Looking For Heat

Recent years Russian producers of heating equipment have steadily expanded their share of the local market, and at the same time the prices and the profit level have been getting down. As a result this segment of market has become less interestting for HVAC manufacturies. Investments into the advertising fell down sharply.

Russian market of Heat Curtains 1995-2005
	Russian Imported
Season Chart 1 Source: Litvinchuk Marketing

What are the trends on the Russian market of the Heat Curtains and Heat Guns nowadays? Analysis of current situation could make it possible also to foresee the prospectives of the other segments of market of HVAC. These segmens formed a bit later and developed not so rapidly as the market of heating systems.

First, the market of heating equipment was the first segment, where local manufacturers began dominate. Reasons are clear. The production of heat curtains and heat guns is not so technoligically advanced as the production of other types of the climate equipment, and commersial production was started by many Russian companies, especially after 1998. The last three or four years the market stabilized and the expancion of production stopped. Even more, the strengthening of rouble made possible some increase of import.

Russian market of Electric-driven Heat Guns 1995 – 2005
	Russian Imported
Season Chart 2 Source: Litvinchuk Marketing

Second, because the production and instalation of the heating equipment was rather easy, this segment of market was the first which was saturated. Rapid expansion stopped 4 years ago. There are no reasons to believe that the other segments of the market of climatic equipment (chillers, ventilation equipment, AHU, fancoils) would grow eternally. Especially those of them (for instance ventilation equipment and AHU) which follow with some delay exactly the same way of the market evolution as the market of heat curtains and heat guns.

Both Russian manufacturers and importers of heat curtains and heat guns take it into account, and use a very conservative policy of production and procurement. The best demonstration of it was the heating season 2005 – 2006. Despite the cold record in winter, the whole wolume of production and import practically did not grow. The only positive result was the complete cleaning of stocks and zero inventories to the end of the season. However there could be expected some increase in demand from the part of distributors in the heating season 2006 – 2007, for they could start purchaising earlier than usually because of the lack of stocks. The increase could be of about 10-15% maximum.

Russian market of Heat Guns Shares of Russian and imported equipment
	Russian Imported
Season Chart 3 Source: Litvinchuk Marketing

So the market can not react immediately to the weather caprices because of the planned production. Besides both Russian and foreign manufacturers of heat curtains directly depend on producers of components (ventilators, heating elements), who often can not execute additional orders rapidly.

Third, the structural changes started after the market had got some stabilization in the sales volume. Today four major Russian manufacturers of heating equipment (TEPLOMASH, TROPIC, ECONIKA-TECHNO and KUPOL) control about 2/3 of the whole market, at least in volume of production. Small manufacturers with some little exception reduce or cease production.

Almost the same takes place with the distributors. There are only few major successful distributors and sales departments of manufacturers on the market today.

If compare local production with import, there is a sharp division by segments of the market. Russian heat curtains dominate in the sector of low-price “lobby heaters”. The imported equipment has the maximum share in the sector of high-power curtains, with the presence of only few local manufacturers. On the market of the heat guns there is almost no premium-segment, and the share of imported equipment is smaller recent years.

Forthly, dealers' network. Here the things go on in the the worst possible way, like it is on the market of the split-systems. Despite the volume of sales was stabilized, the number of companies-sellers goes on growing. As a result, the volume of sales per seller has been decreasing steadily for the last 4 years, and overhead expenses of distributors grow. The situation can change for the better not earlier then in 3-4 years when the number of companies, engaged in AC installation, starts getting down.

Russian market of Heat Curtains Shares of Russian and imported equipment
	Russian Imported
Season Chart 4 Source: Litvinchuk Marketing

There is one more unpleasant analogy with the market of split-systems. It is the commercialization of heat guns in chain stores. No matter it is the chain store of building materials and garden equipment like OBI. The result could be bad. The price of heat guns could DROP and profitability could slide down below the level of interest of specialized in the climat equipment companies.

As to the market of the gasoline- or gas-driven heat guns, the trends there are the same. The only difference is that the market share of Russian manufacturers is small, and the volume of the market is several times less as compared with the market of electric-driven heat guns.