By Victor Ollivier and Melissa Antieul

With growth outpacing that of the total water market, entering the residential and commercial (Res & Com) market is an increasingly attractive proposition for numerous players across the water industry and adjacent markets. Despite often being referred to as a niche vertical, the Res & Com market is anticipated to see growth of 5.8 percent to bring a market worth $45.4 billion (USD) by 2024. Moreover, the market has proven highly resilient through the COVID pandemic. In particular, the residential market has evidenced sustained growth driven by stay-at-home messaging and investing in the home office as hybrid work schemes are adopted. This dialogue is encouraging, but the question is, “Where and how to best leverage these opportunities and take the plunge?”

Mirroring the shifts in the wider economic balance, much of the accelerated Res & Com market growth will be steered by emerging markets. Although North America currently represented the largest market at $9.1 billion in 2019, as with Western Europe, it is seeing slower growth below four percent. Impetus and strategic interest is turning to the Asia Pacific region – specifically the powerhouses of China and India. Together, the two markets will see double-digit growth to bring a tempting market value of $16.0 billion in 2024.

Figure 1: Global Res & Com market size ($bn, 2019) and growth (CAGR %, 2019-2024)Promising fortunes in Asia Pacific
A golden combination of increasing awareness of water quality, larger disposable incomes and willingness to spend on water treatment systems will drive growth in the APAC region. China and India will represent over 40 percent of the global middle class by 2030, with India representing the world’s largest middle-class consumer market. The European Commission estimates that middle class spending will grow from about $37 trillion in 2017 to $64 trillion by 2030. This is not anticipated to change with the COVID-19 pandemic as wealthier consumers – especially in China – have evidenced fewer financial impacts. Poor municipal water quality makes water treatment products seen as necessities in these markets. For example, nearly 70 percent of Indian surface water is contaminated by biological, toxic, organic and inorganic pollution.

Across China and India, residential water treatment accounts for over two-thirds of the total market, although growth to 2024 will be led by the commercial market. Both countries can be characterized as POU markets – particularly for bottle-free coolers (BFC). Unlike the mature markets in North America and Europe, POE remains an under-penetrated market due to large footprint size and prevalence of apartment living in China, and the high fragmentation of the market in India.

Capturing the uniqueness of the Chinese market
The Chinese Res & Com market was valued at $5.6 billion in 2019, second only to the United States. It is anticipated to grow by 15 percent to 2024, supported by the fact that the Chinese economy was the only major world economy to show positive growth in 2020. Tightening regulations and government supervision on water quality have also pushed households and commercial establishments to improve their own purification systems to prevent health issues. Since there is the general perception that filtered water is healthier, it is used in all tasks, including cooking.

The Chinese market is further differentiated from other countries in its unique habit of drinking boiled hot water – rarely sparkling or chilled water. This drives a high degree of localization in product functionality – a key determinant to the competitive landscape. Under-the-sink (UTS) solutions are particularly popular across all market segments, including hotels, restaurants, cafés (Ho.Re.Ca). Within this, greater attention is being paid to RO systems with higher flow, lower brine production and compact design. Water dispensers – bottled-water coolers (BWC) and BFC – are also common, especially in the commercial market.

BFC are expected to gain market share due to the shift away from the use of plastic bottles with BWC, in addition to improved logistics and cost efficiencies. Unlike European and North American markets, BFC countertop is expected to be increasingly common in the residential market. Though in a relatively early phase of development versus other home electronic devices and POU solutions, this market is expected to increase by 18 percent. Although the commercial sector is anticipated to see higher growth, the Chinese Res & Com market is a de facto residential market. The stronger business focus on residential has allowed market players to better weather the COVID crisis and it is certainly a business strategy to follow.

In addition, China’s Res & Com market is a mature value chain with more than 1,000 companies engaged in parts to equipment manufacturing, Moreover, these companies cover not only China; many also export to support the world market. China’s Res & Com market has a strong base to support high growth. This accelerates product innovation as does strong local competition. Beyond this focus on product functionality and business strategy, partnerships and acquisitions are a strategy to make inroads into the Chinese Res & Com market. A number of global players have entered the Chinese market in the past five to 10 years via 100-percent acquisition or majority stake of a key local player. More recently, however, global players have been forming strategic partnerships focusing on leveraging local manufacturing and product development capabilities, alongside sales channel deployment.

Technological emphasis in India
The Indian Res & Com market was valued at £3.3 billion in 2019, ranking third in size to the US and China, and ahead of mature European markets and emerging markets like Brazil and the GCC. Growth, especially in the offices sub-segment, will be strong at eight percent to 2024. While the full impact of the Delta COVID variant is yet to be seen, the overwhelming need for water purification due to high levels of water contamination and poor drinking water quality should persist.

The Modi government, alongside environmental watchdog the National Green Tribunal (NGT), has been focusing on improving the water situation with an increasing number of projects and regulations on water supply and treatment. Alongside this, as education and awareness on drinking water quality grows, water purification products are considered a necessity rather than something nice to have. The Indian market is unique in its preference for wall-mounted BFC across both the residential and commercial markets.

To date, hybrid BFC models applying RO with UV or UF have proven popular. Through pressure from the NGT, however, the Indian Ministry of Environment is in the process of officially banning RO systems in areas with water quality below 500 TDS. The ban is driven by water wastage and groundwater pollution concerns and has been delayed by a year already, but is expected to be implemented this year alongside stricter guidelines for manufacturing RO systems. This is anticipated to bring a more diversified technology market with UV and media filtration driving growth going forward, especially in water areas below 500 TDS (such as Delhi).

Ultimately, the Indian market is technology-driven, with consumers wanting to discuss product specifications, performance and needing to see the proof of effectiveness or certification. With this evidence, the market presents a huge opportunity for technology and equipment providers – especially for UV. Other trends include remineralization, a trend also taking hold in China and the UK, with Indian consumers interested in alkaline and copper filters’ perceived immunity benefits.

Localness as the key to success
Ahead of taking advantage of these opportunities, however, it is important to note that local embeddedness is important. Like the Chinese market, partnerships with local players or financial backing from Indian investors will be key to market entrance and growth across both markets. On top of this, brand trust and pricing are is key purchasing criteria for the Indian consumer. Thus, investment in marketing is critical, and has historically often been where other international players have failed.

Summary
The Asia Pacific region and the Chinese and Indian markets specifically, hold promising opportunities for the Res & Com market in the next five years. Increasingly as global players take the plunge, whether in a specific market segment, product or technology, an understanding of the local consumer and business strategy particularities will be critical to success.

Note: Market sizing and growth do not include COVID impact.

About the author
Victor Ollivier is a Principal at Amane Advisors, the premier global advisory firm focused on the water industry. Based in Paris, France, he has over 10 years of experience in the water industry and leads Amane’s Residential & Commercial water offering globally. He can be reached at vollivier@amaneadvisors.com.

Melissa Antieul is a Consultant and Researcher at Amane Advisors, dedicated to the Residential & Commercial market. She is based in Oxford, UK, and can be reached at mantieul@amaneadvisors.com.

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