By Victor Ollivier, Principal
The Residential & Commercial water market in APAC presents a host of opportunities for industry players as well as investors. As noted in our article in the Fall 2020 issue of amane currents, “Residential & Commercial Water Market: an outlook of growth, innovation and expanding opportunities,” we anticipate 5.8% growth in this sector over the next five years, a rate above that of the total water market. That will result in a market worth $45.4 billion by 2024.
With growth outpacing that in the USA and much of Europe, the Asia Pacific region will be critical to increasing the global growth rate of the Residential & Commercial water treatment market during that timeframe. China and India are growing the fastest in the region at 14.6% and 8.1%, respectively.
The main driver is the growth of the middle class and with it an increase in disposable income that is available for spending on water treatment among other things. China and India will represent over 43% 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 significantly change with the COVID-19 pandemic, as wealthier consumers – especially in China – have evidenced fewer financial impacts.
Another factor driving middle class spending on water treatment technologies, especially Point-of-Use (POU) is the growing concern about water quality, as countries in the region become more aware of and educated about the impact of contaminants in drinking water.
The Chinese Residential & Commercial market is estimated to have been worth $5.6 billion in 2019, rising to $11.2 billion in 2024, second only to the US market. Over 70% of the market is residential, although the commercial market is expected to see slightly higher growth rates over the next five years at 15.5%.
Growth of the Chinese market is expected to remain promising despite the COVID-19 pandemic, and in fact, the Chinese economy was the only major world economy to grow in 2020, with a growth rate of 2.3%.
The Chinese market is driven by POU, as these devices are seen as a necessary home appliance. This is linked to poorer municipal water quality and cultural concerns around wellbeing; filtered water is seen as healthier and is used in the majority of household applications, including cooking. With limited ability for servicing and maintenance as a result of COVID-19, there has been a rise in sales of simple POU devices – DIY solutions – that require little or no installation.
Point-of-Entry (POE) remains an underpenetrated market, partly due to the large footprint softeners require, and the prevalence of apartment living. However, as softeners with smaller footprints come to the market, POE is expected to grow.
Under the Sink (UTS) solutions are popular particularly in both the Residential and Hotels, Restaurants and Cafés (Ho.Re.Ca.) sectors, which is expected to grow at 16% over the next five years. High levels of competition
in innovation and manufacturing translate into the popularity of low-cost UTS solutions that apply RO.
However, the largest commercial market is offices, which heavily favors Bottled Water Coolers (BWC), often with no filtration, and Bottle-free Water Coolers (BFC). The latter are anticipated to continue to gain market share from BWC due to concerns about bacteria growth in stagnant water in BWC, in addition to improved logistics and cost efficiencies.
While the BFC market was worth over $1.0 billion in 2019, it is expected to exhibit a growth rate of 17.8% and be worth $2.3 billion in 2024. With this shift to BFC, the Chinese market is also seeing a growth in the popularity of the rental model.
The Indian Residential & Commercial water market was estimated to be worth $3.2 billion in 2019, rising to $4.9 billion in 2024. Purification is becoming a necessity, as nearly 70% of surface water in the country is contaminated by biological, toxic, organic, and inorganic pollutants, according to ValueNotes.
The penetration of drinking water treatment products in the Residential & Commercial market to date has been low with a reliance on bulk water and simple low technology boiling or drip pots for filtration. However, as education and awareness of poor water quality grows, the market is expected to boom. Indeed, the market is seeing a strong use of direct sales channels to improve education, and as interest grows, there are an increasing number of players in the market.
A growing middle class and overall household income level increases the total addressable market of residential sector especially in the urban areas. Around two-thirds of the market is residential, although the commercial sector, and specifically offices, are expected to drive growth going forward.
Water purifiers such as BFC and UTS have gained significant share in recent years, driven by the fundamental need for better quality drinking water and a rising income level. Due to low confidence in local tap water quality, a water purifier is considered a necessity rather than something “nice to have” to provide good quality drinking water.
Wall-mounted BFC is particularly popular in both residential and offices, accounting for the majority of applications in both sectors – a trend relatively unique to India. The market for BFC is expected to grow by 11% over the next five years to be worth $2.7 billion in 2024 – the highest market share in terms of products. An expansion of office spaces and business parks in the country will continue to drive the demand for water purifiers in commercial sectors.
With growing disposable incomes, more complex solutions such as RO and MFT are anticipated to gain market share across the board. Indeed, Indian consumers are open to discussions around technology and certifications, driving interest and development in these more nascent product categories. At the same time, digital sales are becoming an increasingly popular way to reach consumers.
We anticipate that there will be promising opportunities overall and in various product categories in the region over the next five years. More key players are now getting involved in these markets. Notable local players include Eureka Forbes and Kent RO, but increasingly, this market is being penetrated by global players like Unilever.
“The Asia Pacific region will be critical to increasing the global growth rate of the Residential & Commercial water treatment market.”