Development and Reform Commission Talks about Air Conditioning Manufacturers on Price War

In the past “51” small long holidays, the air conditioning industry ushered in the sales season, the manufacturers set off a new round of price war. On the day before the holiday, the National Development and Reform Commission’s Price Supervision and Anti-Monopoly Bureau held a conference in Beijing called “Standardizing Price Competition and Prospering the Air-Conditioning Market.” Meeting with air-conditioning manufacturers and distributors required that air-conditioning manufacturers not be able to fight again. Price war. In this regard, the industry has different views, there are those who think that the stop price war can regulate the healthy development of the industry, but also that there should be free competition in the market. So, can the price war really "stop and stop?"

Development and Reform Commission warning: price war can not exceed the scope

When interviewing distributors and air-conditioning companies, relevant officials of the Anti-Monopoly Bureau of the National Development and Reform Commission first affirmed the contribution of the air-conditioning industry, but at the same time they also warned about the behavior of some air-conditioning companies in cases such as the "Qualcomm anti-monopoly case."

The Development and Reform Commission stated that since September last year, the air-conditioning industry has again and again set off three rounds of price wars, and there are some areas where warnings are needed. First, it is not possible to engage in price alliances, that is, operators cannot use price controls such as agreements, resolutions, or coordination to manipulate prices; second, they must not engage in out-of-range price wars, that is, operators cannot rely on market dominance to displace and damage competitors. For the purpose of dumping at a price below cost.

According to reports, the China Household Electrical Appliances Association and the China Chain Store Association expressed their support for the warnings from the National Development and Reform Commission. Suning and Gree also expressed their opinions. Suning expressed their approval. Gree said that the company did not violate the law and related price adjustments. All within the law. Some participants said that this meeting was only a warning meeting. There was no indication that the NDRC will impose penalties on a certain company or companies. However, in the future market competition, “If there is a company crossing the line, the NDRC must Will be punished."

From the source of the price war: Unable to withstand inventory pressure

This wave of price wars in the air-conditioning industry began in September 2014 and has consistently declared that Gree never participated in the price war. It broke ground for a price offensive before the National Day and declared that it was “paying billions of dollars to give back to consumers across the country”. Then, US, Haier, Galanz, Oaks, Zhixi more air-conditioning manufacturers have issued price declarations, joined the team.

Regarding Gree’s initiative in provoking a price war, the industry’s opinion was that Gree’s strategy to achieve sales of 20 billion yuan in annual growth was a “winning by quantity” strategy. On October 29 last year, Chairman and President Dong Mingzhu of Gree Electric Appliances made an appointment with Guangzhou and Dongguan. Thousands of Gree dealers stated that the National Day is not a price war, but rather Gree’s scale profits are shared with consumers. “In the future, prices will fall.”

After entering 2015, the air-conditioning price war did not stop. In March, Dong Mingzhu put it again: “The era of profiteering is over, and the air-conditioning price should go back six years ago”. Together with Gome, it announced the launch of an air-conditioning sales promotion campaign. Suning also partnered with more than a dozen air-conditioning manufacturers from the United States. The company even launched promotional models that are less than a thousand dollars. In mid-April, Gree hit a price reduction promotion of “51.

In fact, from the end of last year to the current round of price war, it is the huge inventory pressure faced by the domestic air-conditioning industry. Zhang Yanbin, the president of Orville Cloud Network Assistant, bluntly stated that “the pre-peak season of the air conditioning industry this year is extremely rare in the history of the industry”.

According to the "White Paper on China's Air Conditioning Industry in 2015" released previously by Yikang, a third-party market research organization, and a number of air conditioner manufacturers, as of the end of 2014, the total domestic air conditioning industry inventories exceeded 40 million units, which was three times that of previous years. Liu Buchen, a senior observer of the household appliances industry, said that the huge amount of inventories led to a large amount of corporate capital, including companies and dealers, who could not afford it, so they started a price war.

Industry perspective: Should administrative measures intervene in the market?

