iRobot – Consumer Robotics Trends & International
Opportunities – 2 September 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Chris Hobbs (CH)
Commercial Director, EMEA at Neato Robotics Inc
Agenda:
1. Robotics trends across consumer categories
2. Impact of China-based manufacturers entering the robotic vacuum category on European and US
players – Ecovacs (SHA: 603486) and Roborock (SHA: 688169)
3. IRobot’s (NASDAQ: IRBT) market share in the US vs Europe
4. Portfolio overview and international opportunities
Contents
Q: Could you give an overview of consumer robotics for cleaning products? What trends do you think are
here to stay or will follow the adjacent categories you mentioned?
3
Q: You mentioned the challenge of informing the consumer that robots exist and convincing them that
they’re better than traditional vacuums. How did this play a role in Samsung and LG pulling out of the robot
vacuum category? Are there additional factors involved in this, such as the price point being too high? Do
you think it’s a marketing mishap? Have they pulled out of the right channel?
4
Q: Could you elaborate on how China-based manufacturers’ business models differ from those of traditional
players in the US and Europe? You mentioned the advantages of China-based manufacturers.
5
Q: How have solidified players such as iRobot reacted to the newer entrants who are willing to cut price?
How could players defend against the significant share losses that we’ve observed in iRobot?
Q: You mentioned that iRobot still has strong market share in the US. Could you outline the macro trends
you’ve observed in the US, whether it’s tariffs or constrictions around semiconductor chips? Could you
explain the cost profile? What’s holding the industry back in the region? How are players able to navigate
any headwinds?
5
6
Q: IRobot was growing rapidly in 2016, but the growth numbers have decreased from 35% in 2016 to 11% in
2019. How sustainable do you consider the boost in demand provided by coronavirus? When do you think
there will be a reversion to previous growth rates or slower growth rates?
7
Q: How are players in the US such as Dyson reacting to the traditional vacuum category declining for the
first time due to robot vacuums? Could you elaborate on the innovation in the traditional vacuum category as
7
a source of future competition?
Q: How does the increased competition that you mentioned in Europe vs the US factor into how
manufacturers price their products? Do you think this is a market for the premium aspect? Is it a price war
given the number of competitors in the market?
8
Q: You mentioned iRobot growing 11-18% in the US, but competitors are growing 100%-plus, which is
alarming. Could you highlight one area that could uplift iRobot’s growth to be on par with the robotic
vacuum category or competitors’? IRobot talks about the D2C strategy, which seems to be a growing channel.9
Q: How does promotional activity factor into iRobot’s D2C strategy? Have you observed instances where a
company has lowered a premium or USD 500 product to USD 400 to entice consumers at the mid-tier but
thinking about moving up? Have you noticed consumers starting at the premium end but shifting to a more
basic product?
9
Q: Why do you think the barriers to entry are so low? Is there any IP within devices that can prevent
competitors from copying and improving on an idea? How has this played a role in competitors’
proliferation?
Q: Could you outline the accessories opportunity across bags and filters? Is it too small a volume and
revenue play to make a difference?
10
10
iRobot – Consumer Robotics Trends & International
Opportunities
Transcription begins at 00:00:05 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled iRobot – Consumer Robotics Trends &
International Opportunities. I am Nyree Hinton and I’ll be facilitating today’s Interview with Mr Chris Hobbs,
Commercial Director, EMEA at Neato Robotics, Inc.
Chris, before we get started with today’s Interview, please state I agree or I disagree to the following
statement: You understand the definition of material non-public information and agree not to disclose any
such information, or any information which is confidential, during this Interview.
CH: I agree.
NH: Could you give an introduction to your background and the various roles you’ve held in the industry?
CH: As you already made the introduction, I’m Commercial Director at Neato. As, again, a very short precis,
I’ve been at Neato for nine years as of January coming. Only reason I mention that is I’ve been in the category
pretty much since inception, so I’ve obviously seen a few changes and can comment on, obviously, some of the
past but equally some of the existing and future changes I expect. In the past, I’ve also held similar roles, VP,
Sales and so forth, in a lot of similar companies with the same sorts of growth paradigms that we’re seeing in
the robot vacuum space. For those who are old enough or remember long enough ago, companies like Iomega,
who had pioneering zip drives, which was the replacement for the floppy disc and which was, again, just a
meteoric growth category.
