Last month’s retail sales figures of two-wheelers threw up a surprise that nobody would have anticipated. September 2022 saw the inexorable advance of Honda in the Indian two-wheeler market.
For the first time, since its separation from Honda in December 2010, Hero MotoCorp lost its position as the top two-wheeler brand in the country to its erstwhile Japanese partner, Honda Motorcycle & Scooters India (HMSI). The total two-wheeler retail sales of the latter were higher at 2.98 lakh units in September 2022 as compared to Hero’s total two-wheeler volumes of 2.67 lakh units (according to Vahan data).
Though Hero remained the leader in H1 of this fiscal with total wholesale volumes of 27 lakh units, as compared to 23 lakh units of Honda, the dramatic development in September has signalled that Hero’ sposition as the top two-wheeler maker is under threat.
Atsushi Ogata, Managing Director, President & CEO, HMSI sounded understably gungho. “We are glad to see that HMSI’s contribution remains the highest in terms of retail. Our dealership network across all regions is closely engaging with the customers and this has reflected well in numbers,” he said.
Hero and Honda entered into a joint venture in 1983 and their 27 year long partnership created the world’s largest two-wheeler company – Hero Honda. In 2010, both decided to part ways from the JV with each having their own plans for the two-wheeler market. Honda agreed to provide technological support to Hero till 2014.
After the Japanese partner’s separation, Hero Honda Motors Ltd became Hero MotoCorp Ltd, which in the following years pumped in significant investments and created R&D capabilities to come out with its own engine and vehicle platforms by way of organic and inorganic routes.
The separation proved worthwhile for Honda as it became the fastest-growing two-wheeler brand in the country in the following years. Honda led the evolution of automatic scooters in India with the launch of its all-metal body scooter, Activa, which has been the most successful two-wheeler for Honda in the country.
With robust sales growth of its products, Honda soon dethroned TVS Motor to become the number three player in two-wheeler volumes in early 2012. A few months later, Honda overtook Bajaj Auto and became number two.
Over the past 10 years, Honda has carved a niche in the automatic scooter market while gradually increasing its presence in the motorcycle market too. In 2012-13, Hero’s market share in two-wheelers was about 43 per cent, while Honda’s share was about 19 per cent. But Honda has been reducing the gap with Hero in total two-wheeler volumes.
Both dominate different segments. Hero is a leader in the motorcycle market with a market share of 47 per cent (SIAM data), while Honda’s share in the bike market is 18 per cent. On the other hand, Honda dominates the scooter market with a 51 per cent market share, while Hero’s share in scooters is just 7 per cent now.
The September month development was the result of multiple changes witnessed in the two-wheeler market. While the market has seen a big disruption due to electric bikes, a shift in consumer preferences is also happening.
In motorcycles, Hero secures a major chunk of its volumes (84 per cent) from the entry/commuter segment (110cc and below), which makes up more than half the bike market. Hero’s volumes in this segment is largely dependent on rural customers.
Unfortunately, sales in this price-sensitive segment have been sluggish due to poor offtake from rural buyers due to the high cost of acquisition and a huge increase in fuel prices. Also, this segment has seen disruption from electric products with urban buyers especially shifting to electric two-wheelers which have a lower cost of ownership.
Meanwhile, the two-wheeler market has also been witnessing a ‘premiumisation’ trend – i.e., increasing preference towards higher cc bikes with better performance and rich features. So, growth in volumes of bikes in 125cc and above is faster than the commuter segment, mainly driven by the changing demographics, the perception of young buyers of bikes being more than just commuting vehicles, and higher affordability.
Overall, current market conditions appear to be more favourable to Honda. It has a strong presence in the fast-growing higher cc segment. While Hero is strong in the commuter segment it lacks a sub-brand and products in the premium segment, where Honda even has a premium bikes’ dealership chain, BigWing. Hence, Hero has not been able to take advantage of the premiumisation trend.
Meanwhile, Honda is leaving no stone unturned to ensure that its motorcycle volumes stay on the growth curve. “While there is a steady growth in niche segments, which is a sign of how customers behave, the mass/commuter segment is driving volumes for the two-wheeler industry. Therefore, such volume trends may encourage us to grow in new directions. But when it comes to leadership in the entire two-wheeler segment, it is the commuter and executive category that attracts the majority of two-wheeler customers. HMSI’s entry into 100cc in the coming times will ensure a balanced product offering,” says Ogata.
In the scooter market, Honda’s dominance continues. The recovery in the scooter market, after the opening up of schools and colleges, and the resumption of commuting, in the post-second wave period have augured well and Honda has been recording strong growth in its scooter volumes, thereby boosting its overall two-wheeler numbers.
With Hero’s hegemony being challenged by its former partner, it may require a two-pronged strategy to retain its number one two-wheeler tag.
Firstly, it needs to strengthen its scooter portfolio to regain the presence it had during the pre-Covid period. “The scooter segment is witnessing rapid expansion. Any company’s strategy for scooters has to be very solid in terms of the product roadmap, presence across segments, and appeal to the rapidly evolving and demanding young buyers,” says an industry analyst.
Secondly, Hero needs an aggressive product strategy to cash in on the premiumisation trend to secure volumes as the growth outlook in its bread-and-butter entry/commuter category is bleak. Hero’s domestic rival, TVS Motor, has already raised its bar with the Apache series of bikes, while Bajaj has chalked out a renewed growth strategy in view of the slowdown in the mass bike segment.
Of course, Hero has already embarked on the premiumisation of its models with its Xtec variants. But it has to come out with game-changing products in the 125cc and above categories to bring incremental volumes. A renewed strong product strategy for scooters and higher bikes could help solve Hero’s growth conundrum.