the country. They are expected to post a strong growth even in non metro cities. Other factors fuelling the growth of HA in India are the rise in double-income nuclear families, easy availability of credit, changing lifestyles, introduction of new models, and increasing consumer awareness.
India is undergoing massive transformation demographically, across industries, and the way business is conducted, with technology playing an unprecedented role in this transformation. Also new business models are helping create new value and forcing traditional models to innovate for survival. Demographically, the middle class and the working-age population are emerging as a dominant force and influencer to many evolving economic and social trends.
Things are looking up for the global major HA market in 2017. After a rather difficult year in 2016, where the market has grown by less than 1 percent overall, global revenue in 2017 will be a solid +4 percent, reaching
USD 193 billion. This would make it the second best year after the record turnover of USD 196 billion measured in 2014. The increasing demand for refrigerators and washing machines can be attributed to the improving living standards and increasing number of households across the globe.
Low interest rates and inflation in many regions are driving historically high levels of consumer spending. On top of that, real-estate markets are booming, leading to higher durable goods spending, such as built-in HA. Increasing disposable income, an expanding middle class, rapid urbanization, increase in marketing and advertising budgets, technological innovation, changing consumer preferences, and innovative credit schemes and easy acquisition of appliances, are some of the major drivers stimulating growth of this segment. This market growth is enhanced by a high rate of innovation and inclusion of a larger variety of smart appliances to existing catalogues. The active participation from government organizations will provide significant opportunities for industry participants.
Some essential appliances remain high priced for most middle class consumers. In many parts of the world, there is a deficiency in the credit ecosystem which would have helped to support higher adoption of HA, high competition, mandatory R&D for new innovations sought by consumers; government regulations for each budget year are some of the challenges faced. The economic downturn and poor export performances are anticipated to inhibit the market growth. Several countries are facing socioeconomic and economic challenges with structural challenges hindering the economic growth. Instability of exchange rates, inflationary pressures, and poor export performance are further straining major households with growing financial burdens.
The Global HA Market
North America is leading the market in the HA segment but the fastest growth is expected in the Asia-Pacific region with urbanization reaching rural areas and with consumers willing to invest in technology. Growth drivers for the developed countries in Europe and North America are a favorable macroeconomic environment with historically low interest rates and strong real estate markets. The HA market is expected to witness a significant growth over the forecast timeline owing to the rising disposable income of individuals in Asia-Pacific. Major appliances, such as washing machines and refrigerators, have continued to sustain robust demand in APAC owing to high consumer demand. Markets in Russia and Brazil are expected to stabilize with a stronger world economy and subsequently higher crude oil and raw material prices. The trend of increased spending of consumers is expected to drive the South African market growth. South Africa is leading its regional counterparts in terms of cropping up of manufacturing centers. The sluggish market in China will be supported by a strong increase in online sales and replacements of older products.
As regional economies are advancing, consumers have started utilizing modernized devices and adopting technologies for home improvement. The low-level adoption is translating into an untapped potential for electric household appliances market players. Steady growth is predicted in the developing markets while rural regions are set to outdo the trends due to improving lifestyles and rising purchasing power. Vicinity to Indian and Atlantic oceans, large population, and cheap labor are attracting several manufacturers from Europe and Asia-Pacific. This is expected to reduce the cost of products, thus propelling the demand further. After catering to Asia-Pacific markets, the technology product firms are now shifting their bases to Africa.
Innovation and Design Renaissance
In the recent past, technological innovation has contributed in improving the standard of living. People have come far from brick ovens, to OTGs, microwaves, from planning food intake around perishable items, to refrigeration (for personal and commercial use) and even low-power consumption for each of these heavy-duty appliances, having increased disposable income, graduating from simpler HA to modern appliances.
