Numbers to know: McKinsey on lighting

By Joe Salimando

McKinsey & Company touts itself as “the trusted advisor to the world’s leading businesses, governments, and institutions.” It has a reputation as a significant player in management consulting.

So what did it have to say last year, in its 68-page report, Lighting the way: Perspectives on the global lighting market? As you might imagine, the words, graphics and ideas in the report feature LEDs.  

Start with the graphic below which emanated from “McKinsey’s Global Lighting Market Model” and doesn’t go into LEDs:  

LEDs

Lighting controls

McKinsey’s guess is that the lighting controls segment of the market will grow from 2 billion euros in 2011 to 7 billion in 2020. That’s huge growth; the euro recently has been ranging around 1 euro = $1.30 to $1.33, but where it will be in 2020 is anyone’s guess.

Change in your markets

As seen above with market-size projections done in euros, the McKinsey numbers are global. However, the graphic below seems to project a major change in the lighting business of most distributors, with the share of non-green traditional lighting falling from 26% to 12%. Keep in mind that the market is growing in the period during which that happens.

On the other hand, the decline in green traditional lighting from 2010 to 2020 is not dramatic and (in the middle) the market for things like T5s and CFLs would seem to actually expand.

Shift to new installations

The last two pages of McKinsey’s report provide one doozy of a projection: Trends in the lighting market, it projected, are “shrinking the light source replacement market and transferring value creation to new fixture installation in the general lighting market.”

It’s worth quoting McKinsey’s piece at a bit of length here:

“…the development trajectory of new fixture installation in LED is rising faster than that of light source replacement. This is because the technological benefits of LEDs can be realized more readily in LED-embedded fixtures than by using LED replacement lamps, regardless of the high cost.

“For instance, one of the major benefits of LED lighting is its color controllability – especially valuable in architectural lighting, where it is difficult to use LEDs as replacement lamps…”

Also:

“Current LED market share in new fixture installation is estimated at around 7 percent. This figure is expected to rise to more than 45 percent in 2016 and to around 70 percent in 2020…”

Perhaps most importantly:

“This industry shift from the light source replacement business towards new lighting fixture installation is set to transform the industry supply chain going forward. The current lightbulb-centric supply chain – where a few global light source manufacturers supply their products to local markets – is at least temporarily losing its hold, with manufacturing sites becoming more fragmented.

“As LED light engine standards are still unclear, it is difficult to predict the exact evolution of this future industry, but this structural shift in the supply chain has radical implications for all industry players and will require the development of entirely new business strategies.”