The household appliances sector which includes room ACs, colour TVs, washing machines and refrigerators has grown by 11% CAGR during FY12-17 to reach a size of Rs 63,500 crore in FY17. In FY17-22, the growth in revenue of household appliances is estimated to be in the range of 9.5-10.5% CAGR, as per CRISIL Research. Taking a cue from this, Onida which once ruled the Indian living rooms for more than two decades, has made a comeback with its eyes set on products that are, in true sense, consumer-centric. Says Vivek Saran, head of sales, Mirc Electronics (Onida’s flagship company), “After the opening of the Indian economy in the ‘90s, MNCs surfaced on Indian grounds as major competitors resulting in decline of our market share.
But now, gone are the days when we struggled to create our stand in the market.” The company reported revenues of Rs 748 crore in FY17 and is targeting a turnover of Rs 1,000 crore in the current financial year. “We plan to grow by 30% this year,” says Saran. But the journey hasn’t been easy and saw the company taking various steps and enter various categories to revive itself. For instance, after launching ACs and LCD TVs in 2004-2005, it set up a manufacturing plant at Roorkee for washing machines in 2007-2008.
It also launched KY Thunder LED television in 2016. “We have done a lot of automation in our manufacturing plants, hence saving on our costing. We have ventured into IoT, and all our products have become smarter and can add more value to our customers,” says Saran. In the recent past, the competition in the consumer durable sector has intensified; leaving the business with no option but to invest heavily in brand-building. Onida’s advertising budgets are to the tune of 3-4% of its revenue and these extend to an array of marketing activities covering ATL and BTL communication. To keep the communication going, its new campaign thought, Let There be Chill, uses the association of brand Onida with its iconic character re-interpreted for modern times.
The new positioning was launched for Onida Regalia Inverter AC and has been extended for KY Thunder LED TVs too. Its bionic man is part human and part robotic; part fun and part authoritative. Saran asserts, “While the creative challenge was to carry forward the brand’s disruptive tone and personality, it was also important for the personality to be cool, techie and witty.” Targeting young nest builders, the company wants to cater to the growing needs of its customers. Around 40% of Onida’s sales come from tier I cities and metros, while the rest come from mid-segment consumers mostly in semi-urban areas. For some time, it has been strengthening its retail presence to ensure easy availability of its products.
While the brand has a robust presence on e-commerce portals and big trade retail outlets, this year it has expanded its reach in offline retail and modern trade in tier II and III cities. High penetration in urban areas has evoked players to look for growth in rural markets marked by lower penetration. Expanding footprint in these markets is imperative to improve market share and sustain profitability, and remains a challenge for manufacturers. Currently, 45% of Onida’s revenues come from air conditioners, 40% from panel TVs and the rest from washing machines and other appliances. Onida is aware that the consumer electronics and home appliances industry is extremely fragmented due to a large number of players operating in the space.
Highlights Saran, “Only a few brands are able to retain value proposition and provide better offerings. Therefore, most of the industry players opt for playing the pricing game which is extremely short term.” CRISIL Research’s director Ajay Srinivasan agrees, and says that despite the top three players commanding over 50% market share, the sector is characterised by intense competition. “Players resort to aggressive pricing to gain market share. Intense competition restricts players from transferring the complete cost hike due to changes in raw material prices (which comprise more than 60% of input cost) or depreciating currency (imports account for more than 40% of input cost).”
The demand for household appliances is highly elastic. Stable prices led to a good demand growth in FY15-17 of 5-6% CAGR, while rising product prices led to a restricted growth of 0-1% CAGR during FY12-14. Also, the demand is very seasonal in nature, making correct stocking and inventory pivotal to success. For instance, demand for most appliances reaches its peak during the festive season. Not surprisingly, in the case of room ACs and refrigerators, the demand peaks during summer.
Another key challenge area is the after-sales service and maintaining overall customer satisfaction. “In the future, volume growth is expected to be stronger due to improved affordability arising from a marginal rise in input cost, lower interest rates and stable inflation. Other factors that will aid growth include greater government spending for development of rural infrastructure, shorter replacement cycles, multiple ownership and low penetration levels,” concludes Srinivasan.