With many consumers having more money in their pockets, the HA market will be driven by innovative, premium products, such as energy-efficient washing machines, heat pump tumble dryers, and bottom freezer refrigerators with no frost technology, inductions hobs, and self-cleaning ovens. Smart, connected appliances are currently experiencing limited demand, but they are expected to grow fast in the next years. Online sales will outperform the average market development, at the expense of the smaller traditional retail outlets.
Compact homes are driving the market for built-in appliances such as dishwashers, washing machines, and ovens that are specifically targeted at smaller, built-in kitchens. The demand for built-in freezers is also growing. Devices with heat pump technology are two to three times more energy-efficient than conventional ones. This technology is gaining considerable popularity in the face of rising electricity prices and the growing awareness of greenhouse gas emissions. Heat pump water heaters use less than 63 percent of the total energy consumed by conventional electric water heaters, so these are gaining traction among homeowners who are concerned about saving electricity. These water heaters collect energy from water, waste heat sources, the ambient air, and the earth to heat the water stored in insulated storage vessels.
After a long period of sameness, the HA industry is undergoing a design and innovation renaissance and changes have only just begun. Not only have consumers embraced innovative design solutions, but products like smart thermostats have demonstrated the benefits of tapping into intelligence and interconnectivity that make passive home products much more active and adaptable without additional work on the part of the consumer.
Research and design innovation. Performing the right kind of research that supports innovative design is not easy. Design research uses tools that help see where gaps exist which usually cannot be verbalized by consumers. Coupling these two tools and analyzing the gaps between them is the key to uncovering unmet needs and learning where the not so obvious and unspoken opportunities lie. They have to be extrapolated through analysis.
Accessibility. Just a few years ago the design of refrigerators in the home fell under one of three types – top-mount freezer, bottom-mount freezer, or side-by-side. Since then, some great new innovations such as the French door configuration have eclipsed other configurations in sales. Washing machine innovations such as the add-an-item washer that lets the consumer open a mini door while running mid-cycle is another example of innovative designs that improve accessibility.
Intelligence. The ability to access intelligence from many sources is only beginning to be considered for its potential to revolutionize the products and appliances we design. Clothes washing provide good opportunity for new design thinking. Companies that make detergents for washing machines have made significant advances in chemical interaction of detergents with fabrics. And likewise, the washing machine technologies have also advanced in ways that agitate clothing in new ways, and reduce water consumption.
Owing to the increasing demand for energy-efficient products, industry participants are actively developing devices with added features such as temperature detection. R&D activities are also quite prevalent throughout the HA market. Various programs, such as the home energy action program, are being undertaken by government bodies to deliver energy-efficient devices to low-income households. With countries aiming for minimizing carbon-emission levels, several programs and policies are boosting innovations in product-development efforts.
Expectations from Smart Home
For the last 5–6 years, the Internet of Things (IoT) has been a subject of debate, expectations, and forecasts. The IoT market is seen as a major revolution (some even call it the Industrial Revolution 4.0) because it transcends the simple technology market and can be applied in almost every field, allowing huge improvements of quality and productivity, bringing new features, and new opportunities. The IoT is planned to disrupt urbanism, the way of working, living and health, factories, and the entire economy. Everything starts to become smart, from smart grids to smart cities and offices, and with it come new expectations of a smarter and savvier future.
Numbers of smart homes are expected to go from 25 to 50 billion connected objects by 2020, with a forecasted market to be valued in trillions of dollars. Ultimately, energy savings and convenience are key to the adoption of connected appliances among consumers. Connected appliances offer tangible benefits to consumers and create significant opportunities for other industries such as retailing. With the ability to scan the item stock, connected refrigerators will boost Internet retailing of food and beverages. Since connected appliances will be the key gateway to Internet retailing, connected appliances are expected to generate great revenue for appliances manufacturers and Internet retailers.
