Bilal9
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Sudipta Rashad
Bangladesh has a burgeoning consumer durables industry which has been growing at a breakneck pace, with huge potential for further expansion. In this report we delve deep on how this industry may evolve in the coming decade riding on a diverse set of demand drivers and multiple supply-side facilitators.
Consumer durables sector poised for unprecedented growth
Local players hold considerable market share amongst bigger multinational names.
The consumer durables industry of Bangladesh has enjoyed a formidable CAGR of roughly 14% in the years 2016-2020 and currently stands at USD 2.35 billion. Being a cyclic industry, it has been growing at a similar pace as that of the nominal GDP of the country and we believe that the industry will touch the USD 10 billion mark by 2030 if the industry grows at a rate of 17% annually.
Consumer appliances and consumer electronics are the two segments of the consumer durables industry. Consumer Appliances can be further categorized into Brown Goods and White Goods
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Source: KPMG
Before we dig deeper, let us look at the current market scenario since very little information is publicly available. The product categories within the scope of this report have been split into four groups: refrigerator, television, air conditioner and home appliances.
Walton is the market leader in two of the five mentioned categories, while Samsung is the leader in the home appliance category
Source: UCB Asset Research
Rapid changes in socio-economic outlook to push boundaries
Increase in purchasing power and higher female workforce participation will pave the way for a sustainable growth
A positive correlation can be observed between electricity coverage and business growth.
Demand and growth in the purchase of consumer durables products in Bangladesh is set to be on a new trajectory due to higher electricity coverage. Bangladesh has achieved great progress in terms of access to electricity and approximately 99% of the country’s population has been brought under electricity coverage as of 2021. The peak demand is projected to grow to 35,000 MW by 2030 averaging a growth rate of 12.2%. With this increase in demand, we expect the consumer durables sector to sustain the current growth rate at least for the next 10 years.
Revenues of the publicly listed companies have increased over the years with more electricity coverage
Source: UCB Asset Research
The listed companies have been selected as the benchmark owing to their superior distribution network, long-standing relationship with consumers, and the scale of consumption in households. Besides, the emanating effects of global warming are causing demands of certain products to go up which will in turn result in more demand for electricity.
With more disposable income, consumers will be able to purchase products that were beyond their reach.
The GNI per capita for Bangladesh currently stands at USD 2,227 which saw a 9% increase from the last fiscal year. With gradual increase in per capita income over the years, the consumer durables sector in Bangladesh has seen an upward trend in demand across all the segments.
A recent research done by BCG has projected that our middle and affluent class (MAC) population is expected to be around 34 million by 2025, while number of cities with MAC population of at least 100,000 is expected to be around 63. Overall circumstances dictate that this growth rate is going to persist for another 5 years, which gives us a number of around 45 million in MAC population and number of cities with MAC population of at least 100,000 around 90.
Positive socio-economic changes are being observed with high female labor force participation and emergence of nuclear families.
Significant transformations in the socio-economic structure through greater Female Labor Force (FLF) participation and rise in nuclear families will be another crucial factor for achieving future growth. The current FLF participation rate in Bangladesh is 38.7%, which is higher than the South Asian average of 23.6%. Bangladesh has been on the rise in terms of FLF participation—it has reached 40% from 30% in just 10 years. As the number of working women grows, so will the demand for home appliances that make their lives easier. In addition, FLF participation in Bangladesh previously was primarily in the RMG sector and they were from low-income households. In recent years, FLF participation has increased significantly in the middle class and affluent households. As the purchasing power in this middle and affluent class is much higher, we expect this will further drive the demand upwards.
FLF participation in Bangladesh is above the South Asian average is on the increase
Source: World Bank
Besides, in the past decade in Bangladesh, there has been a noticeable rise in the number of nuclear families, a relatively new concept in the subcontinent. During and after the industrial revolution, the west observed a huge jump in demands in the consumer sector as nuclear families started to be the dominant arrangement. Rising number of nuclear families in Bangladesh are thus expected to correlate to more sales in this decade.
