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MP29040

MAPS WHITE GOODS : May 2000

Overview

This report covers: white goods,cooking appliances,home laundry appliances,cooling appliances,refrigeration, dishwashers,

Companies covered include: Electrolux, General electric Company, Creda, Hotpoint, Merloni, Whirlpool,Comet, Dixons, Iceland, John Lewis Partnership, Powerhouse,Powerhouse, Value Direct, cooking appliances,home laundry appliances,cooling appliances,refrigeration, dishwashers,

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

SECTOR BREAKDOWN

This report focuses on the large domestic appliance section of the white goods market, which includes cooking appliances, home laundry appliances and cooling appliances.

The report excludes vacuum cleaners and small appliances. Background Historically, the white goods sector, not surprisingly, has been heavily influenced by the state of the economy.

In 1997, the market benefited from the effects of a strong economy. This could be seen by the high levels of personal disposable income, an active housing market, with rising property prices, and the effects of building society windfall payments. Since that time, despite the one-off windfalls coming to an end, the economy has primarily remained robust. In 1997, 188,000 new dwellings were completed, representing a large new market for white goods.

This pattern of building, albeit slightly slower, has continued beyond that time. Furthermore, the net increase in households due to divorce and separation of cohabiting couples has averaged about 70,000 a year in the 1990s, which is about 35 percent to 40 percent of the estimated annual average increase in all households. The continued increase in the UK population, coupled with the above factors, leads to a strong market emerging for white goods. 1998 and 1999 saw slower growth than in the previous two years, both in terms of value and volume, but the overall UK picture is now strengthening.

There are two categories of purchasers for the white goods market: first appliance purchasers, such as first time house buyers, and those who are trading up or getting replacements for their existing models. The former are purchasing white goods, often, as essential items. The latter make appliance purchases for a number of reasons: the age and resulting capability of their existing appliances; energy and environment matters, which are increasingly coming to the fore; stylistic matters in this age of home design; and the use of new technologies and their appliance application.

In recent years, the big manufacturers have been hit by a combination of price deflation and the abolition of recommended retail prices. The knock-on effect has been to tighten marketing budgets, which then results in flat sales. Of course, another factor affecting sales is new product development. In recent years, there has been little in the way of product development. The last major innovation was that of the microwave oven, nearly two decades ago. Essentially, today, product development is focusing on using technology to its greatest advantage not technology to improve how the product works necessarily, but technology in line with the latest communication and media developments. This is not surprising, given the part that computers, the web and television play in the lives of a typical UK consumer. The goal is to provide consumers with the kitchen of the future. In reality this means the manufacture of `smart' appliances. Key appliance manufacturers are facing each other, ready for tough competitive business.

Players such as Electrolux, who have been heavily involved in a number of `smart' appliance projects in the last two years, and Merloni, who offer their Ariston range in the UK, are about to do battle. Next generation appliances are almost here. This is perceived as the great hope of the white goods market. Today, a further influencing factor is emerging, in the form of new legislation. For example, the UK government, but also, in particular, the European Union (EU), is becoming increasingly concerned with both environmental and energy matters. As a result, there is a European labelling scheme which offers performance information, as well as an energy efficiency rating, on all European appliances.

VALUE AND VOLUMES

Globally, there are 190 million appliances sold annually. The UK white goods market sector experienced strong growth between 1996 and 1997, with an increase of 11.5 percent over the year. In terms of volume, the market grew 9.4 percent, from 1996 to 1997. However, in the subsequent two years, growth was much slower.

Overseas-based manufacturers of white goods, with UK operations, have been benefiting from the highest growth rate in the industry since the late 1980s. In terms of value, home laundry appliances remains the largest sub-sector, as it has been over the last few years. Cooking appliances was the second largest of the sub-sectors analysed within this report. Of course, the fastest moving product line within this sub-sector remains the microwave oven. In terms of volume, the largest white goods product line was that of washing machines. The next largest sector by volume was microwave ovens. Fridge-freezers, as with value, came third.

MANUFACTURERS

The market is dominated by a small number of key manufacturers, such as Electrolux and General Electric Company. Over the last two decades, there has been an expansion drive by these players, with many mergers of substantial companies occurring and many takeovers of smaller manufacturers resulting.

Given the international bias within these major companies, there are no surprises in the import statistics for the UK consumer white goods market. International manufacturers, such as these, have a tendency towards centralising their operations to make cost-effective global policy decisions. As a result, actual manufacturing is often concentrated in a small number of key European bases. Most manufacturers produce ranges for all the three sub-sectors, but some do have a particular focus on specific niche areas; their marketing spend may be centred upon a specific product line. Whirlpool, for example, given its name, obviously highlights its home laundry appliances in particular.

MARKETING

Marketing is handled in a number of ways. There is continued use of corporate marketing, where branding is built up, especially from players such as Zanussi. However, much white goods marketing is conducted in below-the-line activities and trade promotions.

It should be noted that advertising spend has been much reduced over the last year for most product categories. Overall, the content of the marketing varies substantially, from corporate messages to emphasis on new processes, such as energy-saving devices, through to campaigns which develop money-off/discounting type themes. Future marketing spend by the manufacturers is likely to focus on key specific product lines, namely those `smart' appliances which fulfil dreams of a future kitchen.

Of course, spend will continue to remain on standard product lines as well, but, given the lack of spend in recent times, the thrust of big budgets will go to the new products. Of course, there are two levels to the marketing, that driven by the manufacturers and that developed by the channel to market suppliers.

CHANNEL TO MARKET

The channel to market has also consolidated, in much the same way as the manufacturer end of the sector. A small number of large electrical multiple retailers dominate the sales channel. Despite supposed new competition, as a result of the de-regulation of the gas and electricity industries, the reality is that their high street locations have closed, leaving the UK public with little choice but to visit a retail park supplier.

Only the small specialist aspects remain the province of non-electrical multiple retailers, such as built-in appliances, which may, for example, be sold through a fitted kitchen supplier. In terms of marketing, the suppliers of white goods use a range of marketing mechanisms, from television advertising, for corporate messages, to literature and leaflet drops for localised promotions, to the Internet to encouraging direct sales.

Consumer Use of White Goods Given the above, how do UK consumers respond to the product offerings, pricing, where they can be obtained and more? To explore the UK consumer aspect of the white goods market in more depth, National Opinion Poll (NOP) Solutions was commissioned, by Market Assessment, to undertake exclusive consumer research to gauge consumers' use of this specific segment of the retail industry.

Overall, the results from the survey show that recommendations are a key part of the buying process, be they personal or more formal. In terms of costs, not surprisingly, the highest rating was given to overall value for money. This features more prominently than low prices per se. Long-term running costs and associated factors are also deemed important. Product reliability is a crucial factor in the purchasing pattern, as is after-sales service and product guarantees. It should be noted that a particular brand was considered less important.

Ease of use was deemed important in the survey, as were safety features. However, only a small proportion felt high tech features to be important when making white goods purchases. In terms of style, two-thirds of the market deem this important and even more feel that new appliance purchases should fit in with existing items within the kitchen.

To summarise, the above shows that consumers put long-term issues, such as overall value for money, economic running options, product reliability and after-sales service and guarantees, as well as matters such as safety feature offerings ahead of more short-term matters and gimmick issues, such as a product's name, a low purchase price and, interestingly, given the manufacturers' current areas for development, high tech options.

Text © 2000 MAPS

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