Royal Enfield is aggressively pushing itself to be a major player in the mid-weight category globally (250cc-750cc).
Royal Enfield is aggressively pushing itself to be a major player in the mid-weight category globally (250cc-750cc). It believes there is a wide white space in this category globally where it holds cost advantage. In an exclusive interview with FE’s R Ravichandran, Siddhartha Lal, MD and CEO, Eicher Motors (which owns Royal Enfield), said it wants to be a global brand in the near future and that North America is an important market where it will have its own subsidiary in the next few months. Excerpts:
How has been Royal Enfield’s experience in international markets so far?
In Latin America we started with Colombia in 2014 where our motorcycles are generating a lot of interest among consumer for their emotional connect and ease of riding. Since 2013 we have been focusing a lot on the international markets, and we have registered 50% year-on-year growth in domestic as well as international markets. In Spain, we reported a sales growth of 300% in the January to August period. We have witnessed 60% growth in the first seven months of 2015, compared to the same period last year. For the period of 10 months ended October, our international sales grew 37% to over 7,400 units as compared to a little over 5,400 units in the same period last year. As we continue to increase presence in newer markets and strengthen our footprint globally, the demand is going to get stronger.
Which are the newer markets planned?
We have been expanding our global presence from 2014 onwards. Apart from Colombia where we announced our partnership with Corbeta group, we have strengthened our presence in Europe by opening exclusive stores in Paris and Madrid this year; and we also opened a second store in London. We’ve also announced new distributor, KSR Group in Germany. During the Moto Madrid show, we announced Motorein SLU to be our new distributor in Spain. In Asia, we opened an exclusive store in Dubai and in August we announced our entry in Indonesia which is the third largest motorcycle market in the world. Our first exclusive store in Jakarta will be launched later this year. North America is a nodal market for motorcycles and one of the biggest in value terms. Given its importance to our global ambitions, we have decided to operate our wholly-owned direct subsidiary there. We will open our first exclusive branded retail store in the US in Milwaukee in first half of 2016. In Australia, we announced Urban Moto imports as distributor.
What are the main reasons behind this segment (250-750cc) growing fast particularly in international markets?
There is a wide gap in the middle weight market, globally. The offerings mainly include commuter motorcycles that are sub-250 cc or there are bulky superbikes above 750 cc. Of course, there are a few motorcycles in between but since the focus is not there, they are mostly boring. We believe if we can put together the right offering, there is a huge demand for better products. That’s where Royal Enfield comes in. We are working tirelessly with our partners in these markets to bring a differentiated motorcycling experience with our evocative product range.
Where do you want to be as a brand a few years from now?
We want to make Royal Enfield a global brand. That is why we don’t want Royal Enfield to be a fringe brand but something which people aspire for. Of course we do not want to be in the commuter motorcycle space which will still be the most prevalent one. But, we will be delighted if we are number one in the middle weight category in most of our chosen markets.
Is there any strategy to make bikes locally in any of the markets?
As of now, we don’t see any need to manufacture anywhere else other than our Chennai facility. However, as part of our plan to become a global brand, we are putting all efforts into building a favorable ecosystem around pure motorcycling. We are creating partnerships with customisers, tour operators, rental agencies, accessory makers, and with all sorts of businesses that affect an overall motorcycling experience. We are opening exclusive showrooms and dealerships across our key markets like Colombia, France and Spain.
Is capacity at the Chennai plant sufficient enough to take care of your projected demand on both short and long term basis?
As we grow, we will need to enhance manufacturing capabilities. Last year, we acquired a 50 acre plot in Vallam Vadagal, near Chennai. This plot is located within 10 km of our Oragadam facility. This prepares us for future expansion. We expect that with the new plant to be ready by 2018, our capacity will double to 900,000 units per annum from 450,000 units now.
Can you please elaborate on the cost of operations?
We’ve a strong cost structure in India. Our entire fixed cost which includes our marketing cost, people cost, overhead cost and R&D cost, comes to around 10% of net sales. Our competitors in other markets are normally in the range of 20-25% of their net sales.