In Part 1 of our ongoing analysis of the Indian motorcycle market, we observed that the average motorcycle engine sizes have been increasing. The Average Motorcycle Engine Displacement Index (AMEDI) has increased by 8% in the last eight years. EMMAAA feels that the index has the potential to climb up much faster if the economy grows at a faster pace.
However, all that is relevant to the small bike segment where the market is essentially a three-way battle between Hero, Honda and Bajaj with TVS cheering on from the sidelines.
It is the Big Bikes (>250cc or SIAM segments B7-B12) where the action is expected to be in the coming years. This segment has a mind of its own and it is logical that we separate these niche-market Big Bikes from the mass-market small capacity machines.
An increase in aspiration, rapid growth in income at the top levels of the economic pyramid and a new generation of buyers more open to
breaking bones ‘expressing themselves’ are fuelling a shift towards Big Bikes.
The typical Big Bike buyer is young, individual, a leader, creative, expressive,
add some more good adjectives here…you get the picture. That is at least what Big Bike manufacturers like Harley-Davidson and Triumph would like you to believe. Things may not be all like that, as we will see later in this analysis.
Why are Big Bikes getting popular?
There are multiple reasons why Big Bikes are getting popular in India. With the introduction of brands like Harley-Davidson in the last few years, motorcycle enthusiasts have finally found access to global spec, high-powered, highly capable, high-speed machines that were not readily available in the market. These are supported by a company driven service network making the machines more reliable. Further, these motorcycles are contemporary and what enthusiasts in Europe and North American markets are riding, not hand-me-down machines.
There is also the aspect of pent up demand considering that apart from Royal Enfield machines, no other brands were selling Big Bikes in India. For enthusiast bikers, even those with money, the choices started and ended with Bajaj Pulsars and Hero Karizmas. With access to a new range of capable machines, the bikers suddenly have a much wider choice.
Simultaneously, there has been an explosion in income at the top-end of the economy. This has allowed more people to splurge on bikes costing upwards of ten-lakh rupees.
Why is it important for big bike manufacturers to grow in India?
India is an important market for big bike manufacturers. On paper, it is one of the most lucrative markets with a population north of 1.1 billion and a per capita income inching towards USD 1500 per annum. Even if a very small fraction of a very small fraction of Indians were rich (capable of affording Rs 2 lakh+ bikes), the number would be huge. The only thing needed is for manufacturers to develop a culture of biking and make it a part of leisure and lifestyle.
This is something companies like Harley-Davidson at the very top and Royal Enfield at the lower end are doing very successfully. Both have extensive rider engagement through exclusive clubs, riding events and
booze fests rock concerts for their customers. It is not about the bike as a machine but as a lifestyle thing.
What we see today is just the start of a sort of biking revolution in India. Once things get warmed up, the volumes would be tremendous. Also, manufacturers like Harley-Davidson are in a different phase of this evolution curve. They have limited penetration, unlike a Royal Enfield. Once H-D reaches the level of penetration (contact points, dealerships) of RE, volumes would be very different.
Harley-Davidson doesn’t need India, nor does Triumph
Ironically, the manufacturers most serious about India are the ones who least need India. Harley-Davidson is doing rather well in their native market, thank you, and is delivering healthy growth overall, when one looks at the global numbers. In 2011, Harley-Davidson global retail sales grew by 5.9%. This included a 5.5% growth in sales in North America, 7.7% growth in EMEA and a 17.5% growth in LatAm. Japan was the only major market where sales declined significantly. However, Japan’s 8.8% decline in sales was countered by a 15% growth in sales in other Asian markets.
North America accounted for nearly 69% of all H-D sales and seemed to be going strong. Significantly, H-D grew faster than the overall industry as well – overall big bike market in North America grew by only 4.3% in 2011.
Year 2012 was no different. Harley-Davidson’s North American sales were up 6.2% and so were the global sales. While Japan made a mild recovery, Europe was the problem child with a 5.9% decline in sales. LatAm and the other Asian markets continued to deliver strong growth of 25.6% and 19.9%, respectively.
North America accounted for nearly 69% of all Harley-Davidson sales. Like 2011, H-D continued to grow much faster than the overall big bike market in North America. The market had grown by only 4% in 2012.
In brief, Harley-Davidson has been consistently gaining market share in North America, growing faster than other Big Bike manufacturers. The brand has maintained an overall 5.5%+ growth across the globe and that should make the management happy considering that this is in the times of recession.
