Smart Appliances Spur Consumer Demand
Dishwashers, dryers, refrigerators, stoves and other household appliances do the same mundane tasks that they've always done. However, the technology behind these products is evolving quickly. Appliances are getting smarter, thanks to embedded computer chips, sensors, video screens and radio frequency identification devices.
During the next 10 years, products that think and act on their own promise to revolutionize the appliance industry. In fact, some observers predict refrigerators will become smarter than most of the people who use them.
The changes ahead will have a huge impact on the way appliances look and act. Because of a wide variety of engineering innovations, kitchens around the world will be transformed the way they were in the 1930s, when streamlined designs made big, boxy appliances sleek and sexy.
After enduring several lackluster years due to the sluggish economy, there's good news ahead for U.S. appliance manufacturers. The market appears to be ripe for future growth.
Daryl Delano, president of Delano Data Insights (Plymouth, MA), believes "several encouraging indicators point toward solid growth" for appliance manufacturers in 2004. For instance, Delano says appliance industry production through the first three quarters of 2003 was 2.3 percent ahead of the total for January to September 2002.
In addition, the total value of new orders placed with household appliance manufacturers through the first three quarters of 2003 was 4.9 percent ahead of the pace set during the same time last year. Shipment values rose by 3.3 percent over the same period.
According to the Association of Home Appliance Manufacturers (AHAM, Washington, DC) total household appliance shipments through the first 10 months of 2003 were 9.5 percent above total unit shipments for January to October 2002. And shipments during October alone were 12.7 percent higher than October 2002.
Unit shipments of refrigerators and freezers are running only 1.1 percent ahead of a year ago. However, shipments of washers and dryers have increased by 5 percent. Sales of electric and gas ranges are up 7.5 percent.
The steepest gains in appliance shipments through the first 10 months of 2003 were recorded by the two home comfort product categories: room air conditioners (a 39.7 percent increase in demand) and dehumidifiers (65.5 percent increase). Sales of other household appliance items, such as furnaces and water heaters, are averaging 4 percent higher than in 2002.
Delano is cautiously optimistic for 2004 and 2005. He expects to see modest gains in key product categories, such as dishwashers, freezers and electric water heaters.
"The outlook for the appliance industry as a whole depends to a very large extent upon the timing and strength of the overall economic recovery, which, in turn, depends upon levels of business and consumer confidence," says Delano
"There's a proven correlation between sales of household appliances and growth in gross domestic product, so this year's trend in overall U.S. economic growth certainly matters," Delano points out. "And the leading indicator fundamentals are all good as we look through 2004."
However, other factors are important for the appliance market, such as housing starts, household income growth and remodeling investment. "Here, the outlook is a bit more mixed, but still fundamentally positive," says Delano.
Market analysts at the Freedonia Group Inc. (Cleveland) predict the global appliance industry will increase 3.6 percent annually through 2005. Most growth is expected to occur in the Asia-Pacific region. China, the world's second largest appliance market behind the United States, will continue to boost the industry.
According to Mike Deneen, senior industry analyst at Freedonia Group, microwave ovens are expected to exhibit the best gains through 2005 due to significant untapped market potential in numerous countries, especially in the developing regions. Dishwashers will exhibit above-average growth as well. However, Deneen says price, size and cultural considerations will prevent these products from becoming commonplace in most areas where they are not already established.
"Refrigerators and freezers will experience above-average gains, benefitting from rising industrialization and personal income levels in developing countries," Deneen points out. "Conventional ranges are expected to post modest gains, due in part to their greater level of market maturity."
It's been 70 years since the House of the Future wowed visitors at the Century of Progress world's fair in Chicago. The 12-sided, three-story house contained early examples of technology that most consumers now take for granted, such as a built-in dishwasher, central air conditioning and an electric garage door opener. Today, intelligent homes equipped with futuristic smart appliances are cropping up in different parts of the world.
"Technology is expected to become increasingly important to the industry, due to the diffusion of smart appliances," says Deneen. "These products include such capabilities as remote Internet monitoring and provide added convenience for consumers.
"The addition of new technologies will be especially important in developed regions, where the high ownership rates of most appliances will cause manufacturers to rely on replacement sales," adds Deneen. "Technology is an important means by which consumers can be convinced to replace existing, functional appliances, therefore shortening replacement cycles."
Appliance manufacturers spent the past decade focusing on energy-efficient products. Today, their R&D efforts have shifted to harnessing the power of computer technology. Within 10 years, more than 90 percent of appliances will have computer processing capability allowing them to be networked and controlled from remote locations by cell phone or computer.
Many appliance manufacturers have recently unveiled digital, Web-enabled products featuring advanced sensors. For instance, Whirlpool Corp. (Benton Harbor, MI) claims that its Polara refrigerated range is "the world's first electric range than offers both cooking and refrigeration capabilities." The new technology enables consumers to prepare a meal up to a day in advance, keep it fresh in the refrigerated range cavity and have the meal cooked and ready to eat when they walk in the door.
