Rising input costs and unstable steel prices – A concern for appliance manufacturers?
As per a report by Statista, India is home to an appliance market worth $68.75 billion in 2022, which is expected to grow at 5.68% annually in the period 2022- 2027. As one of the fastest-growing industries in India, the total number of appliance units sold is expected to reach 532.7 million by 2027, driven by strong volume growth in both the large appliances and small appliance segments.
The Indian consumer durables sector also has a vast untapped market for products such as ACs, washing machines, and refrigerators. For example, air conditioner usage has a penetration of only 4% in India, in stark contrast to the global average of 30%. COVID-19 has led to a surge in work-from-home opportunities, which has led to a rise in demand for accessibility and convenience, and an uptick in sales of home appliances.
It is fair to say that this strong consumer market demand, particularly in urban areas, will translate into a robust future for the consumer durables industry in India. But that is not to say that MSMEs in the industry have it easy. With broad product portfolios, appliance manufacturers are often riddled with a wide range of input costs, and controlling these variables in a profitable manner is a complex task.
Due to the price-sensitive nature of the consumer durables market, even small fluctuations in input costs such as raw materials, labor, inventory, manufacturing, and overhead expenditures can place significant pressure on operating profits. Most appliance manufacturing MSMEs report stagnating or shrinking operating profits despite a growth in sales and revenue for the reasons covered above.
Role of steel price in rising input costs in appliance manufacturing
Among the most significant factors impacting input costs for appliance manufacturers is fluctuation in the price of steel.[NJ1] Due to changes in global and domestic steel prices, the appliance business has seen some significant price increases over the past few years. For instance, in May 2022, the prices of several household consumer durables were hiked by 3-5 percent, according to the Consumer Electronics and Appliances Manufacturers Association (CEAMA). However, as a result of rising commodity costs, producers were once more forced to raise prices by 4% to 5% on June 22 across product categories, including large household appliances like refrigerators, washing machines, and microwaves.
In April 2021, the price of steel stood at Rs. 55,000 per tonne, soaring to a high of Rs. 76,000 per tonne in April 2022, a steep jump of over 95% from pre-COVID levels recorded in March 2020. However, weak seasonality, market corrections owing to a drop in construction demand during the monsoons, and governmental corrective measures resulted in the fall of steel price close to Rs 61,000 per tonne in mid-June 2022. However, due to a sharp increase in input costs, the price of appliances has also increased. This has affected consumers' consumption behavior as they may find it difficult to afford the new prices.
Other factors include costlier imports, a fall in the currency, and a lack of availability of raw materials.
Impact of rising input costs on the appliances market
Changing consumer behavior: For the price-conscious Indian consumer, opting for cheaper brands or choosing to purchase used appliances are two alternatives to cope with the rise in prices. This shift in buying patterns is likely to have a long-term impact on the appliance market.
Short-term impact on industry competitiveness: With MSMEs scrambling to control input costs, fewer new products are likely to hit the stores in the next few years, resulting in less competition among appliance manufacturers.
Long-term impact on price points: Driven by changing consumer preferences and attitudes, new entrants in the appliance industry are likely to drop prices, resulting in the market being flooded with cheaper alternatives. If existing players in the market are unable to control spiraling input costs while maintaining market share, in the long run, this trend is likely to result in a change in consumer preference for price over quality.
In the last quarter, appliance manufacturers have been forced to either pass on the increases to consumers, or allow it to eat into their profits. This latter option is not sustainable in the long run, so prices for appliances will likely continue to rise in the coming months.
Online steel purchase – an opportunity to absorb rising input costs without compromising on price?
Traditionally, appliance MSMEs have procured steel from large steelmakers via complex supply chains and a series of middlemen. The process is ripe with opportunity for manipulation, which ultimately drives up costs that are ultimately passed onto the end consumer.
MSMEs can choose to shift to online e-commerce for steel purchases which will translate into a direct reduction in material procurement costs by eliminating conventional offline procurement. Online platforms minimise major supply chain and logistics costs for MSMEs and businesses while eliminating supply shortages since the required steel intermediate products are stocked in advance by the seller’s platform.
Buying steel online can also help MSMEs manufacturing consumer durables and household appliances control input costs by buying in bulk. On bulk orders, online marketplaces like JSW One MSME also offer great deals on price reduction. In addition, online purchasing also eliminates the difficulty of finding the right supplier for their steel needs, since JSW One MSME’s online portfolio consists of certified products from verified sellers only. Check out our diverse portfolio of hot rolled steel, cold-rolled steel, wire rods, and other steel products essential to the manufacture of consumer durables.
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