A warm welcome to Electrolux Capital Markets Update 2023. My name is Sophie Arnius , I'm Head of Investor Relations, and will also be the moderator for today's event. Last time we had an event like this was in November 2020. A lot of things has happened since then. At that time, we were dealing with COVID. The effects of the pandemic carried on in 2021 and also into 2022. There has also been other unforeseen events in the world impacting almost every industry. One thing, though, remains the same, and that is our strategy. It's still a strong one, and the focus on innovation and efficiency remains. You will hear more about that in the coming hours from my colleagues. If we look at the agenda for today, you can see there are two clear themes.
Firstly, how we are harnessing the growth opportunities in the aftermarket while gaining deeper consumer insights and relationships via new touchpoints. Secondly, how we are creating stability in Business Area North America by executing on the turnaround program, paving the way for sustainable growth and increased profitability in this region. Of course, there will be opportunities to ask questions during the event, both from our audience here in Stockholm as well as virtually. If you're joining virtually, you can already now type in your question using the box to the right. The first Q&A session will be a shorter one, and it will be focused on aftermarket. It will just be at the end of that session. Then we will have a much longer Q&A session at the end of the event with all speakers present.
If you want to look at this event again, you have the opportunity to do so. There will be an on-demand version available on our website tomorrow. Already now you can access the presentation material, including some extra slides with additional information. Now let's get started with a deeper look on how we are executing on Electrolux strategy, driving profitable growth. It's a great pleasure to welcome our CEO, Jonas Samuelson, onto stage.
Thank you, Sophie. A warm welcome also from me for you who join us here and everybody joining us online. The last six, seven years, we've implemented a consistent strategic framework, leveraging the industry trends impacting us the most, and in particular, the increasing importance of consumer power through digitalization, and also the importance of sustainability, both from a society perspective and as a premium qualifier that consumers relate to. We've done that by driving sustainable consumer experience innovation as one of our platforms. Secondly, we're also taking advantage of the opportunity and need for global scale through investments in increasing efficiency through digitalization, automation, and modularization.
Today, we will talk about why the recent challenges that we have experienced in the last few years during COVID do not fundamentally impact our path to achieving our financial targets of over 6% operating profit, over 20% return net asset, and over 4% annual growth rates. Let's talk about why. First, in Europe, where we started to implement this strategy back in 2013, 2014, we've had a consistent delivery of profitable growth. In recent years, as we've extended that strategy to our emerging market BAs of Latin America and APAC, EMEA, we're also increasingly delivering strong financial performance, and especially as Latin America is now leveraging the big investments that we've made over recent years.
The 2022 performance hit that we took in these business areas are just temporary impacts from the supply constraints, the significant cost increases, and the drop in consumer demands in the second half of the year. This will reverse gradually as we go through 2023 and beyond. Our challenge has been North America, where as you can see that already since 2017, 2018, we've had some significant challenges. We'll talk about that and how we're now at an inflection point to turn that around. Another perspective on our performance trajectory is to look at the performance drivers since 2019. In 2019, we had EBIT of SEK 4.5 billion , which was already then significantly impacted by weak performance in North America, only SEK 0.6 billion in profit at that time.
Since 2019, we've been hit with unprecedented external headwinds, whether it's increasing raw material cost, currency headwinds, accelerating inflation. SEK 15 billion. We have more than offset that through price execution in the market. Through our focus on innovation, through our focus on our premium brands, Electrolux AEG, Frigidaire Gallery, Frigidaire Professional, we've delivered an additional SEK 6 billion of mix during this time period, increasing our profitability by SEK 6 billion. I want to emphasize that also in North America, we've delivered strong price and mix performance and with only a fairly limited increase in investments in innovation and marketing. Fantastic ROI on our investment in increasing, again, innovation and marketing spend. This part of our strategy is already now delivering. The challenge has been the unprecedented cost headwinds that we've faced in the business.
Driven by supply constraints following COVID, and primarily hitting our North American business. Out of the SEK 8.7 billion of cost headwinds, cost inefficiencies that we've faced, SEK 6.3 billion has hit our North American business. Just as a thought experiment, if we'd assume that the North American headwinds were only proportional to what hit the other BAs, we would have had a solid 2022 financial performance. From both these perspectives, it's clear that the strategy is being delivered in significant part of our business and delivering good financial results, but we have a challenge in North America in particular, and a temporary challenge from the particular constraints that we saw towards the end of last year.
Let's look at then North America and what it is that has driven this challenging performance. Going back to 2018, we were in a situation where we had been underinvesting in our core Frigidaire offering, unfortunately. We had high dependence on private label business with Sears. We were exposed to sourcing, significant sourcing from China which was hit then by the tariffs that were implemented by the Trump administration. As Sears went bankrupt, the fundamental financial performance of the business area was challenged in 2019. By then, though, we had already started implementing our new strategy by investing in innovation, investing in modernization, investing in the consolidation of our industrial footprint. Of course, this was during just before the COVID pandemic struck.
As we were starting to ramp up, particularly our new factory in Anderson and closing our factory in St. Cloud, COVID hit. This resulted in very challenging conditions to ramp up production in our new factories. On top of that, the supply chain constraints following the COVID pandemic massively increased cost at a period where we could not run our factories in a productive way. Why are we now at an inflection point? Well, we have made the investments in these new factories. We have new management in place, and you will see and talk with Ricardo later on today, that have established grip on the business. The turnaround program that we've announced is executing right now according to plan. Again, importantly, the new products that we have launched are winning in the marketplace.
We're leveraging the competitive modularized architectures and new automated factories. This, even though it's delayed, is now fully in place to support our performance going forward. We have a path, a clear path, a plan to get back to our target financial performance of 6% operating margin in the medium term. We've announced a cost reduction program that will deliver SEK 4 billion-SEK 5 billion this year and a total of SEK 7 billion by 2024. I'll get into that in more detail in a moment. The biggest part of those cost reductions come from North America, where, as you remember, we saw the biggest cost headwinds post the pandemic, SEK 6.3 billion.
Also in North America, as I mentioned, we have invested in new product architectures that are extremely well-received, enabling us to drive commercial growth on top of the cost savings in North America. In addition to the commercial growth in North America, we also have significant new product investments in the other BAs, driving mix. We will recover lost volumes in Europe, where we had been significantly impacted by the supply constraint in 2022. We'll recover that. We'll continue our profitable growth in emerging markets that we're already on. We will continue to leverage the growth of the profitable aftermarket business. Of course, there's always a little bit of price erosion in the market over time, and we've assumed that in our plans to get back to over 6% operating margin in the medium term.
The biggest chunk of that is the cost reduction program that we already announced late last year. Initially, the first year, 2023, as this gets implemented, over time, we will deliver net performance improvement, net cost efficiency of SEK 4 billion-SEK 5 billion. With the full annual run rate of the program in 2024, we will deliver over SEK 7 billion of cost savings. The biggest chunk of that is in the dark gray bar, which is essentially reversing the inefficiencies that we incurred during the pandemic and post-pandemic. It's about reducing premium freight, reducing spot buys, improving our sourcing cost, implementing the new logistics cost, and more efficient routing of logistics, following the constraints that we saw in the prior year.
That's the biggest improvement, just reversing the cost inefficiencies that we were experiencing. The next big chunk is production cost reductions, mainly driven by the investments in modularization and automation in North America, which we have not yet delivered on, but now we have the conditions in place to do so. Finally, given the lower demand environment that we've experienced, we're reducing our structural costs to a new level reflecting the market conditions, leveraging the new organizational setup, where we have globalized more of our organization's structure to enable more optimization, whether it comes to investments in R&D, marketing, or the support functions around the company. In total, SEK 7 billion.
We're reducing our full-time headcount by 3,800 people, as we've discussed, proportionally between white and blue collars, and an additional 1,900 temporary employees and consultants. This is all executing to plan and part of the announcements that we made late last year. This reduction in our cost base gives us the ability to accelerate the rollout of new products and platforms, leveraging the significant investments or unprecedented investments that we've done in recent years. This is a bit of a complicated chart, but the light area of the bubbles show the penetration, sales penetration of new products launched on modularized platforms globally. North America will become fully modularized. Laundry was still already before on a modular platform, we're not counting that. These are the products launched since 2021 off of new modular architectures.
We'll be fully modularized in North America. Same in Europe, we were already on modularized platforms, and this indicates then the next generation of products coming off that platform, those platforms. APAC-MEA basically leverages the European investments that we've made. Latin America, as you know, we've made significant investments, like in North America, for new modularized platforms that we're ramping up in the coming years. Why are we so confident that we will win with these new products and platforms? It's because we're already getting really strong consumer feedback on our new products. This is then the consumer star ratings. You know, we keep referring to that. 5 is the highest rating that consumers can give.
This is the harvesting of hundreds of thousands of reviews from our websites. We know that particularly in the U.S., the new products that we've launched are actually industry-leading. There are differences a little bit in how, let's say, different cultures rate. The 4.6 and 4.5 in North America is industry-leading. You can see we have fantastic ratings of the new products all over the group, all over the group. I also wanna highlight, because it's really important, that we've re-baselined, re-platformed our Electrolux and AEG apps, are now getting fantastic ratings for usability and benefits of the new connected apps. If you look at the last several years, our consumer star ratings are consistently improving over time.
Again, there are cultural differences in how people rate, but these are industry-leading ratings in all of our business areas. That has delivered over SEK 1 billion per year in bottom-line EBIT benefits of mix. We are very confident that continued positive trajectory of the fantastic new products that we have will deliver additional mix over time, as mentioned. I talked initially about sustainability as, of course, extremely important societal factor, but it's also becoming increasingly a premium qualifier from our consumers. For that, I am super proud that we're already in 2022, as one of the first companies globally, delivering on our 2015 science-based targets, where we committed to reduce Scope 1 and 2 emissions by 80% by 2025, and Scope 3 emissions by 25% by 2025.
We're three years ahead of target in delivering on those. Again, the good news is that consumers are paying us or rewarding us for that performance. We know that consumers want to live more sustainably. We also know that they want to consume less energy and electricity. Our most sustainable products are also our most profitable. On top of this, aftermarket has been on a very favorable growth trajectory. You remember we set the target of 10% penetration of aftermarket sales by 2025. Last five, six years, we've had 7% annual CAGR in revenue growth, and this is extremely important as our aftermarket business has over 4x higher profitability, operating profit, than our finished goods business.
