24 Aug 2016
China's Kitchen Electrical Appliance Market
I. Market overview
China’s kitchen appliance market expanded robustly in recent years. According to mainland market surveys, the total value of China’s kitchen and bathroom appliance market (eg water heaters, range hoods, gas stoves, sterilising cabinets, microwave ovens and dish washers) exceeded RMB100 billion in 2015.
In the long run, urbanisation is bound to drive the kitchen appliance industry to expand steadily. As of 2015, China’s urbanisation rate stood at 56.1% and is projected to go up by about one percentage point annually. Advances in urbanisation, the real estate market and smart home appliances are conducive to the development of the kitchen appliance market.
As consumers’ brand awareness continues to heighten, more emphasis is being placed on product design, functions and features. Meanwhile, price sensitivity level is coming down. Medium to high-end products are becoming the mainstay of the consumer market. According to an HKTDC Research market survey conducted in eight mainland cities in 2014, most middle-class consumers (88%) choose to buy products of medium grade or better. The market for high-grade products is expanding rapidly. Take gas stoves as an example, a mainland market study has found that the upgrading of the gas stove product mix towards higher ends has produced significant results in 2015. Built-in stoves, stoves with tempered glass panel and twin stoves have a growing market share and become the main engines for market growth.
The 2014 HKTDC Research survey on the consumption of small home appliances (kitchen appliances) in eight mainland cities has found that:
Other than factors such as quality, price and brand visibility, about 50% of the consumers place much emphasis on the user-friendliness of products, while more than 30% say they prefer minimalist designs and want to buy products with multiple functions.
Consumers’ main reasons for buying small kitchen appliances are to replace existing broken products (43%) and to improve quality of life by buying such appliances (28%).
About 18% of the consumers made their latest purchase of small kitchen appliances online, and most of them did so either on taobao.com or jd.com, the two largest online shopping platforms in China.
89% of the consumers consider small kitchen appliances of Hong Kong brands belong to the mid-market category or above. In the first-tier cities of Beijing, Shanghai and Guangzhou, as many as 97% of the respondents are of this view.
When it comes to small kitchen appliances of new or less well-known brands, 82% of the respondents say they are willing to buy and try if such products meet their requirements.
In future purchases, 88% of the consumers say they will put increased attention to factors such as environmental protection and energy efficiency. Also, 61% of the respondents say they agree with the importance of smart home functions, including ones that allow a product to be connected to or controlled by smartphones/tablet computer. Consumers generally indicate a willingness to pay an average premium of 11% to buy such products.
The potential of the rural market is enormous. Currently, the penetration rate of kitchen appliances in China’s rural areas remains low. Following the continuous growth of the per capita net income of rural residents and the implementation of the “rural home appliance subsidy” policy a few years back, their ownership of colour TVs and refrigerators has risen while their purchasing demand has been basically satisfied. The penetration rate of range hoods and gas stoves is also expected to further expand. Demand of the rural market has “rural characteristics”. The household appliances demanded by peasants must adapt to rural infrastructures such as roads and water and power supplies. Also, taking into consideration the cultural qualities of peasants, the operation of household appliances should be made simpler. In tapping the rural home appliance market, apart from developing products targeted at villages, suppliers should also devote efforts to enhancing product promotion and after-sale service in order to boost the consumption confidence of peasants.
According to industry analysis, currently energy efficiency is the buzzword and hence the energy efficiency of kitchen appliances has also become the trend. When consumers purchase kitchen appliances, many of them would attach great importance to the energy efficiency label affixed on the product. The development prospects for “high efficiency” products are promising.
In addition to energy efficiency, “going smart” is also one of the important developments in the market. For instance, “heat-sensitive sensor” in range hoods can automatically switch on and off the machine and regulate the strength of the extraction fan according to temperature change in the course of cooking. Also, cut-off protection device can automatically close the valve of the stove. In recent years, foreign and Chinese companies such as Siemens and Robam are vying to develop smart kitchen systems and are focusing particularly on the connectivity of appliances with smartphones and tablet computers.
Although built-in design is nothing new, it only began to gain popularity in the last few years. Examples include Fotile’s built-in electric steamer and Siemens’ built-in coffee machine. The kitchen appliances launched by Bosch in recent years are all built-in style. In step with the “holistic kitchen” concept and as the mainstream consumer group is getting younger and younger, built-in design can best meet the demand of consumers.
