Source: CHEAA-run China Appliance magazine

Five years ago, an article titled “Go to Japan to buy a smart toilet seat” written by Wu Xiaobo went viral in China, making this product a hot item on everyone’s lips. At that time, the industry was broadly believed to be taking off soon. Looking back at the start of 2020, I find that the smart toilet industry did multiply in scale, particularly at online market which saw a market size 11 times that of five years ago and retail sales value up by 82% annually on average. But if we look at the penetration, it only rose slightly to 2%, up from the 1% five years ago, which seems pretty lackluster.

Market wise, the industry still has a long way to go

Smart toilet sales has been snowballing in the past five years in China. Back to five years ago, there was no third-party statistical data of the industry. China Household Electrical Appliances Association (CHEAA) took the initiative and released a report on the industry development in 2016. According to the report, domestic sales volume of smart toilets came to around 1.95 million units in China in 2015, up by 80.5% from the 1.08 million units in 2014. And five years later, the freshly released data from CHEAA show that, domestic sales volume of smart toilets approaches 4.6 million units in 2019, a standout category with strong momentum considering the broad sluggishness of Chinese home appliance industry in recent years. Zhu Jun, Secretary General of CHEAA, points out that, Chinese consumers have been increasingly exposed to this product and this new lifestyle in the past five years.

While the overall market size grows, the 2% penetration rate is not an exciting figure. In fact, the market potential of smart toilets in China is huge and ready to be unleashed. Statistics from China Market Monitor show that, the penetration rate of smart toilets posted 76% in Japan and 50% in South Korea in 2016. There were 430 million households with 3.02 members per household on average in China, according to Report on Family Development in China 2015. Based on this, if the penetration in China rose to 20%, the market size would be 86 million units, which means a huge market potential untapped. Regarding the penetration in upcoming years, China Market Monitor believes it would reach 10% in 2024. Huang Chaoyang, General Manager of BJB, believes that, 10% is a tipping point that indicates a real jump in scale as well as penetration.

Speaking of expanding market presence and penetration, Ying Weimin, R&D General Manager of V&H, points out that, this cannot be done by one or two enterprises. V&H will join hands with responsible industry players to dig into the market and propel industry development.

Barriers that hinder industry growth

CHEAA’s survey report on smart toilet consumption in 2017 pointed out that, consumers’ lack of knowledge, misconception of the products and their old habits hindered the industry development. After five years, consumers’ knowledge of smart toilets significantly improve thanks to the joint efforts of the industry. But there are more issues to be addressed, which include spotty product quality, poor user experience of models with tank, and the lack of regulation over installation service.

 (1) Spotty product quality

The fast-growing market size draws in a flock of small and medium-size enterprises who undercut competitors to seek profit, leaving the overall product quality of the industry spotty. Yan Bangping, Vice General Manager of Lehua, a leading domestic bidet maker that has several brands including Arrow under its umbrella, reveals that, smart toilets will be ranked by quality in 2020 by relevant government bodies. It is learned that products will be grouped into three levels with Grade 3 indicating compliance to national standards, Grade 2 nationally leading products and Grade 1 world leading products.

 (2) Poor user experience of models with tank

By repeatedly heating water in the tank, toilet with tank not only consumers a lot of energy, but also breeds bacteria, causing a health hazard, while tankless model with instant heating system well addresses the problem by heating running water with a heating module, effectively reducing the risk of bacteria propagation. Plus, mostly on standby mode, the latter is actually more energy-efficient than models with tank according to industry insiders. Yet most consumers are not aware of the differences. Capitalizing on this, some industry players lead consumers to buy tank models by a price hiking and cutting strategy, which hurt the industry development badly.

During the Double 11 Shopping Festival of 2019, domestic smart toilet makers including V&H of Haier, Smartmi, Arrow and HEGII jointly announced that they only sell instant heating models during Double 11, and this drew wide attention. Ying Weimin reveals that, V&H plan to phase out tank models starting December 2019, and only produce and sell instant heating models down the road. “We hope to set an example to the industry, and advance the development of instant heating models along with more industry players.”