Of course, it's an opportunity for us to connect directly with our consumers and deliver better experiences, and we'll talk quite extensively about that later on today. The foundation of our strategy is to have a strong balance sheet to enable these big investments. Of course, we had some questions recently about the challenged debt ratios that we had towards the end of last year. You will have seen that we got downgraded to BBB+ last week. This is fully in line with our perception of a solid investment grade rating. The stable outlook puts a stamp on, let's say, a qualifier that yes, we have the plans to deliver back to our target debt ratios of 2, approximately net debt to EBITDA.
We have very strong liquidity, SEK 34.4 billion in cash and committed revolving credit facilities at the end of the year, last year. We have no financial covenants. The combination of improving EBITDA this year and positive operating cash flow puts us on a trajectory back to our target balance sheet ratios. In summary, we have a strategy that is extremely well-aligned to industry trends. The 2022 temporary performance challenges that we incurred are not fundamentally impacting the achievability of our financial targets. We have a clear turnaround plan for our North America business that's already delivering. We have fantastic traction on our sustainable consumer experience innovation, delivering strong mixed contributions already today and will continue to do so.
More to come through our accelerated rollout of innovative new products on modularized platforms in the coming years. The foundation of increased efficiency through digitalization, automation, modularization is in place. Of course, the delivery of those benefits have been challenged by the volatility we have seen in recent years. On top of that, we have the growth trajectory in our profitable aftermarket business, as we will talk more about. Our clear plan, our clear commitment is to deliver on our financial targets in the midterm. Thank you very much for now. I look forward to seeing you back in the Q&A in a moment. Back to you, Sophie.
Thank you, Jonas. As Jonas said, there will be opportunities to ask questions to Jonas later at this event. Now let's turn to aftermarket and the growth opportunities we are harnessing in this area. I know for a fact this is an area of great interest for our analysts and investors, and we will dig deeper into that. First up is our Chief Commercial Officer, Anna Ohlsson-Leijon . Several of you have already met Anna in her previous role as Group CFO a couple of years ago, and lately as CEO of Business Area Europe. Anna, please.
Thank you, Sophie. Innovation and brands, they are key growth levers. I stood at the Capital Markets Day here in 2020 talking about, together with my team, how we see the profitable growth journey for Business Area Europe really driven by innovation, creating that mix and volume potential, and strengthening our brands, creating a price premium, and also making sure that we are connecting and creating loyalty with our consumers. Now I'm here as Chief Commercial Officer to talk about how we grow the profitable aftermarket business and how we also create routes to markets to consumers that are direct. This is about creating a lifetime journey with our products and consumers and really delivering that aftermarket growth. In the commercial organization, we have now set up consumer direct interaction heads in all of the business areas.
We do this to make sure that we live and breathe the results of the aftermarket business, and also that we leverage key investments that we've already done over the years, starting in Europe. It's also, of course, important that we cross-fertilize the good innovation that we've seen, what works with consumers in the ownership phase when it comes to products and service offerings. On top, we have that lean team that really leverage that. Why are we doubling down on aftermarket and consumer direct right now? There are four consumer trends that I think you're familiar with. The most important one is the omnichannel. We know that today 64% of consumers prefer to interact with a retail partner or a brand that have a clear omnichannel presence, meaning physical and digital. Consumers expect this to be seamless. Consumers more and more interact directly with the brands.
Today, we can see that 15% of consumers have an intention to buy directly with the brand. They see this as a guarantee for consumers to be taken care of during the ownership phase. A key point to create loyalty is personalization, and this is really enabled through data and digitization. Here today, we see that consumers, over 60% actually, of consumers are willing to pay up to 15% more for a better experience. Sustainability is a fundamental factor when consumers decide what and where to buy and how to buy. We see now that over 70% of consumers actually wish that retailers and brand had even better sustainability offerings. If we zoom out and take a holistic, more strategic perspective, we're in the midst of a transformation.
When it comes to innovation and design, we have already over the last 20 years really moved from the engineer and industry-driven innovation process to an innovation process that is based on true consumer insight, solving real consumer pain points. When it comes to brand, we have doubled down on Electrolux, AEG, and Frigidaire, really focusing on those A brands and connecting with consumers in a more purpose-driven and differentiated way. Investing consistently in these brands renders that price premium and creates this loyalty with consumers. In the heart of this transformation is really the consumer-centric part of the business logic, to move from the unit's transactional foundation of the business to a more lifetime loyalty builder. Of course, over time, we also want to make sure that we have an even more circular business model offerings to our consumers.
What are the opportunities with this change and this transformation for Electrolux if you take a closer look at it? Today, we sell around 60 million products per year around the globe, either through our B2B partners or through our D2C websites. Today, we have an install base of 350 million products around the world. It's really about leveraging that install base to create aftermarket revenue and profit, and also to engage more with consumers with each and every sell of products that we do. How will this work? We start with an appliance registration, a ticket to engage further with consumers. If it's a connected product, this is a very seamless, effortless experience, but it's not a prerequisite to really have a good aftermarket growth. It can be done through a simple QR code or through an online registration.
Maybe the first offer we make the consumer is an extended warranty. Through the data and insights we get by really interacting with consumers, we know when to offer what. It can be an accessory, for example, to that sell of products we've done, or it can be a consumable that really fits into the product that we have designed through our innovation process to be an integral part of the product offering. Maybe we prompt that through our connected apps. If the product breaks down after the warranty period, we're there for a fixed price repair, for a Repair and Protect offering to the consumers. All this data that we collect will give better insights to us to feed into our innovation process. If we do this consumer journey well, we will create that loyalty and that repeat purchase.
To summarize, why we're doubling down in a structured way on aftermarket and consumer direct right now is we see clear benefits with this to do it in an even more structured approach. We create mix, we create volume, we strengthen our brand, rendering a price premium, and we get information that makes us and our partners more relevant with consumers. That's why consumer direct and aftermarket is a key value creation accelerator.
Thank you, Anna. You mentioned 350 million in install base. That's quite many, consumers that interact, almost daily with our products.
For sure. Of course, we want to leverage that possibility of interaction even further. My colleague, Louise, here will explain a little bit more where you can find this install base and how we work with that, aftermarket penetration in terms of sales.
Perfect. Thank you. Louise that Anna refers to is Louise Mortimer Undén, Senior Vice President of Group Consumer Direct Interactions. Great to see you here, Louise. Let's talk about let's zoom in on the business opportunities that consumer direct interaction that Anna talked about brings to us at Electrolux.
Absolutely. Anna talked about how we're on this journey continuing to move from a more transactional selling appliance space to actually create consumer lifetime value. We are already innovation, sorry, consumer-centric in our innovation processes. Historically, our primary focus have been to develop these best-in-class appliance experiences and then bringing them to market. Initially focusing on the first consumer journey phases up until that point of the actual first transaction. What we're aiming to do now is to really double down on the, on the phase that starts with the transaction. Remaining with the consumer throughout that journey in ongoing use, through to when there is a need for service or repair, and all the way through to the replacement product at the end of the life cycle.
Being close with the consumer and helping them to get the most out of their appliance is not only helping us to build brand loyalty, but it also open up the opportunity for us to tap into categories that Jonas mentioned brings us at least 4x higher profit margin. That's the business opportunity of it.
It's also been, highlighted here by Anna, for example, that consumers are becoming more digital. How are we tapping into that?
Yeah, that's actually playing to our favor. Getting closer to consumers clearly means we need to be able to have a direct link to them. As consumers have a more digital behavior, we have some key opportunities to create that access. One of them is our growing install base of our connected appliances. This is, of course, a way for us to communicate directly through our app, but it's also a way for us to understand exactly which product this particular consumer owns, and in that way we can make the communication relevant and we can prompt, for example, when you need to perform a maintenance cycle of your appliance. A second route to automate this relationship is selling direct. When we sell direct, we can automatically capture consumer data, and we also know what product is being purchased.
Adding to that the consent from the consumer to be in contact with us and opt in for marketing communication, that creates that link with us. Of course, the vast majority of our appliances that we sell today are still non-connected and are sold through our retail partners. Also, selling through retail partners, we can connect with the consumers by incentivizing them to register their product for the benefits that we can unlock. In, in both channels, direct or indirect, we still aim to create this direct link with consumers. Once we have that, this is our opportunity to present our brand-certified experiences, whether it starts with an extended warranty and leads on to captive consumables or accessories, and also the branded service and genuine parts.
It's interesting you mentioned here earlier that aftermarket increases brand loyalty. How does that work?
Well, as mentioned, it starts with creating this link to the consumer to connect, to register, the product and the consumer data to have that opt-in. And then it's about us providing value to the consumer. The first door opener is obviously helping the consumer to onboard their appliances and learn the tips and tricks to make their everyday life smooth and easy. And then staying on with them, not to spam them by sending too many emails or just trying to sell things, but really providing inspiration or support in maintenance and of course highlighting the value of using original parts in order to ensure that the consumer keeps their appliance up and running for as long as possible.
That is the value-creating part, and of course, it doing that right, that earns us the right to also monetize and unlock those revenue streams along the ownership phase.
Let's get tangible here. What are those revenue streams when it comes to aftermarket?
We speak about four distinct aftermarket categories. The first one is spares, and that's today the most valuable for us. The second one is consumables and accessories. The third one is the service portfolio that we offer in the out-of-warranty time of the appliance. The fourth one is extended warranties, where we can offer the consumer peace of mind from the beginning knowing that we will take care of any inconvenience that happens throughout ownership.
How can we grow this business? 10%, in 2025 has been, already mentioned here by Jonas, but what is your view going forward?
Yes. As Jonas said, we are remaining with that target of 10% by 2025, and we're moving from last year, 7%, so we're on that journey. For more longer term, our goal is to reach approximately 15% share of business. Reaching 15% is not really us capturing the full addressable market of our install base, but we also know we will never, ever get 100% of it. We know that retailers are taking part of that value share, but we also know that in part of our markets, those out-of-warranty repairs will never be profitable enough for us to pursue.
I'm sure the audience is eager to learn more on how we can get to those 10% in 2025. I know you will take us through that now, Louise.
Absolutely. I'm happy to. So, 7% last year, and we're targeting 10% share of business by 2025. Clearly, we will grow all of these aftermarket categories to make that happen. The biggest opportunity to grow we see in the out-of-warranty service area and also in the consumables and accessories. Growing our penetration into the out-of-warranty repairs will automatically, of course, grow our spares business as well. Selling that extended warranty is kind of pre-selling that out-of-warranty repair, so we get the consumer locked into our brand universe from the beginning. Today, we have an install base of 350 million appliances, and that is major appliances only. Install base means the appliances we have sold over a number of years and are still assessed to be up and running in consumer's home. This is our addressable market.