The trend of localisation is changing the landscape of the kitchen appliance market. According to expert analyses, many kitchen appliances in foreign households have no place in Chinese kitchens. For instance, induction cookers are popular in the US and Japan and their flat design is Euro-American style. But in China, traditional cooking uses high flames and round concave pans. In view of this, many enterprises launched induction cookers which can accommodate round concave pans.
Imports of major kitchen appliances in 2015:
II. Market competition
According to industry sources:
The top five refrigerator production bases are Anhui, Guangdong, Jiangsu, Zhejiang and Shandong.
The top five microwave oven production bases are Guangdong, Tianjin, Shanghai, Anhui and Shandong.
The top five electric water heater production bases are Guangdong, Jiangsu, Shandong, Hubei and Zhejiang.
The top five electric rice cooker production bases are Guangdong, Shanghai, Zhejiang, Jiangsu and Shandong.
Among the leading home appliance brands such as Fotile, Vatti, Macro, Vanward, Robam and Sacon, none of them enjoys absolute advantage. Currently, in China’s kitchen appliance market, competition is mainly between Yangtze River Delta (YRD) and Pearl River Delta (PRD). Leading brands in YRD are Fotile, Robam, Sacon and Dandy, while leading brands in PRD are Vatti, Vanward, Macro, Midea and Oupai.
Refrigerator market: It has been estimated by a relevant agency that the refrigerator replacement rate in the urban market is about 15 million sets per year. Multi-door refrigerators, especially four-door ones, have become new market favourites. According to data from China Market Monitor, a market research firm, the retail sales volume and sales value of four-door refrigerators showed year-on-year increases of 104.7% and 98.9% respectively in Jan-May 2016. The current upward trend shows that the development focus of the refrigerator market in China is gradually shifting from first- and second-tier markets to third- and fourth-tier markets. In the years to come, the consumption structure of the refrigerator market will move towards energy efficiency, high grade, large capacity, healthy and the ability to satisfy a variety of demands.
Microwave oven market: Major brands in China’s microwave oven market include Galanz, Midea, Panasonic, Sanyo and Haier, with Galanz being the market leader and the other brands fighting for the rest of the pie. The China Market Monitor report pointed out that structural upgrade remained the main trend of the microwave oven market in 2015 and the concept of integrated kitchen had fuelled the growth of built-in ovens. According to its data, the online and offline retail sales value of built-in microwave evens showed year-on-year increases of 11.6% and 58.3% respectively in the first half of the year, with retail sales value accounting for a 2.0% and 2.2% share respectively.
Induction cooker market: Relatively speaking, more brands are available in the induction cooker market. Brands such as Midea, Galanz, Joyoung, Supor and Povos account for the lion’s share of the market. According to reports, the majority of induction cookers in the market are of the touch-control type, which accounts for more than 80% of the market. In terms of product design, the trend is towards slim and light-weight. At present, sales of induction cookers in China mainly concentrate in first- and second-tier markets, while penetration in third- and fourth-tier markets and rural markets is relatively low.
Range hood market: According to data from China Market Monitor, retail sales of range hoods reached RMB29.36 billion in Jan-Nov 2015, up 8.3% year on year. Today, the technology of range hoods has come of age. Leading brands are Fotile, Midea, Robam, Vatti and Siemens. When consumers purchase range hoods, product design, fume extraction rate and quietness are the three main considerations. While European-style range hoods are trendy in exterior design, near-suction hoods have higher fume extraction rates. Data indicate that, in Jan-Apr 2016, European-style and near-suction hoods accounted for a market share of 96.1%, suggesting that both are dominating the market.
Competition in the mainland kitchen appliance market has escalated from price war to technology war, with the focus of competition shifting towards the medium- to high-end market. In order to make breakthroughs, many manufacturers on the mainland have devoted a lot of efforts to R&D. Players in the industry are now investing an average of 2% of sales on R&D and are designing products of different models and functions to meet consumers’ cooking habits and household conditions.
III. Sales channels
Sales channels in the mainland kitchen and bathroom appliance market fall into two types: traditional channels and new channels. Traditional channels mainly include large, medium and small department stores, as well as specialised electrical shops. New channels are mainly home appliance chain stores (e.g. Gome, Suning), building materials chain stores (e.g. Orient Home, HomeMart), and general merchandise stores (e.g. Carrefour, Wal-Mart) selling primarily foreign brands.
