Agitation in the whiteware market

By Yoke Har Lee

Between the lines

Two takeovers in two days have served Fisher & Paykel double trouble for its Australasian whiteware strategy. How it responds will crucially affect its fortunes.

At home, the Farmers Deka bid yesterday for Pacific Retail - if successful - threatens F&P's exclusive sales arrangements with Farmers and a large network of independent dealers across the country. The minimum outcome will be more pressure on F&P's margins.

In Australia, F&P's competitive position was weakened on Monday when its local rival Email bought the domestic appliance business of Southcorp. This is the more serious of the two problems for F&P because Australia is a big growth market compared to the New Zealand one it leads.

The New Zealand situation could be partially defused quite easily. F&P could let Farmers retain its exclusive sales arrangement even though Pacific Retail's Noel Leeming stores stock rival appliances. But Farmers will certainly use its increased muscle to drive a harder bargain with F&P. Then the independents, who are banding together in consortia such as the Appliance Connexion, would expect similarly good terms.

Alternatively, F&P might take a hard line and cut off Farmers from the sales arrangement, thus denying the retailer its products. Then appliance retailing would come down to a straight fight between large chains stocking the rival products and independents stocking F&P. The history of retailing in other countries clearly shows the chains win in the end.

Either way, F&P will have to think very hard whether it wants to stick with its anachronistic exclusive sales arrangement.

In Australia, the rationalisation of the whiteware industry will present opportunities as well as challenges for Fisher & Paykel. The first step is to see how the Australian Competition & Consumer Commission reacts to the deal and how Email treats the brands it will acquire. There will be plant rationalisation in the process.

The deal gives Email some 60 per cent market share against F&P's distant second at 25 per cent. But it was unrealistic for F&P to have made a pre-emptive strike. It has modern production facilities which can serve it for at least the next five to 10 years. It can ramp up production at minimal additional costs.

Moreover, it has a premium brand name in Australia.

Thus, F&P now has a small window of opportunity to raise its performance while Email sorts out its acquisition.

F&P's has had for a while a two-pronged strategy to improve its whiteware business: one, tackling major mass whiteware market in Australia and New Zealand through attractive pricing and clever marketing; two, providing higher-margin products through innovation via the Quantum project introduced last year.

Both prongs can carry it through the dilemmas it faces from the takeovers in the two markets but it will have to play its cards right as it adapts to the changing circumstances.