Latin America represents a considerable market for future sales growth in green technology for large kitchen appliances.
BY MATT GANTZ
Euromonitor InternationalWhile the trend towards “green” domestic electrical appliances is more developed in Europe and North America, it has only recently begun to emerge in Latin America. Latin America is dominated by low and middle income consumers, the same groups that most feel the effects of frequent power outages and water shortages. At the same time, there is a growing segment of consumers that is becoming more environmentally conscious and receptive to green appliances. Multinational manufacturers like Whirlpool Corp, Samsung Corp and LG Group have marketed their energy saving appliances throughout Latin America, but leading national and regional companies have been focusing their efforts on green appliances as well. Laundry machines that conserve water or refrigerators that save energy certainly represent a profitable opportunity in Latin America where large kitchen appliances grew at a compound annual growth rate of 12 percent from 2003-2008.
In Mexico, the scarcity of water is a particularly acute problem. A 2006 paper from UNESCO describes the shortages as severe, with cases of 100 percent over exploitation of ground waters requiring serious action to prevent problems in the future. Despite the increasing efficiency of modern washing machines, extreme shortages especially in the areas surrounding Mexico City, and northern parts of the country (with very dry weather), force a significant segment of the population to turn to washing their clothes by hand instead of purchasing washing machines.
Leading Mexican manufacturer, Controladora Mabe SA, has responded to this dilema with three key technological features on its automatic washers. First, Mabe’s HydroSense technology automatically weighs each laundry load and dispenses the necessary amount of water. Eco Cycles allow the user to customize each wash cycle, choosing whether or not to soak and/or wash each load of laundry. Finally, The I.D. System 4.0 Uses sensors to determine water level, temperature, time, spin level and washing intensity in order to maximize energy savings and water conservation. These features have strengthened Mabe’s dominance in the Mexican market where they enjoy a 40 percent company volume share in the laundry appliances market in 2008. Mabe is marketing this technology throughout Latin America and Canada where they have expanded their sales and manufacturing operations, most recently acquiring Atlas of Costa Rica in 2007, a leading domestic electrical appliance manufacturer in Costa Rica and the Caribbean.
Meanwhile, in Argentina, Alladio e Hijos SA has been investing in green technology. The company has been a leader in the laundry appliance market for decades with commercial operations expanding to Paraguay, Chile, Peru, Brazil, Egypt, Israel and Belgium. Consumers’ long familiarity with the company and considerable interest in its new product developments has bolstered Alladio’s first place company volume share in laundry appliances with 29 percent of the market. Currently, Alladio is promoting their High Efficiency Washing System (Sistema de Lavado de Alta Eficiencia- SLAE) for the Drean sub-brands, Excellent, Family, Concept and Gold. The company boasts that this technology consumes 70 percent less water, 30 percent less electricity, and can save up to 40 minutes of a wash cycle, while allowing maximum efficiency for detergent use.
In 2005, Industrias Haceb SA became one of the first Colombian companies to obtain the ISO 14000 Enviromental Management certification. This, along with quality assurance certificate ISO-9000 have boosted export sales (now 30 percent of all total sales) to the United States, Mexico, Venezuela and Europe. Like Mabe and Alladio, Haceb’s focus on energy and water saving features has made them the market leader in both refrigeration and laundry appliances, with respective 31 percent and 13 percent company volume shares in 2008. For example, Haceb’s Clear Wash model washing machines allow users to choose between 6 different water levels with various energy and water settings. Attention towards green features is not simply limited to washing machines. The Haceb model SBS541L and SBS541 side by side fridge-freezer, released in 2008, incorporates a sleep mode that allows consumers to automatically adjust cooling features during long periods of disuse.
Trends towards eco-friendly appliances are not simply driven by manufacturers. The Colombian Ministry of Environment, Housing and Development and the United Nations, sponsored a three month pilot between May and July 2008 to replace heavy-pollutant refigerators. With the participation of manufacturers Haceb and Mabe, as well as major retailers like Almacenes Exito SA and credit suppliers like Codensa, the program aims to replace 3 million refrigerators manufactured before 1997 that contain harmful chlorofluorocarbons (CFCs). By offering average retail discounts of 10 percent, as well as discounts on interest payments for Codensa users, this innovative program is one of the first to encourage environmental awareness through partnerships between consumers, manufacturers, retailers and the government. The slogan, “Change your refrigerator, save money and save the planet,” (Cambia tu nevera, ahorras tú y gana el planeta) is geared towards low- and mid- income groups which were not able to replace old refrigeration appliances before. The Ministry of Environment, Housing and Development hopes to encourage the participation of more retailers, manufacturers, and credit institutions in order to develop a nationwide program allowing the complete elimination of contaminating refrigeration appliances by 2010.
POTENTIAL WITH CHALLENGES
Latin America represents a considerable market for future sales growth and innovation in green technology for large kitchen appliances. As consumers become more adventurous in their purchasing decisions and willingness to invest in high quality, innovative products, investment in green appliances will be crucial to company growth.
Without a doubt, the current global economic climate presents numerous challenges to manufacturers of domestic electrical appliances. The year 2009 is set to be a difficult year for producers of durable goods, as credit will remain scarce for manufacturers and consumers. This will constrain research and development for green appliances on the production side, while consumers will remain quite hesitant to purchase any large ticket items, such as refrigerators and washing machines.
Slowing economic activity in key markets such as the United States, Europe and China will reduce demand for Latin American exports. This will hurt Colombia and especially Mexico, given its direct links to the U.S. economy, while major commodity exporters like Argentina will suffer a revenue-led slowdown. As well, increasing state intervention in the Argentinean economy, including the nationalization of private pension plans and the fear of another debt deafult may scare off foreign investors. Furthermore, remittances to the region will begin to fall as the migrant job market contracts. This will have a particular impact in the United States, where there are a large number of Latin American migrants. For example, remittances to Mexico fell by -3.7 percent year-on-year in January-September 2008. Slowing domestic demand will act as a further drag on economic activity in Latin America.
BENEFITS OF SAVING
Still, medium and long-term prospects for the region remain positive. Manufacturers should continue to invest in green technology and market the irrefutable benefits of energy and water-saving domestic electrical appliances. While product affordability is key, the future financial savings for a potential consumer must be stressed in order to overcome a higher price tag. Heightened consumer awareness and marketing campaigns can help illustrate the benefits of green appliances and persuade consumers to trade up and replace older units. Showrooms that demonstrate efficiency and savings can also be a good way to heighten awareness.
Great effort should particularly be made to identify the financial savings of green appliances for low-income and middle-income consumers. Finally, joint public-private initiatives, such as the refrigerator replacement campaign in Colombia can be an effective tool to spur replacement sales. Innovative partnerships between manufacturers, retailers, credit suppliers and the government can reach millions of consumers and provide adequate incentives for new purchases.
Considerable challenges will limit investment in green technology in the short term, but manufacturers should be encouraged by the growth potential in Latin America. These appliances are no longer bound to mature markets in North America and Europe, but emerging markets as well.
Matt Ganz is a research analyst at Euromonitor International. This article was written for Latin Business Chronicle.
© Copyright Latin Business Chronicle