While models with tank accounted for 70.3% and instant heating models 29.7% of the market in 2015, instant heating models become the absolute mainstream five years later with a market share of 76.5% in H1 2019, according to Chinese Smart Toilet Industry Development Report 2018-2019. It’s worth noting that mainstream brands of China has been stepping up their efforts in promoting instant heating models.

 (3) The lack of regulation over installation service

To regulate installation service, CHEAA is developing a Smart Toilet Installation Service Specifications to guide the installation as a way of advancing industry development.

A flock of new players pose pressure on quality control

Five years ago, there were around 30 smart toilet makers in China mainly based in Zhejiang, Guangdong and Fujian. At that time, neither home appliance makers nor toilet makers attached great importance on this product. Plus, those who specialized in smart toilets were mostly less-known brands who struggled in market expansion as consumer recognition of this product was low.

The five years of fast expansion draws in a flock of new entrants into the market. As of 2018, there were 357 smart toilet makers on Chinese market, according to China Smart Toilet Industry Analysis Report 2019 from Insight & Info Consulting Ltd. When it comes to brand landscape, there are traditional toilet makers such as Jomoo and Arrow, home appliance heavyweights such as Haier, Midea and Gree, Internet brands such as Xiaomi and Netease and foreign giants such as Panasonic, TOTO and Duravit, as well as other independent brands and less-known brands.

Home appliance brands stand out by sales. Statistics from China Market Monitor show that, out of the top five best sellers of smart toilets in 2019, four were home appliance makers with Panasonic as the best-selling foreign brand and V&H the best-selling domestic brand. Plus, out of the top 10 best sellers during Double 11 of 2019, 5 were home appliance brands that took a combined market share of 70.1%. This might due to the strong consumer recognition of home appliance brands. And beyond that, these technologically strong home appliance brands have stronger R&D capability. For instance, Haier’s patented electric shock proof technology, the “clean water wash” technology commonly used in water heaters and washing machines as well as the anti-bacteria materials used in home appliances have been applied to smart toilets.

While standard bearers lead the industry development, new entrants flood in to get a share of the pie by undercutting competitors, making the overall product quality spotty. The sampling inspection conducted by State Administration for Market Regulation in December 2019 showed a qualification rate of 96%, which looks not bad, but I learned from multiple sources that the 69 enterprises involved were mostly players with recognition and scale. To see the whole picture, I refer to the White Paper on the Quality of Chinese Toilets in 2018-2019 jointly released by several institutions. Covering mainstream online platforms including Taobao, Tmall, JD.com, Suning, Gome, Xiaomi and Amazon, the 5 rounds of inspections involved 143 batches of models and showed a qualification rate of 70.5%. Plus, two rounds of inspections that covered 29 batches of models conducted by Consumer Associations of China pointed to a qualification rate of 82.8%. And a testing assessment organized by www.jieju.cn showed a qualification rate of only 60.2%. To conclude, the overall quality of smart toilets has improved but the industry still has a long way to go down the road.

The R&D and the supply chain needs to be improved

Strong R&D capability is the key of industry development. Five years ago, the R&D investment of smart toilet makers was not high. And this does not change much five years later. Yet I learned from multiple sources that, the R&D team of Kohler, though ahead of the pack, only consists of about 60 people. Plus, most mainstream brands have 10-20 R&D talents, and some even do not have a R&D team. Compared to the big R&D division of white goods enterprises with hundreds even thousands of R&D talents, this is far behind. The slow product iteration should not take the full blame. The supply chain of the industry is made up mostly by small and medium-size enterprises with limited R&D capability, which is also a factor that comes into play.

I learned that, mainstream smart toilet makers still rely on imported core components, which limits the industry development. Small industry base and limited revenue are what lies behind the low R&D investment of the industry. To change the situation, more industry leading players shall take the lead in stepping up R&D efforts, and so do the suppliers to jointly advance the industry development.

Year 2020 marks the start of a whole new round of five years. My interviewees commonly believe that the prospect is promising, and the key step to take down the road is to make joint efforts in consumer education and product development to make the pie bigger. Amid the sluggish real estate market and tight market regulation, speculative enterprises are expected to be out gradually and the next three years is believed to be an opportunity to dig into the existing market.