Then, with Palm Computing and Handspring, which were the forerunners, really, to smartphones, then with
Sony Ericsson Mobile. Then, I latterly set up in Europe two companies, one called Navman and the other was
TomTom, with the growth of personal navigation which, again, was just a huge growth category. Then,
obviously more latterly, with Neato. The only reason that I mentioned some of the companies is some of the
trends that we’re seeing in this current category are very familiar to me. I’m not saying I’ve got a crystal ball,
but I’m certainly seeing very similar patterns to what I’ve seen in the past, which leads me to have a belief
around what might or might not happen over the next 2-3 years.
[00:02:40]
Q: Could you give an overview of consumer robotics for cleaning products? What trends do you think are here
to stay or will follow the adjacent categories you mentioned?
CH: Number one is the robot vacuum space is slightly unique, inasmuch as it’s effectively replacing a very
long and established category in terms of the traditional vacuum cleaner, which, as we all know, has been
around tens of years, as it were. I actually have no idea when it was invented, but it’s been around certainly all
of my lifetime, and probably my parent’s lifetime and so on before that, so it’s replacing something that’s well-
established. In terms of what I’ve seen, it’s been interesting over the last nine years, when I started, and again,
this is the paradigm I’ve seen over and over and over again. There were really four players in the market at the
time. Obviously, iRobot are the pioneers of this category, which is a positive and equally, I suppose, in some
regard, a negative, as well, which I’m happy to speak to later on. There was iRobot, there was Samsung, there
was LG and there was Neato, and what then transpired over a couple of years was Samsung and LG pulled out
of the category. Again, like a lot of large manufacturers, they had recognised the opportunity, but it’s such a
Private and confidential 3
small part of what they do that they didn’t focus, so it really didn’t deliver for them. Equally, the volumes at
that point in time were very, very small, so they effectively pulled out of the market.
Then, really, we were left with iRobot and ourselves, and then the category has got bigger. Obviously, there are
many reasons for that. Only going back a few years, probably only even five years, our two biggest hurdles
were explaining to any individuals, whether it’s yourselves, your friends, your family and so on, equally the
same on my side, (1) that robot vacuums actually existed, and (2) that they actually worked, and they could do
or do do a better job, arguably, today than a traditional vacuum. That’s been the biggest hurdle, and really,
over the last three years, we have started to bridge both of those two elements. I know this was one of your
questions, but last year effectively acted as a catalyst for a trend that was already there, so the understanding
and knowledge around the category has really jumped ahead. It’s difficult to say by how much, but certainly, as
I said, last year acted as a catalyst, and now the level of understanding and knowledge around robotics, the
robotic vacuum space especially but robotics in general, has increased. As such, we’re seeing the kind of
growth that we’d all anticipated many years ago. Obviously, with that growth, it brings a whole set of new
challenges that we didn’t have, predominantly centred around competition and predominantly then centred
around price, which is really the ultimate challenge at the present time.
[00:06:42]
Q: You mentioned the challenge of informing the consumer that robots exist and convincing them that they’re
better than traditional vacuums. How did this play a role in Samsung and LG pulling out of the robot vacuum
category? Are there additional factors involved in this, such as the price point being too high? Do you think it’s
a marketing mishap? Have they pulled out of the right channel?
CH: Quite honestly, again, if I look at the past and to where we are now, I think one of the key things that has
happened, as I said, is bridging this chasm of the scepticism of or even just complete lack of knowledge of the
category, or scepticism that the actual category really could work or really could add value in your home. It
was a very difficult one to bridge, and there are only two manufacturers, iRobot and Neato, trying to do a lot of
that work. It becomes quite hard. As I said, Samsung and LG were there but it actually wasn’t a focal point.
When they get out of bed in the morning, they’ve got just a myriad. The guy selling a robot vacuum is selling
fridges, he’s selling washing-up machines, he’s selling a whole plethora of other products that Samsung or LG
or any of these big companies had.
