Key trends in the installation market

​As I am working at a specialised market research agency targeting the construction, installation and DIY markets, it will not come as a surprise that we monitor the key trends in each market.

USP Marketing Consultancy utilizes both multi-client research and dedicated market research to facilitate this.

As I already wrote an article on the construction trends and home improvement trends, it is now time to take a closer look at the installation market. When I’m talking about the installation market I mean both the electrical and HVAC parts. This market is very interesting on itself, it’s traditionally more technology driven then let’s say its ‘general construction’ counterpart. That being said, we have seen a lot of new developments in the general construction industry as well in recent years, as can be read in the article mentioned before.

When focussing on the European market, it’s clear that the installation market in most countries can still be characterised as traditional, both in terms of distribution and the installers themselves. In this article I want to highlight some key trends that will or already have a big impact on the market. For this article I have utilized information from the European Electrical Installation Monitor as well as the European Mechanical Installation Monitor. Both are multi-client studies targeting installers on a quarterly basis and they are based on quantitative telephone interviews.

Labour shortages

The midterm outlook for the construction and installation industry is looking very bright. The demand is high and orderbooks are filling up rapidly. There is however a big problem looming on the horizon (or in some countries this is already a fact of life); Labour shortages, both quantitative and qualitative of nature. In one of the first instalments of the European Mechanical Installation monitor, we asked installers about their biggest problems/concerns of the future. Unsurprisingly, qualitative labour shortages were mentioned the most in all countries (except for France, where it was on second place).

So why is this such a big problem? First of all, HVAC and electrical installations are becoming more complex. This means that the skill level of installers needs to be higher in order to work on increasingly more complicated installation systems. The outflow of experienced workers due to retirement will not be compensated with the inflow of young installers, both from a qualitative (less experienced) and quantitative (the younger generation is less likely to want to work in construction) perspective.

This means that the labour shortage will only become a bigger problem. Manufacturers are already trying to combat this by offering more easy to install and plug and play solutions. Furthermore, the need for training will increase. In other segments, we see that a part of the work is shifting to handymen or multi skilled labourers. For the more simple jobs, this could also be the case in the installation sector, but I think it will not impact the installation market as much as for example the paint market .

Hybrid/total installer

A trend that is seen throughout the building chain is the increasing demand for total system suppliers. With this I mean that there is a higher demand for solutions instead of just single products. This is also the case when looking at the actual construction itself. There is a higher demand for companies which can do more than just a small part of the work, but rather act as a system partner.

This is also the case for installation activities. We clearly see that there are more installation companies who offer both electrical and HVAC installation activities. Traditionally, these services were offered by two different companies, but in countries like the Netherlands around 36% (2017 average, based on 700 telephone interviews) of HVAC installers are already conducting electrical jobs as well. This percentage increases even more when zooming in on the bigger installation companies.

In other countries this trend is clearly visible as well, with an average of 25% of European HVAC installers also conducting electrical jobs. In Germany and Poland the share of HVAC installers is the lowest with respectively 19% and 17% also conducting electrical jobs. For Germany, there is a clear reason why this is so much lower, there is a more stricter separation between HVAC and electrical jobs.

When looking at it from an electrical installers perspective, we see a similar trend. In all countries over 60% of the electrical installers agrees with the statement that electrical installers should acquire some HVAC skills in order to be able to offer complete smart installations in the future.

So how will this develop? I think this development will continue and even accelerate. The specialised wholesale, like Rexel is already facilitating one-stop-shopping for these hybrid/total installers by offering a range of HVAC products besides their core activity which is offering electrical products. I think that due to the HVAC installation becoming more electric/having electrical components and the trend towards preferring a partner who can install the entire installation (so both HVAC and electrical), we will see more hybrid/total installers in the future.

Smart buildings and connectivity

Smart buildings and connectivity have been heralded as one of the key trends in the market in the last couple of years. In the consumer market, easy to install products like Nest thermostats and Ring doorbells have been quite successful. When looking at the activities of installation companies, it’s clear that smart products and connectivity also impacted their business. The majority of electrical installers and HVAC installers alike are (very) positive. When it comes to actual installation of smart and connected products in the electrical market, German (83%) and Dutch installers (75%) are the frontrunners in Europe. In France, the involvement of installers is the lowest with 57% of installers involved in projects which included smart or connected products.