To get those products registered and to capture the consumer data of the users of these appliances, that will be key to unlock growth. If we take a regional perspective and look at our four business areas, we see that it's quite varying distribution of these aftermarket categories and the share they take of the total business by region. Starting with North America, we see that consumables and accessories is taking the biggest share of their aftermarket business, and that's primarily driven by the air and water filtration business. In Europe, we are more developed in the out of warranty repair and the extended warranty business. I can say that in Latin America and APAC-MEA, we are in generally not as developed in tapping into this aftermarket opportunity.
Of course, cross-fertilizing the learnings and best practices we have within the different categories to all the other regions is a big growth opportunity. If I now zoom into consumables and accessories, as you saw, that was one of our key growth levers. Here today, half of this business is consisting of consumables, and that's fundamentally very healthy because this is where we keep bringing those recurrent revenue streams in. On the accessories side, our strategic focus is to grow the captive. The captive accessories are the accessories that are designed to fit specifically with our appliances. This is where we have the brand, the differentiation, and where we can really pull on our strength from a branded perspective to ensure that no one can really compete on the same grounds as we can to ensure that great experience cooking or cleaning.
Anna mentioned that it all starts with us knowing our consumers, understanding their needs, understanding their pain points, and how to remove friction. We always plan for the product lifetime and the consumer journey already from early R&D phases, and we do that to ensure captive fit and to ensure patented solutions. We know best how to guide our consumers to take care of their appliance, to keep it running as long as possible. The last key here to unlock the growth is to make it as simple as possible, effortless for consumers to really have what they need at the time they need to use it. Now let's look at an example of how we execute this strategy, in this case in North America and in the category of food preservation.
The starting point in our innovation process is to understand the needs of the consumers during the entire consumer journey. When consumers buy an appliance, they're expecting more than just a product. They're expecting an experience from when they start looking at it, either online or at a retail, when they buy it, when they install it, when they use it, and even if it breaks, they expect a good experience. This means that we are looking at the aftermarket service in an integrated way in the process, and it all starts by understanding consumer needs. In order to do that, we conduct consumer research, including focus groups, in-home observations, and we co-create with our target audience. We listen to their feedback and input in every single step of the development and even after the launch. Through connected appliances, we can establish an even stronger link with the consumers.
By using insights data and learnings from current usage, we can identify and prioritize the most critical needs and desires of our target audiences. A good example of how this works is our water filters, which is an important market for us in North America. We have a dedicated R&D team with a state-of-the-art laboratory working on ice making and advanced filtration solutions for our refrigerators.
It starts with understanding our consumers, and North American consumers, they love their ice and water, and our Frigidaire families in particular prioritize that healthy lifestyle for their families. They're looking for solutions that make healthier eating and drinking effortless, and they trust Frigidaire, so they wanna make sure if they are buying a water filter, it's gonna fit in the refrigerator, it's gonna keep running well, and importantly, it's gonna taste good. We constantly work on our D2C e-commerce platform, our website, to make sure that we're optimizing for conversion. We recently ran a test where we gently reminded people the importance of buying a genuine filter, and we saw a 10% lift in our conversion rates when we did that. Our Frigidaire families are super busy.
The last thing they're thinking about is changing a water filter. We have to make it really easy for them. That light comes on the refrigerator, it tells them it's time for a new filter. There's a QR code right there that they can scan, goes directly to the webpage. They can reorder right then. They can sign up for subscription, too, and just keep them coming. We also have emails that go out six months after you've bought the product. You can go directly onto our website and you can go to the Find My Filter page. We get over 2 million views on our water filter pages annually.
E-commerce has been a big channel for us with that shipping and delivery. We now have over a quarter million subscribers signed up for water filters that show up at their home every six months. That's been a huge factor in what's driving our incremental growth in this category. We've seen an average compound annual growth rate of 10% over the last five years, and it's really profitable growth.
To be truly consumer-centric requires having the right process, and it all starts by understanding the consumer needs. When we do that well, then we don't just create a premium consumer experience, but a profitable business.
Shifting gears now and moving into the addressable market at the end of the product life cycle. That addressable market starts with the annual number of appliances that has a malfunction within a year. Some of those appliances that malfunction will unfortunately do so within the legal warranty period. Here it's of course instrumental for us to take care of the consumer to help them in a timely manner to get back to perfect appliance use as soon as possible. That's again building the brand. We also know that approximately 1/3 of the appliances will not be repaired, but they will instead be replaced. This is a decision the consumer comes to based on what their perceived value of repairing is or cost of repairing is, and also how old the appliance is when the malfunction happens.
We have the base of the volume that will be repaired, and here 1/3 approximately will be repaired by the consumer themself or someone in their family or close friendship, and 2/3 will be repaired of a professional service engineer. In the do it yourself space, this is actually very important for us to take care of because here, if we manage to be the go-to source for the consumer to learn how to self-solve, and we can do that by growing our online content, by ensuring that we produce how-to videos, but if we are the speaking partner to the consumer to help them self-solve, then we can actually drive growth of our competitive spares. Spares that are not captive to our appliances that could be supplied by someone else. Being the speaking partner with the consumer, we can drive those spare sales.
We can also remain with the consumer if they fail in their self-service, we can either be there to help them book a service with us or eventually also look at a replacement product. In the professional service execution, we speak about Electrolux service. This is where the consumer transacts directly with us and books a service through us. Execution of that service or repair can be executed by our own employed service technician. It can also be executed by one of our strategic independent service provider partners. As you see here, we have a moderate penetration into the installed base when it comes to out of warranty repairs, so this is why we see a strong growth opportunity.
Independent of where and how the consumer service and repair journey unfolds, it always provides opportunities for us to leverage our aftermarket offerings, and that's why we see that this consumer direct relationship and access and communication is so important. We also know that consumers in general have a quite high awareness about the fact that branded manufacturers will provide this type of service. We also know that our competition is mainly our retail partners that also offer similar service, but it's also these smaller next door independent service providers.
For us to close the gap between our penetration rate today and maximizing the awareness that consumers already have is to continuously focus on search engine optimization to gain that Google share of voice, and also to provide digital solutions online and to our call center so that our call agents in a very smooth and seamless way can guide the consumer to a repair. I mentioned that we have quite moderate penetration into the installed market. Despite the low base, we're still seeing quite some growth here. Over the past four years as a group, we have had an average growth of 15% per year, and that's mainly derived from Europe. Europe, as you could see from the installed base, represents 43% of our installed base, but it representing 65% of our out of warranty services.
Taking the learnings, the development of the portfolio that we have executed in Europe into the other regions will help us to speed up this growth. In order to grow out of warranty repairs, clearly we need to have access to more service technicians, and we're going about this in a flexible manner, meaning it all starts with the knowledge about our installed base. We run advanced installed base analytics to combine, of course, the number of sold appliances with the geographical location together with industry assessment of lifetime for each product category and our own quality data. Once we know that we have a density, a certain density or installed base that would be up for repairs within a given year, we can also plan to prepare ourself with an expansion of our own service technician network.
Where we know that the density is lower, this is where we will always contract or subcontract third party providers or our strategic partners to execute on that repair while still having the consumer being able to book it directly with us. Now entering into spare parts. I already shared that this is providing the most value to us in the aftermarket space today. We need to grow and protect the value of spares. Doing that is also linking to the understanding of consumer behavior and this growing part of do it yourself. 1/3 of the repairs are being carried out by the consumers themselves, and we see this growing. Here it's about us tapping in, underpinning the value of genuine parts, and ensuring that we can provide the guidance to the consumers.
Of course, managing the different channels where we have wholesalers, we have the independent service providers, and we have our direct-to-consumer sales. When it comes to the profitability, you heard Jonas earlier talk about modularization and how important that is and how we're leveraging those investments. Modularization is also a key lever for us when it comes to spare parts as we have an evolving legislative environment here, and we need to keep those spares for a very long time. To be able to optimize the spares portfolio is key to keep the profitability of the category. Of course, value-based pricing is another end of that protecting strategy we have, and we're rolling it out region by region.
You heard Amy, my colleague in North America, in the film talking about how important it is for consumers to feel at ease and safe when they take care of their appliance, and this was the case of the water filtration in North America. We have seen overall in our D2C channel that gently reminding the consumers how important it is to use the genuine part, that actually drives conversion. The fourth last category that I wanted to deep dive a bit in is extended warranties. We sell extended warranties in all the four regions today, even if we're just in the starting blocks in APAC and MEA. Up until now, we've been selling them in upfront payments to the consumers with fixed time plans.
In this example, you see a fridge, and then in the U.S., the consumer has the opportunity to choose either one, three, or five-year fixed time plan. The hurdle here for growth is of course that the five-year time plan, extended warranty agreement will come at the price of approximately 20% of the appliance purchase price, and that's quite some money for a consumer to put upfront in the case of an eventual breakdown of the appliance. In Europe, we have launched a subscription-based offering where we have a care offering which is allowing the consumer to subscribe of peace of mind, meaning they pay a lower monthly fee, and we take care of the appliance in case of breakdown and even replace it if it's not repairable.
We have a second offering that we call Repair and Care. That offering is in the event we didn't catch the consumer early on in the consumer journey. We're actually there for them giving and executing a repair. We can give that repair to a fixed price. The consumer can pay it in 12 installments over a year and then continue at a lower monthly fee to have the same protection as the care offering. I'm quite proud to say that we doubled number of subscribers in the first year of launch in this in Europe. This is also something that we're now gonna leverage for the rest of the Group.
With this structured approach to how we develop our branded aftermarket portfolio and by leveraging the learnings and the best practices that we already have from the different regions and then cross-fertilize that to all the other regions and together with the new globally integrated business approach we have under consumer direct interaction umbrella, we can leverage our tech investments and even modularize the tech investment to design this digital consumer journey. I feel confident that we have the building blocks and the direction to build towards this 10% share of business 2025 and even further onwards to the 15% on the longer term.
Thank you, Louise. We are soon going to open up for questions on this topic, aftermarket and consumer direct interactions. Before that, Anna, what type of investments is required to accelerate consumer direct interactions and to create a successful aftermarket business?
Yeah, we talked about the technology roadmap here. Of course, it is about our websites, so our web shops, it's also about consumer identity, customer relationship management tools. We of course also see that to leverage the services, of course, we need the service technicians and also the last mile for delivery when it comes to our D2C offering. When it comes to the technology roadmap, we really see big potential to leverage what we have already now for the rest of the BAs.
Do we have any questions for Anna and Louise on the topic aftermarket and consumer direct interactions? I see we have a question from Gustav there, so we can have a microphone on the way. Yes.
Thanks. Thanks for taking my questions. This is Gustav Hagéus with the SEB. If we could clarify first the four times margin on the aftermarket business, what level that is on. Secondly, assuming that it's EBIT or something like that would and the 7% of sales being aftermarket now.
