Source: CHEAA-run China Appliance magazine
Chinese refrigerator market has remained sluggish for 8 years since China’s policy of “home appliances to rural areas” came to an end in 2012. During the past 8 years, domestic refrigerator shipping volume growth has never hit 5% and mostly stayed at around 0%. While the industry remained flat in 2019, Chinese industry players keep exploring possible opportunities through innovation and see some possible opportunities in 2020.
Sluggish domestic sales
Amid the downward economic pressure worldwide and escalating US-China trade friction, China economy struggled to grow in 2019 with domestic consumption playing an obviously weaker role in boosting growth compared to before, though the annual GDP growth surpassed 6%. This signals weak market demand of home appliance industry.
Beyond that, the leverage ratio of Chinese citizens, particularly middle and low-income families, grows, which means, replacement need and high-scale market, which acted as the core engines of Chinese refrigerator industry before, will be affected. In terms of shipping, the combined shipping volume of refrigerators in China posted 71.11 million units from January to November 2019, up by 2.2% year-on-year, of which domestic shipping 39.62 million units, down by 0.6% year-on-year, according to China.IoL.com. Overseas market surprisingly plays a bigger role in industry growth despite the complex global trade situation, while domestic market faces clear pressure.
As to retailing, the combined retail sales volume of refrigerators in China posted 31.6 million units from January to November 2019, up by 2.6% year-on-year, and retail sales value 89.5 billion Yuan, up by 0.2% year-on-year, according to All View Cloud. This shows that refrigerator sellers, again, cut prices for sales in face of price-sensitive consumers and sliding market demand.
In this context, the production capacity of refrigerator industry remained at 140 million units in 2019, which means an excessive production capacity of 60million units considering the annual yield of around 80 million units. This could affect the pricing and profit of the industry greatly.
A shakeup of industry pattern with small enterprises struggling to survive
Of the first-tier brands, Haier and Midea stand out of the pack by sales. According to China Market Monitor, Haier saw its retail sales value grew by 2.5% in 2019 while the industry fell by 1.9% on average and a market share of 37.3%, making it leader of the industry. Midea, with sales value up by 12% and profit up by 14% year-on-year in 2019 (according to Midea), took the second place. With the two heavy weights expanding, the industry is increasingly concentrated. I learned from multiple sources that, Haier, Midea, Hisense and Meling took a combined market share of more than 65%, leaving the remaining 1/3 for the rest players that numbered more than a hundred.
The remaining 1/3 is getting smaller. The small brands that took off during China’s “home appliances to rural areas” policy are now struggling to survive. On one hand, e-commerce platforms extend their reach to third-tier and fourth-tier markets, which build a bridge for mainstream brands into lower-tier markets. This sidelines low and medium-end brands that previously on the ground. On the other hand, first-tier brands roll out cost-efficient models to make use of their excessive production capacity, leaving no ground for small and medium players who previously have an advantage in price.
Most interviewees believe that, issues facing the industry in the past year will continue in 2020, but there will also be opportunities ahead that lie in third and fourth-tier market, export market and high-end market.
The third and fourth-tier markets have shown a lot of vitality in the past 2019. Home appliance makers including Haier and Midea and distributors including Suning commonly point out that, third and fourth-tier markets grow fast and could embrace an explosive growth in 2020. The reasons are as follows: (1) the replacement need of rural areas reaches its peak 8 years after the end of China’s “home appliances to rural areas” policy; (2) the extended reach of e-commerce platforms build the bridge between consumers in lower-tier markets and refrigerator brands; (3) the consumption level of third and fourth-tier markets grows fast amid the rising replacement demand with French-door models and side-by-side models in large demand; (4) the shutdown of off-brands and copycats creates new market space for mainstream refrigerator brands in third and fourth-tier markets.
Guided under the relevant departments of the State Council, CHEAA organized the industry to develop a series of standards on the safe service life of home appliances and released them on January 6, 2020. Currently, a number of enterprises are developing promotion campaigns surrounding the standard. This, coupled with the efforts of industry players in digging into high-end market, could drive a new round of high-end refrigerator replacement wave.
Plus, the complex global trade situation, surprisingly, drives up the demand of overseas distributors for China-made refrigerators as Chinese makers, with reliable supply chain and broadly recognized quality, have made themselves reliable trade partners in unsteady global trade landscape.
For refrigerator industry, it’s time to step out of the 8-year sluggishness and enter a new era.