Siddhartha Lal in Royal Enfield does not excite the upcoming racing 350-500cc motorcycle racing in India. Photo: AFP
New Delhi: Royal Enfield, the motorcycle unit of Eicher Motors Ltd, has been dominant in the mid-range motorcycle segment in India for almost two decades, but will face the challenges of domestic and international companies such as Bajaj Auto Ltd, Triumph Motorcycles, BMW, Harley-Davidson and the recently refurbished Jawa Motorcycles over the next two years.
Classic Legends, a subsidiary of Mahindra and Mahindra Ltd, re-launched java motorcycles in India in three different ways: Jawa, Jawa Forty Two and Jawa Perak bobber at prices that direct them directly to the territory dominated by Royal Enfield Classic 350.
Siddhartha Lal, CEO of Eicher Motors, is unobstructed.
In an interview with Mint after presenting the Interceptor 650 and Continental GT 650 in Goa last week, Lal said that the structure of competitive costs and business volumes established in India would enable Royal Enfield to boost international operations by selling motorcycles at prices that will bring good margins.
While the next range of motorcycles Royal Enfield will only reach the road from 2021, with more stringent emission standards planned in India in April 2020, each of these products will be developed overlooking the global markets. Royal Enfield will also reiterate its international strategy for domestic retailers, expecting to reimburse operating costs from the sale of clothing, accessories and servicing, while motorcycle sales revenues are considered profits.
Edited extracts from the interview:
What is the strategy for starting motorcycle 650cc in India?
In India, more than 500cc of motorcycles are very expensive and usually imported. In the market of 20 million motorcycles, the segment is 500 ccm and more than only 10,000 to 15,000 units, as the market is not well-served. Our aim is to ensure that we enter the medium-sized motorcycles with the 350cc range, and we want to repeat the same with the upper medium size. This is the direction we are going to.
Today we have about 3.5 million customers who drive Royal Enfields, most of them upgraded with 150cc or 200cc motorcycles to 350cc. With the new 650 Twins (Interceptor 650 and Continental GT 650) we want to give a similar leap in sophistication, improvement and speed, but with a single step of jumping into affordability. Our goal is to expand the segment of mid-size motorcycle segments in every market to which we will enter.
Will the 650 Twins play a key role in spreading the Royal Enfield brand worldwide?
We are no longer just India for us. So, when we thought about 650 doubles, we had a global concept in mind. We are already present in markets outside India and know what people want. Customers outside the love of the modern classic concept of Royal Enfield products, but with a little more power, sophistication and highway worth.
We have gathered a team of experts who have done such work in the last four years, since in India we did not do this work. So our technology center in the UK now has 140 engineers and designers compared to just five years. This was a collaboration project between a global team, sitting in the UK and our technology centers in Chennai. That's why it has always been dedicated to a global project, and 650 Tvins are our worldwide ID card.
What are the benefits of a company trying to establish globally with business points?
In the modern classic type of motorcycle, there are many vacancies, most European and American motorcycle manufacturers have moved to larger engines, as they prefer to produce small volumes and earn high margins. On the contrary, we go on a scale.
So, the market there usually starts at 850cc, and come to the notch below at 650cc, but has similar properties. So we have a domestic market, which is large in size and gives us the right cost structure and we appreciate the prices. With lower cost structures, we can get some exciting (readable, extremely competitive) prices on international markets.
Customers are excited about our prices in the US, UK and Europe. In order to create a brand, we have expanded our distribution network and we provide a lot of support and services beyond the distribution network. This is a long-term strategy. In India, it was about 15-20 years old to reach this point and perhaps in the next few decades, we can achieve the same success in other markets.
What about protecting your lawn in India from competitors entering the market in the next few years?
This is how most companies work. They see someone doing well in a particular segment and earning high margins and trying to get a share of the pie. This is not so easy because there is reason for the success of the first company in a competitive market, and it's not that companies did not try to enter our market earlier. So far, there have been many mistakes.
In a competitive market, the operator has priority advantages such as critical mass, distribution network, in-depth knowledge of consumers and the entire ecosystem around our motorcycles.
We are still not sitting on our new events. For the existing segments in which we are, we have developed new motorcycles. We also pushed the game. Since everyone is looking at our 350-500cc segments, we've been playing at 650cc now, which will last 3-4 years for others and no shortcuts.
Even people appreciate the Royal Enfield brand along with the product, and our products have a great value in resale as a liquid asset, which is difficult for others to repeat.
(The) the positive thing is that the market will grow with others who are coming.
When are new products expected and what is your expectation of growth in India?
Everything that is completely different from our existing portfolio, such as the Twins, will begin by 2021, because they will redefine our existing product portfolio in 2019 and 2020 due to new emission norms. Every product for Royal Enfield in the future will be done with a global lens.
I think that isolation came to us in the sense that we have a deep book order, so the curve for us is not a straight line curve upwards … now the curve will have some ups and downs.
So, the days of 50-60% growth made over the last 6-8 years are quite irrelevant and we have been through it. Now we have stabilized in normal growth. Now, if the Indian market for men is targeted at 6% growth, then we will target at 12%.
Is there a new merchant strategy in India along with global expansion?
Already our clothing and accessories are becoming powerful companies owned, although they will always be pushed by the sale of motorcycles, as there are so many numbers.
For our dealers in India, especially outside, suits and accessories are necessary for their profitability, since they sell more money than selling motorcycles – especially in the external markets. Overtime in India also wants to make profits from apparels, accessories, services and parts representing a major proportion and not selling motorcycles. They should be able to cover their costs, and revenue from the sale of motorcycles should benefit from them.