Cool appliances for hot markets
Consumer appliances are made to save time and labour. And now they must look good doing it too.
Business Today’s appliances are worlds apart from those of previous generations. What would our ancestors say about a refrigerator that comes with a picture of a locomotive steaming out the front door?
It hardly seems to fit in the “white goods” category of the past. Or how about a dishwasher that selects the best cycle times and temperatures, based on how dirty the dishes are? Or a cooker with touch controls and instant-on heat by light?
But while our forebears might be surprised by the appliances that are on the market today, upon examination they would still recognise the products for what they are – a refrigerator, a dishwasher, a cooker. For although an appliance may sport the latest in technology, features, colours and design, it is still an appliance. The specifics change, but the basics – the product’s ability to save consumers time and effort at home – are timeless.
A cooker in every home
In developed countries, virtually every household has at least a refrigerator and a conventional cooking appliance. In western Europe, more than 90 percent of households also have clothes washers; the figure is 78 percent in the United States. Microwave ovens have long been accepted in the U.S. and are found in 90 percent of households. In comparison, fewer than 50 percent of European households have microwaves, although this is changing rapidly. The U.S. has the lead in dish-washers as well, with 55 percent saturation versus 32 percent in Europe.
Although “developing” countries tend to have fewer appliances – for example, only 12 percent of Indian households have refrigerators, and 6 percent have clothes washers – that is also changing as these countries, especially in Asia and South America, achieve a measure of economic success. As incomes rise and consumers work more hours away from home, they are looking for time- and labour-saving devices. In some cases they also want the status those devices can provide.
Each country has its own preferences in terms of appliances. Chinese consumers, for example, give top priority to televisions, clothes washers and refrigerators. In urban China, some 90 percent of households already have washers. In 1996, Chinese consumers purchased 10 million refrigerators and freezers, similar to the number purchased in the U.S. And increasingly microwave ovens are achieving popularity as an alternative or addition to the most common Chinese cooking method, the wok.
Appliances vary widely, depending on local requirements and preferences. European consumers usually prefer front-loading horizontal-axis clothes washers.
In France, however, most consumers purchase top-loading horizontal-axis washers. There are other differences; for example, clothes washers and dishwashers in Europe usually heat the water, which contributes to longer operating times. In the U.S., where most households have central water heating, the appliances normally do not heat the water, except to supplement the central hot water in dishwashers.
An eye on costs
All appliances, no matter where they are made, are being affected by the drive to reduce costs. Cost reduction has always been important for appliance producers, but in recent years efforts seem to have been redoubled. Manufacturers point to cutthroat competition as the driving force. Today many appliance producers have instituted programs that squeeze their suppliers’ prices while asking more of those suppliers in terms of design assistance, delivery and quality. When dealing with a customer as large as Electrolux or General Electric, suppliers are going to be as accommodating as possible.
Some appliance producers cut costs by reducing the thickness of the sheet metal they use or by replacing several metal parts with a single moulded plastic part. One downside of this practice is that appliances with less metal are likely to be less desirable recycling targets.
Finishes offer another opportunity for cost savings. Today, fewer metal parts are coated with porcelain enamel – a very hard, brittle finish that holds up well around water and heat but is costly and can be tricky to apply. Many appliance parts now receive a powder paint coating applied in the factory or on pre-cut metal blanks. Some appliance producers eliminate the paint step by purchasing already painted steel coil. Electronics are being widely integrated into appliances, even though in some cases an electromechanical control might do the same operation as reliably and less expensively. But electronic controls allow features and flexibility unavailable with electromechanical controls. Another factor is that many electronic controls have declined in price, especially when used in high volume.
Many producers are simplifying their manufacturing operations and concentrating on what they do best – appliance assembly. They are leaving more of the finishing and subassembly to others. In addition, some producers are transferring appliance manufacturing operations from high-wage countries such as Japan, the U.S. and Germany to lower-wage locations such as China and Mexico.
Lower costs, lower prices
The cost-cutting efforts have borne fruit, as is reflected in the retail market. A basic appliance today may be priced the same or only a little more than it was 20 years ago. To take one dramatic example, in the U.S. in the early 1980s full-size microwave ovens sold for about US$300 to $400. Today full-size microwaves often sell for under $200.
Lower prices have benefited customers but have been tough on appliance producers working to stay out of the red. Many smaller appliance companies have folded or have been absorbed by the more successful competitors.
Appliance producers and retailers realise that too much emphasis on low prices is not doing them any good. Many consumers, especially in North America and increasingly in Europe, look upon appliances as commodities. They see little difference between brands and make their purchase decisions based largely on price. In general, manufacturers combat this trend by emphasising those models that have more features or that are unusual and have greater profit margins, or they work to build up their brand’s image.
One of the defining characteristics of the appliance industry today is its global nature. The first rank of international players includes Matsushita (Japan), Whirlpool (U.S.), Electrolux (Sweden), General Electric (U.S.) and Samsung (Korea). In the power tool and electric housewares area, Black and Decker (U.S.) is one of the leaders. These companies have operations virtually around the world, selling appliances and often other goods under a number of brand names. Even smaller companies are looking to international markets, and especially developing markets, for growth.
The reason for the interest in developing markets is the expectation that they will expand rapidly. In Whirlpool’s 1996 annual report, the company estimated that unit sales in North America would rise from 51 million in 1995 to 55 million in 2001. Similarly, the report estimated unit sales in Europe to increase from 54 million to 57 million in that period. Latin American unit sales were expected to rise from 20 million to 27 million. And, topping the list, appliance consumption in Asia was predicted to grow from 67 million to 111 million.
While the estimates are now probably overly optimistic due to the Asian financial and currency crises, they give an idea of the potential growth. It should be noted, too, that the key Chinese and Indian economies have been less affected by the crises than others.
Because of the great potential, joint ventures and subsidiaries are becoming the order of the day in China, India, Brazil and other developing markets. If the boom in consumer appliances continues, we can expect a major shift in the appliance industry. Companies such as China’s Haier Group will have more clout on the global scene, and more of the production will shift to developing countries, the home of a growing number of appliance consumers.
a free-lance appliance writer based in Chicago