What we’ve had in the last four years is a growth of many manufacturers coming into the market. In terms of
their what real goals were, obviously, it’s impossible for me to tell you that, but we’ve had just a whole stream
of different manufacturers. Again, how strong their intention was and really what their focus was, in terms of
taking some level of share within the category or growing the category because they could see the future,
difficult to say. I would say probably very weak, but they recognised there was an opportunity, and it was very
easy for a number of them to go to what we call ODMs, so manufacturers essentially in Asia, predominantly in
China, and ask them to produce a product. I’ll give you just a handful of examples. Companies like Miele, a
very strong product, or a very strong brand, I should say. Companies like Rowenta, again very strong, certainly
in certain markets in Europe. Companies like Electrolux. There are many companies that came to the market,
and I can actually even add one very big one, Dyson.
With all of these companies trying to come to market and trying to take some share, they obviously are
spending money in marketing and awareness and trying to educate the consumer. Whether they did a good
job, bad job, they were still at least moving the category forward. If I was to go back, as I said, roughly four
years ago, this is when this started. People could see the opportunity, people can see the category really
starting to accelerate, and that’s when they were trying to break into the market. Really what their true
appetite was, as I said, impossible for me to say, but with that break into the market, it helped bring a level of
awareness to the consumer. More recently, a number of things have happened. I would say predominantly two
things have happened, and again, this is exactly as it’s happened in other growth categories in the FMCG area
that I’ve been in. The Chinese have come to the market, and the Chinese have come to the market in a very
aggressive manner. When I say aggressive, they’ve come with very good products, very high features, unique
features in some instances, and equally, they’ve come with aggressive pricing, too, and different business
Private and confidential 4
models to what I would call traditional models that maybe Neato or iRobot would work to.
Certainly, when I look at Europe, and I’ll come back to the US in a little bit, if I look at iRobot’s position, and I
would say Neato’s, as well, they had a position of huge dominance four years, five years ago. They were close to
70% market share in EMEA. Today, literally at the end of August, their share is 36%. All of that share has been
taken, really, by these aggressive Chinese companies, Ecovacs and, even more aggressively, by Roborock, as
well, and this is really where I see potentially more coming to market over the next 18-24 months. I see it as
quite a tough market within that period. Then, if I’m right in my assumptions, we’ll see a large number of
these drop away, and we’ll be left with the key players who, again, had the original inspiration to build this
category. I think the next two years are going to be very challenging.
[00:12:50]
Q: Could you elaborate on how China-based manufacturers’ business models differ from those of traditional
players in the US and Europe? You mentioned the advantages of China-based manufacturers.
CH: A perfect example, and probably the easiest to explain, would be someone like Roborock. As I said,
Roborock have been probably the most aggressive protagonist in the market today. For those who are not
aware, Roborock is a subsidiary company of a major Chinese corporation called Xiaomi. Xiaomi are probably
more well-known for their mobile phone division, which they’ve been very aggressive in in various markets
around the globe. They set up an incubator, effectively a separate business, to support growth technology, and
part of that was a company or a sub-company of theirs and they’ve called it Roborock, which, as I said, is
focused on robotic vacuum players. Xiaomi have openly stated that, as a business overall, they’re willing to
work on a GP somewhere around, I think it’s 9% or 10%, incredibly, incredibly low.
If I take that aside but I take their model in Europe as an example, they have a number of distributors in
Europe. At the moment, they have next to no infrastructure in Europe, so there’s no headcount cost or what I
would call more traditional OPEX, CAPEX cost, just marketing, and that’s allowing them to be very aggressive.
At the same time, it’s really important to understand. It’s very easy to say, “Why doesn’t everybody else do the
same?” That model only works for you for so long, because while you’re riding the crest of a wave and things
are going well, whether a traditional brick-and-mortar or an online partner wants to sell you or needs to sell
you because you are the market leader, when that shifts, they’ll drop you like a stone. We know from all of our
partners that, because they don’t manage the channel, because they’re not interested in their partners, because
they’re not supporting their partners and they’re really just allowing distributors to sell at any price to gain
more share or more sales, that model will come undone extremely quickly at the time when, as I said, you’re
not at the forefront, and that will happen.
