Source: China Appliance (run by CHEAA)

Powered by a rising real estate industry, accelerating urbanization and “coal-to-clean energies” policies, water heater sector saw the best performance in recent years in 2016, with an exciting rise in its big four categories-electric water heaters, gas water heaters, air source water heaters, as well as solar-powered ones. In 2017, industry players are deploying their strategies to deal with changes after a fast growing year.

Favorable factors

According to Annual Industry Report on China’s Water Heater Industry in 2016, sales volume of water heaters in China posted 56.715 million units, a year-on-year rise of 3.8% and sales registered 52.22 billion RMB, up by 5.6% year-on-year.

The booming real estate market contributed large to sales of water heaters in 2016. Heating up all the way before regulating policies kicked in in September 2016, real estate market has been driving up sales of home appliances including water heaters until the first half of 2017. Yet after that, the growth rate of electric and gas water heaters are shrinking year-on-year.

Bringing a transformation to people’s living environment and lifestyles, urbanization offers a boost that lasts longer than what real estate market did. China Statistical Yearbook 2016 suggests that, the ownership of water heaters registered 71.2 units per 100 households nationwide, 85.6 in urban areas and 52.5 in rural areas as of the end of 2015. And according to Annual Industry Report on China’s Water Heater Industry in 2016, nationwide ownership per 100 household rose to 76.2 units as of the end of 2016, up by 7% year-on-year. And the growth rate in rural areas went faster than that in urban areas. With a relatively low penetration compared to air conditioners, TVs and refrigerators, water heater sector is expected to keep up the ongoing rising momentum in the coming years.

As statistics show, China’s third-tier, fourth-tier cities and rural areas have a massive market space to fill. They start to lead the growth of water heater sector to be a major incremental market, and have become a priority for some enterprises to deploy. Zhang Yumin, General Manager of Weber, a leading OEM and ODM of water heaters, reveals that, “third-tier and fourth-tier markets have great potential to deliver, and by digging deep into these markets, we achieved exciting growth of sales of our own brand.”

Online retailers play another crucial factor. Searching with the keyword of “water heater”, China Appliance reporter notices that, many brands including Haier, Midea, and A.O. Smith all have hot items with astonishing online sales. Ding Wei, Senior VP of A.O. Smith Group and President of Great China region, tells our reporter that, “currently 25% of our retail sales come from online retailers, and this trend is going upward.”

Though “going online” has become a choice of most, some enterprises still have doubts. We learn from an unnamed source that, “problems are coming up at online channels. First of all, product price set by online retailers are not quite under our control, yet it has a blowing impact on our offline channels, especially when online retailers such as JD.COM, Taobao, Suning expand their reaches to third-tier, fourth-tier markets even rural markets. Secondly, with low-end and middle-end products as the mainstream, online retailers must rebalance their product mix. Thirdly, online retailers have allowed many inferior brands on their platforms, which worsen the market environment badly. Fourthly, installation service after online purchases requires an efficient cooperation between online and offline service operators. We must accommodate ourselves fast to meet this demand and we’re now trying our best to straighten out these relations.”

Progress of the big four categories

Of the big-four categories-electric water heaters, gas water heaters, air source water heaters and solar-powered water heaters, the former two take up nearly 90% of the market share. For years, these two categories compete and complement each other to grow. In the first half of 2017, gas water heaters surpass electric water heaters in sales.

In first-tier and second-tier markets, gas water heater sector has clear advantages. According to estimated statistics from All View Cloud, sales of gas water heaters in H1 2017 have gone up by 18.1% year-on-year while that of electric water heaters up by 4.1%. And sales volume of gas water heaters also grew faster than electric water heaters for the same period. Ding Wei from A.O. Smith believes that, the transition from electric to gas water heaters in first-tier and second-tier markets is driven more by consumer experience, rather than cost. The biggest barrier facing electric water heater sector is user experience. This sector needs a revolutionary product.

The development of gas water heaters is going on smoothly. After addressing previous safety concerns, this sector is expanding fast along with the expansion of China’s gas network. But it’s still not as easy-to-install as electric water heaters, confined by gas infrastructure condition of different places.

Currently, gas water heater sector is leading the growth of water heater industry. We learn from an unnamed renowned Chinese brand that, the output ratio of electric water heaters and gas water heaters was 3:1 in 2015, 2.5:1 in 2016 and 2:1 in 2017.

Air source water heater sector remains flat. The initial cost of a home-use air source water heater is quite high. Annual Industry Report on China’s Water Heater Industry in 2016 shows that, the average price of air source water heaters in domestic market is 4,581 RMB, far higher than 1,061 RMB of solar water heaters, 971 RMB of gas water heaters and 838 RMB of electric water heaters. Expanding at a slow pace, air source water heater sector is embracing a promising prospect under China’s “coal-to-electricity” policy.

Once a hot item back to years ago under China’s policy of “home appliances go to rural areas”, solar-powered water heaters see a shrink in market share now with a slump in sales. Currently, more and more enterprises shift their expansion strategy of solar-powered water heaters towards construction channels, which has been proved effective with a relatively great track record.

Boost the market growth through joint efforts

Though the big four categories are constantly put together to compare, industry insiders can hardly agree with the results and the indications behind them. Water heater industry is going specialized. In recent years, traditional electric water heater makers such as Weber and Gemake are picking up gas programs, while gas water heater makers such as Vanward and Macro are preparing themselves to usher into electric water heater market. Most enterprises cover both electric and gas water heaters. Some leading ones even have a deployment that covers all the big four categories.

Ding Wei from A.O. Smith says that, “to us, which category stands out in sales is not the most important thing. What matters most is to offer the most appropriate solutions for users in different places. ” Ding is not alone. Many of our interviewees share the same view. Offering the best user experience is what makes a brand stand out in the future, rather than a certain category.

This industry is going high-end, energy-efficient and smart. Amid the consumption upgrading trend in China, industry players are rebalancing its product mix to go high-end. Of the four categories, gas water heater sector sets a great role model, with enterprises’ long commitment to exploring solutions to maximize safety and comfort. As to energy conservation, air-source water heater sector and solar-powered water heater sector have great prospects lying ahead. Besides, smartness cannot be overlooked in the era of IoT, and smart functions have been applied to many products on market.

In the second half of 2017, water heater enterprises are expected to face mounting downward pressure. And at this stage, industry players must find a development path that suite them best.