The picture is similar for the HVAC market, the majority of the installers are positive about the developments in this field. When it comes to involvement in projects where smart or connected products have been applied, the shares are lower than with the electrical installers. Still, the majority of HVAC installers has some experience with installing these products, except in France (44%). Frontrunners are Germany, Poland and the Netherlands (closely followed by the UK).

Purchase channels

The installation sector has always been (with some exceptions like the business model of Viessmann) characterised by a three way distribution approach. This is in fact also the case for the construction industry at large. Here are however shifts visible and the market is becoming more omnichannel. For both the HVAC and the electrical market, we measure the purchase behaviour of installers on a regular basis.

When looking at the HVAC market, buying at pure online players (web shop only) has not increased except in the Netherlands and Poland. In the Netherlands this share is the highest with 30% of the installers buying at this channel and they spend around 3% of their share of wallet there. One of the key reasons the Polish and Dutch installers have for ordering at pure online players is product availability (or lack thereof at the wholesale).

Speaking of which, the specialised wholesale still has the most dominant position in the HVAC market and their shares remain stable. In Germany, the specialised wholesale has the strongest position. Overall, close to 100% of the German installers buy there and they spend 85% of their share of wallet there. In all other European markets the specialised wholesale retains their strong position, but there differences per country on how strong that positions is.

The second most important purchase channel for HVAC products in Europe is direct buying from manufacturers. The share of installers buying direct has increased over the years, but the share of wallet spend is more or less stable. The only exception is the UK, where the share of wallet spend direct at the manufacturer has increased.

When looking at the electrical market, a similar picture can be seen. Again, the specialised wholesale has the highest shares in terms of installers buying there and share of wallet spend. In Germany these shares are the highest. When it comes to buying at pure online stores, the highest shares can be found in the Netherlands and Poland. With regards to direct buying from manufacturers, this channel is the second most important for the electrical market as well.

So how will these markets and the installers buying behaviour develop? I personally think that the traditional specialised wholesale will stay dominant in the upcoming years, especially with the current market situation. Installers are fully booked and convenience will be more important then rock-bottom prices. The less time spend on shopping, the more jobs can be conducted. In most countries, we see that more and more orders at the specialised wholesale are being done online. In the Netherlands, this already is the case for half of the orders at the specialised wholesale. Again, there are country differences, but the increase in online ordering at the specialised wholesale is for me an indicator that the installers are trying to save time. It will also be interesting to see what will happen with more direct sales from manufacturers. Will more companies risk channel conflicts for better margins? I think they will and that it will be a question of when not if. However, this development could still take many years and there will be significant differences in developments per country.

Other trends

There are many more trends in the market, like digitalisation/BIM, services instead of products, all electric and many more. In the upcoming months these topics will be addressed in both the European Mechanical Installation Monitor as well as in the European Electrical Installation Monitor. 

In case of any questions on the article or the research it’s based on, feel free to contact me at hoogenboom@usp-mc.nl

More information on the European Electrical Installation Monitor can be found here

The following topics have been conducted/will be conducted; Q1 2017 media orientation and consumption, Q2 2017 future role of the wholesale, Q3 2017 love brands, Q4 2017 smart buildings, Q1 2018 BIM and calculation tools, Q2 2018 segmentation, Q3 2018 direct buying from manufacturers, Q4 2018 purchase channels.

More information on the European Mechanical Installation Monitor can be found here

The following topics have been conducted/will be conducted:

The following topics have been conducted/will be conducted; Q1 2017 Love brands, Q2 2017 smart buildings and connectivity, Q3 2017 purchase channels, Q4 2017 future role of the wholesale, Q1 2018 BIM and calculation tools, Q2 2018 all electric, Q3 2018 direct buying from manufacturers, Q4 2018 media orientation