HomeIndustry TrendsAC demand reaches pre-Covid levels

AC demand reaches pre-Covid levels

With April month just gone we have not yet reached the mid-summer but mercury level seems to have already broken the earlier records. With several regions of the country already seeing series of heat waves and many more are likely to be in the pipeline there is every reason for the air conditioner manufacturers to be on the top of optimism chart and may aim to make good the two consecutive summer washouts.

Demand environment is robust 

According to the feedback from some leading retail people, the current demand environment is robust especially for cooling products due to excessive heat and complete removal of lockdown restrictions. Feedback from some leading retail outlets reveal that Room Air Conditioners (RAC) is witnessing good demand since onset of summer. According to them, volumes started to pick up in March and the trend has continued in April too. Unlike last year, this year demand started picking up in March itself due early arrival of summer. Current pick-up in demand is driven by rising temperature and pent-up demand from last two years. However, air coolers business is struggling currently and has not seen pre-Covid levels yet.

AC business has breached pre-Covid level in terms of value in major cities and the trend indicates that volumes too will follow the suit in the coming days.

Presently, 3-star energy rated products are witnessing higher demand than others due to their affordability and decent efficiencies. However, demand for higher rated products is also increasing gradually as the customers have started realising that savings on energy bills which too are increasing every year, would more than compensate for the higher prices.

According to retailers, inverter ACs are gaining good traction mainly due to their better cooling capacity than non-inverter ACs and also diminishing price differential between the both. For example, in case of Blue Star 1.5 ton inverter and non-inverter AC the price difference is less than 1.5%.

Replacement demand in ACs is 8-10% and rest is new demand. Replacement cycle of ACs have decreased from 10-12 years earlier to 7-8 years now due to higher usage decreasing its useful life.

However, increased demand for ACs this year has come at a cost for the retailers. According to them, consumers have shifted their budget from other consumer durables like washing machines towards buying cooling products.

Some brands have fared better

Voltas is the market leader and the most preferred brand in both Window and Split ACs on the back of its brand loyalty due to better quality of products and good consumer experience leading to repeat purchases.

Meanwhile, Lloyd has been adapting aggressive strategy than rest of its peers this season. Lloyd has undergone drastic positive changes in its quality, branding, marketing efforts, after-sales services, etc., under Havells’ leadership. As a result, margin for dealers has contracted as compared to earlier but volume has increased. Further, many brands including Godrej have either discontinued or cut down on manufacturing of Window ACs. Lloyd has taken advantage of the same and has scaled up its Widow AC business.

Blue Star, despite being perceived as a commercial refrigeration brand, is believed to have been growing its market share in RAC category. Market perception is gradually changing and people have started accepting Blue Star as a consumer brand. However, absorption of price hikes remains a challenge for Blue Star as the price of Window AC of Blue Star is higher as compared to some other brands.

On the other hand, Samsung which has taken price hike in the wake of sharp inflation, is facing issue in terms of customer acceptance.

Premium brands (in terms of price) are feeling the heat as the customers have started moving towards more affordable brands. For example, Hitachi has increased its volume in Split ACs but is under performing in Window AC category. It is struggling to compete with other brands due to its higher prices.

According to some retail owners, there is supply shortages/constraints faced by the dealer in RAC models across brands mainly in ½ tonnage capacity. 1.5 tonnage ACs are widely available. Daikin is the worst hit with supply chain challenges.

Price hike not affecting demand much

Prices of window ACs have increased by 20-25% and that of split ACs by 10-15% since past one year. Many brands have taken further price hike of 2-3% from April onwards. Price increase was necessitated by steep increase in raw material costs.

Impact of price increase on demand is presently unascertainable as showrooms used to sell ACs in March at old prices to clear inventory and have started selling at higher prices only from April onwards. Also, frequent heat waves and soaring temperature is playing a bigger role than price hikes on buying decision.

Online is no longer a threat for retailers

Retail outlets are no longer feeling the heat of online presence as the footfalls have reached pre-Covid levels at almost all the showrooms and offline sales are at par with online sales mainly due to gradual vanishing price differential. Online platform is serving more towards educating the customers about the products in terms of pricing, quality, functionality, etc. Availability of cash backs and other financing options and offers in offline channels have led to this price parity. Both the channels are expected to co-exist going forward.

Rural sales are witnessing good pickup with increase in new demand kicking in. Penetration of ACs in rural and semi-urban areas is also increasing. However, they are no match to the major cities which are still the major growth centres for ACs.

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