That would mean that you probably made roughly SEK 2 billion earnings last year on aftermarket, so more than twice of what your combined EBIT was. Is it your view that this was fully incremental, or is there a shift from where you need to take less margins at the point of sale to leverage your aftermarket business later in that cycle?
We see over a period of years that this 4x higher EBIT margin is materializing in a normalized year of profitability. We do not necessarily see that the aftermarket opportunities compromises the initial margin. Of course, when we sell direct, we have occasions where we can bundle offerings, but basically we're trying to address all consumers through product registration and actually take our fair value share of categories that are already being consumed today. It's not so much about us changing our initial transaction or margin for our finished good sales, but more tapping into this market that other players are now benefiting from.
I will take one question here from our online audience. It's from Andre Kukhnin , Credit Suisse: Aftermarket target incorporate the largest move in out of warranty repairs, have you been adding engineer headcount, or I assume then service technicians, to deliver this? It's a question for you, Louise.
Yeah. That's an ongoing journey, and every time we look at opportunities linking to the install-based data analytics, we are continuously recruiting service technicians or partnering up with partners that can execute. We know that there is a scarcity of this profession in certain countries and certain markets, so it's an ongoing quest. It's not that we decide now we open up a country and we employ a lot of service engineers. We do that in line with where we see the growth happening.
And we have time for one more question here, and we have, from, if we can get an microphone to the gentleman over there. Yes.
Hi. It's Elliot from Bank of America. My question is actually, what is your current conversion from sale to having customers registered, and how has that sort of developed over time, and how do you see it going?
I don't have an exact number of conversions. As I said, we're going about it in mainly three routes. One is direct sales to consumers, and there it's automated, of course. We know what product it is. Doesn't mean it's registered, but we have the relevant knowledge for us to execute that relationship with the consumer having had them opt in. Then the second part is connected appliances, where it's all sort of automated. When it comes to leveraging product registration on non-connected appliances that have been sold through retail partners, we incentivize this, and we know that it's only a small part of incentive that is required for them to register their product, but we are also very far from having all of the installed base registered.
We are continuously working on how to improve conversion, when is the right moment to contact the consumers, and how do we make that a frequent kind of question in our call centers and by our call agents to ensure that whenever we have that inbound flow of communication from a consumer that we make that automatic registration and create benefits for the consumer.
Thank you, Louise. We will have a much longer Q&A session at the end of the event, so there is still plenty of opportunities to ask questions to Louise and Anna on the aftermarket topic. We will now take a break, so for the audience here in Stockholm, we have coffee and cake served here. We see you back here sharp at 20 past the hour. Thank you. A warm welcome back to Electrolux Capital Markets Update. It's now time to focus on North America, as we heard from Jonas earlier today, the importance of this business area to really meet our financial targets. We also know that this business area has not performed according to our own expectations nor our shareholders. It's important that we bring back stability and return to profitability.
A few months ago, we appointed Ricardo Cons as new head of Business Area North America. Ricardo, he has a long and extensive experience from the appliance industry, most recently been the head of the Business Area Latin America, where during his leadership, the business area has successfully grown profitably, and this in a volatile market. I'm very glad to have Ricardo Cons with us today. Hi, Ricardo.
Hi.
So, you have now been the head of Business Area North America for a couple of months, and, what's your reflections when it comes to creating stability in North America and returning to profitability?
Not pleased with the situation. It's not an easy one. My initial view, start with being m ore or less isolated to having a too high cost in this moment. This is positive because this is fully addressed by the turnaround program that we already initiated.
The second point that I would mention is the strategy. Innovation and efficiency, this is the right one. We have the right foundations in North America to deliver, and I'm convinced that the foundations are in place and we will deliver to our targets. The third, and perhaps the most important part, is people. We have a great team. Yes, we have had issues with the supply chain imbalances during the pandemic, ramping up production in particularly Anderson. The team is strong, and I trust the team to deliver to everything that we'll discuss today here.
If we stay on the strategy, how is that paving way then for profitable growth in North America?
Well, in our industry, like many others, competitive products, I mean, winning products are important. Our large investments in Anderson cold products, Springfield cooking products, are delivering those competitive products. Those two product categories, they respond to approximately 2/3 of North America revenue. Coming back now to the two elements, I mean, innovation and efficiency. Innovation. In the time window of 2021 to end of 2023, we will have renewed approximately 80% of our products in North America. We will increase the share of sales of our higher-end sub-brands, Frigidaire Gallery and Professional. We'll come to more details on those, on those sub-brands.
It's also important to mention modularization, and we will bring, let's say, tangible application of modularization that can bring cost reduction in a faster way. We can deploy group technology through modularization, and we can also offer superior design and quality to our consumers. Now, talking about efficiency, modularization also it enables product development efficiency, less components, so this is also into sourcing and manufacturing. All in all, lower cost and higher quality coming out of modularization and automation. We'll see more during Carsten's presentation later today in how we apply those items in practice.
You mentioned we are in the middle of executing on this turnaround program and also how important that program is. How are you making sure that you gain the right traction from the measures you are taking?
Correct. Well, with the large investments, well, in a way, we have to focus on cost. We have structured, the program in seven interconnected work streams. Three of them are commercial oriented, and they address the product lines: food preservation, food preparation, and care, fabric and dish care. They go all the way from cost to distribution and branding. Then we have three work streams that are purely focused on cost, eliminate the excess cost from our base. There is one work stream that works on the processes, revamping some of our processes. For instance, integrated business planning. In our long supply chain, it's important to have demand sensing, and we are investing time and resources to revamp those processes. Important to say a few things about the turnaround program.
One of them is about having clear targets and accountability. As we speak, we have over 900 initiatives identified. We'll work on those. We'll talk more about how to get to stability through that turnaround program.
We have a number-loving audience, here with us today. Can you share some light on how big this cost issue is?
Yes. Here we go. Well, the question here is, can BA North America get to stability and profitability near- midterm? Let's cut to the chase and talk about that. Coming from a baseline that is 2022, we have four building blocks here, starting with three of them on cost. This is supply chain variable, manufacturing, and structural cost. Those three buckets are in the turnaround, as we said before. There is one commercial growth element here that is near term, a negative or unfavorable volume development that is driven by an unfavorable market development in North America this year, but positive mix, and this includes aftermarket and is net of marketing investments. Important also to say that this, in this assumption, we have price and direct material or raw material offsetting each other. Okay?
We have a net commercial growth here that is mainly driven by mix, and we will elaborate more on that. From near to midterm, we will then have both favorable volume and mix, and we will continue to aggregate aftermarket growth. We continue to capture some cost favorabilities, reaching 6% profitability midterm. Let me go more granular into the three main or the first building blocks that are related to cost. Supply chain variable is what is in there, is about reducing premium freight and spot buys that we had to do during the pandemic. We have to privilege service level, so we had an extra cost here. Increase utilization and optimization of our distribution routes and the warehousing footprint.
When we talk about variable costs, we have then production to match demand, and here I repeat, is about integrated business planning, is less tangible in terms of cost reduction, but is important to stabilize the supply chain. Personnel, right sizing, and improved efficiency in both Anderson and Springfield sites. Structural cost is about completing transformation of both sites and leverage global organizations like R&D and marketing investments. We'll go deeper into those cost reduction initiatives. To do that, I turn back to you again.
Thank you, Ricardo. Well, it's clear how important the new two factories, Springfield and Anderson, are for the North American competitiveness. It's great then to have our Group Operations Officer, Carsten Franke, with us today. Carsten has spent more or less his entire professional career within operations. The last two years as Group Operations Officer, and before that in Business Area Europe. Hi, Carsten.
Hi, Sophie.
It would be interesting to hear more about your reflections for the last two years because it's been an intense period, I know.
First of all, good to be here. As you heard before from all my colleagues, from Jonas, Ricardo, it has been a volatile period with the pandemic, resulting in big swings in both in the demand side. We saw the big market swings coming up 2021 until 2022, and then the market decline in middle of the last year. Also on the supply side, with the electronic shortages, with the logistics constraints, the port congestion we've seen in North America and in all the things we in operation we have to operate in. We're doing it in the best possible way at this point of time.
However, being in this position now for almost two years, I'm quite convinced with these investments we have taken now under my leadership to really strengthen the group function, the group operations becoming much more integrated between group and also between the business areas and the investment we're taking in the modularization, we talked about this, automation, digitalization, that this is the right way to do.
And both Anderson and Springfield, we have invested in over the last couple of years. They are highly automated, highly modularized. We take you virtually to these great and important factories. You see the films here running in the back. Carsten, how can we really leverage group scale when it comes to investments like these?
First of all, this kind of investment we're doing there in North America and in Springfield, we're not doing it only in principle in North America. We're doing the same with new technologies, new products, high degree of digitalization, automation. We're doing it around the globe. We have done it successfully in Latin America or in Europe. We are successfully implementing a new product range as well. This is fundamental at this point of time. All these investments are consequence of what we discussed before. As operations, you need to have the capability and the ability to response to the market changes very fast, but also to the supply chain constraints. They're not over yet, even if we see the stabilization.
You have to respond in a way with scale, with better quality to the market, with the speed to innovation, but also with a faster time to market, yeah? This is what those kind of investments helping us very much here. On top of this, what we are doing is we are strengthening and leverage our group competencies and skills, yeah? Really getting our colleagues from R&D, quality, purchasing, manufacturing, engineering together right from the beginning to work together on the development, working on the modularity, working on standardized processes, making sure that those ones also clearly implemented into the factories, and they have the full accountability until it takes over. This is a big change we have done over the last two years.
On top of this, with all these information and investments we are taking here, we also have a reduced supplier base, both for components, but also for equipment suppliers. That gives us scale on the one hand, but it also gives us a lot of opportunities to reduce the risks in the supply chain, mitigate those risks we're seeing here and there. There are a lot of good things we are accomplish now in these days as well.
We have had our fair share of hiccups when it comes to the Anderson ramp up. How are we applying those lessons learned onto Springfield?
We said it several times today, and it's clear, we are not happy with the performance and the ramp up of Anderson. They're not performing according to our plans here. What I can share with you, we are stabilized now the factory. The factory is in a good shape at this point of time, and they are delivering according to the latest plans.
If we really take the learnings out of Anderson, what we are applying also in Springfield, because we start a little bit later in Springfield with the ramp up, but also in the other transformation programs are two of those. One is you need to have the capability, the skills of the blue collars, white collars right from the beginning, and you have to train them all the time. There we have seen that we lost a lot of capabilities and skills in Anderson at the beginning.
Secondly, and I think Ricardo mentioned as well, you need to have a really rigorously strong governance process when you ramp up products in a factory. Another important thing, you need to have the discipline execution. What I was little bit missing in North America, the discipline of execution is fundamental as well to be successful.