However, it is very important to understand the existing and possible regulatory framework and policies to assess the future dynamics of this industry.
Financing schemes and policy-level factors to act as tailwinds
Government policies along with ease of financing and payment methods will help the supply side to grow in tandem with the demands.
Product diversification is expected to be the new trend as products will become more accessible to people from all socio-economic backgrounds.
Due to rising demands among all consumer classes, leading market players have already entered into product diversification. Refrigerator and television have the highest penetration rate in the country. Once consumers have bought these basic products, they will look to purchase products that add convenience to their lives.
That is why, products such as air conditioners, washing machines and other home appliances are expected to catch up with refrigerator and television in terms of sales. A number of recently announced government policy support will certainly help the initiatives taken by the companies come to fruition.
Supportive government policies will not only make the products more affordable but also help the economy by creating more employment opportunities.
The government of Bangladesh has proposed some significant policy support for the consumer durables sector, which will not only help the local companies retain or improve their profit margin, but also benefit the consumers by driving down the prices and making them more accessible to consumers from all social classes.
With increased focus on economies of scale and significant technological advancements in the electronics industry, prices have gone down gradually throughout the years.
Prices of raw materials have fallen considerably in the last decade due to striking progress in the field of electronics. As a result, prices of these products have also fallen significantly. The price reduction has been possible mainly because of improvements in technology and greater efficiency in the manufacturing process.
Competition among market players is also responsible for lower price points in present times as local companies mainly target people from the bottom of the pyramid. Local consumers are highly price sensitive and look for more value for money. Helped by these factors, sales are expected to go up in this decade.
Source: UCB Asset Research
Introduction of financing schemes with MFS will cause a material shift in purchasing habits, resulting in unprecedented growth.
Availability of alternative financing means will encourage more and more consumers in the rural and semi-urban areas to purchase products that they would not have thought of purchasing otherwise. People from the top of the pyramid already have access to credit card facilities. However, 52% of the adult population of Bangladesh still don’t have access to banking. Hence, companies such as, Singer and Walton offer the hire purchase scheme in which consumers have to make a nominal down payment and pay monthly installments to eventually own the product.
Additionally, a significant rise in the use of Mobile Financial Services (MFS) will also help in creating more demand in this decade. The total number of active MFS accounts as of July 2021 stands at 41.1 million. Through MFS, a large portion of the unbanked population has been brought under the umbrella of financial services.
Growing at this rate, the total number of active MFS accounts by 2030 is expected to touch 120 million. Moreover, the total volume of MFS transactions as a percentage of GDP stands at 26% as of 2021 and can be expected to cross 50% by 2030. By transitioning directly to MFS, Bangladesh will be able to leapfrog the traditional form of financing to a more convenient solution.
With the availability of financing schemes through MFS in future, critical changes in consumer mindset and lifestyle are expected to occur as it will be more convenient for them to purchase products on EMIs. Due to this, their purchasing power for other products will also increase, which is expected to generate even more sales. In the United States, after the introduction of financing schemes in the 1950s on a wider scale, housing became very affordable. As a result, a sales boom was observed in the household electronics sector. As people suddenly had more purchasing power, product sales skyrocketed. Sales increased by more than three times in this decade compared to previous ones.
With major government policy support, setting up manufacturing plants for local companies is expected to become much easier and more cost-effective.
The government has made it possible for the local companies to compete with international players through VAT exemption. The reduction in advanced tax and import duties on the import of raw materials have made local production of appliances much lucrative for the regional companies. These steps will help in more value addition to the finished products within the country and import of finished products is thus expected to go down in this decade. The last few years have also seen a decline in the unorganized market as retail networks of the local companies have improved.
Smaller local companies usually enter the market in either of the following ways: (a) by getting a foreign technological partner to cover up their technological lacking, or (b) by getting into a contract with a foreign manufacturer as they usually face a lot of competition while entering the market. Therefore, small value additions through Semi Knocked Down (SKD) manufacturing are preferable to small companies as the level of investment is comparatively lower. Gradually, they try to get deeper into the value chain through Completely Knocked Down (CKD) manufacturing. Local companies will now be more motivated to set up their own manufacturing plants as it will be more cost-effective for them.
