Zhao Zhiwei, General Manager Of Oviyun's Kitchen And Bathroom Business Unit: Breaking The Wind And Waves, Interpretation Of China's Whole House Water And Household Appliance Consumption Trends

Dear Chairman Xu, General Manager Lv, guests present, representatives of enterprises, and media friends
Good afternoon everyone!
I am very pleased to be with you all in Yibin, the first city on the Yangtze River. This city just arrived last month and also held a meeting related to our industry. It is about comfortable homes
This afternoon, we will share with you the hot water for water, drinking water, and bathing, roughly from these three aspects.
We analyze whether a user needs a water heater, a wall mounted boiler, or a water purifier. They don't need these things, they need water related equipment that can provide them with water solutions, whether it's appliances or appliances. Therefore, today, I have been working on a full house and scenario water solution for this topic, which has always been in line with the needs of enterprise research and consumer users.
Today, due to time constraints, I will spend 15 minutes sharing the three main products of water heaters, water purifiers, and wall mounted boilers, as well as industry development trends and analysis.
Before discussing these three levels, let me talk about the overall environment. In early April, we received data on home appliance categories. Compared to the same period last year, the pressure this year is much greater than last year. However, we also have lower expectations because we do not have the same high expectations as last year. This year, the market environment, whether it is home appliances, home furnishings, or home decoration, has encountered significant market challenges. So this year, our business pressure will be relatively high, but at the same time, it also nurtures some opportunities, because often under pressure, differentiation occurs, and companies with leading products and brands will gain new opportunities.
What are the aspects of this pressure? We have summarized the "four mountains", which were once the "four driving forces" for the rapid development of the home appliance industry. Why has they become the "four pressures" today? Let me interpret it.
Firstly, after the suppression of the new housing market, consumers who purchase household appliances, including kitchen and bathroom appliances, consider many factors when buying a water heater or water purifier. They will "make cautious decisions and make rational purchases", which is the change this year. Everything stems from the rational return of consumption, called "group rationality". It is not that they lack purchasing power, but that their willingness to consume has not been activated. Therefore, in our next market operation, we need to consider how to use your products and marketing to move their emotional and emotional values.
Secondly, the real estate dividends and market performance that are closely related to us. The entire new housing market has experienced a 20-30% decline in the past two years, with developers receiving construction, delivery, completion, and supporting facilities. Why has the government been promoting trade in and equipment updates in the past two years? Because we have entered the era of existing housing, we will study how to grasp and activate the needs of existing users in the future.
Thirdly, the rapid development of household appliances comes from the rapid popularization of penetration rates. Home appliance products have gradually entered thousands of households from the past "four major items" to the "new four major items", with a slow penetration process. Driven by policies, such as going to rural areas, exchanging old for new, and providing energy-saving subsidies between 2008 and 2015, the penetration rate has actually been rapidly increased, from urban to rural areas. For example, the penetration rate of water heaters exceeds 90% in urban areas and 80% in rural areas. Such a high penetration rate depends on replacement and installation, which is determined by the characteristics of the industry. But our water purifier penetration rate is 12%, and there is still a lot of room to explore and improve the penetration rate of this product. However, in order to provide consumers with better purchasing reasons, what kind of product driving force can drive the rapid penetration of this product, from rural to urban areas, from 10% of households to 70-90% of households.
Fourthly, the industry itself is particularly important. The biggest mountain that the home appliance industry needs to overcome today is the revolutionary change in products, and technological revolution is the cornerstone that leads an industry to take off again. If our water heaters, water purifiers, and HVAC products do not give consumers new usage and functional value in the new era, and do not have new emotional value to activate them, it will not activate the entire market.
Taking television as an example, if it is a minor upgrade iteration, it cannot activate trade in, it can only activate "trade in". We have analyzed that "trade in" and "trade in" now account for 60%, with nearly 40% being trade in. Therefore, when we trade in, we need to rely on product capabilities to drive it.
The entire industry has entered a new Juglar cycle, characterized by slow growth and relatively low growth rates accompanied by internal competition, and even short-term fluctuations. This is the market's plan for a tough life in the next 2-3 or even 3-5 years, as the "four driving forces" of high-speed development mentioned earlier have encountered problems and bottlenecks.