At the moment, it’s very tough, it’s quite frustrating. It’s going to be interesting to see what happens in the US.
They’ve cherry-picked a number of regions. As an example, when they started in Europe, they didn’t start with
the biggest region. They started with the Nordic region, and they’re slowly picking countries around. They
haven’t really focused on the US as yet, but they will. There’s no question they will. In every market, despite
the difference characteristics of each region, they have taken huge share from everybody, especially iRobot,
and as I said, I anticipate the same thing happening in the US. I don’t know when they will come to the US
market in the same aggressive format they have in Europe, but I envisage it will certainly be, if not Q4, 2022.
[00:17:03]
Q: How have solidified players such as iRobot reacted to the newer entrants who are willing to cut price? How
could players defend against the significant share losses that we’ve observed in iRobot?
CH: I think this is the heart of the challenge for anybody right now, and certainly for iRobot. It is a very
difficult position. As I said, when you’re competing against manufacturers who arguably do have, it’d be rude
of me to say better products, but arguably have certainly very high-featured, very good products that work
Private and confidential 5
extremely well, that are at least comparable if not better than your own, and they’re willing to sell them 30%
lower than you can, you’re forced into a corner. From an outsider looking in for iRobot, in Europe, as I said,
they’ve lost a huge amount of share, and it’s quite a tough one to pull that back, certainly, I would say, at the
present time, without just playing on price. I think the situation for iRobot in the US is a very different one.
They still have just over 75% share in the US market. They’re a very, very strong brand. As probably you know
better than I, people refer to robot vacuums as a Roomba or iRobot, in the same way that they used to refer to
traditional vacuums as a Hoover, so they’ve got a really established base there and a much stronger brand,
potentially, than they had in the European market.
My personal view on where they need to go in order to protect themselves is to establish themselves even more
as a premium brand, so higher-featured, higher-priced products. Again, as the category grows, as it does in
any other categories, people are willing to pay for the best. I think what iRobot have that no one else has, as I
said, and I’m talking probably more particularly to the US, is an incredibly strong brand. That sets them
further ahead of everybody else, but with that incredibly strong brand, what they need to develop is incredibly
strong products that are comparable if not better, so that they can charge the premium price points. A good
example of where I think they’re, I’m not saying going wrong but where they could be fighting a stronger
battle, they’ve just recently released their Combo product but they’ve gone in at the most aggressively low price
with this product. It really is a low-featured, low-priced product, and yet, when I look at the competition, if you
take Ecovacs as an example or even Roborock, they’re actually doing the opposite.
They have a number of what I would call mopping products. So people understand, these are really very basic
products. They vacuum at the front and they just have a wet cloth at the back, so it’s not really mopping, as
such. It’s just dragging a cloth around the floor. If you’ve got muddy dog prints, it gets rid of them, but all it’s
doing is really dragging the dirt across the floor into an even format so you don’t see it. A lot of the new
products that are coming from the Chinese, they’re going into sonic mopping, which is where the mop is
actually vibrating and picking up dirt. Roborock, as an example, have just launched a product in the Far East,
which will certainly be coming to the western markets, called G10, where it actually cleans the mop, as well.
It’s not only spraying water, sonic mopping, it’s cleaning the mop, as well. It’s not only ringing it out but it’s
taking the dirt off it, and this is the difference. These guys are pioneers and bringing in some great technology.
There’s no reason, from my perspective, why iRobot couldn’t do the same, and instead, certainly from outside
looking in, they’re going the opposite way. They’re trying to be more aggressive, and bring in lower-entry
products and fight at the lower level.
[00:22:00]
Q: You mentioned that iRobot still has strong market share in the US. Could you outline the macro trends
you’ve observed in the US, whether it’s tariffs or constrictions around semiconductor chips? Could you explain
the cost profile? What’s holding the industry back in the region? How are players able to navigate any
headwinds?
