by Paul Roggema, European Correspondent, APPLIANCE Magazine
APPLIANCE magazine traveled to Peterborough, England to report on Merloni’s refrigerator appliance factory.
Do geography and white goods mix? Are island refrigerators different from their mainland siblings? In Europe they are. Not only is the UK customer's taste unique in Europe, but the market situation differs greatly as well.
The Hotpoint brand from GDA (General Domestic Appliances) is by far the UK's most trusted white goods brand, and thus, products from BSH, Electrolux, and Whirlpool find themselves relative outsiders in the UK market.
Apart from consumer taste and market position, GDA is also unique because it did not belong to a white goods parent company, up until recently.
Since March 2002, however, Merloni Elettrodomestici has management control over GDA, and both companies are working together to find international synergies.
The History of GDA "GDA is Britain's largest white goods company, and Hotpoint is the leading brand on the UK market," says Janine Rostron, Hotpoint Brand marketing manager. "We have four large plants (washers, refrigerators, cooking, and dryers) and a large service organization. Our company has a long and interesting history-in fact it's Hotpoint's centenary next year," she says.
The first Hotpoint products were manufactured in 1903 with the first washing machines made in the 1930s under the Hotpoint Electrical Appliance Company. Following several mergers during the 1930s, 1940s and 1950s, the Hotpoint brand later became a subsidiary of UK-based conglomerate GEC. Later, in the 1980s, GEC added the then-independent Creda and Cannon white goods brands. In the 1970s, U.S.-based General Electric was present in the UK market, and they cooperated with GEC on many projects. As other appliance makers began to globalize, GE wanted to have a foothold in Europe and decided to buy half of Hotpoint from GEC. At that time, the three brands were integrated into General Domestic Appliances (GDA), the company's current name.
Then, she says, GEC received new management and a new policy; it shifted the focus toward telecommunications and changed its name to Marconi. It was decided that the GDA share was to be sold to Merloni Elettrodomestici. The takeover was finalized in March 2002.
Subsequently, in June 2002, Merloni Elettrodomestici announced an agreement with GE to purchase the remaining 50 percent of GDA over the next 7 years. "It was an excellent move for GDA," says Bob Vernon, GDA manufacturing director. "We now are owned by a company where white goods is not Merloni's core business, it is their only business. Now, we are beginning to understand and work out areas where the two businesses, GDA and Merloni Elettrodomestici, can cooperate and take advantage of their scale and expertise. As buyers, we now have a much bigger advantage. It will also help us to benchmark our factories against Merloni's, to help us further improve quality and performance. Any consolidation of brands is not foreseen right now, as our brands are our biggest asset, and we will take into consideration the importance and position of the Ariston and Indesit brands in the UK market."
Mr. Vernon says that GDA needs the support of a larger and stronger company right now. "GDA might be market leader in the UK (the biggest white goods market in Europe, it overtook the German market last year), but we are small on European level in the long term; not only in purchasing and production, but in the retail environment as well," he says. "We need to be well positioned to exploit the pan-European retailer consolidation trends."
Who is the typical British customer, and which special insights help to make Hotpoint the market leader?
Ms. Rostron says that Hotpoint is known for understanding what consumers want and developing appliances that help make their lives easier. "A good example of this is shown in the development of our new class-leading range of refrigeration products-Hotpoint Future," she says. "We had to understand exactly how British consumers shop for food and store food, in addition to understanding the space they have in their kitchen for a refrigerator. We know that UK habits are different from continental ones. There is less daily fresh food shopping here, as people shop once a week or once a fortnight. In residential areas, there are few smaller specialist food shops left, and the majority of people take their car to the large shopping centers to buy food in bulk. So there is a need for a lot of storage space, for cooling as well as for freezing."
More than 40 percent of the UK market is for large, two-door refrigerator-freezers with the refrigerator on top, with a 50/50 split between the refrigerator and freezer. Adapting to these habits, the new Hotpoint Future refrigerators have deep door storage for large water and milk bottles. In the freezer, there is an extra large bin. Accommodating the growing trends in wine drinking, a wine rack is included. Other features include an L-shaped salad bin that can be accessed even when the door is not fully opened. In addition, there are control features like a "holiday button," which minimizes energy usage while the consumer is on holiday, and a food defrost alert that tells the user when the food in the freezer is no longer safe to eat."We have also incorporated Microban® antibacterial protection (a component added into the plastic) to a range of our fridges," Ms. Rostron adds. "Other brands have an antibacterial coating, but ours does not wear off and is fully approved by the EU for food contact. Microban is the leading anti-bacterial brand and has good brand awareness. A feature like this sets the Hotpoint brand way ahead of its competitors."
