Indian air conditioners (ac) market is expected to grow at the cagr of around 13% during 2013-18. as ac makers are experiencing a huge demand of acs as a basic priority after tvs and refrigerators, therefore brands that are manufacturing acs across the wo
Decade ago, the overall Indian market was overloaded with air coolers. To beat the heat, new technology was created and air coolers were gradually superseded with air conditioners. What has really given an impetus to the air conditioning industry is the rising consumption demands considering the rising financial capability of middle class, easy availability of finance and other money saver schemes, increasing per capita income, entrance of big wigs in the industry, decline in prices, disposable income, ever-increasing population and the growing real estate sector. New technology and lifestyle trends are furthermore creating the replacement demand. These factors have further increased the opportunity for AC manufacturers and retailers. Other growth drivers behind the same are: falling prices of lifestyle products increased affordability, easy financing schemes, changing perception and increase in organised retail from 6 per cent currently to more than 15 per cent in FY15.
Currently, the air conditioning market is flooded with plethora of brands like Tata's Voltas (India's largest central air-conditioning company), Japan based Daikin and Korean giants like LG and Samsung. Hitachi, Onida, Haier, Panasonic, Carrier Midea India (CMI), Blue Star and Trane, a brand of Ingersoll Rand, is a global leader in heating, ventilation and air conditioning systems (HVAC).
As per a study on Demand of AC Industry by The Associated Chambers of Commerce and Industry in India (ASSOCHAM), about 4.2 million units of room air conditioners were sold in India in 2011 and about 68 percent of all units sold were split ACs. The observed trend is that there has been a gradual decline in the market for window ACs over the last 2-3 years. Real estate developers are not giving the provision (square hole) to install a window AC anymore in most of their projects.
Currently, there is still a very tough competition between the Window and Split Acs. People nowadays prefer to spend on split ACs considering the flexibility, variant sizes and noiseless performance. According to industry sources, the annual size of the Indian AC market is estimated to be Rs 75 bn (3.4-3.6 m units). A striking development in the AC market has been demand and supply side shift towards split ACs as compared to window ACs. Over the years split AC has surpassed demand for window AC dramatically. The total production capacity for ACs of 8 largest manufacturers is approximately 7.2 m units. Out of this around 25 per cent is exported. So the capacity dedicated towards domestic sales is 5.4 m units. Of this, approximately 70- 75 per cent of the capacity is utilized for split ACs. This clearly leaves very little market for window ACs.
Commenting on the key growth prospects, Sanjay Mahajan, Vice President - Sales & Marketing, Carrier Midea India Private Limited, says: “The growth of nuclear families, disposable incomes and the increasing number of working women has fuelled the demand for home and kitchen appliances that increase efficiency and save time. This phenomenon is seen all across from major metros to C class towns.” Talking about the market, Shankar Subramanian, Director - Sales, Residential Solutions, Ingersoll Rand says: “The size of the Indian AC market is pegged at around 4.2 million units, 80 per cent of which are the split ACs.”
Picking the right business partner
Selecting the right business partner for any business is a crucial task as he becomes the brand's ambassador who directly connects with the right target customer. In case of Trane, the brand's channel strategy is robust and broad based and not restricted to conventional channel formats. For this, Trane has partnered with AC specialists and created extended brand partners Trane Solution Partners (TSPs). They not only are responsible for selling products but also offer after sales services complete end-to-end solution. Further, the brand also Trane Authorized Dealers (TADs) who are certified sellers of Trane Interactive products. These dealers and distributors are selected on the basis of their infrastructure, their capabilities, understanding of the market, and experience in the industry. While for CMI, Sanjay Mahajan adds: “Identifying and appointing the channel involves many stages, market mapping, size, nature of the counter, service capabilities, geographic reach and neighborhood in which it is located amongst others. Dealership or distributorship again is very subjective. It depends on the regional requirements and our expectation from that particular market. Appointing a dealer/ distributor is ideally looked upon as a long term mutually benefitting relationship and at CMI we do not have a lock in period policy.”
Managing the supply chain
To manage the demand supply, effective supply chain system has to be in place to fulfill the ever-growing demands. CMI has a robust manufacturing process that gives flexibility to modify production requirements. They take inputs from the market and are able to translate it into product solutions with agility. Their supply chain is determined through a bottom up planning process in which inputs are taken from retail partners which are compiled at the branch / city to the Regional / National level. While setting targets for the channel partners, they keep in mind the size of the counter, share of the counter and their expectation of growth from the market / region. While, on the other hand, Trane have tied up with one of the leading providers of integrated logistics services in India. They are an international chain which offers a complete range of international air and ocean freight services as well as integrated logistics services and global supply chain solutions from a single source supported by its strong worldwide network comprising 2,000 locations.
Robust distribution network
The business of air-conditioning runs through a diverse network of distributors and dealers. The success of any enterprise depends a lot on its relation with its channel partners, who are the extended arm of the organisation. Carrier Midea India has a strong pan India network for its Carrier brand of air-conditioners and is extending its footprint for the Midea range of air-conditioners and home appliances. CMI has a dual brand strategy, while Carrier caters to the premium end of the market targeting the evolved air-conditioner buyer, the Midea brand is a mid-premium segment brand. It has a youthful, energetic and technology savvy persona. Currently, Trane has over 150 TSPs and TADs. Moving ahead, the brand is planning to increase this number to around 250 by the end of this year. In the premium air conditioners category, Trane is aiming at a 10 per cent market share by 2014 with its Interactive products Air conditioners and Door locks. On the other side, CMI has a pan India network of channel partners. CMI looks at becoming a key player in the home appliance segment led by air-conditioners. CMI aims to sell 1 million room ACs and aspires to be amongst the top three in product categories in the five years. CMI sells and services its air conditioners with an extensive network of more than 600 sales and service dealers coupled with over 1,000 distributors and retailers throughout the country.
For taking up brand's dealership or distributorship, the investment and area requirements varies from location to location. Shankar Subramanian says: “We look for channel partners who have the capabilities and sub-structure to handle a premium brand like ours. The investment, therefore, is in terms of the infrastructure and manpower required for handling premium services and products. ” Whereas, in case of Carrier Midea India; the investment varies from city to city and from locality to locality. A stand alone outlet in B town is expected to be less expensive in terms of infrastructure investment vis-à-vis a shop in a metro high end mall.
What next?
As per the news reports, players like LG and Voltas are trying to de-risk the AC business by making it weatherproof by adding newer features. Voltas, for instance, is promoting an all-weather AC with heating feature for winter, which helped the company to rapidly gain market share and achieve more than 20 per cent growth in this bleak market. Besides this, many companies are strongly promoting the high-end energy-saving inverter AC, which reduces energy consumption by up to 50 per cent. Also many players are strategizing to increase their sales by offering free installation services and bringing out energy efficient ACs across every cranny of the country.
“With the consumer durables industry in India growing at 15 per cent annually, and the fact that the air conditioning segment remains among the least penetrated consumer durable segments, at less than 3 per cent, more and more players are entering the AC market with hopes of tapping the growth opportunities,” says Shankar Subramanian, Director Sales, Residential Solutions, Ingersoll Rand. According to the National Council of Applied Economic Research findings, only 52 per cent of the 31.4-million strong middle-class households in India possess air- conditioners, suggesting that the remaining 48 per cent has not been penetrated. By 2015, the number of middle-class households is expected to touch 53.3 million and grow to 113.8 million households by 2025. This bulging base of middle-class families presents an immense opportunity for air-conditioner manufacturers in India. Therefore, Air conditioning market in India is poised for huge growth considering the development of new housing and commercial projects.
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