Challenges ahead for refrigeration manufacturers as environmental concerns are addressed

Citation

(2001), "Challenges ahead for refrigeration manufacturers as environmental concerns are addressed", Facilities, Vol. 19 No. 13/14. https://doi.org/10.1108/f.2001.06919mab.002

Challenges ahead for refrigeration manufacturers as environmental concerns are addressed

Challenges ahead for refrigeration manufacturers as environmental concerns are addressedKeywords: Environment, Economic growth, Refrigeration market

Refrigeration manufacturers are facing tough times as spending is restrained by the slowdown in global economic growth and environmental concerns affect the choices being made.

However, the construction of new shopping facilities and expansions in the cold chain are having a positive effect on the European refrigeration market.

Latest research from market analysts Frost & Sullivan (http://frost.com) valued the European market at $1.77 billion in 2000. It is forecast to rise to $1.88 billion in 2007, an increase of just 1.8 percent (see Figure 1).

Building technologies industry analyst Bjorn Larsen explains the modest increase: "The USA has entered a phase of slower growth, which is expected to spread to Europe, depressing investment. The main end-user industries – chemicals, food processing, beverages, retail and pharmaceuticals – are all going through a consolidation phase. This has forced widespread plant closures and put future investment plans into question.

"This is expected to reduce demand for refrigeration equipment, especially in 2001 and 2002, although it is expected that demand will return to normal during the forecast period."

Figure 1 Total European refrigeration market revenues (2000-2007)

The study found consolidation in the retail market had also created the following challenges:

• •

  greater customer bargaining power;

• •

  requirement for international service; and

• •

  market transparency.

"The consolidation increases the bargaining power of the major chains by increasing the average order size," Mr Larsen continues. "Furthermore, the major chains are expanding internationally, expecting the suppliers to provide service internationally. In addition, it increases market transparency by giving companies access to information on what other companies were paying, enabling them to improve their bargaining position, leading to greater price pressure.

"Alone the challenges are difficult to overcome. but the combined effect is intimidating, nonetheless it will be essential for the companies to develop a sound response, because this will be essential for the continued profitability of any company in the refrigeration market."

The study split the European refrigeration market into six segments: compressors, condensors and evaporators, transport systems, packaged cold storage systems, display cabinets and carbon dioxide (CO₂) display cabinets.

The CO₂ display cabinets have the most potential for growth, according to the study. It has been estimated that the market currently generates revenues of approximately $305,000, but it is expected to reach revenues of $229.8 million in 2007. This substantial increase will be driven by environmental concerns, particularly the uncertain future of HFCs.

HFCs are currently the most commonly used type of refrigerant, but because of the global warming potential they could be phased out. Alternatively, higher taxes could be imposed on the refrigerants.

This will introduce two major challenges for the refrigeration industry:

1. 1.

   It will require the industry to develop new systems. This will be costly, forcing further consolidation.

2. 2.

   It will require substantial investments in installer training to ensure that they are capable of working with the new refrigerants.

Several alternatives to HFCs are emerging including: water; CO₂ Iso-butane ammonia and hydrocarbons.

The refrigeration compressors market was valued at $2.07 billion in 2000. This is expected to increase over the forecast period along with the expansion in the cold chain. In addition, demand for domestic products and air conditioning is expected to increase demand.

The evaporator and condensor market (worth $502 million in 2000) has also benefited from the expansion of the cold chain leading to an increase in demand, although the crisis in the food industry following BSE and now foot and mouth has restricted demand in 2000 and 2001.

Overall, Germany is the largest market in Europe, with a revenue share of 23.4 percent in 2000. France was second with 162 percent, and Italy was third.

Frost & Sullivan is an international marketing consulting company that monitor a comprehensive spectrum of environmental markets for trends: market measurements and strategies. This ongoing research is utilised to complement a series of research publications to support industry participants with customised consulting.