Specifically, in the kitchen and bathroom scenarios, there are many electrical appliances, including range hoods, gas stoves, dishwashers, water heaters, and so on. However, these products can be roughly divided into three categories: the first category is to meet the basic needs of consumers, which are definitely needed at home. For example, water heaters are essential products, whether they are using solar energy, heat pumps, or thermal power. The home needs a machine that can take a shower, which is essential. The second type is water purifiers, which have optional or alternative solutions, but are necessary for the quality improvement of the population. The third type is the integration type, which integrates many functional products together, such as dishwashers that combine washing, disinfection, drying, and storage functions. For example, the integrated heat purifier integrates new functions and provides new hot water solutions.
From the above three development directions, the category of essential needs relies on product and technological upgrades to drive the release of demand for new products; The categories of products needed depend on consumer education and market cultivation to drive rapid market expansion; The integrated category provides more precise solutions for consumers, meeting their diverse functions. Otherwise, we won't be able to overcome the previous few pressures. From the performance of the first quarter of this year, it can be seen that the different structural changes of the above three types of products have driven our growth in the first quarter. But at the same time, we will make a relatively large prediction, and we will face significant market operating pressure in the second, third, and fourth quarters compared to the same period.
In the second part, we will share with you the main development trends of several household water appliances products:
The first section, let's take a look at the so-called whole house water use, which refers to the solution that consumers need for a water system for the whole house. In fact, there are many water related devices for household use. In the field of comfortable home, water solutions are only one of the eight systems. Our water and drinking water solutions are only a part of consumer households, but even in this part, they are relatively complex and diverse. We need to use a series of water use devices to meet consumer needs in different scenarios and ends of life. At the level of different needs for domestic water, as well as the combination of domestic drinking water and domestic water, corresponding equipment and the linkage and integration of corresponding equipment are needed to solve the kitchen, bathroom, living room, and even balcony. This is the direction of our entire industry research and development upgrade and future market operation.
Chapter 1 Looking at the Water Heater:
Water heater products are essential products, and after years of market accumulation, they have stable sales every year with slight growth this year. This growth is mainly driven by equipment updates. Our gas water heaters are rapidly driven and penetrated through pressurized zero cold water, silent zero cold water, energy-saving zero cold water, and constant temperature products, as well as the penetration of the 16 liter main product, to drive the upgrading of this industry. Electric water heaters replace large barrel and round barrel products with ultra-thin and fast heating products, and use more aesthetically pleasing and intelligent products to drive consumer renewal. These two factors drive a 5.6% increase in sales of water heaters in the next quarter.
In the engineering field, it can also be seen that the pressure of hot water products is relatively high on the B2B end, because the industrial and commercial field belongs to the standard category of products. Whether it is solar heat pumps, wall mounted boilers, or water heaters, they all need to be matched in a 1:1 ratio. Therefore, the project has dropped by 30%, while our industry has dropped by 16% based on the matching quantity, which is approximately this level.
From the perspective of category structure, in the past two years, our gas pipelines and the number of gas users have rapidly increased. These two factors have driven the transition from first and second tier cities to even third tier cities. Our gas intake conditions and household base are increasing, so the driving force for the growth of gas relative to electric heating is relatively more. Therefore, the growth of gas structurally has been slightly faster than that of electric heating in the past two years, which is the first trend. The second trend, from the perspective of consumption classification, whether it is the dumbbell shaped consumption structure or described by the K-line, has encountered some growth bottlenecks in the upper end of the K-shaped market in the past two years. We can see that high-end products and brands have also encountered some pressure since the beginning of this year. However, with the downgrade of consumption, consumer segmentation has led to rapid expansion and growth in low-end products, online channels for cost-effectiveness, and pricing of low-end products in the past year and even in the first quarter of this year. Therefore, this year, there are relatively high requirements for cost control and product development, and more users are always seeking "high configuration with medium price, and medium configuration with low price".