The following table contains the major production facilities set up by the market players in recent times:
Shifts in consumption pattern: Venturing into unchartered territories
With dramatic changes in the consumer landscape, digital channels are expected to lead the way.
As the use of social media further increases and influencer culture gets more clout in Bangladesh, further shifts in consumer behavior will be observed.
As a communication tool, social media has taken on a significant role over the past decade. Consumers use social media platforms such as Facebook, Twitter, Instagram, and LinkedIn to share their experiences with a diverse set of people. Consumers and their buying behaviors are heavily influenced by what they see on these platforms. 54% of the consumer base uses social media to research for buying products globally.
An average Bangladeshi spends 2 hours 48 minutes per day surfing through social media and 84% of that time is spent on Facebook. Individual’s inclination to mimic the conduct of others around them, especially influencers, has given rise to social proof.
Moreover, when a consumer gets a recommendation from someone they trust, they are more prone to purchase that product. That is why, influencer marketing can work wonders for brands by attracting more customers.
E-commerce and F-commerce platforms have sizeable growth potential with changing consumer shopping habits and are expected to outperform conventional retail stores in this decade.
Consumer shopping habits have changed drastically over the last few years thanks to the explosion of E-commerce and F-commerce. While shopping in retail outlets was once the predominant way to shop, consumers are gradually shifting towards online shopping around the globe as it is more convenient. The internet penetration rate is currently hovering around 35% (mobile data + broadband) of the total population, with drastic increase having been observed during COVID-19. Companies in Bangladesh still have a long way to go in terms of gaining consumer trust, but it is an emerging channel that will shape the future of shopping in this decade. Walton, Rangs, and Fair Electronics have started their e-commerce wings which are expected to generate further sales in the future, especially when people cannot go out of their homes for purchasing products.
Profitability of companies is positively correlated to their retail networks and after sales services.
Having physical outlets for companies is still more important than having an online presence in rural and semi-urban areas. While companies can attract customers with more income with good quality advertisements who focus more on specifications, word of mouth plays the biggest role in the case of people with less income. Moreover, with rapid urbanization and development in infrastructure, accessibility to retail outlets has improved as companies are increasingly targeting first-time buyers in rural areas. Companies that have succeeded in the market also have extensive networks of outlets all over the country.
Retail outlets of Walton and Singer have grown from around 400 in 2013 to approximately 800 in 2020, with number of dealers crossing thousands
Source: UCB Asset Research
Growth in the number of retail outlets has also been consistent throughout the last decade or so, which has contributed heavily to their increased profits. Even a decade ago, the retail networks of companies were not as widespread as they are now. Consumers now can find outlets of certain companies even in the most remote places of the country.
In addition, after sales services are considered crucial to customer satisfaction at this day and age since shelf lives of products are not what they used to be even twenty years ago.
Consumer durables industry to cross a critical landmark by 2030
The consumer durables sector in Bangladesh is set for sustained growth over the long term, fueled by favorable consumer demographics, considerable growth in services and manufacturing sectors, and infrastructure development in suburban and rural regions. If the industry grows at our expected trajectory (~17%) for the next ten years, it will most likely cross the USD 10 billion landmark by as early as 2030. Local assembly of products is expected to drive the prices of products further down and increase in affordability will make products more accessible to people belonging to all social classes. Moreover, with the rise of digital channels, E-commerce and F-commerce platforms are expected to lead the way in sales generation in the coming years.
Bangladesh has a burgeoning consumer durables industry which has been growing at a breakneck pace, with huge potential for further expansion. In this report we delve deep on how this industry may evolve in the coming decade riding on a diverse set of demand drivers and multiple supply-side facilitators.
Consumer durables sector poised for unprecedented growth
Local players hold considerable market share amongst bigger multinational names.