However, despite all forecasts asserting 2016 would be the year of IoT, smart home is still far from being a widely adopted technology. The Internet of Things and the smart home still remain either a mystery or a gadget for most people and a dream barely accessible to few technology-passionate consumers. While there might be various reasons for that failed expectation, the major explanation remains the discrepancy between the needs of the main customers and what main smart home companies actually create and offer on the market. Most products are inaccessible for the average consumer, who is little or not at all educated on the many aspects of the smart home and needs a simple product that does not require any technical knowledge to use or understand. Most products available on the market are complex and expensive devices, which is fine for a small minority of early adopters/technology enthusiasts but does not fit the demand of the rest of the market.
Two major elements are refraining consumers – connectivity and price. Customers tend to buy their smart home products separately, which often means that after accumulating several smart devices, there might be issues with interconnectivity between them. With major manufacturers taking over the market in the last two years, new ecosystems have been coming up, with a constant preoccupation to create special partnerships with certain brands and limit other products to connect. It has long been commonly accepted in the tech industry that price is not central as long as the features are innovative and useful. Although some thought it wise to apply this rule to the smart home, it would be a misunderstanding of what truly is the smart home, a technology that is supposed to revolutionize everyone’s daily life and everyone’s home. As price is central, adding a premium of hundreds of dollars just to make something connected tends to refrain consumer’s from being attracted to connected devices, which explains the failures of many smart kitchen appliances like connected refrigerators or ovens. Moreover, the price should always be understood relative to the use perceived by the user, which means efforts should also be put into the simplicity of use and overall usefulness.
The global market for major HA will grow solidly by +4 percent in 2017–2018, driven by high consumer confidence in Europe and North America, a strong development in India, and a modest recovery in China, Russia, and Brazil, whose once buoyant markets have recently suffered from a deterioration of economic and geopolitical conditions.
Growth drivers for the developed countries include a favorable macroeconomic environment with historically low interest rates and strong real-estate markets. Built-in products will profit strongly from this development, and there will be an increase in purchases of more premium products with innovative features.
India and other developing countries in Asia will grow strongly with better-educated, young families and household penetration rates which are still very low. With the HA market poised for growth, appliance manufacturers should capitalize on the market conditions with new innovate products that give consumers what they want. There is actually little chance that a major breakthrough of the smart home market will be seen in 2017–2018 or any specific year. Looking at what has happened so far, it is more likely that smart homes will be more prevalent in the coming five to ten years. Nonetheless, 2017–2018 will probably bring a good amount of innovations.
The Refrigerator Has Been Reinvented!
Refrigerators have long been thought of as the boxy, boring behemoths of the kitchen, and buying one used to be as simple as choosing between eggshell and off-white. But times have changed, with manufacturers increasingly thinking outside the box to redefine what the modern refrigerator is really capable of. As a result, today’s shopper finds an ever-increasing range of color and style options, cleverly designed units designed to blend with the decor, and a wide variety of smart features, including ones aimed at transforming the kitchen itself into an entertainment hub. The refrigerator has been reinvented.
Refrigerators are now more and more often managed in a digital manner, remotely, with sophisticated yet simple technologies, which allow customizing the conservation. Displays with increasingly cutting-edge functions, automated and pre-set temperature controls, stricter and stricter dialogue with all kinds of devices, from handy smartphones to PCs, not to forget the tablets. They can now be imagined with a built-in digital assistant in the form of Amazon Alexa or Google Home that allows to control its smart functions with voice control.
Connected refrigerators are already making way for smart shopping services that remind a user what to buy without being asked or even restock it. Some manufacturers are exploring this by offering shoppers a variety of ways to trigger purchases, such as automatically ordering an item if running low. Some models are sporting a window in the front door that allows homeowners to see the contents without having to open it, keeping the cooled air from escaping. A few others are integrating a connected camera for remote viewing. The idea is to make refrigerators a family hub.
Beyond smart features, manufacturers are expected to squeeze more functionality into their refrigerator lines. Water filtration remains a key focus. Models are equipped with an auto-fill pitcher, which refills on its own with fresh, filtered water when placed on the dock inside the fridge. Entertainment functionality has been incorporated, such as Bluetooth speakers attached to the refrigerator.
