Amid sluggish economic growth and low purchasing power, flexibility in pricing emerges as the key competitive differentiator in the dynamic Central and Eastern European market for residential boilers, according to research from Frost & Sullivan. Even in countries with a more discerning client base, predominantly Poland and the Czech Republic, demand for low-cost boilers continues to comfortably outstrips sales of alternative boiler types in higher price brackets, the research firm said.
Manufacturers are confronted with the challenge of aggressively marketing mid-range boilers across the region to gain an edge in the market. The vast majority of customers opt for the lowest priced and most basic model to meet their rudimentary needs. Companies featuring a more economic range of boilers in their product portfolio are in pole position to reap considerable financial rewards.
Amassing revenues worth U.S. $607.8 million, the industry is set to report revenues of just under $800.0 million in 2009, equating to unit shipments of 1.43 million in the same year.
According to latest findings by Frost & Sullivan, growth will initially be modest due to low affordability of individual central heating systems amongst the vast majority of the Russian population. The liberalization in energy pricing, set to take place over the next few years, will help stabilize favorable growth rates.
The stock of traditional boilers -- like solid fuel in Poland and Czech Republic, and atmospheric gas floor standing in Russia -- creates a demand for first-time installation of new boilers, replacing old, inefficient boilers with wall hung or gas floor standing models. Also, the study highlights an increasing trend towards the installation of two boilers in one household, solid fuel and floor standing gas, in some Central European countries.
Across Central and East Europe, the number of gas users is steadily increasing. Some countries, such as Slovakia and Ukraine, are better equipped with gas supply than others, for example Bulgaria. New gas connections will provide the overall market with fresh impetus for growth, particularly evident in the market for gas boilers.
With the exception of Russia and the Czech Republic, the lack of good quality local products has squashed local production and enabled foreign manufacturers to dislodge local suppliers at the top table. These players have now assumed leadership in crucial segments such as the wall hung and floor standing boiler markets.
In Russia, the richest pickings go to a number of domestic suppliers specialized in the production of cheap and poor quality boilers, which satisfy the local market needs. Price, again, represents the main stumbling block to growth - imported boilers are at least four times more expensive than Russian-produced models.
Czech producers are the most promising suppliers in terms of market position, while German and Italian imports will have to battle a number of challenges. These include rising demand for cheaper and lower quality products, growth in the collective central heating system, slow recovery of the new construction, low purchasing power for at least another decade, rise in demand for alternatives like biomass boilers and thermal heat pumps and the absence of a replacement market for the gas boilers for about seven to ten years.
The recent success of companies like Bosch or Vaillant from Germany is followed by the introduction of economy range boilers. Also, Italian manufacturers like Beretta of Riello and MTS recorded impressive growth in the '90s on the strength of the provision of medium range priced boilers.
The principle of district heating plants in Central and Eastern Europe, providing heat and hot water to a large number of households, depresses boiler sales across the region. However, this system is often inefficient, not frequently maintained, and its owners – the state, in most instances - can charge as much as they want. The best example is Romania, where the number of conversion from district heating boost the demand for wall hung boilers in the last two years.
However, district heating is much more efficient in Poland (constituting 40 percent of the heat park) and the other two countries with the biggest district heating stock, Russia and Ukraine, do not have the funds to either renovate the existing system or to install new individual boilers.
There is an increasing trend, especially in the new build construction market, to install a floor standing boilers of bigger output for the whole block of apartments, sometimes the whole street or even a town district. A large proportion of end-users perceive this method as a more convenient and cheaper way than the installation of individual boilers.
The research points to more environmentally friendly initiatives like thermal heat pumps and biomass boilers as promising growth areas. These factors will further hamper boiler manufacturers' endeavors to penetrate the Central and Eastern European market.
Leading the field in terms of unit shipments and revenues is Russia, due to its sheer size. However, this market is still small compared to the size of the country, and the vast majority of boilers are Soviet style models. The most important restraints to growth are the large district-heating network, accounting for more than 70 percent of the total heat park, and very limited sources of financing an individual central heating.
Poland ranks in second place, responsible for the shipment of 197,000 units in 2002. The traditional and still substantial solid fuel boilers are expected to suffer a gradual decline in sales.
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