The Hindu Business Line : The wheels are turning

IT'S a congregation that is unlikely to be a daily affair, unfortunately for cycle makers. Thousands of cyclists with their machines gathered one morning in Chennai to participate in a 24 km rally organised by TI Cycles. There were enough celebrities and sponsors to spice up the occasion, but the most significant aspect for the company was that it had clearly adopted the `health' proposition to sell its cycles.

The idea for the rally came up when the top brass of TI was discussing ways to grow the bicycle market, says G. Hari, President, TI Cycles. The company reckons repositioning its cycles on the health platform will be one of the ways to interest a consumer who has more choices and less time than before.

G. Hari, President, TI Cycles

Today's consumers aspire to own motorised two-wheelers, which are becoming increasingly affordable by the day, thanks to easy finance schemes. Also, there is a dearth of leisure time. These two factors, says Hari, have meant that the humble bicycle no longer holds the same kind of attraction it used to a few years ago.

Sunil Kant Munjal, MD and CEO, Hero Cycles

And that's not a stray thought in the industry. According to Sunil Kant Munjal, Managing Director and CEO of Hero Cycles, estimated to be the leader with 39 per cent market share, "There is certainly a change in the demand pattern linked to consumers' changing aspirations and choices. The bicycle industry (like many other industries) has also pooled together its resources to ensure that the benefits of these changes are shared by all concerned; and as a result of this, the marketers have promoted the fitness plank."

Munjal says the All India Cycle Manufacturers Association is at the forefront of the efforts to position cycling as eco-friendly, having "already initiated certain steps" to create exclusive cycling zones.

The cycle manufacturers' contention is this: being fit is trendy, cycling helps you be fit, so cycling is trendy. Nice logic, but it's not yet the case, it seems.

Cycling is healthy but "only when environmental aspects are taken care of"; also, safety is an issue, and in India, we don't have separate bicycle lanes, says a former industry official. Efforts to have such lanes proved futile in the past.

As cycling is neither a big sport in India nor a mobility vehicle, manufacturers would do well to look at consumer benefits — enable effortlessness, comfort and lower maintenance costs, he adds.

The other thought for the industry is to make the cycle less humble, and that's where the specials or the fancy segment come into play. For starters, bicycles are classified into the standards or roadsters, consisting of low-margin sturdy, basic cycles, and specials or fancy cycles, which include mountain terrain bikes, cycles for children and the like.

The standard segment, which constitutes about two-thirds of the market, has been flat for some time now. The opportunity before cycle makers, thus, will be in fancy bikes, which, according to Munjal, has grown by "a fabulous 15-18 per cent" across the various brands.

So, notwithstanding the fact that the roadster segment is flat, there are "newer avenues, novel segments and niche markets that are being developed due to a bulging health- and fitness-conscious urban, teenage population and there is also an upgradation from `walking-by-foot-to-school' concept to the usage of good-looking fancy bikes."

TI's Hari says the ratio of standards to specials could have even fallen to 60:40 because of the drought in many parts of rural India, which is the major market for the former. The cycle makers are optimistic that the fancy segment would grow to constitute nearly 70 per cent of the market by 2010.

The urban market for fancy bikes or specials is already almost as much as for standards. So, TI with its SLRs, MTBs, children's bikes and Lady Birds is gunning for a greater segment share, as is Hero with its slew of models such as Razorback, Buzz, Swing and the like.

This segment is becoming so important that the top two players in the cycle industry, TI being number two (with a 30 per cent market share), are claiming leadership position in the market for specials. According to TI, it has a tiny majority share in the market, with overwhelming leads in sub-categories such as SLRs and ladies' bikes. Hero, on the other hand, claims that with sales of "around 1.5 million fancy bicycles out of total sales of five million in the year 2003-04," it is far ahead of TI's sales in the fancy segment.

Fancy cycles seem to fetch a higher margin, but the higher fixed costs, costs for R&D, product positioning, launches, test marketing and early brand mortality rates leave the manufacturer with very little margins, says Munjal.

In spite of such hazards, Hero has made "huge investments in R&D for launching several bikes in this category at the most economical prices to its customers."

Notwithstanding the excitement over specials, the former industry official believes that over time "the line between the standards and specials will start to blur." He says it's more a manufacturer's classification, adding "it could be that a `standard' customer may need a special feature." There is, however, scope in the kids' segment, he says.