I'm sure the audience is eager to learn more about how we can significantly cut cost and leverage modularization.
Absolutely, yeah. Good. Let me invite you to have a more deeper dive into the North American operations, where we're at this point of time. I would like to start with the footprint. What we have done over the last couple of years, we have consolidated the footprint North America to five factories. Latest we closed Memphis facility, the cooker factories, middle of the last year, and we consolidated into Springfield. What we have done now and what you see now that we have right-sized the capacity of the factories between 1 million and 3 million for the North American business at this point of time. Another important point, you heard about this from Jonas, but Ricardo, the importance of modularization. What I can confirm with to you that we have significantly improved the modularization in North America.
In our Springfield cooker factories, at the end of this transformation, by end of this year, beginning of next year, we have principle every platform on the modularization. On refrigeration, we have the Anderson factory already on modularization 100%, and we still have our also very competitive footprint in Juarez with multi-doors and side-by-side production, and we have invested also here recently in Juarez operations to make those products more competitive. I would like to dig a little bit more in Anderson Springfield because are these you might interested on. Looking at a glance at Anderson at this point of time, the has been completed with all the ramp up by Q4 2021. Investment around $250 million. We took the advantage also to reduce the product variance level significantly by 75%.
This also gives you, at the end of the day with investment, a big opportunity to have an automation level up to 30%. This is in line with what we see in all the other factories as well around the globe. In Springfield, similar situation, similar investment. Here also we have the different platforms. Also we have reduced significant the product variances by more than 70%. The difference to Anderson is that we are still in ramp-up phase. We already launched two platforms, which is the wall oven and the front control cooker factory, and we are now in 2023. In these days, we are launching now the rear control. Everything of those launches will be completed by end of the year.
Beginning of the next year, they will be in the market. We talked a lot about the cost and how important the cost structure is to achieve the profitable growth in North America. Here I put together a slide, it's the same then for Springfield later on, to make a comparison of the product cost. 2022, the cost and the target cost we need to have principally to achieve the profitable growth, mentioned by Ricardo. Here is divided into two, three pockets. We have the direct material, which is the biggest share of the product cost. We have the supply chain cost.
Supply chain cost is the warehousing cost, the inbound transportation cost to get the material into the factory from North America, from overseas, and it's also the finished goods, transportation and warehousing to get those products to the consumers and customers. The third pocket, we have the production cost, variable cost, is mainly related to the labor cost and the scrap cost. What you see here as well is significant we have to improve those ones compared to 2022. What we positive can mention that, on the direct material, we're already there with the cost. The bill of material fits very well to our cost structure. And for sure, over the time, we do our continuous cost out to be further, better material cost over the time.
Supply chain cost, mentioned also by Jonas, those are costs that have been accumulated over the last one or two years because of the global supply chain constraints in electronic, in logistics, I mentioned it before. These are costs we're taking significantly down. We are already here at this time, much lower than in 2022. All the primary cost, because we had to fly in material from overseas to keep the production running, it's already on zero at this point of time. The transportation costs have been reduced, and what we're doing now is to optimizing also our footprint, in particular on the finished goods warehouses, to be quicker and better serving the customers. On the production cost. This is a big headache we had over the last couple of years.
Main reasons for this one, as mentioned before, is we had, when we ramp up factory. High fluctuation of people during the pandemic. Not having the right skills of people, especially engineering maintenance people, they left also at that time. We had delays of our equipment suppliers because a majority of the equipment came from Europe, so it were very difficult to get to, during the pandemic, get those equipment in. We also had delays and issues as well, and we had also underperforming suppliers. All this combined with the pandemic and the dynamic in the market at the same time, this caused this extremely high underperformance of Anderson. I said before, we're operating since a couple of months very well, very stable, and we ticked a lot of those boxes structurally.
My team is over there and we always have the team fully upskilled. The fluctuation is come to a normal level and now we are in a continuous improvement process to get the productivity out, reducing the scrap cost, but also the efficiencies of the equipment is in a good way at this point of time. Just to give you a given example of this, today, in these days, we're producing in that factories with eight shift what we have produced with 12 shift one year before. A significant improvement over the time, and we are also accelerating these kind of improvements in this day. I'm feeling quite confident that we're hitting also the near targets and getting this continuous improvement on the productivity. Springfield, you see a similar structure, cost structure.
Also the direct material contents is good, is fine doing the activities. Supply chain, same situation. Accumulated a lot of cost. Not as big as for Anderson because we started later, and at Anderson in refrigerators we have much more bulky products inside. If you look at the production variable cost where we have to take a big chunk out over the last, over the next time. This is related that this factors is still in the ramp up at this point of time. Means we're ramping up the assembly lines, we ramping up technology. Means extra training, extra workload, so we are not efficient at this point of time. Once the factory is fully running by end of the year and beginning of next year, we also get principally the efficiency back to the normal level.
This is about the cost structure and the improvements, activities we are running here in both factories, Anderson, Springfield. As I'm quite confident that we are achieving those near-term costs, but also I'm confident that we have a competitive cost structure. Here I put something together to make a comparison with our competition. In North America, there are two parameters, is the total weight of a product, but also the total number of parts we have in those products, and we have significantly improved with the new product structure. This gives a lot of confidence because lower weight, lower part numbers means also that we are more efficient, have less direct material cost. This is a good way to see it also compared to our competition. Now, I would like to talk a little bit more modularization.
I wanna ask you a question: Do you like LEGO? These LEGO bricks? I like them very much because I do have them as home, still at home. The LEGO bricks is a very good explanation how it works, and here is an example from the modularization about our cooker modularization. You see, like LEGO bricks, we can build whatever we want as a plug and play. Here you see freestanding products based on the same structure, like built-in products for electric and gas. This gives scale, especially in the time to market once the first products are defined and the interface is defined.
To give you a little bit direction, for time to market you can save around 30% of the time compared to normal development need as well. The good thing is we are the only player in North America that offers this kind of architecture for both built-in and freestanding gas and electric. Very exciting. Very good. We also have proof points in winning innovation, and we talked about this before. Jonas mentioned before, we see very good feedback from our customers. Well perceived, not only compared to the previous products, but also compared to our competitors.
Here you see principally the very, very good results we received so far for those two product categories from Anderson and Springfield, and this is fantastic and great to see at this point of time. At last before I hand back to Sophie, there's an exciting year, 2023, coming. We are middle in, it's coming this year, and we have many, many launches in the cooker categories, and those launches are also including great features like steam baking and steam cleaning. I'm really happy to see those things also into the market coming up over this year. With this, I really would like to thank you, and I would like to hand back to Sophie.
Thank you, Carsten. Ricardo mentioned the importance on staying with our strategy when it comes to innovation and efficiency. Now we have heard from Carsten a lot when it comes to efficiency. Let's look at the other arm of our strategy, innovation. It's great to welcome Ricardo back on stage.
Thank you, Sophie. We have now that we discussed a little bit more the efficiency part and the cost, we have some other questions to answer, and I will talk about innovation in a minute. But the first question I want to discuss with you is about North America, the attractiveness of the market itself. Some numbers here.
Well, we'll h ave some figures from the last decade where the U.S. market was the main engine for global value growth for appliances in general. The U.S. market is the growth engine, and we expect it to continue to be the growth engine in the future. If you take both markets, Canada and U.S., they are top five in the following metric, the appliances spent per household. We are talking about two elements here, growth and high value spent per household. This is a very important element. The next one is about now looking ahead, is about leading indicators. The first one is about housing starts. That's the green line on the chart. Housing starts, very solid growth since 2010. A spike during the pandemic, now a slowdown, mainly reflecting higher interest rates.
There is another element that is also a leading indicator to us, which is remodeling. I mean, home improvement in general is a very important business and shows that we'll continue to have attractive market in North America. There is another question about our ability to become stable and profitable. Is about our brands. Is Frigidaire brand strong enough to sustain our product offer in the future? Let's discuss that question for a moment. I'll start with the positioning of our portfolio of brands in North America, where we have Frigidaire as the base brand, addressing more a conservative and modern type of consumer in different price indexes. We have Frigidaire Gallery and Frigidaire Professional going up in the price index scale. Electrolux is addressing a more progressive consumer at higher price points.
This conservative modern consumer segment is very relevant in North America. If we check then our ability to mix up from base Frigidaire to the sub-brands, Gallery and Professional, we see that from 2019 until these days, we've been able to increase the share of those higher end brands. If we take a comparable cart of products, when we go from the base brand to Gallery, we increase the average selling price in 50%. If you go to Professional, increase by 90%, and Electrolux by 180%. This is the actual growth of our higher end brands in the recent past. Now let's take that same perspective, but looking products, because the products are sustaining the brand positioning.
To explain this chart, I will focus on one of the categories, cooking, for example, where we have in the base of the chart, the freestanding rear control ranges. You see in the bars, this is the breakdown of sales. When we go up from a rear control unit to a freestanding front control unit, the prices go up by 60%, average selling price. If we go to all ovens, the price goes up compared to the baseline 150%. You have also the track record of the recent years of our progression from growing the higher priced categories. If I now go back to the other categories, we've been able to do so across product lines. Increasing, for instance, in food preservation, multi-doors and tall twins.
In laundry, growing front loading and laundry centers over top loads, and growing stainless steel tub in dish care over plastic tub. You can see across the board that we've been able to initiate that, you know, mixing to higher price categories. This is a comparison of our higher priced products against our base products. What if we compared those higher priced units to competition? What's our performance? I brought what we call internally the focus seven categories, that are the ones building higher price points in the, in the previous chart, to competition. We've been able to gain market share last year across the board. This is measured in basis points. We have here a list of products that have significantly higher gross margin compared to the rest of the business.
Okay, we can see in the bars to our right that we've been able to grow in recent years significantly in those categories, where as we maintain the rest of the business relatively stable. Which is also important because of scale, manufacturing scale, and also to have access to distribution. The next conversation here is about portfolio vitality. We said in the beginning that in the time window that will end this year, we'll have renewed nearly 80% of our product offer in North America. Well, we'll end up with the strongest portfolio vitality in the market. Of course, there is a question about that. New products are not necessarily performing. I'd like to share with you some examples of execution of recently launched products, and I'll start with multi-door refrigerators.
I will focus on the left upper part here, where we have the consumer insight testing during the product development phase. We take our concepts, design, features, and compare to the strongest competitor. We adjust until we have the right product to go to market. In case of multi-doors, we reached 70% target consumer preference before we launched the product towards end of 2021. I moved to the right-hand side of the chart that shows our market share progression in that segment. Even more important is the information at the bottom, that is the consumer star rating, where we compare what the consumers are telling us about our product compared to competition. Frigidaire products today are best in class from that angle with 4.6 star rating multi-door. I can share also another category with you, which is wall ovens.