CH: Obviously, in the past, I would say the tariff situation has been some challenge. I wouldn’t profess to
understand the nuances of iRobot’s finances, but I would say the tariff situation now is not something that is
really an inhibitor in the marketplace. Equally, certain manufacturers recoup some of the tariff costs that they
had back from the US government anyway, and again, I don’t see that as an inhibitor in terms of sales within
the market. It’s certainly not for our company, and I don’t hear it as a challenge anymore in terms of why
people would or wouldn’t buy your product. In terms of product supply, there are definitely challenges right
now, and obviously, we’re trying to understand the details of how short-supplied other manufacturers are in
comparison to us. We’re actually in a slightly better situation for an oddly other reason, but certainly, that is
an issue in the market, and clearly, it’s an issue not just for robot vacuums. It’s an issue for a lot of consumer
electronics goods, it’s obviously an issue for the car industries and so on. How that plays out and when that
plays out in terms of increased supply, I’m not sure.
On the one hand, iRobot have an economy of scale, especially, again, with their size in the US. You would hope
that they will be able to at least force some priority allocation out of their ODMs, so that’s a benefit vs a much
smaller player. The challenge is someone like Ecovacs and Roborock, they are the manufacturer. Just for
Private and confidential 6
clarification, Ecovacs is an ODM. They, in fact, some years ago, used to produce product for us, so they’re at
the front of the food chain. If they want to support themselves first, they will. IRobot obviously aren’t using
either of those as the ODMs. I hope, as I said, that they would be able to at least, given their size and the
volumes that they do, coerce a level of higher profile within their manufacturing than other companies that
their ODMs manufacture for. No question, it’s a challenge, but as I say, it’s not a challenge for this industry or
this category. It’s a challenge for multiple categories at the present time.
[00:25:27]
Q: IRobot was growing rapidly in 2016, but the growth numbers have decreased from 35% in 2016 to 11% in
2019. How sustainable do you consider the boost in demand provided by coronavirus? When do you think
there will be a reversion to previous growth rates or slower growth rates?
CH: Just before I go on to my view on this, and I’m very, very passionate and bullish about this, you’re quite
right. IRobot growth, if you take 2019 into 2020, overall, in value, around 12%. Just as a context, Ecovacs and
Roborock were over 150% in that period, so on the one hand they’re losing share, but equally, the others are
really, really gaining share. This is ultimately the challenge for iRobot, I think, going forward. I suppose the
easiest way to explain the situation is iRobot are losing share because they’re going from a small pond into a
lake, if you like, and so it’s natural they’re going to lose share. The way that they’re maintaining their
profitability, or not losing significant levels, I should say, is because the market growth is so strong. They’re
maintaining growth in an incredibly fast-growing area, but they’re losing share overall as the water, as it were,
gets bigger. Last year, as I said, acted very much as a catalyst to the category, but there were a couple of points
that really stood out for me. Overall, if I’m talking a combination of the US and EMEA, then we saw growth
more or less around very similar levels last year, somewhere in the region of the high 30s overall. Anticipation
this year is somewhere between 25% and 30%, so slower but still incredibly strong.
Two key points. Last year was a very telling year. Again, I’ve been in the category for a long time, but last year,
robots got to slightly below but more or less the same level volume-wise as traditional vacuum sales. On the
one hand, robots grew overall last year around 35%-plus. The traditional vacuums actually, for the first year
ever, went into negative growth, so my anticipation this year is clearly that gap will increase. If we see a 30%
growth overall between the US and EMEA in this category, traditional vacuums will be declining even further.
Where that will be I don’t know, maybe 10%, 15%, 20%. The reason I say that is, obviously, that spells the end
of traditional vacuums. The other huge growth area is sticks, so the combination of having the robot to do the
majority of your house and a stick to do stairs or quick areas that you want to do, or areas that robots today
can’t get to, is a perfect combination.
