Supermarket in Shenyang August 2009
If you have been following my commentary on the debate against the ban on incandescent lamps, a question I have raised has been “what will we have to pay for CFLi lamps when there is no choice?” I have just returned from a short business trip to Shenyang, one of the large modern cities in China. While there I took the opportunity to visit a large supermarket to check out what the retail price was for lamps.
To set this in context I spent a lot of time with a native of Shenyang and we looked at a range of shops and products so that I could get at least a snapshot of prices for as wide a variety of goods as possible. Currently the Yuan is approximately 1 Euro or 0.9 of a UKP. Trying to assess a median wage for China is pretty difficult as the range of wages is so vast compared to Europe so I asked about what a young professional might expect to earn and this will typically be between 1/3 and 1/2 of a similar placed person in Europe. This provides some guidance as to the relative expense of the various things we looked at.
Typically clothes are at a very similar price to that you would find in the UK. Obviously I did not get to see the full retail range but was looking at the kind of place that was full of the typical middle market shoppers. Many international brands are represented in the market, genuine products sold through brand identified stores. As in Europe brands command a similar premium over non branded products and are as eagerly bought and flaunted.
Next I looked at consumer durables. Typically refrigerators, washing machines and other such White Goods were very similar in price to the UK. For many of these products international brands were well represented, specially Japanese. Again there was a premium on price however not that significant. Brown goods, televisions, computers, MP3 players and the like are similarly priced to the UK for internationally branded products. Here domestic products were somewhat cheaper. The biggest difference was in mobile phones. Here International brands were exactly the same as UK non-contract prices however there are many Chinese domestic brands that were very much cheaper while offering the facilities of higher specification International brand phones. Food and other consumables however were very much cheaper than UK market, most things being between 25% and 50% of UK retail prices.
So to give us a context for lamp prices generally speaking one would spend roughly the same proportion of your earnings on food, consumer durables and clothes will cost you twice as much. An interesting fact on housing is that around 70% of Chinese own or are buying their own homes. I wasn’t able to find out a great deal about prices however, as in the West debt is incurred principally on cars and housing.
So to our lamp prices. The first, and for me biggest surprise was to see Western manufacturers with such a significant market share of both incandescent lamps (made in Indonesia!) and CFLi. The fact that Philips lamps were priced cheaper than local companies and were being sold “special offer” at half the normal retail price really made me question the true costs and profit margins. Previously one European manufacturer, when directly asked what the cost price of typical CFLi lamps, replied that they had sold, profitably, CFLi for 1 euro in large quantity. The “special offer” price in this supermarket was 9.90 Yuan, near enough 1 Euro but this is a retail price in a market with no power company subsidies.
Non special offer CFLi lamps and those sold by Chinese manufacturers ranged between 14 Yuan and 19 Yuan, roughly 1.4 to 1.9 Euro. Incandescent lamps, notably lower wattage than typical in Europe, around 2 to 4 Yuan, 0.2 to 0.4 Euro, roughly similar to cheap lamps bought in the UK.
So first observation: Lamps are roughly similar in real cost to Europe when considered against the lower income levels, if anything they probably represent a larger proportion of income spent than in Europe.
Second observation: It seems that a larger profit margin is applied to lamps sold in Europe if you look at absolute pricing
Third observation: Are European lamp companies subsidising lamp sales in China? This is the very activity that they have complained loud and long about Chinese companies selling lamps in Europe, calling it “dumping.” What are the motives of European lamp manufacturers for doing this, more self interestedly why are we in Europe paying such a significantly higher price for the same products?
Kevan Shaw August 28, 2009
Interesting this.
There is of course an overall question here:
The pro-ban point of view
“Price will come down because the market for CFLs / LEDs
will be bigger”
Certainly marginal costs fall if you have a bigger production line
-but-
not only is competition from cheap bulbs removed (whoever makes them)
but there are fewer manufacturers of the more complex bulbs – even the Ecodesign committeee recognized the thousands of local job losses occurring with the bans.
Basically, companies charge what they can on the marketplace.
When major manufactureres enthusiastically support a ban, you have to ask yourself why. It’s hardly out of a wish to make less profits out of sales at low prices.
In fact, the EU ban has a lot of darker undertones,
about political payback to companies having had to commit to CFLs that noone wants to buy.
Given bans on frosted halogens (the only popular and realistic GLS ceiling lamp alternative without the glare of clear lamps), CFLs are the forced purchases for many people.
Poor CFLs create a double profit whammy for manufacturers, as people move on from CFLs to LED lamps in coming years.
http://www.ceolas.net/#li1ax
[ As an aside re price,
it might be noted that with a light bulb tax,
a revenue neutral solution could include efficient products being zero rated for sales tax
– yet another of many baffling points about the ban, is why normally tax-happy politicians ignored the possibility of a tax on a product that is purely banned to lower electricity consumption, not banned because it is unsafe to use:
it is even more strange, given that cheap, ubiquitous, popular, short-lasting light bulbs would give massive tax revenues,
2 billion annual sales in each of USA and EU jurisdictions,
taxation remaining wrong in principle but surely better for all sides concerned ]