Before the opening of the 30th anniversary of the US Air Conditioning, Wu Wenxin, president of Midea Air Conditioning Division, told reporters frankly that the price war was under heavy pressure and his hair was pale. “This year is the worst year of the price war. The industry will also reshuffle the price war. The strong will be strong and the second and third tier brands will not move at all.” At the same time, he also stated that the price war may have a certain increase in brand size in the short term, but it will certainly hurt the fundamentals in the long run.

Zhang Yanbin believes that it is necessary and timely for the National Development and Reform Commission to convene a warning. China's air-conditioning industry occupies an important position in the world, and two-thirds of the global air-conditioning output comes from China. Such an industry needs protection and cannot be damaged by price wars. Advantages, "Blind price competition will also harm our industry and our company."

Liu Buchen also believes that the reason why the air-conditioning industry is the healthiest development in the domestic appliance industry is based on the fact that for a long time in the past, the air-conditioning industry did not fight price wars, and the price war made the profitability of domestic air-conditioning companies drastically decrease. With reduced capabilities, it will be impossible to have more strength to develop new technologies in the future, and the price war will disrupt the market order."

Liang Zhenpeng, an analyst in the home appliance industry, disagrees. He believes that there is no need for the NDRC to use planned means to intervene in the competitive market. “The domestic appliance industry is a free and fully-developed industry. It is precisely because the country provides a very relaxed development environment for the household appliance industry. Therefore, China's household electrical appliance industry has become a very few of the world's leading industries." He also from the company's annual report point of view, Gree, Midea and other air-conditioning companies profit up to 10 billion, indicating that the air-conditioning industry's gross profit margin is still very high, moderate prices War can make consumers get benefits.

Market Status: There is no major fluctuation in the prices of high-end products

During the "May 1st" holiday season, air-conditioning sales were in full swing, and the high-temperature weather that lasted for several days also added more heat to the air-conditioning market. According to the reporter’s information from the channel vendors and vendors, air conditioning has become one of the best-selling products for this small golden week.

According to data provided by the United States, air-conditioner sales in the United States during the small long holiday period increased by 34% year-on-year, while frequency conversion accounted for 67%. Not only home air conditioners, but its central air-conditioning sales also increased by 150% year-on-year. Gree, which had just ended its “promotion ahead of schedule” promotion campaign, pushed “5.11 Focus Gree” again during the small long holiday period. The reporter learned from Guangzhou Gree that its market sales within the jurisdiction exceeded 60,000 units, which represented an increase of over 100% over the same period of last year. The data of Suning Tesco shows that air-conditioning sales during the May 1st period increased by 753% during the Ching Ming period, among which the sales of new four major stove city air-conditioners were Nanchang's growth of 3501%, Hangzhou's growth of 1217%, Fuzhou's growth of 526% and Chongqing's growth of 467%.

Recently, the reporter visited the market. Although the long holiday is over, many air-conditioning products still use price promotions. However, the reporter also found that the price cuts are mostly fixed-frequency air-conditioning products and three-level energy-efficient inverter air conditioners. For example, Kelon has pulled down prices. Up to 1,500 yuan a small cold and warm air-conditioning is the fixed-frequency products, the United States a price of 800 yuan 1.5-inverter heating and air conditioning is marked with three energy efficiency. The price of mid-to-high-end products, such as one- and two-level energy-efficient frequency conversion and intelligent functions, has not changed much.

Industry sources told reporters that air-conditioning manufacturers used to fight price wars are mostly "clear inventory" of the old and low energy efficiency products, high-end new products to provide the necessary profits for enterprises, is unlikely to use a large-scale price promotions. Prior to Wu Wenxin also mentioned that from the second half of last year, the price war started, the United States has been persisting until now, there is no impact on profits, mainly in the United States of air conditioning products in the past two years to upgrade, launched a series of high-end air-conditioning products.

Since the macroeconomic situation is not good enough and the industry stocks are high, many people in the industry predict that the price war will not end this year but will have a relatively long time and will continue until next year. Liang Zhenpeng also said that air-conditioning companies may reduce publicity in the "price war" gimmick, but the store will still use price cuts to promote sales.