Whirlpool plans to launch an Internet-enabled Polara later this year, which will allow consumers to access it from a cell phone or Web browser. For example, someone stuck in a traffic jam on their way home from work will be able to call their oven and push dinnertime from 6 p.m. to 6:30 p.m.
Salton Inc. (Lake Forest, IL) has launched a line of Westinghouse-branded Beyond smart appliances that also leverage home networking for increased convenience. For instance, its microwave oven features a scanning wand that is preprogrammed to read bar codes on more than 4,000 packaged foods.
Advanced soil sensors in the Integra Limited dishwasher from Bosch (Huntington Beach, CA) determine just how dirty the dishes are and adjust water level, cycle, temperature and time accordingly. The Profile Harmony clothes care system from GE Appliances (Louisville, KY) senses the size and type of the load and automatically determines which dryer setting will deliver the best results. Once the wash options are selected, users do not need to program the settings on the dryer.
Most appliance manufacturers are scrambling to develop smart refrigerators. According to the Yankee Group (Boston), the Internet refrigerator is an attempt to make the kitchen the connectivity hub of the home.
AB Electrolux (Stockholm, Sweden) has developed a refrigerator equipped with Web cameras that lets consumers remotely access its contents. In addition, LG Group (Seoul, South Korea) and Samsung Group (Seoul, South Korea) have both unveiled Internet-enabled refrigerators that are similar in form and function. Both models have a tablet PC and require a broadband connection. The tablet PC is equipped with audio speakers and an embedded digital camera, and output ports to display content from networked devices including cable TVs, VCRs, DVD players and game consoles. Applications for the tablet PC include address book, calendar, e-mail, Web browsing, music, video and games.
The Internet Home Alliance (Monterey, CA) is leading the charge to smart appliances. The group is a consortium of leading companies, such as Best Buy Co. (Richfield, MN), Hewlett-Packard Co. (Palo Alto, CA), IBM Corp. (Armonk, NY), Sears, Roebuck and Co. (Hoffman Estates, IL), Sun Microsystems Inc. (Santa Clara, CA) and Whirlpool. It recently completed a 6-month study of 20 homes in the Boston area to test consumer attitudes about remote access and control of kitchen appliances.
"Mealtime Pilot is a real-world test of connected kitchen solutions that enable consumers to use network-enabled appliances to simplify kitchen and meal preparation tasks," says Tim Woods, vice president of pilot programs for Internet Home Alliance. "This is the most ambitious test of networked kitchen-based appliances and devices ever conducted."
"Our research shows that busy consumers still blame themselves when they cannot provide their families with home-cooked meals," adds Henry Marcy, vice president for corporate technology and electronics at Whirlpool. "Solving the food preparation dilemma would dramatically open up the market possibilities for us, especially since the kitchen is the command center of the home.
"What we learn from the Mealtime pilot will drive much of what we do in terms of future product development," says Marcy. "When it comes to home technology products and services, consumers are going to buy [appliances that solve their problems], so collaborative testing is becoming one of the most critical parts of today's consumer research equation."
A leading European appliance manufacturer, Merloni Elettrodomestici (Fabriano, Italy), has taken the smart appliance concept a step further by using radio frequency identification (RFID) technology. Its Ariston line of appliances can read RFID tags on clothing and food.
By fitting appliances with an antenna that can read smart tags, the appliances guide consumers. The appliances' control system processes the information it acquires and issues messages for the consumer on large color displays.
For instance, smart tags on clothes enable the washing machine to select the wash cycle appropriate to the items in the load. If incompatible fabrics end up in the drum, such as whites with colored items being washed for the first time, the display tells users which items to take out.
Typical messages include: "You've put wool and silk together. Better do a wool only or a silk only load." "You've put your new jeans in; it's best to wash them separately the first time." "This load needs an anti-stain cycle; half a measuring cap is the right dose."
Within the past year, several leading appliance manufacturers have announced plans to close or downsize U.S. plants and ship production to offshore locations. For instance, Maytag Corp. (Newton, IA) is closing its refrigerator plant in Galesburg, IL, and moving assembly to Reynosa, Mexico. Carrier Corp. (Farmington, CT) and Trane Co. (Piscataway, NJ) plan to shift production to locations in China and Mexico.
But, not all appliance manufacturers are subscribing to the outsourcing philosophy. In fact, two of the industry's leading players, Maytag and Whirlpool, are taking totally different approaches.
To reduce costs, Maytag plans to outsource assembly. According to Jay Mortensen, director of target costing and cost engineering, outsourcing requires less capital investment and less risk, while enabling Maytag to speed new products to market.