Same metrics when we talk about the consumer insight testing during the product development phase, we reached 57%, testing against the three strongest competitors. If we normalize the market share curve, we see that we start to gain traction in terms of market share in the recent quarters. About consumer star ratings, the same. Best in class product with Frigidaire Gallery brand. With that said, I'd like to emphasize the importance of product innovation. There is also a powerful element here that the ability to combine high consumer preference with modularized products and more competitive cost. With that said, I would like to refer back to our bridge. We said in the beginning that we would talk more in detail about the three cost building blocks as we did.
In these last few charts, we discussed our ability to generate commercial growth, this is based on mixing up to higher price points, but also defend our core products with more competitive cost. With that, I would like to say that yes, I'll repeat what I said in the beginning, I'm confident that we have a solid turnaround plan in place. We have the right strategy, and we are delivering competitive and superior products. I trust the team we have in North America behind execution to deliver to those commitments. With that said, I'd like to hand it back to you, Sophie.
Thank you, Ricardo. We are about to open up for questions, so, all speakers will join me and Ricardo on stage here. Let's start with a question here, Ricardo, on the topic you just talked about. You have been with the group for quite some time now, and, can you shed some light on how we are leveraging these consumer preference testing you touched upon?
Correct. Well, if you allow me, I will go back and make reference to these slides because the process, and I'm focusing on the consumer preference testing, is a process that the group masters. We know how to do this. I can refer to my previous experience in Latin America, where we consistently apply that kind of process throughout the year. Even more important than branding is what we are able to deliver in the product itself. Because today is sure that the consumers would prefer to hear from other consumers how they like our products instead of hearing that from ourselves. A superior product offer will deliver that.
So, m astering, and I'll refer to the process a little bit now, is to identify first of all the target consumer segment. Then we test what are the main attributes. Then we test and retest. We have to prototype, we have to test design, fit, feel, finish. Then it's not an easy process to end up with a preferred product. That consistency is driving preference. Driving preference with high quality will lead to superior consumer star rating.
And, we talked a lot about consumer star rating, and why is this so important?
Yeah. Well, we are basically talking about those ratings and reviews that we see in the websites when we check to buy something for ourselves as consumers, right? It is important because of that, because people would refer more to their friends and family or to other consumers to say, "Well, I can trust that product because people tell this is a reliable product or brand." That changed a little bit the marketing equation we had in, you know, some time ago.
It's about investing heavily on brands, which is still very important, but it's also very important to refer to the experience we give with our products and services to the consumer, so that we can have a superior consumer star rating to generate loyalty. Basically, this is what we're talking about. To your question, consumer star rating as an indicator to us is simply the reviews rating, ratings and reviews people give to our products online.
Thank you, Ricardo. Now let's open up for questions. I see all speakers have joined us on stage here. May I just, we will have questions from the audience here in Stockholm as well as from the audience virtually. Please keep sending those questions in. I will start with one question here to you, Jonas. It's from David MacGregor at Longbow Research. It's about if you can hit that SEK 4 billion and SEK 7 billion savings and productivity targets on your current North American unit volumes, or do these targets depends on winning back some portion of your previously forfeited share?
No, first of all, you know, we've guided for a negative market development in North America in 2023, as well as globally, we're assuming that lower market volume. By the way, during the second half of 2022, we gained market share already then. Market share is not the main challenge, and that's not the core assumption here. It's about basically the guidance that we've given and the strong reversal, first of all, of the excess cost that we've accumulated, and then getting these new factories to really deliver with the productivity that they're designed for, and that's what we're doing.
Do we have questions here? Yes, we have one from Christer Magnergård I see. We have a microphone coming up there.
Thank you. Christer Magnergård from DNB. Firstly question on, let's take the cost structure in Anderson and Springfield. You compare that with 2022, yeah. Is it possible to compare the cost structure you're targeting with like 2019 or before you had all these issues? Because 2022 was an exceptional year.
You take it up?
Yeah, so you'll recall that when we launched these big transformation programs, we were targeting to get over SEK 3 billion of cost productivity globally from these investments. That fundamental performance of these factories and these new product architecture is still there. It's just that with those huge fluctuations and volatility we've seen in cost, it became almost impossible to re-baseline to those prior targets. That's why we said, "Okay, we're reversing the cost inefficiencies that we've had, and we're delivering on the full potential of these new factories." You can say, yeah, that's included in those assumptions that we put in place at the beginning of this journey.
Yep.
Yeah. Thanks.
Thanks. The second question relates to the shift we have seen when it comes to consumer spending over the past years where when money was free, where everyone started to buy more expensive products and just started to move up in the value chain to mass premium products. Given that things have changed, do you still see that kind of trend shifts that you talked about, or has things changed already now?
Yeah, it changed slightly already now. Like, if you take side-by-sides, they gained relative share in the recent months, so just supporting your point. Our market share in higher price categories is still, you know, we still have room to grow, even if there is a change or a temporary change in that in that trend. I agree with you, recently we have seen that effect.
I have to say not as much as you could expect.
No, not as much.
I think that's driven by the what you pointed to, that the remodeling of existing houses is actually accelerating, if anything. I think this is an important fact, because typically when you remodel, you upgrade. When somebody's constructing a new home, yeah, that could be any kind of market position. It.
Yeah. And, h ome improvement or remodeling is supported by an aging population that, you know, is willing to spend more with that, you know, in that area, I mean, home improvement. That's, we have a lot of data around that shift, the aging population will support that remodeling in that sense. There is opportunity, higher price categories will still be an opportunity.
We have a question there, if we can have a microphone. It's on its way.
Thank you. Good afternoon. It's Martin Wilkie from Citi. A couple of questions. The first one just on market share. You've again, you've been talking about gaining share in these focus seven appliances. When we look at some of the external data, it's not so obvious to see that. Has it been supply chain led, and it's really a temporary feature if there has been some categories where you've lost share? Or are there categories that are perhaps not the focus seven you've talked about where there's been a deliberate loss of share to improve the mix?
Yeah. There is some loss of market share more related to our product availability during the last two years than any other factor. That is correct. There is an erosion, market share erosion in base categories. And y our assumption is correct.
Yeah. It's true, especially as we switched over from St. Cloud to Anderson, we lost a fair amount of share in base upstanding upright refrigerators.
Correct.
Also, as we ramped up the new top mount refrigerator factory, because of supply issues, we lost a little bit of share there. These are relatively speaking lower value categories. You know, the fact that we're gaining share then in the higher price categories is lower volumes than what we're losing, the net gain is value creating, let's say.
Is value creating, yeah.
Thanks. Can I take a second question just on you've talked about modularization, and you talked about, you know, components per appliance being better than the competition and the weight and so forth. Obviously, in some categories you're a lot smaller, and therefore you might not have the scale advantage of some other competitors. Does that matter, or is it really the modularization and the sort of simpler manufacturing that's more important than simply size?
I would say that's a question, Carsten, do you want to take that?
Well, I don't know if I understand correctly your answer. At the end of the day is what we are modularizing the full range here, yeah? C omplete-
Globally, yeah.
Globally, the full range. Independent of smaller, more smaller categories? We have the opportunity, what we talked about, we're around 50%-60% on the way. Maximum we can do around 70% of modularization. If you look at the global product portfolio, there's remaining 20% or 30% of products we're not putting on this global modularity, but still they are there in the market, and we do our principle, our improvement activities as well. I don't know 100% if this answered your question.
I think that's true. I think they are two parameters that are relevant here, even though you're right that in certain categories in North America, other competitors have more scale. Two things. One, the factories themselves have the critical scale, right? We've reduced to five sites with high potential productivity. We're, you know, about to deliver on that. We have this global modularized product architectures that allows us the sourcing and product development efficiency based on our global scale. Our global scale is highly relevant in the industry, especially given the some recent changes. So, I think we're overcoming some of those, let's say, call it sub-segment challenges that we might have had, certainly historically, in North America in terms of scale.
Thank you.
Let's take a question from our online audience here. It's from Ben Poster, Lodbrok Capital, and it's for you, Louise. It's, how do you expect extended warranty to change as a percentage of aftermarket sales by 2025 or longer term? The second question to that is, are there higher, lower margin than the average of aftermarket sales and, roughly what proportion of the total aftermarket EBIT is from extended warranties today? I can say we don't give that much details, but we can share some light.
Yes, sure. You saw the bridge, right, where I showed and presented that all the four aftermarket categories will bring the growth to the 10%, and one of the important building blocks is extended warranty. It's not the one that contributes the most to the growth, but it's still there. I can say that it has a higher than average profit margin out of the four aftermarket categories, but I can't detail the exact level for 2025.
I believe we have a question from Johan Eliason there. We have a microphone on the way.
Yeah, hi. Johan Eliason, Kepler Cheuvreux. A question regarding the aftermarket. You have this target to go from 7% of sales to 15% of sales. That obviously implies a lot of investments. You've been really careful about saying investments in technicians, et cetera, that's obviously needed. Are you considering some M&A in this area? I remember you did buy a business in France a few years ago, for example. Would that be part of this 15% target level, or do you think you can sort of do it organically all the way up to that number? Thank you.
Good question. We have investments to be able to grow the business clearly, and it's, I would say, even more in the tech side of creating this consumer digital journey. That has already started a couple of years ago in Europe, so let's say we're halfway through that investment phase. Speaking particularly about service technicians and how we grow that capacity, as I said it during the presentation, it boils down to the install base analytics and our ability to operate efficiently with our own employed service technicians.
Dependent on market, and we're reviewing market by market, there might be strategic reasons why an M&A would be more suitable to grow that capacity than to grow it organically or through partners. That is part of the mix and what we'll review going forward. But it's not one strategy we go M&A or we don't. We have to review that country by country even.
In this 15% level, is that something you see in the industry? Is there a peer that has this level of aftermarket already today?
We don't have exact data of our industry peers, but if I compare to both kind of automotive industry and also the professional appliance industry, and combining that with the price level of our appliances to consumers and their considerations of repairing or replacement, I see that 15% is a reasonable but stretched target for us as a business to pursue.
Okay, thank you. I was just wanting to ask a little bit about this moving up the price points as well. I remember when you bought back the Electrolux brand and introduced it in North America, you talked about this premium segment would have price points maybe 200 percentage points higher, but they would have sort of margins that would be triple your premium. Is that sort of the leverage still today?
Yeah. Do you want to take that?
