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issue: July 2004 APPLIANCE Magazine

European Appliance Industry
Surviving in a New Europe

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by Lisa Bonnema, Editor

Leading appliance makers discuss the challenges they face in a growing EU marketplace, as well as the key to survival and, more importantly, success in the region’s new reality.

If there’s one word that could describe Europe right now it would be “change.” And the appliance industry is certainly no exception. Although still a fragmented market compared to other regions of the world, the European appliance industry is spreading out across all corners of the continent and beyond, and some companies are finding survival isn’t as easy as it once was. A growing Eastern European market, competition from Asian companies, price erosion, and retail consolidation are just some of the issues Europe’s appliance makers are facing.

The real question is—how are they handling all of this change? APPLIANCE decided to talk to some of the region’s top appliance executives to get the answer to that question and more. Here are exclusive comments from the mouths of those leading the charge into tomorrow’s European appliance marketplace.

How would you describe the state of the European appliance industry?

Troy Scragg, Fisher & Paykel
I do know that if anything, this year is a lot busier than last year. The speed is just quite amazing. If you were to do a summary of the whole of Europe, I think the sentiment is very positive for the future, especially with the new EU countries coming on straight now.

Wolfgang König, Electrolux Home Products Europe
On the producer side, we see an ongoing concentration as well as new competitors from, for instance, Turkey, Korea, and China. On the product side, the pace of development has increased. Strong performance and environmentally friendly products are the norm, and differentiation has a short lifespan. So even what used to be perceived as ‘commodity’ or ‘entry-level’ products are becoming more and more sophisticated.

Dr. Kurt-Ludwig Gutberlet, BSH Bosch und Siemens Hausgeräte GmbH
The European appliance industry is highly competitive and less concentrated than the U.S. appliance industry. With more products coming in from low-cost manufacturing countries like Eastern Europe, Turkey, and Asia, the pressure on prices for home appliances in the European market has gotten much more intense lately.

Guglielmo Pasquali, Candy Elettrodomestici srl
The European market is going through a very interesting phase of growth. This is both internal and incremental with the addition of the new countries entering the EU, which has serious relevance to the size of our market. We see great potential while taking note of the already high penetration of laundry and cooling products and the trend shift from freestanding to built-in cooking, with the latter already 60 percent greater in value.

Jürgen Plüss, Miele & Cie. KG
The current state of the European appliance industry is critical due to capacities which are not in line with demand. Producers who were in trouble have been overtaken by competitors; however, capacities have not been changed. New capacities are now being added in low-cost-countries like Eastern Europe. Both factors force competition on lower price levels, which in the long run, do not offer potentials for new investments into innovation.

What would you say is the main challenge European appliance makers are facing today?

Stefano Beraldo, DeLonghi
The industry as a whole does not show brilliant results due to the strong Euro exchange rate and a general decrease in the consumer consumption level in major markets. Major players in this industry are reviewing their business model, reducing their costs when possible, and moving lower, added-value productions to the Far East.

Dr. Kurt-Ludwig Gutberlet, BSH
The main challenge is the combination of rather saturated markets in Western Europe with low-price competitors coming in from low-cost countries. At the same time, European consumers are looking for more and more energy-efficient appliances supported by EU legislation, which requires ongoing investment into more efficient product lines by the manufacturers.

Lucas Crugnola, Haier Europe
With the introduction of European rules to protect the environment and that also govern waste disposal procedures for electrical appliances…the disposal issue is certainly a real challenge not only for manufacturers, but also for the trade. In fact, whilst it could be an opportunity, a marketing tool for producers, for consumers it could mean a price increase. It will be important to find the right solution for the environment, the consumers, the trade, and the economic interests of the manufacturing companies.

David Boyle, Crosslee Plc
To remain competitive in a market with constantly reducing retail prices.

Wolfgang König, Electrolux Home Products Europe
The key challenge is to avoid what I call the ‘commodity trap.’ We must convince the consumer that price is not everything, and that it is worth paying for a brand delivering real solutions to real needs. This means delivering innovation and building strong brands at an increased speed. We also have to become even better at communicating our innovations, consumer benefits, and brand values.

“To cope with the pressure on prices and margins, a strong focus on productivity, as well as increasing production capacities in low-wage countries is needed,” says Dr. Kurt-Ludwig Gutberlet, president & CEO, BSH Bosch und Siemens Hausgeräte GmbH.

Compared to the U.S., how much consolidation has taken place within the European appliance industry over the past 2 years?

Wolfgang König, Electrolux Home Products Europe
The European appliance industry is still more fragmented than the U.S. While in the U.S. the top five players cover almost 99 percent of the total market, in Europe the top five only make up close to 60 percent. Nevertheless, there is an ongoing consolidation, and I am convinced that small players are going to have a harder time in the mid-term.

Stefano Beraldo, DeLonghi
There has been considerable consolidation in the last few years due to the fact that small local companies do not have the strength to compete globally. This process is still ongoing. Major examples are DeLonghi’s acquisition of Kenwood, SEB Group’s acquisition of Moulinex, and Ariston’s [Merloni’s] acquisition of Hotpoint.

