Inflation hits summer sales of consumer durable firms

Inflation hit consumer demand for air conditioners(ACs) and refrigerators in the summer, according to top consumer durable companies.

As inflation chips away the masses’ discretionary spending, Kamal Nandi, Business Head and Executive VP at Godrej Appliances, noted that summer sales were not up to the market’s expectations.

Speaking to BusinessLine, Nandi noted, “we were expecting the market for cooling categories would grow by 12-15 per cent over the pre-pandemic levels. On the contrary, the market has seen degrowth, starting from mid of May. June has been worse. At an industry level, it shrunk from over 2019 levels by 20 to 25 per cent.”

According to Nandi, Godrej will achieve pre-pandemic sales in value terms after two consecutive washouts of summer sales due to Covid. Trends of inflationary pressures exist for Godrej in mass segment, particularly in refrigerators which is showing a degrowth for the company. However, the premium segment has become a bigger contributor to the overall portfolio.

“Our premium segment has grown from 16 per cent to over 30 per cent of our portfolio in sales value,” Nandi explained. Thus, the premium segment has added resiliency, to an otherwise damp squib summer sales of mass consumer products.

Air conditioners fare better

However, B Thiagarajan, Managing Director, Blue Star, said within the cooling category, air conditioners will prove to be more resilient and their sales will be less affected than refrigerators.

“I expect AC as a category to grow by 15 per cent over 2019 levels if we take cumulative sales for this fiscal year. Demand has indeed gone down in May and June this year, but this is both a result of inflationary pressures and peak summer sales for ACs moving to April and March instead of later in the summer.” Thiagarajan however notes that purchase of refrigerators by the masses is in trouble, as per his conversations with the industry stakeholders.

Expectations not met

After two back-to-back Covid summers, which proved to be a damp squib for the cooling category, the industry players were banking on the 2022 summer season to show exceptional growth due to pent-up demand. This is why even after a 30 to 40 per cent decline in summer sales, companies such as Hitachi, Godrej etc, predicted double-digit growth in sales for summer 2022.

In April Johnson Controls-Hitachi Air Conditioning India which sells residential AC under the Hitachi brand said work-from-home culture is driving the growth of the industry, while the pent-up demand might also lead to a shortage of air conditioners this season. Nandi from Godrej predicted 12 to 15 per cent growth in sales as well, over pre-pandemic levels, however, Godrej Appliances now predicts its sales to match 2019 levels.

Top executives note that the 2022 summer has its own challenges with inflation and other pressures. However, experts tracking consumer durable retail still believe that sales this year could grow over pre-pandemic 2019 levels.

Said Pushan Sharma, Director of Crisil Research, “the first quarter forms 30-35 per cent of overall annual sales for these cooling products. While the demand for room air-conditioners is expected to be significantly higher on-year during the first quarter of fiscal 2023 mainly on account of a low base; it is also expected to surpass the pre-pandemic levels, i.e; of Q1 fiscal 2020.”

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