Food revolution helps Electrolux to sharpen its image
By Patrick Lannin | November 22, 2012 1:21 AM EST
The U.S. head of Electrolux,
Keith McLoughlin, chief executive of the Swedish company since 2011, wants to shake off the fusty image of cookers, fridges, vacuum cleaners and washing machines to draw in consumers and increase profits.
Offering space-age cooking tops and developing an oven that can smoke food or monitor it with cameras, the push is part of Electrolux's strategy to change focus after years of cost cutting and factory closures.
The group wants launches of new products to let it raise prices in weakening key European markets to maintain profitability and fend off competition from U.S. rival Whirlpool
"There is a huge food revolution going on around the world...More and more people focus on food, better quality ingredients, taking cooking classes, TV shows with chefs, chefs are the new celebrities.," McLoughlin told Reuters.
"For us, ultimately, what we are going to get paid for is to bring more consumer relevant stuff to the market."
McLoughlin's push is focused on kitchens as cookers are Electrolux's strongest global market position.
This year it launched a high-end kitchen range retailing for 80,000 euros, which McLoughlin said shows Electrolux's dominance in professional cooking equipment.
The company has also sponsored a travelling restaurant called The Cube, which sits atop famous landmarks in European cities including London and Brussels.
It says it innovates outside the kitchen too, citing handheld vacuum cleaners for small areas of grime.
The stress on product launches is in sharp contrast to an earlier focus on getting its manufacturing base right.
That involved cutting its workforce in western Europe, which stood at more than 45,000 people in 1999, to just over 13,000 by the end of 2011. Staff numbers have risen in countries such as Mexico and Brazil where wages are lower.
The company is still cutting costs, closing factories in western Europe and opening new ones in Asia. But McLoughlin said more money was now spent on marketing, research and development.
Products also had to be preferred to similar items on the market by at least 70 percent of a test group before launch.
Investors have this year given the thumbs up to Electrolux and Whirlpool due to expectations they have seen the worst of raw materials costs rises, are benefiting from cost cuts and have managed to get through price rises in mature markets.
That has shown in a 50 percent share price rise for Electrolux this year, one of the top three performers in Stockholm, and in Whirlpool's 80 percent rise.
That is due to expectations of growth, with Thomson Reuters StarMine data showing analysts expect Electrolux operating earnings to reach 6.5 billion crowns by end-2013 from about 3 billion last year. Whirlpool's earnings are seen rising to $1.3 billion from $792 million in 2011.
Whether those expectations are borne out is linked also to the consumer push in mature markets, as well as efforts to grow sales in faster-growing emerging markets.
"Basically the only way you can raise prices in the European appliances industry is to come up with new products, with new features and new designs," said DNB analyst Christer Mangergard.
He said the share rise showed investors were already pricing in earnings growth and he was now neutral on the stock.
"Next year there are tail winds and headwinds, some pluses and minuses which sum up to not such a big upside potential in consensus earnings estimates as I would like to have," he added.
MAKING A FRIDGE SEXY
To back up his drive, McLoughlin for the first time appointed to the management board a chief technology officer, who is a German, a chief marketing officer, from the United States and, most recently, a chief design officer - an Italian.
The three are on the management board and are supposed to work together to drive out consumer-focused products faster.
The chief design officer is Stephano Marzano, who was on his way to retirement from Dutch consumer electronics group Philips when McLoughlin got him to join Electrolux this year.
Marzano does the big thinking about home appliances, lifestyles, the kind of space people have to live in, whether they are environmentally aware and about changing eating habits.
That means getting away from the standard image of a household appliance as simply a metal box.
"Perhaps we will not only talk about the refrigerator as it is now, but as a food quality preservation centre," he told Reuters at the company's headquarters in the Swedish capital.
"If you are someone who likes cooking and likes eating, suddenly the refrigerator and how the fridge can maintain the cheese and the meat can be sexy." ($1 = 6.8020 Swedish crowns)
(Editing by Anna Willard)
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