The other really key point, and where I’m very bullish about this market, is the growth that we’ve seen tells me
that finally, as I said earlier, people are starting to understand what this category is, (1) it exists, and (2) that it
really can do the job very, very well if not better than a traditional vacuum. Pretty much every household has a
traditional vacuum, so that’s the opportunity. Today, if I look at the US and EMEA, they’re slightly different in
terms of household penetration. In the US, more or less, robots have a 15% penetration of households. That
made me slightly positive. In EMEA, it’s somewhere in the region of 10%. If you think of the size of the market
today for robot vacuums and we’re only at that level of penetration, there is absolutely no reason on this planet
why robot vacuums will not hold… I’m not going to say 100%. Even if it’s 50-60% penetration of households,
you’re talking a 5x-plus growth on the market where we are today, and that’s really significant. Quite honestly,
that’s what keeps me very focused and excited about the opportunity for the future, and that opportunity, in
my view, as this awareness accelerates, which it will, is going to happen very quickly. I see us getting to a
penetration level circa 40-50% within the next 3-4 years.
[00:31:30]
Q: How are players in the US such as Dyson reacting to the traditional vacuum category declining for the first
time due to robot vacuums? Could you elaborate on the innovation in the traditional vacuum category as a
Private and confidential 7
source of future competition?
CH: The US, again, is a slightly unique region comparative to EMEA. If I look at MPD data for the US and I
look at the US make-up, quite honestly, it’s certainly dominated by iRobot, and then are three other brands
behind that that really make up the market. That’s a unique situation. You’ve got iRobot, roughly 76%, you’ve
got Shark, who I’ll come back to in a second, 15%, and you’ve got Ecovacs, 7%. Neato, as I said, are relatively
small, 2-3%. I think the other manufacturers, and equally the Chinese guys, have not really aggressively
focused on the US market yet. If I was to talk to the same map or pie within EMEA, it’s very, very different.
There are probably 20 manufacturers, of which I suppose 10 hold significant shares, and equally, it’s obviously
in different regions, so it’s difficult to pinpoint. Overall, you’ve got four in the US and you’ve got, in terms of
main brands, probably at least seven or eight in Europe, and depending on different countries, even more in
other areas.
In terms of where I see other manufacturers coming in, more traditional manufacturers, that’s something
that’s going to happen. Again, I can’t tell you the reason, but it has astounded me how weak the big players’
products that have come to market have been. I don’t know what the reason for that is. Whether they’re just
not focused on it at the present time, whether they’re not really interested in the category at the present time, I
don’t know. It’s a bit of an enigma. They really have not delivered any products that compete, whether on
feature or price. Generally, both. As an example, we were just talking about Dyson. Without being derogatory
to Dyson, their product was about as weak as you could produce a product. Terrible, terrible battery time, a
very small dustbin in terms of the ability to collect dirt and a very high device, so it actually was very restrictive
in terms of where it could go, furniture and so forth that it could go under. This is a company that pioneers, or
says it’s a pioneer of technology and so on, so I can’t ever say they’re not going to come out. They could come
out tomorrow with something quite groundbreaking.
Certainly, we haven’t seen anything from what I would call the big manufacturers in the traditional vacuum
space as yet, and that’s why the next two years, I believe, will be quite difficult, because I think, at some point,
it’s inevitable that that will happen. As their traditional vacuum sales decline, as they see this category
accelerate even further, it’s a given they have to come to market. Maybe I’m jumping ahead. Maybe this was a
question, and I think you even asked me earlier, but I think someone like iRobot, and this is the same for
Neato, as well, we have to change our strategy, and really focus much more on not just feature but, equally,
design and differentiation.
I’m not just talking about small domestic appliances, but if you look at small domestic appliances, let’s take an
easy one, let’s take a toaster as an example, how many manufacturers of toasters are there? Hundreds, but
there are certain ones that are stand-out that are still able to charge a premium, and they’ve done that by small
differentiation but certainly design. Equally, coffee machines. There’s obviously Nespresso, people like that,
and there’s just a myriad of different companies producing coffee machines, but there are certain ones that
have established themselves as premium. People will go, “I want the best,” and they go to literally only one or
two brands, so in the coffee space, someone like Jura, as an example. I think that’s where, potentially, iRobot
should be heading, because if you’re going to compete in price in the market against the Chinese, who are
working on a very different business model, in today’s environment, I just don’t see how you’re going to win, at
least with such thin margins. As I said, that’s my personal view.