Yeah, you know, we won't go into detailed margin bridges here, but suffice it to say that yes, I mean, on the gross margin level, they're quite significantly higher. Of course, on the operating. It's even more of a significant difference. You know, you saw, of course, the bridges that we've shown both in my presentation and in yours. It's driven by that. It's driven by mixing up, selling more of the higher, you know, higher brand branded product and those more premium categories per se. It goes lot hand in hand, these two.
It's the brand position combined with the product offer that builds that positioning, as we said. I wanted to emphasize the product offer because of that. Is not necessarily brand investment, but is the product itself that will sustain the price positioning of some categories.
We have a question here from Andre Kukhnin in Credit Suisse. I think, Anna, this is suitable for this discussion. Some mix, where brand is of course, impacting then in the EBIT bridge. Can we expect a continuous SEK 1 billion that Jonas talked about here per annum contribution also going forward? Is there a scope for an acceleration?
Of course, we want to continue with the good mix performance. I think the product vitality, as we showed here for the group, is kind of sending a message that mix will continue to be strong, even though we don't give exact guidance on any numbers specifically on mix. Of course, we talked about the acceleration in the aftermarket growth and the structure approach we take now in the near term. Adding on to that mix potential.
We have a question from Björn Enarson. We have a microphone coming there. Thank you.
Thank you. Danske Bank. Question on, you talked about your near-term guidance outlook here. As I understood it, you are not expecting material market share gains, and you have some price erosions and negative volumes. Looking at volumes in Q4, and how much of that would you say were, inventories reductions among, your clients, and how much of that was, demand or end user demand? And how do you see that now, looking ahead? Then looking forward, is it then, savings primarily that would take you, to near-term guidance and your midterm guidance eventually?
Yeah. I think we showed, Ricardo, you showed the pieces specifically on the North America turnaround. The biggest part also in the near term is cost. There's some part of the commercial growth, again, mix, driven by mix, since price and volume is not really a near-term contributor. On the total group perspective and looking at the second half of last year, we clearly saw a fair amount of destocking among retailers, both in North America and in Europe in particular. You know, we haven't broken up exactly what is what. It was, you know, it was a meaningful part, especially towards the end of Q4, of the sales development.
You know, I think we indicated, and I think that's true, that most of that you know, dealer, retailer destocking is done, was done by the end of Q4 for the most part globally. The guidance that we're giving is effectively that, you know, the run rate that we saw in demand in the latter part of last year, you know, retail demand is continuing into the first half, and also the foreseeable future into the second half. We're not seeing any significant additional run rate step down in North America and in Europe in particular, which is the biggest market.
Of course, we have some markets that are just more volatile inherently like in Latin America, where we've had already seen very depressed levels. Hopefully they can come back a little bit. Again, the year-over-year numbers make it difficult to point to growth in the full year. From a run rate perspective, you know, our emerging markets are a little bit more volatile, of course.
Then restoring profitability outside North America, near term, is that also savings to a lot of extent?
It's two things. One is that, again, we had built up these significant inefficiencies globally. North America by far the most hit, but globally. We're recovering those. Spot buys, premium freight, high logistic cost in general, inefficient staffing of our factories. That we are working through relatively rapidly, I would say now, because it was. It's less, how should I say, less endemic, less structural than it has been in Europe, where we're ramping up these in North America, that we're ramping up these new factories. That's a relatively quick one. Then in particular, in Europe, we had an extended period of time where we were really suffering from component shortages, especially impacting our more premium, more electronic intensive product ranges.
As that is now, you know, cycling through and coming through with much better availability, we have the opportunity to recover some of that lost volume at premium in premium categories and premium price points in Europe. Those are the big elements that we see right now.
Last, and then the risk of mixing down now when we see the consumers where they are or where we expect them to go, at least, isn't that a big risk in Europe?
No, I think it's clear the market is mixing down a little bit, both in Europe and in North America, and maybe Anna you wanna comment a bit more on that. We were hit more, let's say, in the premium end of the market, particularly in the first three quarters of last year in Europe. Just the ability to now supply and recover that position which we don't see any significant challenges in recovering, that more than compensates for that, that relative mixing down in the market.
I would like to add to that also. We see some components of that in consumers mixing down. We will also see, especially in Europe, is that consumers are also actually mixing up. It's a polarized market you can say, and consumers, for example, on the back of the high energy prices wanna go for those more sustainable higher end product. So there is a somewhat polarization you can see in Europe.
There's one element that I think, you know, some of us have talked about this over the years, that if you think about the appliance population out there of appliance buyers, you basically have the lower end of the market, which is generally speaking renters. There you have more of a let's say a wear and tear-based replacement cycle. Even if you're a let's say a lower income consumer, when appliance breaks down, it gets replaced, you know, as part of your rental contract. The higher end products are typically bought by consumers that have more discretionary income and are less impacted by, for example, energy inflation, food price inflation, and so on. It's a smaller part of their disposable income. I think this is part of the reason why we're not experiencing as significant mix-down as you might expect.
Thank you.
Let's go to a question from James Moore at Redburn, and I believe this is a question for you, Jonas. Can you give the timeframe for the 6% margin? Can we assume that you aim to be at a greater than 6% margin in full year 2024 when the SEK 7 billion savings have come through?
No, I think the SEK 7 billion, you know, given the outlook that Ricardo mentioned for the near term is not gonna be enough to get us to 6% run rate by 2024 based on what we're seeing now. The market can recover more quickly and a lot of things can happen, but that's not the baseline. I'm not gonna give a specific guidance for 2024, but not that far after that, right? We're talking about midterm, we're talking about a few years given the pipeline of both cost savings that we've talked about and accelerating aftermarket's growth and a very fresh product lineup. You know, it's not far after that that we should be able to deliver at that 6% level.
I see we have a question from Gustav.
Thanks. Just to check, you referenced 3,800 reductions in employees. Can you give us what's the incremental number? 'Cause I recall you had like a four-digit number also with the re-engineering program. Is this a net-?
This is. Well, no, I don't think we gave a number back then. I, well I can't remember. But the 3,800 is exactly what we announced in December in the restructuring program. On top of that we have an additional 1,900 contractors and consultants, short-term, temporary employees that we're reducing as well.
None of these were included in the re-engineering program that you guided for a few years back or?
As I said, the complexity of the ups and downs here make it very difficult to track back. Of course, we have already reduced the number of employees as we reduced the number of factories back in time. That's already partially past us, and now this is the incremental from now and forward.
Okay. Then, I think you referenced also in that press release that you aim to optimize R&D. I think you're running now at almost 4% of sales. Can you give us a rough ambition on where we'll be at in a few years?
I think we're you know, based on the new structure that we have, the fact that we are pretty much done with the modularization investments and engineering, we can you know, marginally kind of flatten out that level of spend and also CapEx investment. We need to do that. We need to reduce that sort of core engineering to invest a bit more in the digital, in you know, digital engineering and also the growing our aftermarket capability. It's kind of a rebalancing there. Net/net, a small reduction, but quite significant in the modularization part, increases in the digital part, net a small reduction.
Do we have more questions? Yes. Over there.
Yes. Hi, good afternoon. It's Akash here from JP Morgan. I have a few questions as well. The first one is on North American supply chain. Jonas, you said you got hit in 2018, 2019 by these tariffs. Can you provide an update on where do we stand on supply chain diversification? I guess you also had some extra costs during pandemic. Where do we stand? What steps have you taken in terms of bringing supply chain more online? Maybe if you can elaborate on that.
Yeah. I'll give it to Carsten maybe and I can fill in as well.
What I see today, particularly looking over the last two years at this point of time, I think from a supply chain perspective, we are greatly stabilizing now, yeah. We have seen some hiccups over there for sure, yeah, during the pandemic. I said underperforming from supplier base. Here we are. I don't see a big difference in our principle to others as well, the congestion of reports. I think what we're doing together now with Ricardo, especially on the sales side, to optimize our footprints when it comes to the warehouses, yeah. To the RDCs. How we distribute our consumers and customers, where we have couple of them. I think this is also what we mentioned.
This is now the next focus on it, that we're really making sure that we're able to deliver all the different regions in North America in the right time and how we are feeding those warehouses for finished goods to this. But from a supply chain perspective, from inbound perspective, I think here we are quite leveraged at this point of time. We have done a good job over the last time, yeah.
Actually, so referring specifically to the tariffs back then, it was before you had your current role, is that we were quite heavy in sourcing on air care products, microwave ovens, some refrigeration products t hat were hit heavily by the tariffs at the time. That rendered a significant part specifically of that air care business unprofitable, and we have mixed out of most of that. That's now a fairly small part of our North America business, and we're mainly targeting more niche segments in air care following that. That used to be a big and actually very profitable business for us, which is not longer delivering that. On the microwave ovens, those go a lot with the ranges, right? We have this over the range microwave. There we've been able to defend the position reasonably well.
But a lot of the other categories were, that were hit by tariffs and also a number of components, we've gradually shifted the sourcing away from China just for cost reasons to Southeast Asia and Mexico. Right now, I wouldn't say that for cost reasons we have anything that we need to address in terms of our sourcing footprint. However, from a, let's call it a geopolitical mix, risk management, we're making sure that we have more double sourcing and more nearshoring, of critical components going forward.
Thank you. Second one is on product cycle. I think you elaborated that you are almost renewing your entire product line in North America as well. Do you know where competition sits? Because my worry is that you are renewing right now, so probably you have some scope to gain share. Let's say if six to 12 months down the line, if your competitors do the same, is there any risk that the some of the market share might change in the future?
Right. I think the topic's not so much that we have a fresh lineup, because you always have to have a fresh lineup. The topic is we didn't before. Now we're kind of level setting, you know, our offer versus what we expect to see from competition. Yes, you know, we're, we've made this massive, let's say, surge in investment to catch up. We have to keep investing, of course. We have to keep our products fresh, and that's what we're doing. I mentioned the example of Europe, where we were already on these modularized product architectures. Now we're rolling out the next generation of products across, and we will do that, of course, in North America as well.
This is not a one-off game where you're kind of riding on this catch-up. It's a continuous game. The reason why we feel confident is, number one, is we're going from a bad space to a really competitive space, and we expect to continue to do that. The other piece is what you mentioned, which is that the market is continuing to premiumize structurally. Okay, we have interest rates going up and down and you know, housing construction. Structurally, people around the world, I'm not, I'm not just talking about North America, but around the world, people are spending more money on their homes and particularly on their kitchens.
This is a, you know, a trend that we've seen for the last 15, 20 years, and we don't expect that to go down. It's driven to a significant extent, as you mentioned, by consumers that have a lot of discretionary wealth and income. Many cases, empty nesters that are reinvesting in their home. Another just is more of an anecdote, is that you can see that the number of house transactions, so sales of existing houses in North America has gone down because of the higher interest rates. Sort of from a conversely, that has an impact on the intent to remodel in your existing home. Quite often you have a home with a fairly low mortgage rate, maybe a 30-year mortgage in the U.S.
