Royal Enfield recasts biz to improve reach and brand

Royal Enfield Motorcycles, a division of the R4,397-crore Eicher Motors, is overhauling its business, which will see the company strengthen its leadership team and distribution network, and focus on new product development for the future, but analysts say this would be challenging amidst stiff competition.

The man in the thick of the overhauling process is Venkatesh (Venki) Padmanabhan, Royal Enfield’s chief executive. He says, “Siddharth Lal, the owner, told me “I have given you a global brand. Most other companies take a lifetime to develop one, so, go sell’.” Siddharth Lal is chief executive of Eicher Motors, which also makes trucks, buses, automotive gears and components, and provides engineering solutions. Royal Enfield contributes around 12% to the top-line of Eicher Motors for FY 2010-11.

Venki says his job is more than just selling units. “Customers’ expectations of quality, fit and finish have changed,” says Venki. He wants to make spare parts available easily, and create a distribution network that is state-of-the-art. “The aim is to create a brand value that is of high standard,” he says. At present, Royal Enfield has 11 brand stores and 180 dealers in the country.

The ride ahead is not easy for Royal Enfield, thanks to growing competition. Most of the major names in the world of motoring are present in the country, from the legendary Harley-Davidson to Japanese Honda and Italian Ducati. However, while Royal Enfield models cost anywhere between R95,000 to R1.63 lakh, Harley-Davidson sells its products at a starting price of around R7 lakh.

During April-August, the motorcycle segment with engine capacity 250 cc and above stood at 39,443 units, showing a growth of 95% year on year, according to the SIAM report released on September 9. The segment includes Royal Enfield, and models from Bajaj Auto, India Yamaha Motor and Honda Motorcycle & Scooter India.

“Royal Enfield as a brand will survive in the market because they do not have direct competition in the price segment they are present in,” said VG Ramakrishnan, senior director, transportation at consulting firm Frost & Sullivan. “However, they would need to invest in capacity, technology and product development to ready itself for the future,”

Venki says he is ready for the challenge. “We are aware of competition and preparing ourselves with future products and improving the current line up.”

Royal Enfield is in the process of setting up its second plant in at Oragadam, near Chennai. The new plant will take its annualised capacity to 1.5 lakh units by 2013 from 70,000 units at the moment, and will be ready by first quarter of 2013.

Currently the company has a waiting period on its models like Classic 500cc running into anywhere up to eight months to a year, owing to the capacity constraints it has at its plant in Chennai. In 2010, it sold a total of 50,000 units. Today, Classic 500cc makes up to 40% of its annual production and sales.

Abdul Majeed, auto practice leader at PricewaterhouseCoopers said, “There has been some structural changes within the company for a focused approach on each of the areas like marketing, management and advertising.” The brand has recall value in the market, and it should focus on product development and bringing in more value for the buyers, he added.

Royal Enfield is also readying to shift gears for better reach in the export market. “We would want to continue our focus on the domestic market and look at exports in a controlled fashion,” Venki said. He has drawn up plans to enter the export market in three phases. First, the neighbouring markets and those similar to India like Sri Lanka, Nepal, Bhutan, Bangladesh, Pakistan, Iran, Africa and Burma, second the advanced developed markets including Argentina, Brazil, Mexico and Czech Republic, and third, the developed markets including US and Europe. Currently, exports make around 5% of its total sales.

“We can enter the neighbouring markets easily with the current line-up of the motorcycles,” says Venki. “But advanced markets like Brazil would need some technology homologation and we need to work on the fit, finish and top speed to meet the US and EU customer requirements,” Venki said. He also hinted at plans to set up an assembly line in Brazil in the future.

“Asian markets are the best bet for Royal Enfield, considering the product line-up and price at which it sells,” said Ramakrishnan.

However, a bigger challenge is the bike’s fading ‘cult’ factor. Three years back, it moved from cast iron engine to unit construction engine, changing a number legacies loyalists were used to, like the thumping sound of the engine, the weight of the bike, and the position of the gears. “Iron barrel had its own inherent weaknesses and was limiting our brand. But the call was tough because we did not want to upset our loyalists,” Venki said.

But the loyalists are crying foul. Says Nikhil Kashyap, who owns seven Royal Enfields, “Royal Enfield is no more seen as a niche and masculine motorcycle by us. The cult is withering away.”