Eicher revs up for global markets

The company is looking to rewrite the rules of the game in the mid-weight segment

Two years ago, Siddhartha Lal and his team were at a crossroads. Eicher Motors’ dogged pursuit for dominance in the over 250-cc mobike segment in the country had paid off, and by being consistently profitable it had made itself the darling of the stock market. So, it was time to think about the next big steps.

Lal, the 44-year-old CEO of the Gurgaonbased automaker who loves biking across Europe, says there were two options: leverage the brand and get into the volume game by making bikes below 250-cc, which meant challenging the might of Hero MotoCorp and Bajaj Auto. Or, put in place a long-term plan to replicate Eicher Motors’ India success in the midweight mobike category (250 to 650-cc market) in the global market.

The choice was an easy one to make: “The lower cc engine market was too crowded and margins were low. On the other hand, we saw a gap available in the mid-weight bike market around the world that we could fill by leveraging our India scale. And, of course, it is more fun.”

Fun, of course, it is. Lal has relocated to the UK where the company’s new mean machines are being developed at its R&D centre in Leicester. And, just a few weeks ago, the company showcased two new models in Milan — a new 650-cc parallel-twin engine powered mobike, the Interceptor, and the Continental 650. A sneak peek was also offered to Goans last week. The new bikes could be a game changer. For one, they will offer the 2.5 million domestic Royal Enfield users options to upgrade. For another, the scale of domestic sales will allow Eicher the leeway to price the bikes attractively in Europe and the US, where there are very few mid-weight mobikes.

For the next five years, Lal’s global strategy is focused on Southeast Asia (Thailand, Indonesia and Vietnam) and a few markets in Latin America (Brazil and Columbia). He points out that, as in India, there is a large latent market — consumers who use bikes above 100-cc wanting to upgrade to mid-weight bikes, but do not have much on offer. It is this vacuum that Eicher will target to fill — just like it did in India. The only difference, which is to its advantage, is that the per capita income in these markets is higher than India’s, and so are the average mobike prices. Lal will replicate the Indian model of setting the first dealers in the capital cities — which he believes have the influencers who then create a pull factor among potential buyers across the country.

Yet he wants to tread carefully and have an escape route ready if the plan does not work out. One and a half years ago, Eicher appointed just one dealer in Bangkok to test its product line. In order to ensure that the dealer made money, it worked out a plan — the dealer would need to sell 30 bikes a month to break even and 50 to make money. The gamble has worked beyond expectations, and the store sold more than double the numbers (1,000 bikes in a year). Eicher is now setting up a second store in the capital and plans to have even a third one in the next financial year. And Lal says once Eicher has four stores, he might look at setting up an assembly plant to get over the high taxes on import of bikes. That would help the company in two ways: reduce the cost of the bike by 40 per cent and help Eicher in making decent margins (shifting from CBU to CKD), which currently are wafer thin because they are priced to take on competition.

Competitors, however, say Eicher’s export record is nothing to write home about — it had mere 19 per cent share of mobike exports in the 250-cc to 500-cc category between April and September 2017. Eicher exported 8,121 bikes, whereas its rivals Bajaj Auto sold over three times more at 21,000 units, which included its recently launched Dominar.

Lal admits that many might think that his export strategy is not aggressive, but there is a method behind it. Eicher studied the strategy of many global companies and found that they typically entered these markets with 20-30 stores and also set up a manufacturing plant. But if the product failed, they lost a hell of a lot of money and getting out of the market was painful. Eicher’s strategy hedges against such a risk.

In Latin America, Eicher is providing a large team to support even a single dealer. So, in Brazil, the maiden store is supported by a team of 10 company executives who help the dealer in event promotion, service support, marketing, collaboration and activation. “Ten members can support a whole distribution system. But the whole idea is to invest in understanding the market, make it scalable and use them to undertake dealer development so that we can increase our presence,” says Lal.

But that does not mean Eicher, which has a traditional base in markets like the US, Europe, Japan and Australia where it is seen as a vintage replacement, will ignore them completely. After all, it sells a reasonable 5,000 bikes in Europe annually.

But his bigger gamble in these markets could be through the twin-engine bikes. Lal says the big brands in the global mobike market (which include Harley Davidson, BMW, Ducati or Triumph) have very small volumes in the middle-weight segment, and have kept their price very high.

Global bike companies, he says, make very small numbers of middle-weight bikes because of the high cost structure. They prefer to add in more engine power at a small incremental cost and get a hefty premium and better margins. As a result, they sell the mid-weight bikes only marginally lower than a heavy bike, making it unattractive for consumers.

It is this opportunity that Lal wants to cash in on. His aim is to grow the middle-weight segment of the market tenfold. And that he expects to get from the sales of the two new twin-engine bikes in India. “I expect a reasonable percentage of the 2.5 million Royal Enfield customers who are looking for more to upgrade to a bigger bike,” he says.

If that works out, he will get scale to reduce the cost of the bike. And that will help him in offering a compelling price in Europe and the US — which would be much lower than the stiff tag that the global players are sticking to. And then Lal could rewrite the rules of the game.

"WE SAW A GAP AVAILABLE IN THE MID-WEIGHT BIKE MARKET AROUND THE WORLD THAT WE COULD FILL BY LEVERAGING OUR INDIA SCALE” SIDDHARTHA LAL, CEO, Eicher Motors