After many years of development, home appliance retail chain stores have become one of the major channels for people of large and medium-sized cities buying household appliances. Third- and fourth-tier cities are said to be the main consumers of electrical appliances at present, and expanding the number of specialised stores in these cities and in the rural market has become the main direction of major home appliance manufacturers. Meanwhile, as an increasing number of kitchen and bathroom appliance manufacturers become aware of the strong attraction of home appliance chain stores to consumers, they are setting up image stores inside chain-operated hypermarkets.
In recent years, following the emergence of new building materials chain stores, household appliances, especially kitchen and bathroom appliances, have gradually made their way into some large-scale building materials supermarkets. Such building materials chain stores provide yet another sales channel apart from traditional department stores and specialised electrical shops (including home appliance chain stores).
Kitchen appliances are also sold at home centres. But compared with traditional household appliance stores, the sale of home appliances at home centres is not as specialised and the sales volume is also much smaller than traditional household appliance stores. Home centres mainly offer kitchen and bathroom appliances closely related to the home as well as small home appliances.
As the B2C and O2O model gradually gains ground in the kitchen appliance market in recent years, all the leading kitchen appliance brands have built e-commerce platforms. At present, Fotile, Macro, Robam and Vatti have their own online malls. Meanwhile, Sacon, Vanward and others have opted to set up their own e-shops on Tmall and have also authorised other e-commerce platforms such as Suning.com and JD.com to sell their products. According to a report on China’s electrical appliances online shopping market in 2015, the value of China's B2C home appliances online shopping market (including mobile market) reached RMB300.7 billion, representing a year-on-year increase of 49%. On the other hand, all the companies are speeding up the establishment of offline experience stores and flagship stores to reinforce consumers’ online and offline experience and interaction as a way to make the shopping process quicker and more convenient.
Since the Detailed Implementing Rules for the Construction of Commodity Housing were issued by the Residence Industrialisation Promotion Centre under the Ministry of Construction (now renamed Ministry of Housing and Urban-Rural Development), residential units sold by developers may provide not only interior decoration, but also a full set of kitchen and bathroom appliances. This trend of intensive interior decoration has prompted kitchen appliances to move into people’s homes in a new way. Hence, cooperation with property developers has become an important channel for kitchen appliance sales. Kitchen appliance enterprises which take advantage of this new trend to make a head start include Fotile, Sacon, Ariston and AO Smith.
Selected household appliance exhibitions to be held between the second half of 2016 and first half of 2017:
IV. Import regulations
Starting from 1 August 2003, all products listed in the CCC (China Compulsory Certification) catalogue which have not obtained the necessary certificate and certification marking from designated organs are not allowed to be imported into China, sold on the market or used in business operations. When imported products entering the country go through customs clearance, they must produce the CCC to the entry-exit inspection and quarantine department at the port of entry. The inspection and quarantine department will pick a certain proportion of the products for random marking inspection and will conduct tests in compliance with the relevant technical requirements under CCC.
According to the Interim Administrative Measures for the Inspection of Imported Household Electrical Appliances, imported household electrical appliances must be inspected by the Commodity Inspection Bureau or inspection organs approved by the bureau within the timeframe provided in the contract. Uninspected complete machines of imported household electrical appliances may not be sold while uninspected parts may not be assembled.
Under the Noise Limit Value for Household or Similar Electrical Appliances (GB 19606-2004), a set of mandatory national standard, officially implemented on 1 August 2005, the label or manual of six types of products – refrigerator, air-conditioner, washing machine, microwave oven, range hood and electric fan – must indicate the noise value of the product which may not be higher than the limit value. The difference between the measured value and the indicated value is only allowed at 3dB. From 1 June 2016 onwards, according to the new Measures for the Administration of Energy Efficiency Labels, all household air-conditioners and refrigerators manufactured and sold in or imported into China must be affixed with a marking showing the words “China Energy Label”. Otherwise they may not be sold in the market. Goods sold online are also subject to these measures. Energy-efficient products sold online must display the relevant energy efficiency label in a prominent position of the product information page of their website.
