German sanitary fittings firm Grohe banks on localization for growth

Global sanitary fittings leader Grohe will invest more in China to expand the product categories available in the market, thanks to increasing demand from increasingly mature Chinese consumers and the robust growth rate which has surprised the management team, the company said.

The Dusseldorf, Germany-headquartered company showcased more than seven of its latest technologies and products at the Kitchen& Bath China 2019 exhibition in Shanghai on Monday. Among the exhibits, the Grohe Blue chilled and sparkling water system will be officially released in the Chinese market in June.

Bijoy Mohan, chief executive officer of Lixil Water Technology in the Asia-Pacific Region, said they will continue to roll out products specially made for Chinese consumers and they hope those products will enter the market next year at the earliest.

One of the reasons is that the market size of China is so big that a locally designed product becomes necessary, according to Mohan. But the development speed of Chinese market is also an important reason to push them out.

"China, for most of the time, surprises you in a good way," he said.

Japanese housing equipment manufacturer Lixil Corp teamed up with the Development Bank of Japan to acquire Grohe at the beginning of 2014. One year later, Lixil converted Grohe into a consolidated subsidiary.

Lixil's results for the 2019 fiscal year that ended on March 31 showed that Grohe's year-on-year revenue growth rate, excluding the Americas, came in at 4 percent.

China managed to post a 20 percent annual growth in revenue in the sector during the same period. The target set for the next five years in China is 15 percent annual growth, but Mohan said the country is likely to outperform those expectations, as it has done in the past few years.

Grohe has specified development strategies for different cities in China, Mohan explained. For lower-tier cities, they will open another 55 new stores in the next few years in the hope of making the brand name better known to a larger group of consumers. These will also be an important complement to Grohe's 200-plus physical stores already set up in the first and second-tier cities.

For first-tier cities such as Beijing, Shanghai and Shenzhen, renovation of consumers' current bathrooms has become a new driver for Grohe's business growth and also a future development focus, said Mohan.

He admitted the income from newly built property projects has contracted due to the slowdown of the real estate market in first-tier cities. But he feels it is a good sign that their main consumers have changed from the so-called luxury consumers to those who have a real need for quality products.

Chinese consumers are also quick to adapt to new technologies, said Mohan. Therefore, Grohe sold more smart control showers in China last year than anywhere else in the world.

"China should drive the need rather than being a follower," he said.