Appliance cos feel the pinch, hike prices

Appliance cos feel the pinch, hike prices

Author | Source: The Economic Times | Thursday, Aug 03,2006 8:12 AM

Appliance cos feel the pinch, hike prices

Home appliances like refrigerators and washing machines have become dearer with manufacturers hiking prices by 5.5% with effect from August '06.

The price hike comes in the wake of rising input prices and a higher octroi duty which are being passed onto the consumer. The move will primarily affect consumers in three states - Maharashtra, Punjab and Gujarat - where the octroi is being levied.

For the moment, prices have not been hiked on colour televisions, which are currently recording a sluggish growth rate. Says Girish Rao, VP, sales and marketing, LG India: “Our margins are under pressure for the past couple of months forcing us to take this decision.

However, we still have to decide whether to pass on the hike on colour televisions.” Durable majors are unwilling to absorb costs despite a competitive business scenario. Industry sources say, the industry is already operating on wafer-thin margins and any further cost pressure will hit bottomlines.

Industry leaders fear a high level of trade resistance on the premise that higher prices will upset an otherwise upbeat momentum in purchases. Prices of white goods have remained stable after the last increase in the range of 4-5% a year ago, industry sources said.

A sharp rise in input prices of steel, copper and plastic, coupled with rising oil prices is prompting durable majors to take such a decision which was being put on hold for awhile, adds KS Raman, senior industry consultant. Initially the price hike will happen for white goods such as ACs, microwaves, refrigerators and washing machines, later followed by TVs.

Growth rates in the appliances market has been either flat at 4-6%, or, registered minimal growth, over the past 18 months. Market penetration in most of these categories continues to remain extremely low. “With so many players fighting for consumer attention, pricing has been under pressure,” said a leading appliance major. ACs, and to an extent, microwave ovens are the only categories that have seen healthy growth.

The value erosion that the industry has seen over the past two years, especially in refrigerators, makes a further price-correction economically unviable, industry players said.

Besides, with commodity prices going up over the past couple of months, manufacturers have no option but to increase prices, manufacturers said. Product innovation has been the main strategy to grow the appliance business.

The growth rate of home appliances has not exceeded 4-6% for the past seven years. Home appliance sales are is expected to continue to grow, to reach 64bn units and Rs 167bn by '08, sources said.

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