The Rules for the Operation of Household Electrical Appliance Specialty Stores (SB/T 10429-2007), an industry standard for domestic trade, became effective on 1 December 2007. The standard sets out regulatory requirements for specialised household appliance stores in terms of business venue, operation facilities, merchandise sourcing, product sale, quality assurance, after-sale service and staff management, which apply to chain-operated or independent specialised household appliance stores.
A new set of national standard for household gas stoves (GB 16410-2007) was implemented on 1 May 2008. Compared with the old standard, the new standard has made a number of amendments to main flame output, cut-off protection device, environmental protection provisions, combustion agents and inspection rules. Compared with the old standard, certain safety and technical parameters of stove products have been greatly enhanced.
Since 1 July 2008, China has implemented electronic supervision over household electrical appliances and gas stoves which are subject to management by industrial product production licence and CCC. These products must join the product quality electronic supervision network and indicate the unified electronic supervision code on their packaging before they can leave factory for sale in the market.
The revised national standard The Maximum Allowable Values of the Energy Consumption and Energy Efficiency Grade for Household Refrigerators (GB 12021.2-2015) will officially come into effect on 1 October 2016, replacing the old version (GB 12021.2-2008). Under this standard, five energy efficiency grades are set: Grade 1 means most energy efficient and Grade 5 most energy consuming. Products with energy efficiency values lower than Grade 5 have to be phased out. The standard requires that refrigerators must be labelled with energy efficiency stickers which specify the energy efficiency grades; refrigerators with no such stickers are not to be sold. According to reports, the requirements have been substantially raised in the amended standard. The energy consumption rate of the new Grade 1 products is about 40% lower than that in the old version.
The national standard Performance Requirements and Measuring Methods for Electric Kettles (GB/T 22089-2008) implemented on 1 May 2009 sets out requirements for the various performances of electric water boilers, e.g. limits on capacity variance, requirements for boiling water and dispensing water, and the cut-off time for water bringing to the boil. The new standard also introduced for the first time grades for the heat efficiency and life span of electric water boilers.
Safety and Sanitation Requirements for Disinfecting Tableware Cabinet (GB 17988-2008) was implemented on 1 February 2010. The revised national standard sets out more comprehensive regulations on the testing criteria for dish sterilisers. At the same time, tableware cabinets must comply with the standard set out in GB 4706.1-2005 Safety of Household and Similar Electrical Appliances - Part 1: General Requirements and QB 2138.2-1996 Safety of Household and Similar Electrical Appliances - Particular Requirements for Disinfecting Tableware Cabinet to ensure that they can be safely used.
The Regulations for the Administration of the Recovery and Disposal of Waste Electrical and Electronic Products (or China WEEE) were implemented on 1 January 2011. Under these regulations, five categories of products including refrigerators would become the first batch of products to be recovered and dismantled in accordance with national standards. The regulations stipulate that only enterprises qualified to dispose of electrical and electronic products may dismantle waste electrical and electronic products, extract raw materials therefrom, and carry out final disposal in compliance with environmental protection requirements.
Industrial standards for five types of kitchen appliances, including electric frying pans, electric stoves, commercial soymilk makers, grill toasters, and electric stew-pots and similar appliances, went into force on 1 June 2013. Of which, the standard for electric frying pans has been revised. These industrial standards aim to regulate the normal and orderly development of the small kitchen appliance industry.
Rules of Energy Efficiency Labelling for Household Induction Cookers (Revised), Rules of Energy Efficiency Labelling for Heat Pump Water Heaters and Rules of Energy Efficiency Labelling for Range Hoods were implemented on 1 January 2015 for regulating the usage and specification of and product inspection for energy efficiency labels.
A new version of the national standard Minimum Allowable Values of Energy Efficiency and Energy Efficiency Grades for Household Induction Cookers (GB 21456-2014) has been effective since 1 January 2015. In this new version, the scope of application is extended to induction cookers with power in the 700W-3,500W range while the requirements and methods of testing have also been revised. On 1 April 2015, the national standard Minimum Allowable Values of Energy Efficiency and Energy Efficiency Grades for Domestic Gas Cooking Appliances (GB 30720-2014) became effective. In both of these two standards, three energy efficiency grades have been set: Grade 1 stands for most energy efficient while Grade 3 stands for most energy consuming. Products with energy efficiency values lower than Grade 3 have to be phased out. The standards also lay down specific methods for testing energy efficiency.
The import tariffs of selected kitchen appliances in 2016: