Head: Russian TV manufacturers tuning in to possible price war
Subhead: After a boom period, domestic companies having to fight for market share
Pullout: ' Last year, Russian companies produced 2 million televisions, but they sold only 1.7 million… What we have now is an overproduction crisis.'
By Ivan Gnuni
For a shopper looking to purchase a television set in Russia, it's a pretty picture: plenty of models and rapidly declining prices. But for manufacturers, it's becoming a bad scene - the glut of televisions sets on the market might soon force domestic manufacturers into a price war that could squeeze profits to bare minimums.
The price of a mass-market, 21-inch TV set, now at about $140, could fall to below $100 if the overproduction doesn't end, the Russian Association of Electronic and Computer Technology Retailers and Manufacturers (RATEK) predicted.
Between 4 million and 5 million televisions were sold in Russia last year, according to RATEK. Russian brands --Rekord, Polar, Rubin, Sokol, Erisson, ERC and others -- accounted for about 1.7 million of them, while another 500,000 came from Belarus. The rest, more than 2 million, were imports, the group said.
The rise in consumers' purchasing power and their desire to step up from Soviet-era TV clunkers led to good times in the industry and helped give birth to dozens of large Russian electronic-goods manufacturers. Old brands such as Rubin and Horizont have been joined by newcomers such as Sokol, Rolsen, Erisson and others. Major Russian company AFK Sistema has now entered the market with its Sitronics brand. Production jumped 70 percent in 2002.
Before the economic collapse of 1998, foreign makers such as Sony and Panasonic had dominated the Russian market. But devaluation forced their prices higher. Middle-range models made by Korean companies LG, backed by heavy advertising campaigns, initially moved took the lead in the market, but soon even those models were priced out of the market for the average Russian.
This created a new niche for cheaper electronic goods -- a market snapped up by Russian manufacturers. In 1999, local producers geared up for big production, and, in 2000, the boom began, with 1 million Russian and Belarusian TVs sold in Russia. Cheaper Korean brands such as Funai and Akai were quickly overtaken by Russian-made models.
RATEK figure show that Moscow-based Rubin is the leading Russian TV manufacturer, with output of 600,000 sets in 2002. Rubin plans to produce 1 million units in 2003. Next in line is Sokol, with 300,000 sets in 2002 and a planned production of 500,000 in 2003. Rolsen produced 240,000 in 2002, as did Kaliningrad-based Erisson, and Belarus’ Horizont made 150,000.
That growth, said Alexander Plyatsevoi, the president of RATEK, was given a big boost by the increased purchasing power of Russians, especially in the regions.
Russian manufacturers strong areas remain in the regions, where a 10-20 percent price difference between local and Korean models makes a big difference for consumers. In higher-income Moscow and St. Petersburg, Russian producers' share of the market is less, experts say.
“In Moscow, we can really only count on selling to people buying the family’s second or third TV,” said Ilya Tsoi, advertising manager for Horizont-Soyuz, general representative of Horizont in Russia.
In the regions, said Natalya Morzhova, head of the electronic-goods retail research department at GFK, active marketing strategies and low prices have helped Russian companies take up to 20 percent of the market in bigger cities.
Analysts say that if Russian makers can keep a lid on costs, avoid an all-out price war and if the Russian economy continues to grow, they can avoid a crisis in the sector. Igor Berezin, director of analytical group Expert-MA, said Russian manufacture are holding up for the time being. “The combination of low prices the can offer and decent reputations is helping them take the lead in the low-cost segment,” he said.
Many Russian consumers are still attached to the names of the Soviet era. Rubin, Horizont, Vityaz and Rekord are all brands that date back to the 1980s. “We make active use of the fact that our brand is familiar to consumers,” Horizont’s Tsoi said.
Oleg Ulyansky, marketing director at Rubin, agreed. “Our brand speaks for itself,” he said. “It’s because our brand is well-known that our sales are so high.”
At the same time as demand for Russian TV sets gained steam, big retailers also hurried into the market. M-Video, for example, promotes its Sokol brand, while Eldorado sells televisions under the Elenberg brand.
Both retailers chose to develop new brand names rather than slap their chain brands on their TV sets for competitive reasons.
“If we were to sell televisions under the brand name M-Video, no other store would sell them,” said Sokol Commercial Director Alexander Levantovsky. “For production to be profitable, we have to produce at least 150,000 televisions a year, and no single retail chain can sell that many on its own.”
Consumers might also doubt the objectivity of salespeople if they walked into an M-Video store and saw an M-Video brand TV set,” the chain's Ulyansky said.
But not all big distributors are enthusiastic about the prospects for Russian-made televisions. Retail chain Partiya, for example, does not work at all with Russian producers, citing reasons of “corporate policy.”
Andrei Zuyev, the PR director of the Mir retail chain, said that the market is not favorable overall for Russian brands. “If the price difference is not very big, consumers would sooner buy a Korean product, all the more so as the quality of the Russian models still leaves something to be desired,” he said. “So, even though there has been an active advertising campaign, our chain has not seen their sales rise.”
A Turkish company doesn't appear to have anything against Russian-made TV sets, although it has run into problems trying to set up a venture here to manufacture them. The company, Vestel, arrived in Russia a year ago to begin assembling televisions under the Soviet-era brand Rekord at a new plant now near completion in Vladimir Oblast. However, a dispute between Vestel and Rekord prevented a final agreement on the joint venture, and the Turkish company is now negotiating to buy the Rekord brand to begin production on its own. The company said that marketing sets under its Vestel name in Russia is a more-expensive option because the brand lacks any recognition here and would require a major marketing effort to make an impact.
Harun Bolel, general director of Vestel’s Russian office, said that the company plans to assemble 20,000 televisions at its Alexandrov facility this year. “By 2005-06, we plan to increase production to 2 million televisions a year,” he said. “For now, we will produce the televisions under our own name.”
Dmitry Timanov, general director of Sokol, said that the Turks were interested in getting the rights to a well-known local brand. “Two million televisions is a third of the Russian market,” he said. “With Rekord and the seven or eight Japanese brands that Vestel assembles in Europe, they could have captured this segment, but with just the Vestel brand, it’s unlikely. They would have to spend too much money on marketing the new brand.”
Analysts say that the market is already crowded already, and the arrival of newcomers is setting off marketing wars. “Until recently, it was relations with distributors that were the main thing,” said M-Video’s Ulyansky. “Now the market is more crowded, and advertising is becoming more important.”
Most analysts agree that the low-price segment has room for only two or three large players rather than the dozen-odd companies currently fighting for it. This means that whoever can pump the most money into advertising will win.
The price wars triggered by a production glut began in January this year. By April, set prices had fallen by $15-$20. “Last year, Russian companies produced 2 million televisions, but they sold only 1.7 million,” said Dmitry Stukov, chairman of RATEK’s production section. “What we have now is an overproduction crisis.”
“The real indicator of things to come will be autumn,” said Eduard Polyakov, general director of Polar, a company producing electronic and household appliances. “If prices don’t rise in the peak season, this means they will continue to fall further. The situation is tense now. There’s a 50-50 chance that prices will rise.”
This summer will be decisive for local manufacturers, and it seems likely that whoever manages to survive this period of intense competition will stay in the market in the years to come.