The consumer durables industry of Bangladesh has enjoyed a formidable CAGR of roughly 14% in the years 2016-2020 and currently stands at USD 2.35 billion. Being a cyclic industry, it has been growing at a similar pace as that of the nominal GDP of the country and we believe that the industry will touch the USD 10 billion mark by 2030 if the industry grows at a rate of 17% annually.
Consumer appliances and consumer electronics are the two segments of the consumer durables industry. Consumer Appliances can be further categorized into Brown Goods and White Goods
�
| CONSUMER DURABLES | ||
|---|---|---|
| Consumer Appliances | Consumer Electronics | |
| White Goods | Brown Goods | |
| Refrigerator | Microwave Oven | Television |
| Air Conditioner | Mixer | Laptop |
| Washing Machine | Grinder | Mobile Handset |
Before we dig deeper, let us look at the current market scenario since very little information is publicly available. The product categories within the scope of this report have been split into four groups: refrigerator, television, air conditioner and home appliances.
Walton is the market leader in two of the five mentioned categories, while Samsung is the leader in the home appliance category
Source: UCB Asset Research
Rapid changes in socio-economic outlook to push boundaries
Increase in purchasing power and higher female workforce participation will pave the way for a sustainable growth
A positive correlation can be observed between electricity coverage and business growth.
Demand and growth in the purchase of consumer durables products in Bangladesh is set to be on a new trajectory due to higher electricity coverage. Bangladesh has achieved great progress in terms of access to electricity and approximately 99% of the country’s population has been brought under electricity coverage as of 2021. The peak demand is projected to grow to 35,000 MW by 2030 averaging a growth rate of 12.2%. With this increase in demand, we expect the consumer durables sector to sustain the current growth rate at least for the next 10 years.
Revenues of the publicly listed companies have increased over the years with more electricity coverage
Source: UCB Asset Research
The listed companies have been selected as the benchmark owing to their superior distribution network, long-standing relationship with consumers, and the scale of consumption in households. Besides, the emanating effects of global warming are causing demands of certain products to go up which will in turn result in more demand for electricity.
With more disposable income, consumers will be able to purchase products that were beyond their reach.
The GNI per capita for Bangladesh currently stands at USD 2,227 which saw a 9% increase from the last fiscal year. With gradual increase in per capita income over the years, the consumer durables sector in Bangladesh has seen an upward trend in demand across all the segments.
A recent research done by BCG has projected that our middle and affluent class (MAC) population is expected to be around 34 million by 2025, while number of cities with MAC population of at least 100,000 is expected to be around 63. Overall circumstances dictate that this growth rate is going to persist for another 5 years, which gives us a number of around 45 million in MAC population and number of cities with MAC population of at least 100,000 around 90.
Positive socio-economic changes are being observed with high female labor force participation and emergence of nuclear families.
Significant transformations in the socio-economic structure through greater Female Labor Force (FLF) participation and rise in nuclear families will be another crucial factor for achieving future growth. The current FLF participation rate in Bangladesh is 38.7%, which is higher than the South Asian average of 23.6%. Bangladesh has been on the rise in terms of FLF participation—it has reached 40% from 30% in just 10 years. As the number of working women grows, so will the demand for home appliances that make their lives easier. In addition, FLF participation in Bangladesh previously was primarily in the RMG sector and they were from low-income households. In recent years, FLF participation has increased significantly in the middle class and affluent households. As the purchasing power in this middle and affluent class is much higher, we expect this will further drive the demand upwards.
FLF participation in Bangladesh is above the South Asian average is on the increase
Source: World Bank
Besides, in the past decade in Bangladesh, there has been a noticeable rise in the number of nuclear families, a relatively new concept in the subcontinent. During and after the industrial revolution, the west observed a huge jump in demands in the consumer sector as nuclear families started to be the dominant arrangement. Rising number of nuclear families in Bangladesh are thus expected to correlate to more sales in this decade.
However, it is very important to understand the existing and possible regulatory framework and policies to assess the future dynamics of this industry.
