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issue: November 2006 APPLIANCE Magazine European Edition

Guest Editorial
Will the German Appliance Market Flourish in 2007?

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by Reinhard Zinkann, co-proprietor of Miele & Cie. KG, and chairman of ZVEI, Large Domestic Electrical Appliances

With about 39 million households and one-fifth of sales volume, Germany represents the largest market for home appliances in Europe. For the past few years, news from the German market has been anything but promising. Economic growth has been well below the European average, unemployment rates have been high and disposable incomes stagnant, with business sluggish. In 2004 and 2005, the market volume fell each year by 1 percent.

But in late fall 2005, the wind changed. For whatever reason—a new government, pent-up demand that had built up over the past years or even the palpable sense of anticipation and enthusiasm in the run-up to the soccer World Cup—consumers have since been more willing to spend money. The effect on the appliance market is tangible: We expect total sales of electric household appliances to top 6.5 billion euro in 2006, which represents a strong 4-percent increase. Sales of major white goods are even expected to grow by 5 percent to 4.5 billion euros. Built-in ovens, fridge-freezers, tumble dryers, and espresso machines should do especially well.
The prospects in certain niche segments are also promising, including sales of side-by-side refrigerators and ceramic induction hobs. Even the steady drop in prices of recent years has now largely come to a standstill. Recent figures show trading-up effects in many product groups. So, business in 2006 looks more positive than in recent years. But will this upturn last?
In 2007, we see some unfavourable developments: Many consumers are likely to bring their purchases forward to 2006 to avoid the sales tax increase of 3 percentage points, bringing sales tax to 19 percent, due to take effect in 2007. Consequently, this demand will be lacking in 2007. In addition, the markets for many products are nearly saturated, limiting market growth potential. The development of the market will also be influenced by a further polarization between high- and low-price segments. On the one hand, Germany is a highly competitive market, especially for freestanding appliances. The price level is relatively low in comparison to other European counties. On the other hand, the German market offers significant opportunities in the upper price bracket. The importance of relatively expensive built-in appliances is much higher than in other European countries. All in all, we expect stagnation in unit and value sales in 2007.
Looking at the European and especially the German market, it is worth commenting on a subject that is high on the agenda of politics and industry—energy efficiency. Two European Directives, which will address energy-using products (EuP) and energy efficiency and services (EES), will likely have considerable impact on white goods. Furthermore, the European Commission will this year propose an Action Plan on Energy Efficiency. And the sharp rise in the cost of electricity is obviously not a temporary phenomenon.
So are customers jumping to buy highly efficient appliances? Well, environmental aspects certainly do influence the buying decisions of many German shoppers. But there is still vast potential to be exploited. Market penetration of appliances with energy ratings of A+ or A++ is still rather slow. And there are huge numbers of old appliances in private households that are far from being energy-efficient compared to the models currently on the market. For example, the average lifetime of a refrigerator is 14 years, and the latest refrigerator models, labelled A++, need about 75 percent less energy than their predecessors, produced in 1990. Manufacturers, trade associations and political decision makers have entered into an intense dialogue on how to pave the way for a better and early replacement of old appliances, pushing the market toward greater energy efficiency.
Generally speaking, there is considerable demand in the market for energy-efficient appliances and high-grade, built-in appliances. Consumers appreciate innovations in technology and design. On the other hand, especially in the mid- and low-price segments, the large number of market actors causes a very competitive climate. All in all, Germany will remain an interesting, but challenging market.

About the Author

Reinhard Zinkann is co-proprietor of Miele & Cie. KG and managing director of Miele, responsible for sales and marketing. He is also chairman of the Large Domestic Electrical Appliances product division of Zentralverband Elektrotechnik- und Elektronikindustrie e.V. (ZVEI), the German Electrical and Electronic Manufacturers’ Association. If you would like to contact Zinkann, e-mail editor@appliance.com

Suppliers mentioned in this article:
Miele, Inc.

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