Russian AC Market Trends

Russian room air conditioner (RAC) market was showing significant growth from mid 90s until 2003. After Russian Economic Crisis 1998 the market has been recovered fast and became the fourth biggest in Europe during 2001-2002 after Italy, Spain and Greece. Previous market estimations by APIC were published in JARN Magazine October 2002. The reasons of the rapid growth during 2000 – 2002 were both favorable weather conditions and increasing of average income of the Russian people. The private sector contribution was playing the main role for the RAC market before 2003 especially in the Central (Moscow), South and Far East regions of the Russian territory.

Poor weather conditions

Climate conditions across Russia during summer 2003 were not favorable for most players on the Russian AC market. Most of goals developed by distributors and manufacturers have been not achieved due to unusually cold summer (June 2003 was the coldest during last 50 years). Forecasts by most of manufacturers and distributors for 2003 were bright after successful 2002 year when the market exceeded the amount of 460,000 sets. Both significant market growth and generally stable economy promised further growth to be reached for 2003. But the reality was different.

Market size and development

Russian AC market in 2003 is estimated at 400,000 units i.e. 12 – 15% decrease compared to previous year. On the early stages of the market development (mid and late 1990s) cold summers just resulted in slowing sales increase rate but the total market was growing year by year in the terms of units. The year 2003 was the first when the worst climate conditions would lead market to drop. Even during 1999 followed by Russian economy crisis Russian AC market continued to grow compared to previous 1998.

Big market means unstable market

Russian AC market development during last years could show rather big market size, potential and growth but ironically those mentioned features lead market to very unstable situation where annual amount could be changed dramatically in both directions. Expectations regarding public sector’s considerable growth for 2003 were failed seriously. Commercial and industrial sectors sales at 2003 are maintained mostly on the 2002 level (growing by 5-7% PAC shipments) but the next year demands are seemed to be uncertain due to common influence on to the market by Presidential elections campaign at 2004.

RAC sales (some figures and forecast)

The market for window units decreased significantly (from 150,000 units – 2002 to almost 110,000 units – 2003 forecast) due to poor weather conditions. The reason is that most of demands for windows are concentrated across southern region of Russia where spontaneous requirements are driven mostly by possible heat waves during June and July. The selling prices dropped down (sometimes below costs) but this move could not improve the situation at all. Total amount of split RAC sales is expected on about 10% below of preceding year.

Window and portable RAC market shares drop

Window air conditioners market share was decreased dramatically during 2003 due to the poor weather since main demands for window units in the past were originated. Also an impact to the window RAC share below 30% of total RAC sales were given by influence of the cheap Korean and Chinese split type air conditioners.

Portable (mobile) type RAC market share is diminishing slightly since 1996 because of the competition from more sophisticated and comfortable split type units and absence of significant heat waves. The market share of portables is estimated on about 1.5% of total RAC sales level and has no visible predictions for growing in the future.

Russian split RAC market specific features

93 – 95% of the total splits are reversible type models equipped with both cooling and heating functions due to the requirements of Russian AC owners to have this option available during intermediate season.

One interesting point to note on the Russian market is the decrease of the multi splits RAC share. There are only 3% of total splits sold during 2003 has more than 1 indoor unit (comparing with 10% level of multi splits during 1996).

Up to 40% of the multi splits sales are expensive inverter driven models produced by major Japanese manufacturers.

Large inventory results in price wars and negative profits

Almost one third of the total splits and app. 40% of window units were not sold during summer season 2003 and many wholesalers should to carry large inventories through the winter until 2004 selling season. So competition for the low end market and mid class equipment is expected to be extremely high during the first half of 2004. There are enough ready stocks to start the season for most of Russian key wholesalers and distributors.

More ducted type in the PAC segment

In the PAC segment of Russian AC market the most interesting feature is the dominance (up to 50% of the total PAC segment sales) of ducted type units sales because of both commercial and leisure sectors customers’ preferences. There are more possibilities in the reconstruction and building stage to use ducted type units due to flexibility of installations and pricing matters -more cooling capacities on the investments rate.

Major players on the Russian market

Korean Brands occupy on about 36% of the split type and more than 80% of the window type share. Both Samsung Electronics and LG Electronics lead in the terms of quantity on the market. The leading positions of Samsung and LG may be accounted for these brands’ wide popularity in all sectors of household equipment and electronics, mainly due to active advertising. According to TNS Gallup AdFact for the 2nd quarter of 2002 and the first half of 2003, Samsung advertising expenditure amounts to 73 944 110 USD (among them 5 355 311 USD for air conditioners’ advertising), LG – 103 529 883 USD (among them 3 795 278 USD for air conditioners’ advertising).

Panasonic, Daikin, Fujitsu General, Gree have considerable market shares. Also Mitsubishi Heavy Industries, McQuay (Acson), Mitsubishi Electric, Toshiba, Hitachi have sales exceeded 10,000 sets each.

All of Chinese manufacturers including China produced OEMs occupy 13 – 15% share of the total splits sales comparing with 8% level during 2002.

Source: APIC*

* The Association of Professional Companies in Industry of Climate (APIC) was found in 1997. For the time being APIC incorporates more than 40 companies including leading HVAC manufacturers’ representatives, equipment distributors and wholesalers, service providing companies, contractors etc.