Hari wants to improve services across the board, so that his company can face competition. After having set up assembly units in Nasik and Noida to cater to the Northern market, TI has also increased the capacity in its Durgapur warehouse. The company boasts of "very good design people," and has also set up a sophisticated paint shop at its Chennai unit.

It is also setting up a model retail shop in Anna Nagar in Chennai, and hopes to replicate the ambience and the facilities available here in its other retail outlets.

Munjal says his company has created `Hero Zone' outlets in all major cities of the country to provide customers with the best service. Hero has more than 3,400 dealers throughout the country, almost 20 per cent of whom act as wholesalers and have their own retail network. "We are not aspiring for any greater penetration, as in these turbulent times, we are more dedicated toward consolidating and strengthening of existing network," says Munjal.

There's some food for thought from Arvind Singhal, Chairman of KSA-Technopak. According to him, apart from the health platform, which will help target consumers' lifestyle, cycle makers could tie up with large corporates where a large number of SEC C and D employees work. This could not only provide a steady market for the cycles but also involve huge volumes.

The third type of market would be the high-end one, under which companies can enable families that go out on a holiday often to carry their cycles with them. For this, they have to ally with carmakers, he says.

The future could also see Indian consumers upgrading to lighter sports cycles. TI's BSA Lightrider, which has used some components sourced from China, has been selling over 200 units per month. Hari says the cycle, which is priced at Rs 4,000, can be sold at Rs 3,000 if not for the duty component of 35 per cent.

But to produce such light cycles at home, using aluminium alloy, the manufacturers need to develop tubing capabilities, Hari adds.

Hero has launched aluminium bikes under the `Thunder Bike' brand. "Along with other changed perceptions, aspirations and choices, there have been changes in consumer preferences, as an extension of a global phenomenon. In India too, the customers have started preferring lightweight bicycles," says Munjal.

The top two players not only have similar thoughts on how the industry will pan out but also are trying to capture the attention of the consumer alike. While Hero enlisted the services of India's bowling sensation Irfan Pathan for an ad, TI has signed on Yuvraj Singh for endorsing its Hercules brand.

And as the industry jostles with multiple issues and problems, it remains to be seen whether it can prop up the vehicle's status to the highs that existed in the '50s and '60s. Will the cycle industry come full circle?

The Chinese factor

LIKE in many other sectors, the Chinese threat seems to have been overstated in the cycle industry. TI's Hari says the Chinese players cannot be a threat to the established industry here, as they don't have a proper network or big brands. "With protection being a thing of the past, the onslaught of the Chinese cycle-makers is surely a challenge. However, the Indian bicycle industry due to its inherent strength of quality, customer services and fast launching of new products is all set to face it successfully," says Hero's Munjal.

The general feeling is that low prices cannot be the only defining factor in bicycle purchases.

The situation is, however, different when it comes to the export market. India's share in total global export of bicycles is estimated at a mere 2 per cent; China has a whopping share of 80 per cent.

But Munjal expects the situation to change, as China's entry into WTO would mean maintenance of transparency regarding cost of raw materials and other subsidies. Also, the yuan is under pressure to appreciate against the US dollar, which, if it succumbs to the pressure, may increase the prices of Chinese cycles, making them more uncompetitive.

TI, which resumed exports after a lull, earned Rs 5 crore in 2003-04 by selling over 30,000 cycles to Africa and West Asia. In its peak, the company had earned over Rs 90 crore but non-tariff barriers shut it out of the European markets.

The company plans to more than triple its export target for this fiscal, and target volumes of one lakh cycles and revenues of Rs 15-20 crore.

Hero's exports are at Rs 196 crore, 53 per cent higher than Rs 128 crore registered in 2002-03. The company exports bicycles and bicycle parts to developed countries such as the US, UK, Germany, France and Italy, apart from developing and under-developed countries.

The under-developed and developing markets are much more accessible to Indian companies, because of the preference for steel-based standard bikes, which are the cycle-makers' USP.

The more developed markets prefer lighter sports bikes, which aren't steel-based. But as Indian companies have, over the years, built capabilities based on the desi market's preferences for heavier steel bikes, the shift to lighter bikes may need more time and effort. However, as the main story points out, the top two players have launched aluminium bikes though the market is still small.

Countries like Taiwan rule exports to the West.

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