One challenge for UK appliance producers is the different widths required by the consumer. Appliances in the UK traditionally have offered different widths, such as 50 and 55 cm, as well as the standard European 60 cm version. The new Hotpoint Future range is all 60-cm wide, thus consumers can maximize the space available for food storage and Hotpoint can concentrate on making the appliance as energy efficient as possible. This feature has been well received by consumers who are increasingly demanding larger appliances.
Another challenge is the fact that the UK market is very competitive and price-driven, much more than nearby markets such as Germany and Scandinavia, with heavy competition from Chinese and Turkish manufacturers. This competitiveness has been fueled more by a ruling of the MMC (Monopolies and Mergers Commission) in 1997 that prevents manufacturers from having control over retail prices.
Ms. Rostron says, "As we are a mass market brand, we have a broad product and price range. However, Hotpoint is not positioned at bottom end of the market. Because of the strong economy, the market in the UK is relatively stable with most of the market being mature. The only exceptions are dishwashers and dryers, where market penetration is still growing. The total UK white goods market in 2001 was 9.97 billion units with good year on year growth."
GDA's Brand Strategy
GDA has three market leading brands: Hotpoint, Creda, and Cannon. Hotpoint has an 18-percent share of the total UK white goods market. The brand is said to have the best selling washing machine, undercounter refrigerator, undercounter freezer, dishwasher, and tumble dryer in the UK market. Creda is the UK's biggest freestanding electric cooker brand and is number two in positions in tumble dryers, along with a significant export business. Cannon is number one in gas cookers. The joint market share of GDA and Merloni in the UK is 28 percent.
Large retail chains, or electrical multiples as they are called in the UK, are the biggest channel, such as Dixons Group and Kingfisher with their Comet stores. Also important for the GDA brands are the independent electrical retailers and the mail-order channel.
GDA's Manufacturing Capabilities
The Peterborough, England manufacturing facility, about 1 hour north of London, has a capacity of more than 500,000 refrigerators per year, the largest refrigerator factory in the UK. There are three other GDA factories: one for cookers (more than 600,000 units per year), for washers (close to 1 million per year), and for dryers (900,000 per year).
The cooker plant produces cookers in all types of widths: 50, 53.5, 55, 60, 90, 110, and 120 cm and in freestanding, built-in, gas, and electric versions. The washer factory underwent a £26 million investment 2 years ago to develop a new platform of laundry products that was extremely successful.
GDA's dryer factory is reportedly the largest dryer manufacturing facility in Europe. Its annual production is 900,000. With 30 percent for export, it is said to be the largest dryer-only facility in Europe, and supplies all European markets, including Scandinavia. The market share of this factory in total European dryer production is 19 percent.
The New Peterborough Facility
A plant tour of GDA's Peterborough premises reveals a recent investment of £20 million ($31 million) to develop a new range of class-leading refrigeration products. The production lines have been completely redeveloped as part of a massive 3-year project.
Mr. Vernon tells APPLIANCE, "There were several reasons that led us to redevelop this factory: the first was product innovation. Partly because of the heavy competition from Asian and Turkish factories in the mid- and lower-market segments, we needed to refresh our product range with new features and a fresh design. Secondly, we needed to follow demands from the UK WEE Directive (Waste Electrical and Electronic Equipment Directive) environmental standards for recycling and refrigerant type. We needed to redesign the factory. Without a redesign, the cost base would have remained the same, and we would not have been as competitive."
A "Make or Buy" analysis was conducted first. Mr. Vernon says, "A key question asked was, ‘Should we keep our production capability in the UK? Or, should we outsource to Turkey or Korea, for example?' All aspects were researched, and finally, the flexibility of local production turned out to be the most important factor. Flexibility in logistics, and in product design enabled us to react to changing customer needs easily. This total factory redevelopment was not new for GDA because we did the same for the washer factory 2 years ago. The new refrigerator lines were commissioned in March 2002, and we will be manufacturing more than 70 new models."
