The major challenge for Lighting Controls companies of applying new technology in LED Lighting and Wireless Communications across both the Retrofit and New Construction building markets will require the supply structure and distribution channels to undergo major surgery if it is to achieve a CARG of 12% to 2020.
Prior to the 1990’s the Lighting industry consisted of a few major international groups of lamp and luminaire manufactures and a number of specialist lighting and control gear manufacturers all supplying their products through electrical lighting distributors who in turn delivered to electrical lighting contractors. By the mid 1990s with the advent of network controls a new breed of lighting controls companies entered the business to provide more sophisticated and efficient systems. They got their systems specified on major new construction projects and delivered through electrical contractors and in the case of retrofit projects often sold direct to the building owner taking responsibility for the design and installation.
Towards the end of the 90’s the major lighting companies started to develop the controls business mainly through acquisition so that they could offer a total end to end solution. However at the same time they had two other priorities to attend to one being to increase their global reach and the other to develop LED lighting and these priorities caused them to loosen their grip on the lighting controls business. Since the opening up of LED Lighting in the commercial market the major lighting companies’ interest has been renewed.
The Supply Structure Needs Developing and Strengthening
The major lighting companies see lighting controls as an important part of their business allowing them to supply system solutions and increasing their share of the total lighting market but have so far had difficulty in finding an appropriate route to get their controls business to market. They now have the technology and products to rapidly increase their share of both LED lighting and its control but seem undecided as to whether their future is in supplying total solutions or supplying lighting and controls at the product level. Appointing Value Added Resellers (VARs) to support their lighting controls business and get their products to market could be the solution but no doubt they will be looking to establish exclusivity and this will require some time to train and build up the network. Until they solve this problem the independent lighting controls manufacturers will continue to increase their share of the business.
We have identified some 100 established companies around the world that manufacture lighting controls products and operate across the developed markets of the world. The lighting controls market in 2013 is a mix of established and emerging companies with the majority not meeting the minimum size to operate efficiently in this market and for this reason we expect that more acquisitions of lighting controls companies will occur over the next 5 years.
However we expect that new players will enter the market adding further capacity and capability not least because they see a strong fit with their existing businesses. In particular, Building Energy Management (BEMS) and Enterprise Energy Management software (EEM) suppliers are sizing up this market. The former have in the past made a number of attempts to enter the market but have failed. Nevertheless we believe that they have finally accepted that if they want to make any impact they need to approach this market direct through the low voltage electrical contract rather than through the mechanical contract which is the channel for BEMS business.
Many of the Enterprise Energy Software suppliers will be looking to enter the lighting controls business through partnership with System Integrators (Value Added Retailers) and they really do have something to add here provided they sensibly price their software products.
The Distribution Network Needs to Change
We have already noted that the world’s leading lighting companies want to supply an end to end solution and they have acquired capable lighting controls companies with technically sound products to do just this. Their well established route to market through distributors just does not work for a systems business because most distributors just want to shift boxes off their shelves and are not interested in providing support services. The only alternative at the moment is to deal directly with the installer value added retailer and this requires managing lots of small orders.
Some ten years ago this was also the case in the Video Surveillance and the Building Energy Management Market and the problem has been solved through the setting up of a number of large distributors offering package solutions to clients together with design and application services. Their clients are small distributors, installers and System Integrator Value Added Retailers. This has allowed the product manufacturers to work with a smaller number of distributors and has freed them up from all the application and installation and maintenance services. We expect some of these companies to get involved in the lighting business.
Opening up this Vast Latent Demand
For the last 20 years the market for bus based lighting controls in non-domestic buildings has been dominated by new build & major refurbishment projects. In 2013 new construct buildings took some 90% by value and 80% by number of projects. Retrofit projects take the balance of 10%. This is despite the fact that new construction in developed countries adds no more than 2 / 3% to the existing floor space each year whilst the potential to exploit the latent market in existing buildings, which is almost two orders of magnitude larger, goes relatively untouched.
The failure to grow the retrofit business share despite significant increase in energy costs over the last 20 years and the fact that installing intelligent lighting is the most cost efficient means of reducing electrical consumption (which on average accounts for 25% of a buildings electricity use) can be attributed to a number of causes with the main one being that wired systems cannot deliver an acceptable ROI for owners of small and medium sized buildings.
In the retrofit sector of the market the latest wireless controls have the capability to reduce the considerable cost of installation and achieve an ROI in many cases within 2 years which is a significant improvement on wired controls. This is the driving force for the utililisation of wireless control systems.
The barriers to its acceptance are;
- Reliability - The supply side can now deliver fully reliable systems which have been a major barrier to its acceptance. They believe that it is now generally accepted by specifiers and end user that communication can be relied upon. We believe that this likely to be true for the large prestige building market but may not have got through to the owner / occupiers of small and medium sized buildings which are the bulk of the market.
- Routes to Market – The routes to market for wired Bus Based Lighting controls needs an infusion of more trained system integrators / installers and this is particularly true if the wireless retrofit market is to be opened up. It is up to the manufacturers to develop the routes to market for if they don’t they will restrict themselves to only supplying systems which is neither cost effective for a product manufacturer nor appropriate to open up this fragmented market.
- Power limitations – Battery power has its limitations but with improvements in battery technology and Energy Harvesting technology now a viable commercial proposition this does not need to hold back wireless controls and low power consumption could offer a further selling advantage.
What is needed now is an enlightened awareness campaign backed by government agencies to target building owners on the benefits of LED Lighting and its control. They are the ones that will have to make the investment decision and therefore the case for doing so has to be centered on what’s in it for them.
The UK’s largest retailer Tesco, according to their Director of Climate Change Helen Fleming said in 2012, “We benefit because we are becoming more energy efficient, and we’re saving money on our energy bills – we estimate that the actions we have taken since 2006 have saved us ‚Â£200 million pounds in energy bills on an annual basis.” This would have probably required an increase in annual sales of around ‚Â£4 Billion to have achieved the same number on the bottom line.
Interestingly this month a unique programme was announced by Tesco and the Carbon Trust that they have teamed up with environmental business community 2Degrees to launch a buying club that will encourage Tesco’s suppliers to invest in energy efficient lighting. The scheme aims to deliver savings to suppliers by taking advantage of collective purchasing power to buy energy efficient lighting equipment. Tesco came up with the idea for the scheme after it noticed there was interest among its suppliers in buying LEDs. Few companies around the world know more about how to buy at a competitive price so it’s good to know that that they are passing on this expertise and an excellent example of thinking outside the box.
During this decade we can expect disruptive forces to change the nature of the lighting controls market and introduce new players and this will require significant change to the supply structure and channels of distribution. Lighting controls will become the main conduit in medium to small buildings on which to build an “Internet of Energy” and subsequently to extend to an “Internet of Things”. This is probably the best time to be in the lighting industry for a hundred years.