[00:38:04]
Q: How does the increased competition that you mentioned in Europe vs the US factor into how
manufacturers price their products? Do you think this is a market for the premium aspect? Is it a price war
given the number of competitors in the market?
CH: It’s a great question, actually. The last two years, I wouldn’t say it’s a price war, but it’s certainly been a
price battleground. As an example, iRobot and ourselves, we had a product that we were selling, let’s say, 24
months ago around USD 800. Today, that product is being sold at USD 400, and at USD 400, it’s not even
competitive in terms of feature set. However, the one thing that we are slowly starting to see as well is, while
the Chinese are coming to market. There’s definitely been price compression, and again, if I look at the US and
Private and confidential 8
I look at Europe, the two things in two regions that are identical is the battleground. Certainly, the volume
space and the battleground is in the 200-400 space, whether that’s EUR or USD. That makes up, really, 70%-
plus in both regions. However, and again, this goes back to what I was saying about premium, the one trend
that is starting to happen or change is, with the Chinese guys coming to market, what they are coming to
market with now is even more featured products but at a higher ASP. They’re still super aggressive, they’ve got
more differentiation, but they’re charging more for it, rather than coming in at a lower price, too.
[00:40:37]
Q: You mentioned iRobot growing 11-18% in the US, but competitors are growing 100%-plus, which is
alarming. Could you highlight one area that could uplift iRobot’s growth to be on par with the robotic vacuum
category or competitors’? IRobot talks about the D2C strategy, which seems to be a growing channel.
CH: Obviously, there is significant pressure from competition. When I see Europe and then when I look at the
US, I can only see that just getting more aggressive, or more challenging, I should say, maybe next year for
iRobot. I think product is clearly one. As I said, I don’t know what their product strategy is, but higher-
featured, better-designed product where they can charge higher ASPs is one. In terms of immediacy of
changing a structure in terms of being able to compete, clearly more online, so number one is definitely their
direct approach to the consumer, both in EMEA and in the US. I would see that, certainly in the US, where
you’ve got a category that’s really growing and you’ve got such a strong brand share within the space, that’s a
perfect way for them to capitalise or actually benefit over and above some of the other competition,
particularly the Chinese, so a direct approach to consumer.
Interestingly enough, in Europe, and I can’t speak to the US as I’m not sure, but Dyson now, with a lot of their
products that they advertise on television, basically say, “Come to our website and buy it.” This is just over the
last one or two months, so I would anticipate seeing iRobot do something similar. Obviously, you can save
significant amounts in terms of channel margin there, and the amount of marketing you have to pay, as well.
Equally, the overall channel structure is going to change, so moving more away from brick-and-mortar to
more online, albeit you’ve got to be careful there. Unlike Europe, the US is dominated by Amazon. Amazon is,
I’m going to say it politely, the smiling assassin. They lull you in and bring you in but, before long, you realise
you’re actually paying similar. When you look at your total spend with Amazon, you’ll find you’re paying the
same amounts that you are, if not more, to a traditional bricks-and-mortar. Clearly, they also know, especially
in the US, because it’s far more visible, how much share you have with them, and then they coerce that against
you. You’ve got to be very careful there, but I certainly think a much more aggressive direct approach to
consumer in the US would a be significant play for iRobot.
[00:44:32]
Q: How does promotional activity factor into iRobot’s D2C strategy? Have you observed instances where a
company has lowered a premium or USD 500 product to USD 400 to entice consumers at the mid-tier but
thinking about moving up? Have you noticed consumers starting at the premium end but shifting to a more
basic product?
CH: It’s a very good point. This is personal conjecture, but I think you have to be exceptionally careful when
you do that. I think, if you set out to be a premium brand, you’ve got to maintain that strategy and hold that
premium line. I think, if you’re premium and that’s your goal and that’s your aim, and then you reduce and
you start focusing on higher-price ASPs at very aggressive prices to get volume, the viewpoint and the brand
equity that you hold goes in seconds. It really does, and again, I’m talking from past experience. I don’t know if
you’re a golfer, but there’s a perfect example of that which is happening right now, again a very similar
paradigm. A company called PXG, they came into a very, very crowded space. Golf club manufacturers were
making no money, but they brought in a product four times the price, and now they’ve dropped prices and
they’re doing the opposite. The number of people that are walking away from them is huge, and actually
talking badly about them now. I think, if you take a premium strategy, you’ve got to maintain it, and as the
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category gets bigger and the pool of available consumers grows, there’s no question. There are plenty of people
out there that are willing to buy or want to buy premium products.
