As the European head of Electrolux, Magnus Yngen has a wide perspective on the European electrical market. Anna Ryland asked for his views on the key issues for the industry.
The European market is becoming increasingly transparent, dominated by multinational companies and influenced by Internet trading. Electrolux is one of the main pan-European players which nevertheless has to adjust its business practices to the local markets. How is the UK Electrolux market performing in comparison with other European markets? I ask Magnus Yngen.
“The UK and Germany have the most challenging trade structures in Europe. A lot of aggressive discounting take place here, which to an extent has commoditised the industry. Yet, these retail practices – adding more volume while constantly lowering prices – are not sustainable in the long term.
“Our agenda is to drive product innovation in fewer and bigger brands. This strategy is supported by two market trends. First, consumers are trading up. They are happy to pay for innovation.
“Furthermore, the market is polarising. We still have price deflation but at the same time consumers are trading up. Average prices of products are going up as a result of price growth at the top end of the market, fuelled by product innovation.”
Challenges for the industry
The European market is one of the most mature and competitive in the world. What are the main challenges for a European electrical manufacturer at present?
“Firstly, the electrical industry is under many legislative pressures, such as RoHS and WEEE Directives, which are driving up the costs. The prices of raw material are also rocketing. An example of this is nickel which is an important component of stainless steel.
“Secondly, the industry has to increase prices – we will need a 3 to 5 points price increase. Neither the industry not the trade are used to this, it will be interesting to see how they manage the process of balancing volume with higher prices.
“Thirdly, it will be essential to build strong brands; but the question here is how we can generate enough funding to build strong brands. Moving the cost base from one end of Europe to the other or to the Far East is not an answer. Investment in product innovation is a crucial component. Brands are only going to get stronger. Consumers are assaulted with too much market information and brands help them to make time and cost-effective choices. Dyson is proof that you can motivate consumers to pay significantly more for something they like.”
The electrical industry is shaped and closely reflect the changes in the society.
I ask Magnus, what are, in his opinion, the most significant societal trends affecting the domestic appliance market.
“The environmental factors are key. The consumers these days are very well educated and informed. But there is a disconnection between consumer understanding and their behaviour. For example, they consider themselves environmentally responsible but they still drive big cars. I believe that this is going to change within the next 2-3 years.
“Moreover, consumers are becoming more individualistic. Twenty years ago people would have chosen a partner, a house and a company to work for, and continued with them for many years. Nowadays people frequently divorce, change their jobs and homes. There is more flexibility today than ever before.”
“Furthermore, the kitchen and the living room are merging together. It is the place where people spend a lot of time and of which they want to be proud. In some countries even the outdoor patio merges with the kitchen.”
The independent channel
Finally, I ask Magnus what plans Electrolux has in relation to the independent retail channel.
“We need to tell a compelling story to get closer to the consumer. Looking at a shop floor full of white boxes, the consumer has no incentive to get interested in a particular brand. Hence our company needs to focus on the retail channel which will be able to tell this story – communicate the innovations which we are trying to deliver. The independent retail channel is best equipped to fulfil this role. Our investment in bigger but few brands will support them in this task.”