From the perspective of product upgrades, there are three aspects: the first is that the need for appearance upgrades remains unchanged, as changes in consumer groups require a unified and personalized appearance and home style, with an increase in the proportion of silver and white. Gas water heaters, such as flat bucket machines (transliterated) and square machines, are all manifestations of appearance upgrades, such as small volume and ultra-thin. The second is experience, as water immersion ultimately needs to meet consumer needs, constant temperature replacing zero cold water has become the second main growth space. In the past, the first stage was to solve safety issues with gas water heaters and electric heating, the second stage was to solve the problem of rapid heating of zero cold water, and the third stage was to solve the problem of sudden cold and constant temperature. Now, various technological means are used to solve the problem of constant temperature, which is the main direction of experience upgrading. The third one is intelligence, and the sales of smart products that truly meet consumer demand are growing.
Chapter 2 Looking at Water Purifiers:
The water purifier industry is quite large. We don't just talk about big water, but also the small household water, which has been divided into many categories. Water purifiers account for about 60% of household water usage scenarios, while the rest are various end products, including drinking water and water purification equipment products. This is the first product structure. The water purifier achieved a bottoming out rebound in 2023, achieving double-digit growth due to consumer demand for health and the cultivation of health concepts after the epidemic. In the first quarter of this year, sales saw double-digit growth, with a growth of 7.7%. But there is an issue worth paying attention to here, similar to water heaters. Any increase in quantity greater than the increase in value means that the competition in price war is very fierce, which means that the average price of products with the same style and configuration is going down. This is worth paying attention to.
From the perspective of product structure, we can see that the first volume in any industry is parameters, and upgrading to a large scale is a constant feature of the Chinese people. With the increase and rapid penetration of the number of gallons of flux, many products are now more than 1000, and even some Internet brands are more than 1200. At the same time, we see changes in prices, and the downward trend in prices is very obvious. We have already discussed this issue on the first page earlier.
Along with the upgrade of product form, the product of the purifier gives the impression that it is closely related to healthy drinking water. One is convenience, why is it integrated with heat purification? It has a relatively fast penetration rate. One is embedding, which is why embedded water dispensers have developed relatively quickly in the past two years. The most important thing is healthy and safe drinking water, so mineral content and preservation of water quality and health will also become more important points for consumers in the next two years.
Chapter 3 Looking at HVAC:
Air energy is not listed today. In the field of wall mounted boilers, after the peak of coal to gas conversion in 2020, the pressure on the wall mounted boiler industry has been very high in the past two years! Its retail and engineering have experienced a significant decline, as there are many alternative solutions for this product, such as dual supply, triple supply, and centralized heating, many of which have strong substitutability for this product. So in the past two years, the price of wall mounted boilers has been very competitive, and the condensing fully premixed products have been experiencing a downward trend in localization and rapid prices, approaching double-digit prices. The product revolves around condensation, which is its rapid penetration and popularization in terms of energy conservation and intelligence.
For the market in 2024, we make a simple prediction:
Firstly, last year there was a delay in guaranteed delivery of buildings and real estate decoration, and this year there will be a whitelist. Now, many companies such as Evergrande, Vanke, and Country Garden are facing a crisis in their operating capital chain. However, this year the country has listed many whitelist projects, which will ensure the financing and delivery of properties within the whitelist projects. This is the first one, and everyone should pay attention to the whitelist projects.
Secondly, we should pay attention to the strength of the policy of exchanging old for new in various regions. Nowadays, it relies on local finance to drive it, and the driving effect is more obvious in regions such as Shanghai, Guangdong, and Shandong. Therefore, we need to make timely reserves for local products and the replacement of local products.
The entire market only lists water usage as a priority, which is actually under pressure and shows no signs of recovery. The market has slightly declined, but the slight decline is accompanied by market opportunities. Firstly, the brand structure may develop towards concentration, and you are the top and leading brands in the industry. The industry must be accompanied by medium to long tail brands; The second is the upgrade of product structure, where we replace some relatively basic products with more advanced features in the past; The third is that consumption is upgrading towards quality and intelligence, which has become a resilient development in the market, ensuring the sustained and stable development of the 80 billion yuan market for all household water products in the next two to three years.
That's all for my sharing. I have selected a small report from the entire report. If you need a complete report, you can request it from your backend colleagues.
Wishing this forum a complete success and wishing the household water solution enterprise good business performance in 2024.
Thank you.