Dr. Kurt-Ludwig Gutberlet, BSH
The main development is that former Eastern European manufacturers have been absorbed by Western manufacturers. However, with new manufacturers (e.g., from Turkey) coming into play, the rate of concentration has remained low.

How about among your retailers and distributors?

Lucas Crugnola, Haier Europe
At a European level, the composition of the supply chain has changed drastically. In fact, we have seen the growth of the big chains and buying groups (in particular for Italy, France, and south Germany) compared to the ‘disappearance’ of many independents because of strong competition on many levels—better purchasing prices, wide [product] ranges, development programs, promotions and communication, and acquisitions. Without these tools, the independents cannot compete.

For this reason, a limited numbers of big players like Auchan, Carrefour, Dixons, and Metro and buying groups like Expert, Euronics, and Sinergy/Trony hold a large portion of the market share. This concentration is the trend in Europe—even if, for example, in Italy the big chains cover only 30 percent of the market, whilst in England they cover over 50 percent!

Stefano Beraldo, DeLonghi
There are huge differences from country to country. In the UK, we have maximum concentration, whereas in Italy or Germany the level of fragmentation is still high. We think the concentration will increase overtime, with big retail chains and buying groups purchasing smaller ones. This process will probably come to an end when buying small chains become more expensive than starting and promoting new ones.

Guglielmo Pasquali, Candy
European distribution is undergoing an irreversible process of consolidation, and consumers will be the main beneficiaries.

Are you continuing to lower your prices to meet consumer expectations?

Guglielmo Pasquali, Candy
The price element is key, but more so is the overall value delivered, which requires increased efficiencies across the board and improved service to both trade and consumers. Brand and product specifications determine the positioning. Within the Candy Group manufacturing, purchasing and logistics are focusing on efficiencies, while the main cornerstone is the continued investment in product development, which is focused on delivering true innovation and real consumer benefits.

Wolfgang König, Electrolux Home Products Europe
We observe declining prices in almost all countries and categories, not only in the low-end area. In fact, the consumer expects and gets higher specified models at a better price. It is questionable whether the current pricing climate is purely generated from lower consumer expectations. It might more likely be a result of consolidation of the trade and new actors in the market.

We at EHP Europe have been able to sustain and grow our profitability in this difficult environment by increasing effectiveness in production and intelligent sourcing, and by driving innovation and constantly improving our product mix. A big part of our success is also due to our unique way of cooperating with retail partners to optimize the supply chain—from forecasting through to delivery—hence, reducing total costs to serve.

Jürgen Plüss, Miele
Miele as a high-end brand is always selling its premium products on a higher price level compared to competitors. Due to price decreases, the price gap has even increased. Of course, we have to try to reduce the price gap, but on the other hand, we have to concentrate even more on showing the product and service differences we offer. Most important is to offer innovative products which avoid any price comparison—with that one can improve profitability.

"Research aimed at globalization is more relevant to international brands and is of no interest to other local [European] brands," comments Guglielmo Pasquali, marketing group director of Candy Elettrodomestici srl.

Have you seen growth at the high-end of the market or the low-end?

Dr. Kurt-Ludwig Gutberlet, BSH
The main growth in the past years has been in the low-end of the market following the market entry of Eastern/Southern European and Asian competitors. The high-end segment has grown only in very specific categories like coffee machines and some built-in appliances or high-class refrigerators.

Lucas Crugnola, Haier Europe
We have seen that the sales of the high- and low-level products have been increasing, and the sales/requests of middle-level products are, in contrast, decreasing. There are many reasons—certain products are maybe becoming a commodity, and consumers are not keen to spend so much. Those that can spend more demand top-class and luxury products. In addition, high-level products are the ones with good energy ratings (A class, A+ class, etc.), and this means that the savings are not immediately felt at the time of purchase but in the medium/long term.

Jürgen Plüss, Miele
The difference between the low-end and the high-end of the market seems to be getting bigger. We are seeing, in the end, two markets: a commodity-based offering with fierce price- and cost-competition, and the second market for buyers which do not want what everybody has already.

Stefano Beraldo, DeLonghi
We think that the small appliances market is seeing a polarization at the low end, with more and more private retail brands that are used to sell cheaper, opening price-point products. At the same time, as a counter-effect, we see the high end growing both for retail and manufacturing companies looking for higher added value and, therefore, higher margins.

How will more European countries joining the EU affect the European appliance industry?

Troy Scragg, Fisher & Paykel
It opens up new markets. In the past, we were very focused on countries like Germany and France, and now some of the Eastern block countries have opened up and in their own right, their economies have been steadily increasing. I think that opens up a lot of opportunity for new entrance.

Guglielmo Pasquali, Candy
The new European entrants will offer opportunities and bring new challenges, including new competitors that will have an easy task in penetrating the traditional European markets.