If I look at the category today, I could line up 30 products and you would not be able to tell me what the
difference is between any of them, whether that’s features you have to read about or whatever. If you were to
look at the product, they all look the same. There’s nothing stand-out. Neato’s products look slightly different
because they’re D-shaped, but again, there’s so much work to be done on design, and people will pay for that.
You only have to look at Apple as an example. I think there’s just a lot of work to be done. There is no one in
the market today that is commanding the premium space or is the de facto premium player within this
category, and that would be, for me, the absolute play for iRobot, to move away from the battleground at the
low end. Maybe have a sub-brand that you can play in, but I would be taking just a very, very strong premium.
If you want the best, if you want the product that does everything, etc, then it’s iRobot, and as I said, today
they’ve got the brand equity foundation to build on in order to deliver that.
[00:48:28]
Q: Why do you think the barriers to entry are so low? Is there any IP within devices that can prevent
competitors from copying and improving on an idea? How has this played a role in competitors’ proliferation?
CH: I’m not an IP expert, so it’s probably more difficult for me to speak to this, but there are always
challenges anyway with regards to IP. As an example, as I said earlier, Ecovacs were not in this space but
Ecovacs used to produce products for Neato. The Ecovacs guts and technology they use are Neato products,
essentially a direct copy. There are lots of different things that can be done to differentiate your product, but
how you protect that is more difficult to say. I’m not sure. If you look at today’s environment, to get design is
just one element, but I think that’s a really key element. I’d certainly push and hit the table hard at Neato
around this, because, as I said, no one is doing this well. These products are on show in every home, and there
will be a large sub-set of consumers who will want something that looks great. As I said, I don’t think anybody
is doing a very stand-out job on that level, including ourselves.
There are other features that people can be doing to differentiate. If you look at the COVID situation, people
want clean air. Why is no one adding things like air purification into these devices? They’re moving around the
house, they’ve got the capability, they’ve got the engine to do it, so there are a myriad of different things that
can be done. At the moment, it certainly feels like it’s very much just a copy-paste. Everybody is doing
something similar. As an example, self-extraction starts, everybody is now trying to do self-extraction rather
than look at something different. If people do mopping, everybody else starts doing mopping, so no one is
actually doing anything, as I said, that is (a) different, and (b) I don’t know if you can make it different enough
or protect yourself from an IP or copy perspective. There are other things that can be done, I’m sure of that.
[00:51:47]
Q: Could you outline the accessories opportunity across bags and filters? Is it too small a volume and revenue
play to make a difference?
CH: There’s no question accessories are an important aspect or part of the whole business model. They do
support, heavily, margin levels. Today, and I can include myself in this, as well, even though I’m actually in the
space, the number of accessories that people are buying for these products vs what they should be buying, in
terms of especially filters, replacing filters and so on, is very low. I think there’s still a lot of work and
education to be done there in order to get people to do that, and I think there are other ways in order to do
that. You get people joining clubs. As they purchase, you send them cards to join, “Buy 12 months at a time, get
X discount,” things like that. I don’t think that’s happening aggressively enough by anybody right now. It’s still
very much a robot play. Accessories, as I said, are important. There’s not enough focus on it, but clearly, that
can make a significant differentiation. Is it going to really change the fortune of iRobot? No, but it can help
support the margin, no question.
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[00:53:41]
NH: I think that’s a good place to end the Interview. Let me close by saying thank you, Chris, for your time
today. We were able to cover a lot. Thank you, clients, for joining Third Bridge Forum’s Interview today. If you
would like to speak to Chris in a private call or meeting, please let your relationship manager know. Have a
good one.
CH: No problem. Thank you.
Transcription ends at 00:53:53 of the recorded material.
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