You wanted to move, if you move, you get this double mortgage rate. Instead, you're investing in the home that you're sitting in. That's why we're seeing that continued positive curve on remodeling. You know, if you wanna add on.
Yeah. The home improvement in general is boosted by that. We could have brought some additional elements here, but it's very much supported by demographics here. That gives that assumption a very solid baseline because this and is a macro trend global, I would say.
We do actually have some additional information in that, on that extra slides I mentioned, that you can download on the website.
You can never stand still. That's the key point, and you have to keep reinvesting. This is now back to the point of modularization, right? Historically, when we wanted to upgrade or refresh a product or add new innovation modules, we had to do more significant redesign. The modular architectures allow us to, let's say, integrate and increase the penetration and rollout of new innovative models in existing product architectures. That's an extremely important, let's say, leverage factor as we go forward to increase our speed of innovation while actually reducing the capital intensity of that innovation.
Yeah. By the way, this is a discussion we've had in the recent years with Ricardo Anderson. I refer to that the powerful combination of high consumer preference with modularization to be able to keep ahead in that game because it's clear competition will invest and will catch up. That's for sure.
We have a question here from David MacGregor at Longbow Research for you, Ricardo, on this topic. How do you think North American retailers are looking at Electrolux, and what do they tell you they need to see in order to give you more listings?
Yeah. Well, I'll start with the service level. We have to be, as always been the case, a reliable partner. We had difficulties in terms of components and supply chain, as we all know. The fact is, we are gaining share recently. We, as we speak, have been awarded with some new floor spots that will materialize later this year. It's been positive, I must say, the recent development. This is of course a combination of the right service level, the relationship we have with them, and the product offering.
I believe Carrie wants to ask a question or two. There, we have a microphone.
Thank you. Carrie, Danske Bank. Going back to modularization and the margin lift that you had in Europe between 2013 and 2018. You did this during the same period Whirlpool struggled to make money, market arguably didn't get any better, yet you lifted your margins from 0% to 6%, 7%. What percentage of that or what share of that would you say that was due to modularization?
I actually cannot answer. I don't know, to be honest, because it's a package, right? It's a package of very strong portfolio management where we really increased the investment levels in the product categories where we saw that we would have the opportunity to win in the marketplace. We invested much less in our tactical brands and in less competitive part of the portfolio, and with the strong intent to kind of mix out of the lower end and mix into the higher-end products. Of course, doing that is extremely difficult and capital intensive unless you have modularized products. Because we have, we were able to do that in a relatively smooth and efficient way, right?
So, it's, I would say, a necessary ingredient, but it's difficult to assign a, you know, a particular value to it. I don't know. Anna, you were CFO at that time. I know you.
Yeah. No, I think you're right and, it's you can't really split it out. Of course we had the brand focus on Electrolux and AEG also moving away from other, yeah, tactical brands if-
That's it.
You call it that. Very structured and kind of cost focused as well, so.
Yeah. No, I think the journey is not dissimilar, you know, in what we, what you have done in Latin America and what we're doing now in North America. It's this combination of significant investments in the core product architectures, the automation levels, enabling much more flexibility, enabling us to mix up into higher price categories, giving us a return on investment in investing in supporting the brand, premiumization. You can't do one without the other. Well, you only get the return if you do all of that together, and that's the mix that we're driving.
And, it's also important to emphasize that we bring those product architectures to all regions, so it's not just benefiting then Europe, for example. We also have laundry product architectures benefiting APMEA and North America, Latin America. That's also really important. As Carsten was talking about, the LEGO, it's benefiting the entire group here.
I had a quick question to Ricardo as well, if I may. What are the biggest differences between the North American operation and Latin American operation, maybe in relation to how independently they have been run versus how tightly they have been connected to the Swedish org or to the Electrolux as a whole? Maybe going forward, what needs to change so that from a management systems perspective so that you can reach your ambitious targets?
Well, first, I wouldn't differ them in terms of connection to Sweden and independency. I don't think there is a difference there. When we compare, I mean, the reengineering and investments, I must say that there is a fundamental difference that we have. We have closed factories in North America while we revamped existing factories in Latin America. This on one hand is more complex to, so to speak, but has a different impact in the work, in the workforce. We are revamping a factory versus shutting down, the change management is different. That is a fundamental thing.
The other one, I'll say is related to the challenges we had in North America in terms of high people turnover, and the labor force availability because this impacted our ability to deliver some projects on time. We had somewhat the same situation in Latin America, but not to the same extent. The challenges from a technical standpoint, they are comparable, but we had some nuances that are different. I certainly wouldn't differentiate the connection or independence of the BA.
Yeah. I think we had more capability resident in Brazil than we had resident in North America from a manufacturing engineering perspective.
I can fully agree to this as well.
Yeah.
Yeah. It's a capability. It's a brownfield, it's greenfield at this point of time, the ramping up in Brazil was good in capabilities and this was lacking in North America. If you go today, to give you an example, if you go to Anderson today, compare it with two years ago, you see a different culture. We are, as I said before in my speech here, we leverage group competencies. You see Brazilians, you see Germans, you see Italians now in these factories, not only working for this factory as well, but also working for the full group from engineering perspective.
We are leveraging this group perspective. It doesn't matter if they are in North America or they're in Brazil or they're in Europe as well. This is exactly when I say we leverage group capabilities and skills around the globe. The production at the end of the day is similar to the production we have this way. It's really getting the skill, get the fluctuation under control. This is what we have done so far, yeah.
I see Henrik has a question here, so. Then we can take the microphone to you as well.
Yes. Henrik Christiansson from Carnegie. More of a structural question. You re-reiterate your 20% or above 20% return on asset, return target. That of course is driven, as driven by your very low working capital need, and specifically perhaps more on the, on the payment terms that you have with your suppliers. Now, interest rates have gone up. It's getting more costly for your suppliers to fund, yourself and other businesses. Have you seen any type of pressure from your suppliers to change payment terms or to get more compensation? If not, do you expect the current working capital level to remain at the levels we've seen in recent history going forward as well?
Yeah. We're not seeing that kind of pressure right now, and we don't foresee it. You can have a chat with Therese later on, maybe if you want. No, we're not seeing that. I think it is clear that our working capital has been challenged, particularly in the second half of last year as we had all these imbalances in inventory. Also as we then started to reduce inventory, we bought less components, so our accounts payable came down as well, right? We have a bit of pressure on our working capital in the latter part of last year and into the first part of this year. Those are temporary readjustments.
There are no fundamental changes to our business dynamic in any element of working capital that would deviate from where we've been historically. We'll get back to that over time. Again, as I mentioned, the combination of operating cash flow coming from some of that working capital release and better EBITDA income, you know, which then reduces the debt levels and then in combination with the better EBITDA, our balance sheet will look a lot better going forward.
Thank you.
Yes, please go ahead.
It's Elliot from Bank of America again. You were talking about the cost savings getting you close to that 6% alone, plus you'll have the commercial growth. After that, 2024, you'll still get more premium product mix, more aftermarket mix. What's stopping you from going higher than 6% across the cycle? I suppose a different way of saying it, what is also your biggest challenge of meeting that 6% target that is stopping you from being more constructive?
Right. I would say if I take that one, we certainly have enough actions and initiatives to significantly outperform the 6% target in a status quo environment. To one of the prior questions, the environment is not status quo, right? New innovation after a while becomes yesterday's innovation, so you see that sort of market price pressure on a continuous basis. You have to keep innovating, keep driving innovation. It's not that I think 6% is a natural, you know, ceiling in terms of profitability. We see it with some other competitors. Given the right circumstances, you can substantially over-deliver on that. We are not in a position where we can confidently say that in a very dynamic market environment, we will consistently deliver above 6%.
Again, remember, 6% is our target across the business cycle. Good times and bad should average out to 6%. There we have high confidence in getting to that. I don't think in a dynamic environment we will promise more right now.
We have a question here from Stefan Cederberg, SEB. Is the plan that the U.S. production structure will be more efficient than the European cost level when Springfield and Anderson are fully up and running? Carsten, do you want to start and Riccardo.
We will be at the end of the on the same level at the end of the day. There will not be difference. For sure, the cost structure are differently from labor perspective. From a labor productivity perspective with the automation level, where we are going hand-in-hand at the end of the day, there will be not significant changes in this.
Maybe to give just a little bit of light on that, is that, you know, you could say that our North America hourly cost is, like, somewhere in between what we have in Germany.
Germany and Italy.
And what we have in Italy.
Correct.
Right? The rate of automation that gives a strong ROI varies a little bit between those markets. Our most highly automated factories in Germany and Northern Italy are around 50%.
Yeah. 40% to up to 50%.
Going up to 50, yeah.
Correct.
North America around 30%, Eastern Europe, significantly less.
Even lower.
Right? Because the ROI on that automation investment varies a lot.
Exactly.
Structurally, there's no difference.
No.
This product design capability, all those things are relative harmonized. It's more a question of what ROI you get.
Yeah. Exactly.
Time flies, so that was our last question. Jonas, what is your reflection of looking back at the last two to three hours now?
Yeah. Let me first say big thanks to all of you for your attention for these hours, your good questions. Let me thank the team for really excellent presentation. I hope we've been able to give you clarity and confidence that we're really on track with our strategy. We have a strategy that's extremely well aligned to the key industry trends now and for the past seven years. We don't think they will change materially. The performance setbacks that we've seen clearly in the last, particularly the last half of 2022 is extremely disappointing, but they're temporary in nature. In three of our BAs, we will turn around quite quickly.
In North America, we know that the challenges we faced were both temporary in nature and more structural. It takes a little bit longer time to get to that target level of profitability. The roadmap is super clear. I think that maybe the most engaging, rewarding thing to me is I think we've been able to show that the investments we've made over a number of years now in sustainable consumer experience innovation is winning everywhere, also in North America. We're delivering on our consumer-driven, sustainable e-experience innovation everywhere. The cost is not there yet.
The investments that we've made in automated modularized manufacturing locations, as Carsten has shown, as we've all discussed, has laid the foundation to really lift our performance and really take out both the temporary cost challenges and the more structural impediments to profitability in North America. In summary, we are now back on track to deliver on all of our financial targets, and I hope we've been able to convey that clearly. I really wanna thank you, everybody online, everybody here, for your strong focus and attention. Thank you so much, and we'll go to mingle.
Yes. thanks for we then conclude that this CMU is completed. Yes?
All right.