Corporate: Strategy - Coming out of deep-freeze

STRATEGY
Coming Out Of Deep-Freeze

After CTVs, it's now the turn of refrigerators. More and more white goods manufacturers are rushing to tap the demand surge in the segment.

By Jaya Basu

A minute is all it takes for anyone who walks into the cabin of Shyam Motwani, to realise that it is an adrenalin-surplus office. The 38-year-old General Manager (Marketing) at the white goods major Godrej-GE, is in a state of perennial excitement. The reason? After stagnating over the first three months of this year, sales of refrigerators, his company's staple offering, surged in April. Godrej-GE and other companies operating in the market haven't looked back since. The boom, they believe, is on.

Thus, in what won't come as a surprise to anyone, the battle in the refrigerator market is hotting up this Indian summer. Every company worth its ice wishes to capture a higher share of the market. This, when all they need to do to ride the boom is retain their marketshares; spiralling market growth will do the rest. For, courtesy an unexpected spurt in replacement and first-time demand, the refrigerator is right up there in the consumers' list of purchase priorities. The numbers do not lie: an estimated growth of 15 per cent this year, compared to a miserly 6 per cent last year.

Still better, analysts expect this expansion to last for at least the next three years. Says Sujata Rakra, 44, Managing Director, ORG-GFK: ''It is likely that the next purchase priority for the (new) middle-class, which was responsible for the boom in the CTV market, is a refrigerator.'' Seconds Peshwa Acharya, 33, Head of Marketing (Home Appliances Business Group), BPL: ''Most households who bought their first appliance in the form of a CTV are now going for a refrigerator.'' Add to that the demand from upgrades (like the urban upper-income group housewife buying a larger and more advanced refrigerator simply because it is there and she needs one), which no one is willing to quantify, and the result is a market boom.

The strategic differentiation

Expect to see a slew of launches in the coming months. BPL, which has just launched the Converti (the freezer can become a normal cooling zone at the flick of a button), has decided to enter the direct-cooled segment (the company hitherto operated only in the frost-free segment) that accounts for 85 per cent of the Rs 2,400-crore refrigerator market. And Samsung Electronics intends to maintain its technological edge by launching Net-enabled refrigerators, mini-bars, and top-line 600-litre models. Claims R. Zutshi, 45, Vice-President (Sales), Samsung Electronics: ''We will enhance our range by adding new products and incorporating features that cater to the Indian customers.''

However, it is evident that companies operating in the market will need to maintain a presence across segments-frost-free and direct-cooled-and price-points. The only difference will be that while Electrolux and BPL are certain to focus on volumes, LG and Samsung will hard-sell their high-margin, premium products.

Over the next three years, growth in the first-time buyers segment will come primarily from increasing demand for direct-cooled refrigerators, although some first-time buyers have been known to leap-frog to frost-free models. And, in the premium frost-free segment, that will be largely driven by the replacement market, which accounts for around 25 per cent of all the refrigerators sold. Explains Ashok Bhasin, 39, Director (Marketing), Whirlpool India, which has a 26 per cent share of the frost-free segment: ''The replacement market has grown between 2 and 3 per cent traditionally, but it is now likely to grow faster due to rising income-levels and aspirations of the customer.''

The technological edge

While the price-card will remain critical to companies in pursuit of volumes, technology will be of paramount importance to those that wish to position themselves at the premium end of the market. For instance, LG has patented its door-cooling technology for a 20-year period, and plans to launch its digital refrigerator (estimated price: Rs 1.5 lakh). For its part, BPL is trying to patent its Converti technology. Godrej-GE's Motwani, however, says that the key to the market lies in the low-end segment. ''The real potential in the Indian market is in selling a basic product that will perform its function of cooling,'' he explains.

The result? Happenings in the refrigerator market, over the next few years, are likely to imitate events in the CTV market over the previous few years. The boom could engender a series of price wars or a rash of product launches across segments. Companies that have consciously positioned themselves in the high-end are certain to tout their technological edge that much more, and those focusing on the mass market will play the price card. Explains Ajay Kapila, 37, Vice-President (Sales & Marketing), LG Electronics: ''In future, technology will be a key differentiator for the transnationals, while most Indian white goods majors will have to compete on the price front.''

It is also evident that the future strategies of refrigerator manufacturers will be driven by factors like sagging bottomlines and low capacity utilisation levels. Even companies like Electrolux and Whirlpool incurred losses last year. Samsung Electronics is hesitant to establish a local manufacturing facility in the absence of sufficient volumes. And still others are plagued by low levels of capacity utilisation. For instance, Whirlpool's capacity utilisation in 1999 was a mere 54 per cent, Electrolux's, 73 per cent, and Godrej-GE's, 75 per cent.

The coming boom may help companies improve along both dimensions. But the competition will be intense. Especially as every company wishes to benefit from the boom, coming as it does after a long period of low-growth rates. And the winners will eventually be those companies that manage to build volumes and cut prices, or differentiate themselves from others. So, while this summer-and the subsequent ones-is likely to be a hot one for the companies, it should prove a cool one for customers who may get better products at cheaper prices.

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