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ACE industry continues its positive momentum, GfK expects sustained growth in 2021

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Nikhil Mathur, Managing Director – India, GfK

The pandemic is certainly fast-tracking digitalization in our homes. The focus on home as headquarters is driving demand for tech goods. Restricted to working and studying at home and reduced travel and outdoor leisure, consumers turned to indoor options. After the market contraction of April 2020, it looked like COVID-19’s impact would be devastating. But the markets recovered as the year unfolded and we see structural shifts in consumers buying behavior

Industry trends indicate an accelerated growth of the ACE industry with the potential to manifest India’s 3 Trillion economy ambition. The increasing urbanization is helping bridge the digital divide and directly affecting the consumer spending pattern. Infrastructure growth has helped overcome the urban-rural divide to some extent hence the penetration of ACE in tier 2 and tier 3 has increased.

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An unprecedented year lies behind us – and in the end, COVID-19 turned out to be a driver of the tech and durables industry.

Home norm continues to fuel the industry growth

As many companies are deciding on flexible work-from-home models even post pandemic, there will be more meals to cook, more storage required and more cleaning at home. When it comes to storage, food preparation, and cleaning activities, consumers value high capacity as well as quality and premium priced products. With reverse migration of people, mid to small tier markets are seeing increasing demand for consumer tech products.

Against all odds: Premiumization trend is here to stay!

Work, Play, Entertain & Learn have become almost exclusively @home activities. For Cook & Clean @home the reliance on domestic help has declined. This has caused a clear shift towards the premiumization trend. As consumers do more and more tasks themselves, the need is for products that are bigger, better & faster. As there is a possibility of pandemic and @home norm to continue, premiumization is going to be a trend that we expect to see well into 2022.

Some trends observed in domestic appliances – 

  • Laptops: In YTD 2021, more than 50% of all sales account from the 52K+ price segment, up from just 34% in YTD 2019. Laptop usage has increased as institutions shift mode of instruction online and corporates introduce WFH.
  • Smartphones: 30K+ category of smartphones now account for 17% of overall sales, up from 12% in YTD 2019. Smartphones are an imperative tool for home entertainment and WFH since the advent of OTT services and high-speed internet.
  • PTV: Sales of TVs with a screen size of 43 inches or larger have increased from 22% in YTD 2019 to 33% in YTD 2021. In the same period, the contribution of 55-inch and larger televisions has doubled (4% to 8%). The premiumization trend in this category is being driven by smart and UHD TVs.
  • Food processors: They now account for 9% of the food preparation category – up from just 6% in YTD 2019. The ASP for food processors is almost 2.3 times the overall category average. Within food processors, the 6K+ segment accounts for 80% of all sales, up from 57% in YTD 2019.
  • Washers: Fully Automatic Front Loading (FAFL) washing machines now account for over a third of all sales, up from 25% in YTD 2019, and the >7KG category now accounts for 70% of all sales, up from 58 % in YTD 2019.
  • Refrigerators: 351+ Liter refrigerators now account for 16% of all sales – up from just 10% in YTD 2019 and 44% of all fridge sales are from the Frost-Free segment – up from 36% in YTD 2019.

Consumers are opting for value proposition products resulting in significant uptick in demand for premium products offering comfort, convenience, connectivity, and safety in their daily lives.

COVID-19 disrupted consumers preferred purchasing channels

The pandemic has brought some structural shifts in consumer lifestyle, behaviors and attitudes. The size and share of wallet got adjusted and led to changes in product, channel dynamics in short to long term.

Online sales peaked to unprecedented high numbers in 2020. But as vaccinations proceed and restrictions ease, GfK is seeing traditional retail return to growth. However, online sales continued the strong growth run from 2020 and the share of online sales grew further in 2021. Online prices continue to be 10-15% lower than offline channels.

GfK estimates, the boost to the e-commerce channel driven by the 2020 lockdowns is irreversible, and consumers have high expectations of the channel for 2021. While the current spurt in online may be pandemic (Lockdown) driven, the ever-increasinga penetration of smart phones, broad band internet, digital payments & improved logistics means that online will play an important role in consumer purchase journey. Therefore, Omnichannel phenomenon will continue to become stronger.

Despite COVID-19 challenges, e-commerce sector continues to expand at a pace of 5% with anticipated sales of $56.6 billion in the FY 2021 (NASSCOM). As the festive season is approaching, brands are providing customers with additional value, personalized communication, and customer support that is available 24X7. With a solid omnichannel strategy, companies are focusing on better customer experience, customer retention and long-term brand loyalty.

Industry outlook

As markets are also impacted by supply & logistics, growth dynamics will rely even more heavily on the industry’s ability to get the right products to consumers at the right time. Consumers are also recovering to some extent from the shock they suffered after the phased-manner lockdowns in the country. The recent dip in infection rates and the launch of the vaccination program are fueling hopes of a speedy easing of measures.

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