Leveraging with the green card

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Although the main world markets have contracted in 2008, the overall sales of the BSH Group totalling €8.76 billion were only 0.7% down on 2007. The company’s pre-tax operating profit declined by 20% since 2007. “On the whole, BSH has proved to be more resistant to this crisis than many other manufacturers. This shows once again that with our value-driven management strategy we are on the right track,” commented Dr Kurt Ludwig Gutberlet, CEO of BSH.

The company’s global performance was influenced by a number of factors: “Since mid-2008 the crisis on the financial markets and beyond has had an impact on the consumer goods industry and thus also on the white goods industry. Most markets have been affected by slowing down sales and a reticence among consumers to spend. Parallel to this, the crisis in the real-estate sector has delivered a severe blow to the home appliances business, particularly the built-in segment. The fall in prices of raw materials at the end of the year provided only marginal relief. Many regions reported a substantial decline – some even massive underperformance – in the home appliances business overall,” said Mr Gutberlet.

In its native Germany, where the company is market leader in the DA sector, BSH’s sales grew by 3% in 2007. Here the company continued to benefit from the demand for energy efficient and built-in appliances.

In Western Europe, and in particular in Italy, Spain and the UK (showing approximately a 10% drop), the company’s sales declined, overall by 3%, despite a good performance in the Netherlands, France and Belgium.

In Eastern Europe, where Poland and Russia showed the strongest growth, the company reported an increase in sales.

In the North American market, BSH suffered a significant drop in sales – 10% – despite a remarkable growth of 19% in Canada. The sales in Latin America also fell but only by 2% overall.

When the changes in exchange rates are taken into account and the calculations are based on the euro, the Group’s sales in the global home appliance market fell by 4% in 2008.

Despite the economic pressures the company managed to maintain its total workforce levels, and it intends to take its core workforce through the current crisis without redundancies.

Market outlook for 2009

The management board of BSH anticipates the current economic slowdown to continue in 2009, as indicated by the 10% fall in the company’s sales in the first quarter of the year. This was mainly due to the slump in the construction industry worldwide which particularly damaged business in the built-in sector and reduced demand for new kitchens in the developing markets. However, the growth is likely to occur in China and the Asian region but it will be on a more modest scale than in the recent years.

Meanwhile, the BSH’s German market is performing well and it is expected to deliver positive results by the end of the year.

Green levers

The growing sales of energy efficient appliances and, in particular A++ rated refrigerators and an A-rated laundry dryer, will be the focus of the Group’s future strategy.  In 2008, BSH won the first German Sustainability Award for its consistent sustainability management across the company’s entire value chain. In addition to developing and marketing energy efficient appliances, the company is also involved in negotiations at the EU level on more stringent minimum standards for energy-using products (the EuP Directive) and on the restructuring of the energy labelling scheme.

Among its most successful products launched in 2008, the company considers its heat pump laundry dryer, which consumes 40% less electricity than the best A-energy rated performer to date. The Zeolite-technology dishwasher, with a unique energy recovery system uses the mineral zeolite to store heat during the cleaning cycle and releases it during the drying cycle. Also successful was its high-end, fully automated coffee-maker which sold remarkably well in the last quarter of 2008.

Retail training is key

In a separate meeting with the UK press, Dr Kurt-Ludwig Gutberlet said that educating retailers about the role that domestic appliances play in saving energy and costs for consumers is key for stimulating sales of domestic appliances in the future.

Moreover, the most efficient products, those in the A+ and A++ categories offering up to 40% energy savings, are the ones which are most likely to tempt consumers to invest in new appliances. 

Mr Gutberlet has also admitted that in the absence of government financial support schemes encouraging customers to trade up to more energy efficient appliances, “it is our job [as manufacturers] to convince the consumer that buying energy efficient appliances is a good investment especially as the cost of energy is rising and the payback is instant. Half of the houses in Bavaria have solar panels on the roofs and billion of Euros are being spent on installing them, although they generate only 1% of electricity in this region. Meanwhile much more energy would be saved with the help of modern domestic appliances.”

“We need to train the dealers – and in Germany we already have an established training scheme – so they understand the economics of the replacement and are able to put forward a good economic argument about its merit to the customers.”

Mr Gutberlet also remarked that the structure of electrical retail in the UK, dominated by large multiples, doesn’t help the energy efficiency cause. “In the big multiples, there is a high turnover of staff, many of whom are very young and not very knowledgeable. Some of them prefer to sell consumer electronics than domestic appliances. Such a young person who may have never done his own laundry is not a credible salesperson for a washing machine.”

He also commented on the principal dilemma of the white goods industry: how to encourage replacement sales of domestic appliances before old products break down. “There is a saying; you cannot make money on products which people need; you can only do this with products which people desire. Hence the skill is to make home appliances aspirational products. One way of doing this is cooking classes which use high-end appliances which people may like to own afterwards. Another positive factor is the fact that an increasing number of men cook, and this is spreading the purchasing power for domestic appliances to the other sex.”

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