Then there is design. Black stainless steel came on strong last year, but mostly at the premium level. As more brands embrace the matte, fingerprint-resistant finish, we expect to see it available at more affordable price points.
Space has always been an issue in most homes. Flexibility and customization are terms that indicate the manufacturers’ extensive research to optimize useful centimeters of the volume inside refrigerators and to differentiate the food-conservation areas. Smart solutions emerge from that, subtle thicknesses that allow enlarging drawers, containing rooms and shelves, to offer a higher food-storage possibility. Some refrigerators have an option of converting the freezer into the fridge. The wine coolers market is finding popularity as a three-in-one, fridge–freezer–wine cooler.
The refrigerator of today has emerged as a simple household appliance, yet equipped with a complex technology, showing excellent performance, resulting in protecting the environment. Selling connected refrigerators would be different from selling connected washers, dishwashers, ovens, and other smart devices. It is all about content marketing where companies want to make the most out of the 22-inch and above display which they are putting on their refrigerators. Manufacturers are working toward making smart refrigerators worth it. Is there value here? The camera in refrigerators lets one see what is in there without opening it. Also, a user can assign expiration dates to items using the touchscreen. Yet, the cost of these refrigerators is often expensive. Buyers like the features, but they want them at an affordable price!
Laundry Needs Disrupting Again?
Does laundry need to be disrupted again? Last century the automatic washer and dryer changed the world. Hanging clothes on a clothesline went the way of the Dodo for millions. Yet, a key question remains. Will current technology upgrades make laundry easier, or will the new upgrades remain as novelties? Leading appliance makers seem to think laundry needs some disrupting. Indeed, laundry is usually a chore. Simplifying or automating laundry would also make a good narrative – spend less time doing laundry, so you can spend more time with your loved ones.
Clothes washing is a very good opportunity for new design thinking. Washing machine innovations such as add-an-item washer that lets the consumer open a mini door while running mid-cycle is an example of innovative designs that improve accessibility. For many years, companies that make cleaning detergents for washing machines have made significant advances in how the detergent interacts with fabrics. And likewise, washing machine technologies have also advanced in ways that agitate clothing in new ways, and reduce water consumption.
But machines and specialized chemistries do not interconnect intelligently. Washing machines that are aware of the specific laundry detergent being used and then match its processes with the ideal cycle for that detergent are yet to be designed. The companies that make the laundry detergents have amazing data and knowledge about how clothing can best be cleaned, the ideal temperatures, and optimal wash timing. But currently the detergent selection is not known to the machine and the machine cannot take advantage of the best performance for that particular detergent’s capabilities.
Additionally, the machines do not currently know what type of clothing has been placed inside the machine. Technologies are starting to match clothing with the machine cycle. Waterproof IDs that could transmit the garment type to the machine could change that equation. Or barcode labels that could be scanned as a garment is placed inside could impart intelligence to the process. There are microscopic comparisons to show and validate sanitation and anti-bacterial functions, while an underwater radar detection system will allow users to experience clean laundry like never before. The introduction of smart connected washing machines is attracting consumers and recent advances in technology are transforming the industry. These recent technological advancements and focus on modernization include: ability to remotely monitor machine status, automatic detergent dispensing, power wash system, auto optimal wash technology, and steam care functions.
A connected washing machine gives the manufacturer a touch point to communicate to the end user. Telemetry data can be used to determine whether something is going to break before it actually breaks. Preventive maintenance can now be used to take preventive actions that can stop problems occurring, or to enable a service department to fix a problem in a convenient maintenance window with limited disruption to servicing. Usage data can now be accessed and used to understand user experiences and interactions. New updates and features can be added based on interests and usage patterns thereby increasing loyalty and satisfaction. There are several organizations that stand to benefit from interacting with the data from that washing machine, ranging from utilities, insurance, washing powder – all of which have a vested interest in the connected washing machine and its user.
