"Growing realty sector and manufacturers pushing their products in B2B sales are likely to boost the institutional sales. Purchase of ACs by individuals is elastic, depending on weather pattern changes and they may be replaced with air coolers due to pricing or electricity bill concerns. While Institutional purchases are more planned and can provide a significant and long-term buffer to consumer demand. Thus, the B2B segment helps diversify the risk of seasonal variations and helps in spreading revenue across categories since it is not a seasonal business.
According to recently published report of Bonafide Research “India Air Conditioning Market Outlook, 2021”, the AC business is split into multiple segments: Room air-conditioners that are sold through multi-brand retailers and dedicated dealerships; Variable Refrigerant Volume (VRV) and duct ACs, which are used in commercial spaces such as offices and restaurants; and chillers for large building projects like airports and shopping malls are institutional sales. Retail and distribution sale accounts for majority of the market revenues in air conditioning industry and the remaining comes from institutional sales.
Manufacturers and retailers have pulled out all stops to encourage sales, from free installation services and zero per cent financing on higher-priced models to make available more energy-efficient ACs. The retail chain saw a 15-20% jump in number of ACs sold but the value jump was closer to 25%, given the price hike due to the changed energy norms in the country. Consolidation of retail footprint in the North and expansion in east and south India is helping the retail format to grow. But air-conditioner manufacturers such as Videocon, Voltas and Panasonic, hit by inconvenient rains are returning to business-to-business segment, or institutional sales, to push their products in coming years. Typical mutli-brand retailers in the country include Reliance, Spencers, Croma, Vijay Sales, etc.
Manufacturers have dedicated sub-verticals to look after institutional sales of various product categories. Market leader, Voltas, is looking at cash & carries formats of modern trade partners, who are aggregators for the B2B segment. Panasonic is working closely with developers, architects, interior decorators, project management consultants, services consultants, companies, retail chains and the hospitality industry. Videocon, which is looking to increase its market share in the overall air-conditioning market, says its targets can be achieved through the B2B segment. Lloyd Electric estimates it can sell 500,000 units through the B2B vertical and generate revenue of Rs 750 crore in next year. The company plans to set up new factories and invest in new machinery and technology. For Mitsubishi Electric India, the B2B segment is expected to account for more than 50% of its business from air-conditioners annually.
Demand for air-conditioners from the commercial segment is catching up fast with a increasing number of offices, stores and business apartments being set up. The growth of hospitality and commercial sectors has boosted demand as they involve large-scale application of ACs. The realty sector is one of the biggest growth opportunities. According to Videocon's research, there are 1.6 million houses that will be delivered next year, which will be ready for possession. On an average, one AC will be fitted in each house. To drive the effort, air conditioner manufacturers have started forming a separate vertical that will only look at B2B sales. The growth of air-conditioning in the B2B segment is expected to be 25-30% compared with single-digit growth in the retail sector.
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