Honda in search of distribution key

While it has the firepower to launch new-age bikes, taking on Hero and Bajaj Auto on consumer touch-points will be a key challenge.

Post the termination of the joint venture with the Munjal-promoted Hero Group, Honda Motorcycle and Scooter India (HMSI) is set to go full throttle in the world’s second largest motorcycle market.

The company, which is the fourth largest two-wheeler manufacturer in the country at present, is already the king in the scooters market with a 43.2 per cent market share. But it has already realized that alone won’t be enough to achieve its stated target of becoming the number one two-wheeler brand in India. In the motorbike segment, it is the number four player with a share of just 7.4 per cent, according to the Society of Indian Automobile Manufacturers data for April-February.

So HMSI is already gearing up to introduce its first 100 cc bike in the Indian market next year. It wasn’t possible earlier because of the joint venture with the Hero Group.

While that is good news, industry insiders raise concern on Honda’s ability to put in place a distribution network that can take on the likes of Hero Honda and Bajaj Auto which have 4,500 and 3,600 touch points respectively.

Rakesh Batra, analyst automotive practice, Ernst &Young, says, “Hero Honda has cultivated marketing initiatives at the grassroot level over the last 30 years. To grow volumes, HMSI would have to reach out to customers in rural areas. The company also needs to put in place a cost-effective supply chain for delivering products.”

HMSI has a distribution network of 800 dealers and sub dealers. The company plans to add on 100 outlets in the current fiscal and an average of 200 new sale stations every year.

That is particularly critical as the company plans to focus on sales in rural areas to shore up volumes. “Currently, the demand is more from the urban market which is going to reverse in the next 10 years”, Shinji Aoyama, outgoing president and chief executive officer, HMSI, says. The company at present registers two-third of its sales from urban centres and the remaining one-third from rural and semi-urban areas.

Aoyama says it is crucial to introduce mass market products to drive up volumes in the Indian market. The Twister has been HMSI’s workhorse in the commuter segment and has clocked an average of 14,000 units every month since its launch in April 2010. Going ahead, HMSI is looking at launching “inexpensive models” in the 100+ cc and 150 cc segments to grab a bigger share of the market.

“We are in a hurry to fill up whatever we did not have in our product portfolio earlier. Introducing inexpensive models is a crucial area for us. While we will not disturb the existing Hero Honda customers, we will concentrate extensively in beefing up our line-up in the country”, Aoyama adds. Industry experts note that nearly 60 per cent of the nine million motorcycles sold in the last financial year came from products in the 100-110 cc segment and Hero Honda Splendor alone sold two million units in the segment.

VG Ramakrishnan, senior director, Frost & Sullivan, says, “The pressure has increased on the Indian subsidiary to increase sales in the motorcycle segment. While it would not be difficult for HMSI to get products into the Indian market, it will have to get the pricing right to scale up volumes.”

Another critical area HMSI needs to focus on, experts say, is to work on re-establishing the uniqueness of the Honda brand in the country. “Hero Honda has entrenched itself in the minds of customers and brand Honda is known for its association with Hero Honda. HMSI has to establish the uniqueness of its brand so that loyalties towards HMSI do not get transferred to Hero Honda”, says an industry observer on condition of anonymity.

At present, the company has three scooter brands — the Activa, Dio and Aviator priced between Rs 39,820 and Rs 50,020. Its motorcycle portfolio includes the CB Twister (Honda’s sole offering in the best-selling 110 cc segment), the CB Shine, the CB Stunner and the CB Stunner PGM-Fi in the 125 cc segment and the CB Unicorn and CB Dazzler in the 150 cc category.