Financing schemes and policy-level factors to act as tailwinds
Government policies along with ease of financing and payment methods will help the supply side to grow in tandem with the demands.
Product diversification is expected to be the new trend as products will become more accessible to people from all socio-economic backgrounds.
Due to rising demands among all consumer classes, leading market players have already entered into product diversification. Refrigerator and television have the highest penetration rate in the country. Once consumers have bought these basic products, they will look to purchase products that add convenience to their lives.
That is why, products such as air conditioners, washing machines and other home appliances are expected to catch up with refrigerator and television in terms of sales. A number of recently announced government policy support will certainly help the initiatives taken by the companies come to fruition.
Supportive government policies will not only make the products more affordable but also help the economy by creating more employment opportunities.
The government of Bangladesh has proposed some significant policy support for the consumer durables sector, which will not only help the local companies retain or improve their profit margin, but also benefit the consumers by driving down the prices and making them more accessible to consumers from all social classes.
With increased focus on economies of scale and significant technological advancements in the electronics industry, prices have gone down gradually throughout the years.
Prices of raw materials have fallen considerably in the last decade due to striking progress in the field of electronics. As a result, prices of these products have also fallen significantly. The price reduction has been possible mainly because of improvements in technology and greater efficiency in the manufacturing process.
Competition among market players is also responsible for lower price points in present times as local companies mainly target people from the bottom of the pyramid. Local consumers are highly price sensitive and look for more value for money. Helped by these factors, sales are expected to go up in this decade.
Source: UCB Asset Research
Introduction of financing schemes with MFS will cause a material shift in purchasing habits, resulting in unprecedented growth.
Availability of alternative financing means will encourage more and more consumers in the rural and semi-urban areas to purchase products that they would not have thought of purchasing otherwise. People from the top of the pyramid already have access to credit card facilities. However, 52% of the adult population of Bangladesh still don’t have access to banking. Hence, companies such as, Singer and Walton offer the hire purchase scheme in which consumers have to make a nominal down payment and pay monthly installments to eventually own the product.
Additionally, a significant rise in the use of Mobile Financial Services (MFS) will also help in creating more demand in this decade. The total number of active MFS accounts as of July 2021 stands at 41.1 million. Through MFS, a large portion of the unbanked population has been brought under the umbrella of financial services.
Growing at this rate, the total number of active MFS accounts by 2030 is expected to touch 120 million. Moreover, the total volume of MFS transactions as a percentage of GDP stands at 26% as of 2021 and can be expected to cross 50% by 2030. By transitioning directly to MFS, Bangladesh will be able to leapfrog the traditional form of financing to a more convenient solution.
With the availability of financing schemes through MFS in future, critical changes in consumer mindset and lifestyle are expected to occur as it will be more convenient for them to purchase products on EMIs. Due to this, their purchasing power for other products will also increase, which is expected to generate even more sales. In the United States, after the introduction of financing schemes in the 1950s on a wider scale, housing became very affordable. As a result, a sales boom was observed in the household electronics sector. As people suddenly had more purchasing power, product sales skyrocketed. Sales increased by more than three times in this decade compared to previous ones.
With major government policy support, setting up manufacturing plants for local companies is expected to become much easier and more cost-effective.
The government has made it possible for the local companies to compete with international players through VAT exemption. The reduction in advanced tax and import duties on the import of raw materials have made local production of appliances much lucrative for the regional companies. These steps will help in more value addition to the finished products within the country and import of finished products is thus expected to go down in this decade. The last few years have also seen a decline in the unorganized market as retail networks of the local companies have improved.
Smaller local companies usually enter the market in either of the following ways: (a) by getting a foreign technological partner to cover up their technological lacking, or (b) by getting into a contract with a foreign manufacturer as they usually face a lot of competition while entering the market. Therefore, small value additions through Semi Knocked Down (SKD) manufacturing are preferable to small companies as the level of investment is comparatively lower. Gradually, they try to get deeper into the value chain through Completely Knocked Down (CKD) manufacturing. Local companies will now be more motivated to set up their own manufacturing plants as it will be more cost-effective for them.