A new model for releases and updates can be established allowing the user to receive new features, security updates, and fixes as unobtrusive downloads into the machine’s programming interface, not only giving the machine a longer shelf life without compromising relevance or modernity, but paving the way for more sustainable practices in the future. Exploration in this direction can lead to greener opportunities with wider ramifications for waste and redundancy, where suddenly machine obsolescence is not the end game, but longevity emerges as a better option. As of now, these capabilities are limited. Enhanced integrations are expected in 2017 and beyond.
MWO – Happy 50th
While the microwave oven celebrates its 50th birthday, there is indication that we may sooner or later see an exit of this category from the HA segment.
In all probability, the ubiquitous microwave oven is posed to go the VCR way. There are signs that the fast-cook workhorse will soon be on the decline as newer, better technologies make their way into the market.
The MWO has had a good innings. Ever since Amana introduced the first countertop unit back in 1967, consumers have embraced the convenience of the microwave. They helped usher in an era of fast-cook food like microwave popcorn and pizza, and as the microwave became cheap and plentiful in the 70s, they were soon everywhere. Eventually, the microwave rivaled traditional ovens and ranges in adoption, and today there are more microwaves sold quarterly than gas ranges.
Still, for all its success, the microwave’s future is in doubt. Perhaps the biggest reason is that while the microwave is fast and efficient, it is actually pretty poor at its job. Not only do microwaves cook and reheat food unevenly, they are not good at cooking multiple items simultaneously.
And it is these shortcomings that have opened the door for newer technologies such as RF cooking, which utilizes solid-state (semiconductor) technology in place of the microwave’s old school technology, cooks with a much higher degree of precision. An RF-cooking enabled oven cooks multiple foods at once within the same cooking chamber at different temperatures, can sense when a food is done, and cooks evenly across and through an entire piece of food rather than the uneven cooking results obtained with a microwave.
There are multiple companies with RF-cooking technology products in development. One is Goji Food Solutions, which originally developed its RF-cooking technology for medical applications as a way to heat tissue evenly. The company claims to have 147 issued patents in the area of RF solid-state heating and another 76 pending. Other companies, such as NXP, have chip solutions that early system builders are bringing to market. Lastly, there is an industry consortium called the RF Energy Alliance that includes Whirlpool as a founding member that is working on standards for solid-state RF technology.
Combi ovens. For many years, the combi oven has become the darling of chefs for its ability to combine multiple cooking modes (convection, steam, combination) into one and its ability to produce delicious food. However, despite its many advantages, the combi oven has been relegated mostly to the pro kitchen despite efforts by high-end manufacturers such as Miele and Jenn-Air to bring it into homes. But that may change soon, as companies bring low-cost counter top combi ovens to market.
The instant pot generation: slower cooking takes hold. Lastly, while we may never see an end to prepackaged convenience food, it is safe to say the heyday of the Hot Pocket is well past us. More and more millennials are embracing slow cooking by using revamped old-school products with modern technology like the instant pot. This multifunction pressure cooker has become a phenomenon, garnering over 18 thousand reviews on Amazon to become the #1 overall product in the kitchen and dining category.
By adding multiple cooking types beyond just pressure cooking such as rice and yogurt mode as well as processor-driven programmable cook modes and automation, the instant pot has tapped into a generation of young cooks and wannabe cooks who love Swiss Army knife devices that can save space by combining multiple functions while also producing high-quality results. There are best-selling cookbooks, as well as dozens of websites and large and active Facebook and Reddit communities where enthusiastic instant pot users share recipes and cooking tips.
So, while it is time to step back and wish one of the most unlikely success stories of the modern kitchen a happy 50th birthday, it is also a time to recognize that the microwave’s best days might be behind it. Newer and better technology, combined with changing consumer behavior, could mean we might be celebrating a new type of cooking appliance 50 years from now.