The sweltering heat and the rising temperatures may be too much to bear at times and sure create a lot of unease, but consumer durables businesses are basking in the summer sun. Demand for cooling products, particularly air conditioners, have shot up and the industry is on track to record its best summer season since 2019. Business for the industry that garners nearly 80% of its appliance sales from cooling categories had been somewhat roiled by the pandemic-induced lockdowns during the peak summer months in the past two years.
“Last two years’ pent up demand is now getting consumed in this summer. Also, as the summer heat is rising across the country, the need for cooling products is going up. As a result, we are seeing consumption equal to or better than April 2019 for the cooling categories,” says Kamal Nandi, business head and EVP at Godrej Appliances.
In fact, Manish Sharma, chairman & CEO at Panasonic India and South Asia, says that if business continues to be brisk throughout the April-June quarter, the industry may see demand for ACs exceeding some nine million units this year compared to an estimated 7-7.5 million units sold in 2019.
And the demand is surprisingly broad-based, the industry is riding high on consumption by both mass and upscale metro markets. This behavioural pattern has been sort of a positive surprise for many industry executives given the rising inflation and its ability to eat into household savings, squeezing demand.
“What is generally seen is that inflationary trends tend to impact the mass segment the most. Our expectation thus was that the mass segment may not do so well like the summer of 2019 but to our surprise, it is doing very well,” says Nandi.
In terms of pricing, ACs under ₹30,000 and refrigerators under ₹20,000 are typically categorised as mass products. “In ACs, both mass and premium categories are doing well. In refrigerators, both segments are doing good but the response from the mass segment has been overwhelming,” claims Nandi.
And the mass markets are certainly not just restricting themselves to the consumption of mid-tier products. Consumers from the tier three, four towns of Bihar, Jharkhand, Orissa and Uttar Pradesh are opting for 5-star, smart and connected products, says Sharma.
Today, most products are available on EMIs and therefore increase in prices is softened by monthly payments, points out Nilesh Gupta, Director at Vijay Sales. “The summer season proved that consumers are not affected by the rising prices as this year, the (sales of) air conditioners, coolers and refrigerators have shown growth over 2019,” says Gupta.
The industry has been able to take a price hike of only 15%-16% whereas commodity price hike has been to the extent of as much as 30% since December 2020, says Nandi. In the current quarter, commodity prices have gone up by 3-4% due to the Russia-Ukraine war that has upended global supply chain networks. Clearly, consumers are allocating a larger share of their discretionary spends towards appliances, says Nandi.
Much of this also has to do with the hybrid work culture getting mainstream, nudging consumers to prioritise spends on products that add to the comfort and ambience of their homes. “Customers are preferring products which are helping them multi-task or which are keeping them safer, comfortable in their living spaces,” says Sharma.
Besides, people are now not only looking at the initial buying cost of a product but also the cost of ownership. Purchasing high quality, energy efficient products significantly reduces the operating expenses that are incurred to service them in the long-run.
“March of this year has been the highest in terms of transactions that happened between manufacturers and intermediaries. An estimated 1.5 million units of AC transactions would have happened in March. This is kind of unprecedented,” says Sharma. Intermediaries basically refer to distributors and retailers in sectoral parlance.
FY22 sales for the industry have already surpassed that of FY20. The April-June quarter should record a growth of 30-35% over April-June quarter of 2019, says Sharma.
“Given the ongoing heat wave and extreme summer predicted by IMD this year, there has been a significant surge in demand for cooling products across the country. Consumers are also looking at upgrading their products for advanced features and energy efficiency,” says Pradeep Bakshi, MD & CEO at Voltas.
However, lockdown in parts of China may lead to supply squeeze in the months of May and June. “China lockdown is impacting immensely as most of the components in many categories come from China. We could see short supplies starting in the second half of May,” says Nandi.
Sharma says supplies are largely going to be affected in the one tonne AC category as the compressors for the product segment are import-dependent.