Triumph has a similar story. 2013-14 is expected to be manufacturer’s most successful year ever with retail sales expecting to touch 51000 units. The manufacturer has plans to spread its wings everywhere and feels that the next few years would see it scaling new heights.
So why are they in India?
It is called “Selling your soul to the devil” and we will examine the phenomenon in detail in our analysis of 10th Dec 2013. In short, India provides a potential large volume gateway to Big Bike manufacturers to get lower down the food chain.
Both Harley-Davidson and Triumph (and BMW) are currently working on machines that will percolate these brands downwards to smaller engine sizes, affordability and a much larger customer base in the coming years. As a start, Harley-Davidson has just unveiled the Street range – a smaller H-D with engine sizes of 750cc and 500cc. A 500cc Harley, till a few years back, was akin to Americans letting go of their Pickups.
Triumph is meanwhile working on a 250cc bike range that will likely go into production by mid 2015 while BMW has joined hands with TVS to work on 250cc+ machines.
Going lower down in engine sizes with significantly lower prices allows these manufacturers to target a much larger potential audience. To illustrate, in the Indian market, motorcycles above 500cc accounted for less than 2% of Big Bike (>250cc) segment sales. The rest were all machines with engines 250cc-500cc.
Harley-Davidson, with its Street range is looking at 15%-20% lower prices as compared to its cheapest bike currently – the Superlow. In contrast, Triumph and BMW bikes – with much smaller engine sizes – would be in an entirely different price pin code as compared to the rest of their range.
Using India as a base
In a way, manufacturers also see India as a potential manufacturing base. They have seen that happening with small cars so there is no reason why it cannot be done with bikes. Harley-Davidson is converting its Bawal CKD facility into a full-fledged manufacturing base and is likely to ship Street range motorcycles to markets like Italy, Spain, and Portugal. These are the only markets outside North America where the Street range would be initially offered. The North American market would be supplied out of the Kansas facility. Arguably, Bawal may end up supplying any new markets where the Street range is introduced in the future.
Trumph’s 250cc is still in the works but there is a reason why they are still holding on to a plot of land in Karnataka. And our bets are evenly placed on TVS ending up manufacturing the BMW small bike range once the machines are ready by 2015.
Meanwhile, Bajaj’s involvement with KTM means that a number of KTM models would have Bajaj as the production base.
Long-term buyer sustainability
“Fat Boy on a Fat Boy,” reads a comment on the Facebook wall of one of my friends. This is in response to a picture posted by the friend of his latest acquisition – a Harley-Davidson Fat Boy. The proud owner of the bike is a middle-aged gentleman with a ‘comfortable’ upbringing. With a weight comfortably into the three digits, my friend is not in the prime to go Fat Boyying.
Not that he intends to either. Just that the machine looks uber-cool in the garage, on Facebook, and is a vital part of his answer to an early onset of a mid-life crisis. I expect him to ride it for a few months, about three kms each day, as his office is a mile’s commute from his home. And then, in a time-frame which EMMAAA expects to be anywhere between six months and 18 months from the date of purchase, the Fat Boy should land up in the used bike market.
Much faster if he breaks some bones crashing the Fat Boy. After all he has gone from (you won’t believa to a 1690cc, 330kg Fat Boy.
And that is what defines a large chunk of the Harley market in India. Several very low-mileage machines are in the used bike market. In most cases owners have grown out of their machines, understood that the Harley ownership made them an ind-uh-vidual for about 23 days and they were biking, practically, for only 12 days a year.
Oh, and celebrity status on Facebook is non-sustainable.
The good thing with having wannabes as owners is that India has millions of them. So there is always a new wave standing in queue, with their tongues hanging out in anticipation, waiting to replace the present crop, as soon as they get tired of their Big Bikes.
The bad thing is that it’s a picnic and picnics don’t last long.
This is an unsustainable customer base and will get tired in some time. EMMAAA puts this ‘some time’ as 7-8 years.
The recently released Big Bike forecast weaves in the logic and there is a marked fatigue in sales growth in the years 2020-22. This fatigue is witnessed mostly in the very top of the market (>800cc) and is not that apparent in the lower segments (<800cc)
Is launching Big Bikes enough?
The business is not about selling someone a ten-lakh rupee machine. The customer needs to be engaged, involved and has to feel special. Often, he would like to feel a part of a family / group and interact with other like-minded individuals.
A cursory look at the current Big Bike landscape reveals two clear winners – Royal Enfield and Harley-Davidson. Both have very similar stories, albeit different engine capacities. Royal Enfield owns the market in the B7 & B8 segments, while Harley-Davidson is the dominant player in the B10, B11 & B12 segments.
