For H1 2016, China's water heater market has seen a steep rise in both online and in-store sales. With a continued trend towards high-end, smart and large-capacity products, water heater market is on a new path towards customization and sophistication, which is expected to upgrade the industry mix and advance the market to further grow in a good way.
Online sales going up
According to all-channel statistics from All View Cloud (AVC), for H1 2016, water heaters (including electric water heaters, air-source heat pump water heaters, gas water heaters and solar water heaters) registered 31.52 billion Yuan for sales, a year-on-year increase of 16.6%, and 21.473 million units for sales volume, a year-on-year increase of 13%. Online sales continued to expand with sales and sales volume up for 58.7% and 43.5% respectively, while offline sales increased by 11.6%, an exciting increase compared to the negative growth of 2015, though slower than online performance.
It is notable that, for the same period, the growth rate of sales (both online and offline) has been faster than that of sales volume, meaning the average price of water heaters has been going up. Compared to other categories of home appliances which were plagued with continued price war, water heaters have secured a growth in quantity as well as quality.
Besides, online sales is taking an increased proportion of the whole market. Statistics from AVC suggested that, for H1 2016, online sales represented 14.4% among all distribution channels, a year-on-year increase of 3.9%. The number is quite high, compared to the performance of other large goods which also require installation, but the growth rate is expected to go down for two reasons: the number of online customers almost at peak and industry players' strategy of balancing online and offline to reduce risks.
What underlies the jump in water heater market for H1 2016 are as follows: (1) The slump in offline sales for H1 2015 set a low base for 2016. (2) With less concern for price, consumers have an increased preference for classy, high-quality and easy-to-use products, which contributes to a growth for sales faster than that for sales volume. (3) When a big cold wave gripped wide area of China in January 2016, many non-freeze-proof water heaters cracked, generating a large demand. (4) Industry players spurred strong demand by using fresh marketing strategies, such as "staff discount", "direct-to-customer", "shopping festival", etc.
Electric and gas water heater performed differently online and offline
The water heater market has seen not only the growth of market size, but also a change in the landscape of electric and gas water heaters. According to AVC's statistics from leveraged distribution channels, for H1 2016, gas water heater has continued to expand its offline sales to represent 51.9% of the market with an increase of 3%, after it overtook electric water heater to be the market leader in 2015. But its online market shrank while electric water heater secured a growth of 1.9% in online sales, representing almost half of the online water heater market.
This could be partly due to differences in product feature, target consumer and distribution strategy. For instance, as to product feature, gas water heater has more rigid requirements to meet in terms of design, process and safety. And with higher cost, its price is relatively higher than its peers. Statistics from AVC suggests that, gas water heaters carrying major brands usually sell for more than 1500 Yuan RMB, while electric water heaters for around 1000 Yuan RMB. Price is one of the factors that contribute to their difference in target consumers. Users of electric and gas water heaters by age group are as follow:
Given the difference in target consumers, the distribution channels of these two products also differ, with electric water heaters holding large online share and gas water heaters leading the offline market.
Air-source heat pump water heater has come a long way. According to leveraged-channel statistics from AVC, for H1 2016, air-source heat pump water heater (excluding products for commercial use) registered 2.58 billion Yuan in retail sales, a year-on-year increase of more than 20%. In 2016, the retail sales of air-source heat pump water heaters is expected to grow to represent about 8% of the water heater market.
Customization: a fresh highlight of water heater industry
Fueled by growing penetration rate and weak market demand, water heater industry is in the face of ever fiercer competition. While high standardization results in homogenization, consumers with increased income and upgraded consumption philosophy are less excited to buy products made from standard production line and starting to look at different, personalized options. And thanks to these reasons, water heater industry starts its efforts in customization.
In H1 2015, one well-recognized Chinese water heater brand launched a survey through its self-developed platform to collect consumers' feedback on the style, function, parts and accessories, etc., and released China's first customized water heater. And in H1 2016, more brands joined this tide: during "April 18" promotion, Haier and Midea each released a customized water heater online. According to online statistics from AVC, these two products from Haier and Midea made the best seller list of their own online platform the week they were released, ranking 1st and 3rd respectively, and secured the 2nd and 3rd place for Q2 2016. For water heater industry, it is very rare for products on sale for less than 3 months to achieve this much. We could safely say that consumers have growing demand and appreciation for customized products.
Constrained by production mode and technology level, currently, water heater customization focuses mainly on style, size and selected functions in requirement of consumers, which is more like "collective customization" rather than "personal customization". But as a new pattern, customization is delivering on its great potential.
Gas water heater going classy
Targeted consumers of gas water heaters feature stable income and strong buying capacity. To them, quality instead of price is their top concern. For this reason, water heater industry has stepped up its efforts to upgrade product mix and quality as the number of medium-high income consumers grows.
For instance, consumers are increasingly in demand for water heaters with high output, as their living standards go up. Based on its current working principle, electric water heater could only improve its output by using a larger tank, which does not fit some small rooms. In comparison, gas water heater, with a higher price, features small size and weight, making it a hit in market. According to offline statistics from AVC, for H1 2016, gas water heaters with an output of 13L and 16L account for over 4% and 1% of the market in terms of sales respectively. Electric water heaters with an output of 80L made about zero growth partly because their large capacity made them hard-to-install(chart 2 &3).
In addition, gas water heaters are going classy. For H1 2016, major gas water heater players stepped up their efforts to promote high-efficient condensing gas water heaters, putting a number of new products on market, and to address slow heating issue, they released a number of high-end products to offer instant hot water, with "zero cool water" as a selling point. Moving forward, gas water heaters are expected to go classy while consumers' need continued to upgrade.