Mr. Vernon says that GDA's relationships with its key strategic suppliers make this project particularly successful. "At the beginning of the project we identified 40 suppliers who passed a stringent supplier qualification program based on quality, design, and logistics rather solely on price. By building close relationships these suppliers were able to completely understand the way GDA works and this helped GDA and the suppliers to eliminate hidden costs incurred largely through poor quality."
The Peterborough plant has been completely redeveloped with this investment, and three new lines have been installed, with more than £6 million spent on new tooling and more than £10 million on capital equipment. It is a radical change for this plant and has enabled reduced cycle times to 3 hours from 8 hours - increasing both flexibility and capacity.
One of the highlights of the plant is the new side panel line - at 55-m long, it is one of the longest of its kind in Europe. The line produces 10 combinations of size and profiles using precoated sheets up to 4-m long. The sophisticated line first measures exactly and then notches, rolls, cuts, and bends to produce two identical side panels.
Ken Flett, Future Refrigeration Program Manager, tells APPLIANCE, "We needed a complex snap-in liner retention profile, which was quite difficult to design. We solved this by working closely with the machine manufacturer. Following rolling, the guillotine separates the left and right side panels. That means that the 2 side panels are identical in color, which is important when you are making colored appliances. The line is completely automated and requires a maximum of two operators."
The inner lining vacuum forming uses two types of sheets: with and without the Microban® antibacterial additive. GDA uses five machines from German manufacturer ILLIG. Once formed, the liner is routed using a new finishing robot from Belotti (Italy), which adds holes, cuts edges, and determines the final outer shape.
Most of the smaller injection-molded plastic parts are made in-house, again in a variety of materials, including polystyrene and ABS, some of which include the Microban® additive. The latter are given a transparent blue color for differentiation at the point of sale. There are 22 molding machines with 132 tools that produce 20 million parts per year.
Not everything is made in-house, though. The new base and table top are both now single-piece items, replacing previous versions which each consisted of several parts. The new base is stronger, more rigid and has improved air flow. It is also more efficient in assembly as it incorporates a new click-on system for simpler compressor assembly.
The new single piece table top has greater rigidity and is more hygienic, as there is no gap between the top and the trim where food could become stuck. In addition, the electronic controls are mounted inside the new tabletop, saving space in the interior of the appliance.
Cabinet foaming is done by 15 Perros foaming stations, of which 12 are new and the other three will be renovated shortly. The blowing agent in the foam is a blend of 70 percent cyclopentane and 30 percent isopentane, which is a 100-percent hydrocarbon base, in line with today's environmental demands to allow Hotpoint to market environementally-friendly refrigerators.
Once foamed, the cabinet moves into post-foam assembly where the compressor is mounted using a simple, one-piece snap-in compressor mounting base, and where the condensor, control panel, and thermostat are fitted. At this stage, the cabinet is bar-coded to enable easy fault trace ability - vital for Hotpoint's high-quality standards. Also part of the Hotpoint Future project was the installation of new evacuation, charge, and test stations. Each product takes 4 minutes to test and a minimal amount of environmentally safe refrigerant is used.
In the packaging area, the EPS base packaging is made in two parts (front and back). The user simply removes the base by gently rocking the appliance forward (to remove the back part) and then backwards to remove the rear part. No heavy lifting is required.
Another product innovation is the removable door seals. Door seals are vulnerable and need to be replaced - usually requiring a new door. This process was expensive and time-consuming for the GDA and the customer, so now a door seal can be replaced without needing a new door.
Product testing is extremely important and GDA's policy is a 5-percent random test in normal environment, and 2 percent in the hot room. Products are normally tested for 24 hours in GDA's state-of the-art ambient temperature controlled hotrooms that can test performance in temperatures up to 43 degrees C and 95-percent humidity.
Mr. Vernon says that massive investments have helped Hotpoint to take large steps ahead of its competitors. The main goal for the future is to stay that way.
"Our long term strategy is customer focus; never to become too arrogant and to stay in touch with the market so we will remain (with our three brands) the company of choice. Now, with the cooperation with Merloni Elettrodomestici, we are developing this strategy further. The existing Merloni brands have to be integrated, and our UK focus has to fit into the general Merloni strategy. Integration will be in fields such as production and purchasing; we expect no immediate changes in the brand strategy. With all these developments, we feel that the future for GDA is very exciting."