Maytag has developed a corporate strategy to look at each business unit and use outsourcing if it is cost-effective. "We have certain operations in-house that just aren't compatible with the strategy," explains Mortensen. "[We only want to do] those things in-house that really make sense, that we can do well. [We want to] shift items to offshore or domestic suppliers so that we can avoid the capital investment."
On the other hand, Whirlpool recently announced a series of initiatives to strengthen its domestic assembly operations. The company is nearing completion of approximately $100 million of investments to optimize manufacturing processes at seven of its U.S. production facilities.
For instance, Whirlpool consolidated top-loading clothes washer production at its Clyde, OH, plant. Part of the consolidation included units previously manufactured at the company's laundry production facility in Monterrey, Mexico. Today, the units are manufactured in Ohio and exported for sale in Mexico.
In addition, the company has expanded production at its other U.S. plants to be closer to consumers.
David Anderson, Ph.D., president of Build-to-Order Consulting (Cambria, CA), believes that type of production philosophy is better than outsourcing to low-cost countries. "Manufacturers should think twice before making a knee-jerk reaction to go overseas," warns Anderson. "There is a tremendous amount of inventory carrying costs associated with appliances. Efforts to reduce parts costs are being thrown away at the inventory level.
"Appliance manufacturers should focus on cost and delivery problems, not parts and labor cost," argues Anderson. "Local production for local consumption eliminates shipping cost. Regional plants make more sense than going to China or Mexico. Building appliances on-demand close to customers would improve response time and decrease shipping costs."
Anderson believes the appliance industry could benefit by shifting from traditional mass production to build-to-order assembly. "More than half of the refrigerators made are built to go into existing homes," he points out. "Why not build refrigerators to fit the available space rather than the other way around? That way, consumers could also choose the ratio of freezer to refrigerator."
According to Anderson, adoption of build-to-order will "depend on how savvy managers are about supply chain management and operations, in addition to how they perceive cost. If they focus on lowering labor cost, they may be tempted to move factories to Mexico or Southeast Asia, which raises other costs, such as shipping and inventory; makes responsiveness slow; and makes it hard to handle variety and volatility."
Fuel Cell Future?
During the next decade, fuel cells will become more and more common in homes. In fact, they could become as widely used as other household appliances. Residential fuel cells the size of a small refrigerator would supply both the power and heat needed for the typical single family home.
Fuel cells offer numerous benefits to consumers, such as a quiet and clean energy system. "They also provide a more consistent, hotter way to heat water than traditional methods," says Roberta Gamble, manager of the energy department at Frost & Sullivan Inc. (San Antonio).
A variety of tests are currently underway in Europe and Japan. For example, Ballard Power Systems Inc. (Burnaby, BC) has developed a 1-kilowatt cogeneration stationary system to meet the electricity, heating and hot water needs of typical Japanese homes. The natural gas-fueled generator is designed to operate in conjunction with the existing utility grid, allowing consumers to draw power from the grid when their power consumption exceeds 1 kilowatt. However, Gamble predicts most residential fuel cell units in the United States will be 3- to 5-kilowatt systems located in the corner of a basement.
While the $3,000 to $5,000 pricetag remains steep for most households, potential cost savings could make the devices appealing. The Electric Power Research Institute (Palo Alto, CA) claims that 475,000 U.S. residences currently have power costs greater than the cost to install fuel cells.
Many companies are exploring the market for residential fuel cells, including General Motors Corp. (Detroit) and Honda Motor Co. (Tokyo). In addition, gas utility companies are playing an important part in the development process, because most residential fuel cells operate using natural gas. In fact, the Gas Appliance Manufacturers Association (Arlington, VA) has set up a fuel cell division to address codes, standards and consumer education.
Most residential fuel cell activity is expected to revolve around new home construction. According to Gamble, some fuel cell manufacturers are partnering with high-end housing contractors. "They're marketing it as a luxury, convenience product," she points out. Some of them are using the recent power outage in the Northeast as a selling point. They're promoting fuel cells as a backup power system. "When the next big power outage occurs sometime within the next 3 years, people will pay even more attention to residential fuel cells," predicts Gamble, who foresees mass commercialization of fuel cells by 2007.
Many existing homes have not been designed to take advantage of all the benefits that fuel cells can offer. Before demand increases, manufacturers will need to develop an incentive for consumers to retrofit. Unfortunately, those efforts could be hindered by local building codes that address fire and safety requirements. But, several standards developers are addressing this issue. They are developing fuel cell standardization projects that have the potential to quicken market acceptance and bolster consumer confidence in the new technology.
For instance, Underwriters Laboratories Inc. (Northbrook, IL) is developing a "standard for safety for replacement fuel cell power units for appliances." It covers stand alone fuel cells that can be connected to appliances by a cord and plug or other connection means. In addition, the International Electrotechnical Commission (Geneva, Switzerland) is drafting standards for several aspects of residential fuel cell technology.