In contrast to REML and H-D, the other manufacturers have very little of the market. The reason is the lack of any engagement with riders. The Japanese manufacturers sell Big Bikes in the market but there have been little company sponsored engagement activities to engage the rider. As a result, even very popular models – Hayabusa, Fireblade, R1 – fizzle out within a few months of their launch.
lack of any push utter confusion different strategy followed by Japanese manufacturers is because these manufacturers do not look at Big Bikes seriously for the Indian market. For them, a Big Bike is a trophy, a flagship, and a jewel in the crown, which defines the brand and pulls people to the showrooms. They don’t mind that post entering the showroom, the customer decides to buy a smaller bike.
It’s like an enormous aircraft carrier, not planning to fire a single salvo and planning to be effective nonetheless.
In contrast, Big Bikes are the bread-and-butter for both REML and H-D and they are much more serious in their efforts to connect with the customer. Harley-Davidson, for instance has been working hard at reducing the price of its machines. The entry-level Superlow starts at 5.7 lakhs while the Iron 883 is priced at 6.6-lakh ex-showroom. Thanks to CKD assembly, Harley is now able to offer the iconic Fat Boy at about 15 lakh rupees. Two years back, the same was priced at 33% more.
That is a nightmare for anyone selling a pre price reduction bike in the used bike market.
Harley currently assembles eight of its models at the Bawal plant in Manesar. That is a high number for a manufacturer selling very expensive bikes and with annual sales of less than 2000 units.
That Harley has managed to hold on to and further reduce prices in an era of rupee depreciation speaks volumes about the dogged determination of the company to grow volumes.
It also probably means that they probably started with fat margins in the very beginning and further reduction may still be possible.
New Entrant Triumph
In the midst of this analysis, Triumph had a media launch of its impressive range of Big Bikes in Delhi. The company plans to launch ten machines with six of them being assembled at a facility in Manesar, near New Delhi. A Big Bike manufacturer starting with kit assembly of six machines is an indicator of the brand’s seriousness about the Indian market.
Again, the range starts at 5.7 lakhs (Bonneville), matching Harley-Davidson. However, unlike Harley-Davidson, which is a marketing company with a strong motorcycle business, Triumph claims its strength is in its sporty machines.
Looking at things at this stage, Triumph seems to be doing a lot of things right. Unlike Harley, the company has a range of machines ranging from Classics to touring to supersports to café racers to touring to cruisers. This has the potential to satisfy customer demands for any type of machines.
And then there is commitment to the market. Triumph displays ample as it goes into the market with an assembly facility in Manesar, a vacant plot of land in Karnataka and six machines being CKD assembled.
Heck, Triumph even has a sketch of a 250cc machine it is working on and would release in the second half of 2015.
However, commitment goes beyond just having a CKD operation or competitive pricing. In the case of Big Bikes, rider engagement is paramount and Triumph’s hesitant commitment towards rider clubs and associated activities seems worrying. They may come in the future but the lack of a gung-ho attitude seems worrying.
In contrast, Harley-Davidson had HOG from the early days of the brand in India allowing prospective H-D owners the opportunity to join one of the most sought after biking club programs in the world.
And its PR went bonkers propagating the ex-Marine, no holds barred profile of its country head, who would look as convincing leading a pack of H-D riders as in the boardroom.
The business is all about image and that has to reflect in every aspect of the brand, something that Triumph would do well to learn early.
[one_whole boxed=”true”] EMMAAA forecast EMMAAA has recently released a ten-year forecast of the Big Bike (>250cc) market in India. This is a quarterly updated forecast service, which estimates and forecasts the market at the model level. EMMAAA’s first Big Bike forecast estimates the market to be more than 707,000 units in 2022. This is a 532% growth over the 2012 market of less than 112,000 units. The research organization feels that the Big Bike market’s growth will outstrip the growth of the overall two-wheeler segment by far. Out of all the segments, EMMAAA is the most optimistic (in percentage basis) for the B9 segment (500cc-800cc). The forecasting agency pegs the growth in the segment at more than 5000% in the ten-year period. Sales in 2012 were just above 1400 units. This segment will see new products being added with the launch of Harley-Davidson Street range, bikes from Triumph and Bajaj-KTM. The forecast is also optimistic on the B8 segment (350cc-500cc), which is forecasted to grow by 760% over the forecast horizon. The main driver in the segment would be Royal Enfield, which will also see some customers shifting within its portfolio, from buying 350cc bikes to 500cc bikes.