Back in 2005, electric stove products were widely expected to take over the Chinese household cooking market in the following years, due to their “efficiency, safety, energy-efficiency and environmental friendliness”. But fast forward to 2007, the electric stoves market in China was so sluggish that sales situation was hardly turning around. Not only the expected sales surge was not happening, but there were lots of unsold inventories left in the warehouses. Most producers blamed “market disorder” for the subdued market.
Lots of producers
When referring to “market disorder”, many electric stove company heads said that the vast number of producers with varied qualities is the main cause.
“The boom and high profitability of the electric stove market in 2005 had attracted lots of new participants, including some companies with weaker capital and technological bases, due to the low entry barriers. There were once up to 1,000 producers in the market, and the supplier glut had overdrawn the market’s purchasing power. You can tell that from the sudden drop in the 2006 market,” said Mr Qiu Mingyong, Project Manager of the Dongguan-based GoldYip Electronic Technologies.
The investor stampede created two industry problems. One is that products from some reckless companies had dampened consumer confidence in electric stoves, such as low quality, short useful life and safety concerns. And the other issue is that it had led to supply and demand imbalance.
“The market experienced 7-8% sales decline (over previous comparable period) in the first half of 2007,” said Mr Yang Fuming, General Manager of another Dongguan-based electronics producer, Supor. “The market was somewhat better in the second half due to an industry-wide effort. I expect sales growth will be stable in 2008, totalling 30-32 million units for the whole domestic market.”
In light of the capacity surplus, demand and supply imbalance and unsold inventories, many electric stove companies started to cut prices to win markets. Especially since 2007, some electric stove producers, led by industry bellwether Galanz, had initiated a fierce price war. Some producers that were already on the verge of exit were forced to completely withdraw from the market, and this had resulted in a higher concentration of the brands in the industry. According to a market research, by Oct 2007, the top 10 electric stove brands in China had a collective market share of 87%. At present, there are still about 700-800 players in the Chinese market.
Still nurturing the market
“No doubt electric stoves represent the future cookware products for household kitchens, and it also matches the Chinese government’s energy policy. But as a long-time cooking instrument in China, gas stoves will not be completely replaced by households anytime soon,” said Mr Li Peng, Marketing Manager of the Taiwanese electric stove leader Sunpentown.
Another industry expert also suggested that current marketing strategies of electric stove companies should focus on aspects such as energy-efficiency and environmental friendliness, in order to differentiate them from gas stoves to win consumer acceptance, instead of blindly expanding market shares.
“Sales growth in first and second tier markets (large and medium cities of China) will tend to slow in the next few years. On the other hand, as purchasing power increases in rural areas, the third and fourth tier markets in China will become the major growth spots for electric stoves in the near term,” said Qiu.
Lack of industry standards
Li revealed that among the current electric stove brands in China, there are only a few tens of strong players. Others are mostly small shops with small capacity, outdated production technologies and even no production permits.
It is understood that in terms of product performance, electric stoves in China are administered by QB/T1236-91, a standard covering thermal efficiency, noise and energy efficiency. But this is only a recommended standard with limited regulatory effects on producers. In terms of safety performance, electric stoves are additionally covered by national household appliance safety standards.
Some industry insiders pointed out that the lack of compulsory industry standards has created a lot of loopholes for reckless operators. Many technologically-backward companies are still surviving, and their low quality and cheap products are still circulating the market. This not only distorts the pricing system of the market, but also affects consumer confidence and interests.
In Nov 2007, the eagerly anticipated official standard for household electric stoves was finally announced by the Chinese government’s Standardisation Administration (SAC). The standard regulates aspects of electric stoves such as energy-performance limits, energy efficiency evaluation, energy-performance grading, testing methods and inspection rules. Many industry players are hoping that this standard can make the Chinese electric stove market more regulated.
Industry looking for breakthrough
Despite the Chinese electric stoves market was sluggish in 2007, there were still new entrants. Qiu, whose firm GoldYip was one of these brave souls, said:” We were mainly making radios and MP3s in the past, so 2007 was the first year of our electric stove production, with output of 200,000 units. We are planning to increase to 500,000 units in 2008.”
It seems a bit crazy to expand capacity amid the current market environment, but Qiu didn’t think so. “The electric stove market entered an “ice age” since the end of 2006, with stagnant sales growth. But this is more because of the capacity surplus, disordered competition and lack of industry standards, and the excessive boom in previous two years had also exhausted the marke
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