Comfortable Everday Life
Household appliances and electronics have become part and parcel of modern life. Today these products are made by a large number of companies all over the world and therefore the market is highly competitive. The market contains advanced technology products and is frequently refreshed. The year 2015 was a difficult one for manufacturers of household appliances and electronics due to the falling demand for their products. Experts attributed the falling sales to the current macroeconomic situation and the falling purchasing power. The panic buying witnessed at the end of 2014 played its part, too. Back then many Belarusians made purchases for the future needs in a rush to invest their savings. Nevertheless, H2 2015 saw the buying mood change in favor of an increase in demand for household appliances and electronics. Nevertheless, the market is far from fully stable. What performance figures can the Belarusian top manufacturers demonstrate and what do they focus on in the face of sagging market?
Large appliances also known in the West as white goods represent the largest part of the market. Russian speakers generally associate the term “white goods” with legal imports, yet the term was coined primarily because large and small appliances were mostly white in the past. Things have changed since then but the term persists. Large appliances include electric and gas stoves, combined stoves, refrigerators and freezers, washing machines and dishwashers. All of them can have standalone or built-in designs.
The joint venture OAO Brestgazoapparat is a prominent player on the Belarusian market of large appliances. The company makes gas stoves, gas-electric stoves and electric stoves, and built-in products. The holding company includes the parent enterprise OAO Brestgazoapparat as well as GefestTekhnika and Gefest-Kvarts. In 2015 the company increased the output of built-in products (cooking tops and ovens) and reduced the output of core products such as standalone stoves due to changes in consumer preferences. The growth rate of the output of cooking tops in JanuarySeptember 2015 reached 249.2% as against the same period of 2014, with ovens demonstrating a growth rate of 268.7%.
On the average, the company exports about 80% of the output and the bulk of the export goes to Russia. OAO Brestgazoapparat definitely felt the slump on the Russian market in 2015. However, the company believes that timely marketing measures have helped minimize the negative impact. The decrease in sales to Russian wholesale traders turned out to be much lower than the overall shrinkage of the household appliances market at the end of the year. By the way, the company has even managed to raise sales on the Belarusian market across the board.
In November 2015 the company started using its trademark to sell built-in dishwashers made by a foreign enterprise. Brestgazoapparat is testing the waters, trying to evaluate how the market will respond to this kind of white goods under the Belarusian brand. On the whole, the holding company is interested in expanding the product choice and optimizing it as the market is highly saturated. Besides, the company uses its own financial resources to invest in new groups of commodities.
By the way, the Brest-based enterprise is not the only manufacturer of stoves and built-in appliances in Belarus. The Gomelbased company OAO Elektroapparatura makes white goods and also small appliances such as press irons.
ZAO Atlant is another noticeable player on the Belarusian market of large appliances. It offers refrigerators and freezers, washing machines, and refrigerating equipment for retailers. The company holds 64.9% and 38.7% of these segments of the Belarusian market respectively. ZAO Atlant is trailed by Korean and European manufacturers. At present international corporations are trying to cut costs by deploying their manufacturing operations to Russia. This is why virtually all the imported appliances in Belarus are Russian-made.
Due to the small capacity of the Belarusian market only about 20% of the refrigerators and washing machines made in Belarus are sold domestically. The bulk of the output is shipped to the CIS states, Europe, Central Asia. The countries include the Russian Federation, Ukraine, Kazakhstan, Kyrgyzstan, Azerbaijan, Germany, Poland, Serbia, Lithuania, Latvia, Estonia, and Hungary. Russia predictably gets 60-70% of the exports. By the way, every fifth Russian household has a Belarusian refrigerator.
Kirill Limarenko, Head of Marketing and Sales at ZAO Atlant, said: “The beginning of the year was a complicated period for Atlant in Russia. Due to the exchange rate fluctuations, prices for our products rose by 45-60%. Sales dropped accordingly. However, we saw good dynamics in January-September
2015. The Russian market of household appliances decreased by 40% while our sales dropped by only 10%. To compare, the Belarusian market shrank by 16% while our sales went down by 4%. In other words, we have managed to increase our share. This is attributed first of all to the introduction of an entire lineup of new products in the last three years. It makes us look better in comparison with competitors.”
At present Atlant offers 50 models and 150 modifications of refrigerators as well as seven lineups of washing machines.
It is generally accepted that a stable business needs to sell far and wide in order to stay stable. If conditions on one market become unfavorable, resources of the company can be redirected to other markets.
Igor Prozukin, Head of Household Appliances Sales at ZAO Atlant, stressed: “We are working hard to diversify markets primarily in the Asian and European regions where our products were not available before. This year we have started selling to Czechia and Slovakia and have exported more to Armenia. However, one has to understand that most of the countries viewed as potentially fit for diversification come with a number of essential limitations. Those are customs duties, expensive logistics, and subsidies for domestic producers.”
Belarusian refrigerators and washing machines are not the cheapest ones on the market. Yet the manufacturers remark that Belarusmade products are not positioned as cheap ones. For example, the difference in prices as large as 15% in comparison with other brands is quite acceptable taking into account quality parameters. Nevertheless, prices are still the decisive factor for customers; this is why the work to reduce prime costs continues. It is always high on the agenda.
“We are not cutting corners to reduce prime costs. We are introducing new technologies that enable us to reduce manufacturing personnel numbers. We use stateof-the-art materials. Our frugal manufacturing program has borne fruit. Apart from the core manufacturing process we find sufficient reserves to reduce prime costs in allied processes by optimizing logistics and warehousing. We encourage our employees to put forward their suggestions on how to streamline operations. The ideas are evaluated from the point of view of financial results among other things,” explained Igor Prozukin.
At present refrigerators with the deep-freeze compartment placed in the bottom are the most popular kind of refrigerators in Belarus and the CIS states. The second most popular model is cheaper. Its deepfreeze compartment is placed in the upper part of the refrigerator. The second kind is often used in
summer cottages, by university students in halls of residence, and in low-income households. Narrow models with 40cm depth are the most popular kind of washing machines. Customers are now also mindful of the energy efficiency parameters in a bid to save electricity and their money. The energy efficiency class of ZAO Atlant’s refrigerators can reach as high as A++, with the company’s washing machines going as far as A+++. At the same time Belarusians are poorly motivated towards buying energy-efficient appliances due to low electricity costs.
The share of imported components in Belarusian refrigerators and washing machines varies from 20% to 30%. ZAO Atlant uses some European electronics and also some materials such as plastics and paints. The company makes engines for washing machines as a joint project with the German company Bosch-Siemens.
As far as sales channels are concerned, an increase in online sales of refrigerators and washing machines has been registered. While online sales of major appliances account for 20-32% of the total in the largest European countries, in Belarus the figure varies from 12% to 20%. In the times of crisis the figure is larger since online prices may differ considerably from prices in conventional retail outlets. It is necessary to keep in mind some peculiarities. There are major online stores and short-lived shops. The latter do not pay taxes and hence incur less expenses. Respectively their sales organization is subpar in comparison with official retail outlets.
ZAO Atlant has no intention of expanding the product range for now.
Kirill Limarenko specified: “We have decided to channel efforts into refrigerators and washing machines. Being a professional in two categories will suffice for the company. It is much better than offering subpar quality products in five categories. Nevertheless, we keep an eye on the production of dishwashers, ovens, gas stoves and electric stoves. But colossal efforts would be needed to implement such projects in greenfield conditions. It is necessary to calculate the commercial advisability of such projects as marketing costs can be much higher than the profits. For example, it is impossible to successfully retail press irons using our brand today. There are successful players in this segment of the market.”
Drive Towards Localization
The holding company Horizont is another major manufacturer of household appliances and electronics in Belarus. LED TV sets, interactive sensor systems, microwave ovens, vacuum cleaners, air conditioners, and multicookers account for over 70% of the output. In particular, the TV models include screen sizes from 22 to 70 inches. Horizont’s TV sets boast all the functions of modern TV sets, including Smart TV. By the way, Horizont started making smart TV sets in 2015. Smart TV sets are expected to account for over 40% of Horizont’s TV sets output in 2016. TV sets marketed under the trademark Vityas are also made by an enterprise affiliated with the Belarusian Industry Ministry.
Interactive sensor systems are a new brainchild for Horizont. The project targets several branches of the economy: education (interactive sensor-based blackboards), healthcare (digital patient records), retail chains, entertainment industry and outdoor applications.
In 2015 the output of built-in products (cooking tops and ovens) increased and the output of standalone stoves went down due to
changes in consumer preferences
The company is intent on grabbing 50% of the Belarusian market. As far as microwave ovens are concerned, the Belarusian-Chinese joint venture Midea-Horizont has been set up together with Midea Group for the sake of making microwave ovens. The future cooperation strategy provides for setting up new manufacturing facilities to make small appliances. As part of the agreements signed by the Belarusian holding company Horizont and Midea International Division, a pilot project was implemented in 2015 to make water heaters and water coolers. Mass production is scheduled for launch in April 2016. The company intends to reach the annual output of $30 million.
The ratio of imported and Belarus-made components varies from product to product. For instance, the share of imports is high in Horizont TV sets. Over $5 billion would be needed to start manufacturing TV screens. Only two countries in the world – the USA and Japan – have the technology. A TV screen costs as much as 80% of the TV set. At the same time the production of microwave ovens in Belarus relies on a full manufacturing cycle that includes coil metal cutting, presswork, welding, and painting. The holding company has its own R&D center that employs over 300 engineers and developers. New products are offered every year. For instance, Horizont puts serious effort into promoting its own smart sensor systems.
With its considerable experience, the Belarusian holding company is an attractive partner for leaders of the household appliances market in the Eurasian Economic Union. This is why contract manufacturing is an important branch of Horizont’s development strategy. At present foreign customers account for 80% of Horizont’s product portfolio. At the same time Horizont develops manufacturing using its own brands. Every year the division demonstrates a 10-15% growth.
Sergei Ostrovsky, Director for Business Communications at the holding company Horizont, said: “Foreign customers always base their decisions on economic profits. The fact that they choose Belarus proves the good standing of the Belarusian company in the international scene. At present Horizont makes products for Panasonic, Sharp, BoschSiemens, Philips, General Electric, Osram, and many other brands. If, for instance, Horizont makes products for Bosch-Siemens, then the Belarusian company uses the foreign company’s quality standards. Horizont enterprises have to pass technical audits by all the foreign customers every year to confirm their compliance with international standards.”
Taking into account the fact that Horizont’s strategic partner is Midea Corporation, the world’s largest manufacturer of household appliances (32.5 million air conditioners per annum as well as 40 million microwave ovens, 3 million dishwashers, 15 million induction stoves, 30 million ventilators), the future development strategy of the Belarusian company focuses on localizing the entire range of household appliances. By the way, M.video Company, the largest Russian retailer of household appliances and electronics (every third TV set sold in Russia is sold by M.video), has changed its strategy and now focuses on manufacturing localization. In other words, M.video encourages importers to create their own manufacturing divisions in the Eurasian Economic Union or place orders with existing enterprises, including Belarusian ones. In 2015 Horizont and M.video signed a strategic agreement on cooperation and localization promotion.
The Belarusian holding company exports 60-90% of the output depending on specific kinds of merchandise to the Eurasian Economic Union. The year 2015 was a critical time for many manufacturers,
Online sales of refrigerators and washing machines have
including Belarusian ones. Demand drives supply. At the same time the crisis has revealed growth points.
“On the one hand, the economic crisis has drastically reduced demand on the main markets. For instance, the Eurasian Economic Union market of television equipment has shrunk by half (from 12 million TV sets in 2014 to the estimated 6 million TV sets in 2015). Many global players such as Toshiba have decided to abandon the market. On the other hand, the crisis and free space on store shelves have given a chance to other players, including Horizont. A number of companies are placing orders with Horizont after seeing the empty shelves,” explained Sergei Ostrovsky.
Horizont continues working to increase manufacturing effectiveness. The efforts include modernization and installation of new high-performance equipment as well as organizational modernization. Specialists say that the introduction of modern management practices produces economic effects on par with those of new equipment. In JanuarySeptember 2015 alone the company managed to reduce costs by Br55 billion. By the way, despite the overall contraction of the market of household appliances and electronics the output is rising in some segments of the market. While the market dropped by 35% on the whole, the share of Belarus-made microwave ovens in the total sales on the Belarusian market rose by 10.84% in January-September 2015 to a total of 42.6%.
Russia is the main importer of the types of household appliances and electronics that Horizont makes. Russia’s accession to the WTO has greatly facilitated access to the Belarusian market for imported products since import customs duties are being gradually reduced in accordance with the agreements with WTO member states.
The inflow of imports increases competition. Off-the-books import schemes represent one of the negative consequences.
“End consumers often vote with their wallets. They do not care about the origin of the product and how it reaches the store shelves. Consumers do not ask whether the vendor has paid the import duty and the VAT. The problem of counterfeit products and black delivery schemes is rather serious on the household appliances market of the Eurasian Economic Union. The share of illegal products can be as high as 50% of the total sales in some parts of the market. In 2015 the Eurasian Economic Union began a vigorous campaign to enforce transparent delivery schemes. Naturally the initiative was backed by the local manufacturers that transparently operate in this market,” pointed out market players.
Small appliances are also made in Belarus. The number includes meat mincers, cabbage shredders, mixers, steam cooking pots and their components. These products are made by OAO Amkodor-Belvar. Virtually all Belarusian small and medium private companies stay out of the household appliances and electronics manufacturing business except for several companies.
Specialists believe that the market of household appliances and electronics will continue shrinking in 2016. However, its development will not be deterred. The world is open these days and new technologies reach Belarus fast. Belarusian companies are eager to continue building up their manufacturing capacities and offering new product lineups.
Smart TV sets will account for over 40% of total output in Belarus in 2016