US retail giant Walmart is warming to a small Cape Town heater manufacturer as it proves that growth in volumes helps reduce labour costs and beat Chinese rivals.

Econo-Heat, a manufacturer of panel wall heaters, won the Cape Chamber of Commerce/Absa Exporter of the Year award on Thursday.

"We produce about 30000 units a month and have just moved to new premises that would allow us to ramp up to 1,2-million units a year and ultimately to 2-million units," said Econo-Heat director Pete Bräsler.

He said Econo-Heat operated on a marginal costing model, meaning the larger the volumes one can get from suppliers, the larger the discount.

"It's quite simple. You have a certain labour force and the business is all about volume. Now, as your volumes grow, your labour costs become a smaller component," he said.

Econo-Heat employs 91 staff but demand has been so high that they are working double shifts, and the company is now employing another 43 people.

Mr Bräsler said the strategy to stave off Chinese competition was based not only on price and quantity, but also on allowing his products to be branded for retailers' own in-house brands.

"We are not undercutting them, but they are trying to come into the market and we have to be very vigilant," he said.

Econo-Heat already supplies Sam's Club, a subsidiary of Walmart in the US. Mr Bräsler said his company held meetings with Walmart last week, and a deal is to be negotiated in the US next month.

Walmart has committed itself to creating a R100m fund to help local suppliers become more competitive.

Econo-Heat's heaters retail for R299 in South Africa, and Mr Bräsler said because they are made from fibre cement, they are safe to touch when in use.

"We have a simple product to make in volumes, but it is difficult to copy," he said.

I-NET BRIDGE