The following table contains the major production facilities set up by the market players in recent times:
| MANUFACTURER | WALTON | SINGER | LG | SAMSUNG | MINISTER | JAMUNA | MNH INDUSTRIES |
|---|---|---|---|---|---|---|---|
| Product | Home Appliance | Home Appliance | TV & Refrigerator | TV & Home Appliance | Home Appliance | Home Appliance | TV & Refrigerator |
| Location | Gazipur | Savar | Mymensingh | Dhaka, Narshingdi | Gazipur, Mymensingh | Gazipur | Barishal |
Shifts in consumption pattern: Venturing into unchartered territories
With dramatic changes in the consumer landscape, digital channels are expected to lead the way.
As the use of social media further increases and influencer culture gets more clout in Bangladesh, further shifts in consumer behavior will be observed.
As a communication tool, social media has taken on a significant role over the past decade. Consumers use social media platforms such as Facebook, Twitter, Instagram, and LinkedIn to share their experiences with a diverse set of people. Consumers and their buying behaviors are heavily influenced by what they see on these platforms. 54% of the consumer base uses social media to research for buying products globally.
An average Bangladeshi spends 2 hours 48 minutes per day surfing through social media and 84% of that time is spent on Facebook. Individual’s inclination to mimic the conduct of others around them, especially influencers, has given rise to social proof.
Moreover, when a consumer gets a recommendation from someone they trust, they are more prone to purchase that product. That is why, influencer marketing can work wonders for brands by attracting more customers.
E-commerce and F-commerce platforms have sizeable growth potential with changing consumer shopping habits and are expected to outperform conventional retail stores in this decade.
Consumer shopping habits have changed drastically over the last few years thanks to the explosion of E-commerce and F-commerce. While shopping in retail outlets was once the predominant way to shop, consumers are gradually shifting towards online shopping around the globe as it is more convenient. The internet penetration rate is currently hovering around 35% (mobile data + broadband) of the total population, with drastic increase having been observed during COVID-19. Companies in Bangladesh still have a long way to go in terms of gaining consumer trust, but it is an emerging channel that will shape the future of shopping in this decade. Walton, Rangs, and Fair Electronics have started their e-commerce wings which are expected to generate further sales in the future, especially when people cannot go out of their homes for purchasing products.
Profitability of companies is positively correlated to their retail networks and after sales services.
Having physical outlets for companies is still more important than having an online presence in rural and semi-urban areas. While companies can attract customers with more income with good quality advertisements who focus more on specifications, word of mouth plays the biggest role in the case of people with less income. Moreover, with rapid urbanization and development in infrastructure, accessibility to retail outlets has improved as companies are increasingly targeting first-time buyers in rural areas. Companies that have succeeded in the market also have extensive networks of outlets all over the country.
Retail outlets of Walton and Singer have grown from around 400 in 2013 to approximately 800 in 2020, with number of dealers crossing thousands
Source: UCB Asset Research
Growth in the number of retail outlets has also been consistent throughout the last decade or so, which has contributed heavily to their increased profits. Even a decade ago, the retail networks of companies were not as widespread as they are now. Consumers now can find outlets of certain companies even in the most remote places of the country.
In addition, after sales services are considered crucial to customer satisfaction at this day and age since shelf lives of products are not what they used to be even twenty years ago.
Consumer durables industry to cross a critical landmark by 2030
The consumer durables sector in Bangladesh is set for sustained growth over the long term, fueled by favorable consumer demographics, considerable growth in services and manufacturing sectors, and infrastructure development in suburban and rural regions. If the industry grows at our expected trajectory (~17%) for the next ten years, it will most likely cross the USD 10 billion landmark by as early as 2030. Local assembly of products is expected to drive the prices of products further down and increase in affordability will make products more accessible to people belonging to all social classes. Moreover, with the rise of digital channels, E-commerce and F-commerce platforms are expected to lead the way in sales generation in the coming years.
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