Wolfgang König, Electrolux Home Products Europe
The new member states do offer large market opportunities, while at the same time providing significant cost improvements on the industrial side. On the retail side, the EU enlargement will drive further concentration of the specialist retail channel, as there will be fewer barriers of doing business in the new EU member states, allowing the leading players in the west to more easily expand eastwards. Overall, fewer restrictions on product flow will lead to a more harmonized consumer offering.

Do you think more European appliance companies are striving to become global players?

Wolfgang König, Electrolux Home Products Europe
Retail concentration and product harmonization impose a different strategic game: shorter product cycles, common product platforms, strategic sourcing, and so forth. This may drive more players toward seeking greater scale.

Lucas Crugnola, Haier Europe
Yes, because the European market is already mature. The majority of the purchases are for replacement products even though consumers change products more often. ‘Globalization’ allows companies to reach new markets and to grow more rapidly.

What innovations do you expect to see in the appliance industry during the next 3 to 5 years?

Dr. Kurt-Ludwig Gutberlet, BSH
The ongoing and increasing use of electronic sensors in home appliances will be one major trend, along with the further reduction of water and energy consumption. Also, new design solutions and materials will play an important role in the further shaping of the markets.

Stefano Beraldo, DeLonghi
Generally speaking, in small appliances we see an increasing use of electronics. At the same time, people are looking for more user-friendly appliances as demonstrated, for example, by the success of coffee pods.

Jürgen Plüss, Miele
We see many innovation areas to come. Some have been entered by us already and show good success. Such areas are products for the health- or well-being segment, products which offer solutions for the big demographic change, and products which offer ease of operation. Another innovation is to be expected by offerings for the so-called ‘smart home.’ This will offer an opportunity to change the industry from single-product strategies to system-product strategies.

Do you think networked appliances and home automation is the future of the appliance industry?

Jürgen Plüss, Miele
Yes and no. The commodity market with buying decisions made for individual products at one time will not be effected by networked appliances. However, the high-end-market with buying decisions made for many products at one time will be influenced a lot.

Wolfgang König, Electrolux Home Products Europe
Networking will certainly become an important factor. Consumers are becoming more and more comfortable with the networked technology and will increasingly accept appliances with an option for connectivity.

Dr. Kurt-Ludwig Gutberlet, BSH
We believe that network Internet appliances are an important trend for the future as local network technology evolves in the households. It is not the volume market in the near future, though. With standardization now in place and more and more open systems being supplied, the potential for growth in this area is substantial.

David Boyle, Crosslee
We believe this is the trend as manufacturers are faced with trying to give their products additional features to entice end users, but without any practical benefit. To quantify this, most washing machines have 12 to 20 programs, but in reality, end users only use 2 to 4 of these. Networking/Internet appliances will have an excess of features which I believe in reality will rarely get used.

“Some main players have acquired production facilities in Eastern European countries, and this strategy can most probably bring, in the short-medium term, some advantages…of the lower labor cost,” Lucas Crugnola, sales executive officer of Haier Europe, tells APPLIANCE. “But in a few years, it is the intention of the European community to align the social costs of all the members of the community.”

What is the future of the European appliance industry?

David Boyle, Crosslee
The retailer and consumer benefiting. Manufacturing in Western Europe suffering.

Jürgen Plüss, Miele
The European market is getting bigger by integrating new markets in Eastern Europe. There will be no significant growth rate in Western Europe. Price competition will divide the appliance market into two segments—the commodity-market and the high-end-market. Companies have to decide in which of the markets they want to be in and to concentrate their strategies on the needs of this particular market. Multi-brand strategies will be redefined (i.e., many regional brands will be substituted by larger European brands).

Dr. Kurt-Ludwig Gutberlet, BSH
The European appliance industry is altogether a successful category. Probably in the future, low-cost manufacturers on one side will compete with specialized innovative manufacturers that command excellent brands.

Lucas Crugnola, Haier Europe
The competition continually grows stronger. Only companies able to be really innovative with new products, able to create consumer demand, and to ‘discover’ new niches with tailor-made service will continue to grow. Competence at 360 degrees will make the difference.

Troy Scragg, Fisher & Paykel
The future is buoyant. I am looking at the analysis from the major companies still making very good profit margins in the business. They are not just sitting back on their laurels. It seems that you have seen the Europeans dip out of the normal EU countries straight into these new ones and embracing them. So they are in preparation for what they know is coming.


Dr. Kurt-Ludwig Gutberlet
President & CEO
BSH Bosch und Siemens Hausgeräte GmbH
(Munich, Germany)

Wolfgang König
Electrolux Home Products Europe
(Stockholm, Sweden)

Jürgen Plüss
Head of Business Unit Kitchen Appliances International
Miele & Cie. KG
(Gütersloh, Germany)

Guglielmo Pasquali
Marketing Group Director
Candy Elettrodomestici srl
(Brugherio, Italy)

Stefano Beraldo
(Treviso, Italy)

Lucas Crugnola
Sales Executive Officer, Europe
Haier Europe
(Varese, Italy)

Troy Scragg
General Manager, Europe
Fisher & Paykel Appliances Ltd.
(Warwick, UK)

David Boyle
Managing Director
Crosslee Plc
(Halifax, West Yorkshire, England)


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