TI Cycles reinvents itself to achieve higher growth
Come September, TI Cycles will complete 60 years. But the maker of iconic brands BSA and Hercules is grappling with a challenge usually faced by startups: how to grow itself and expand the market, too. The Indian bicycle market, the third biggest in the world after China and USA, has barely grown over the last 10 years with volumes just about increasing from 11 million units to 12 million.
As disposable incomes grew, cycles became uncool-the age profile of cycle users has narrowed from 2-25 years a decade ago to 2-14 years today. Motorcycles and scooterettes have become more affordable and attractive with cheap finance and more models. No wonder, India consumes just 10.50 cycles per thousand people compared to Japan's 84.30, USA's 56.1, Malaysia's 33.6 and China's 18.
The bicycle companies found themselves pedalling uphill, without gears. TI Cycles' revenue stayed between Rs 450 crore and Rs 500 crore between 2000-01 and 2005-06. With just four large players-Hero, Atlas and Avon, apart from TI Cycles-accounting for over 90 per cent of total cycle sales, competition is fierce (they do not even share their production and sales numbers!). Steep discounts, perennial schemes to push volumes and extended credit periods also tempered profits. TI Cycles' profits (before interest and tax) hovered around Rs 20 crore for most part of this decade.
The Change
In 2005-06, a new (and a younger) team took the saddle at TI Cycles and began looking for ways to change the pace. "We realised that the cycle industry was not doing enough for demand creation. There were no fresh ideas, no significant investments and over time the products had become irrelevant, too. We decided to take the leadership and bring about a transformation in the way the industry operated," says L. Ramkumar, Managing Director, Tube Investments of India Ltd. (of which TI Cycles of India is a division).
The company began to market cycles differently. It started selling cycling instead of cycles! "We decided to address the issue of cycling itself. It was a directional shift from selling products to experience. By making cycling relevant we can get people (who had exited cycles) back on the saddle,''explains B.K. Singh, Vice President, Sales & Marketing, TI Cycles. All the communication and promotional activities were re-focussed to promote cycling- a healthy and environmental-friendly activity.
Simultaneously, it also began to work with dealers and started rolling out modern retail outlets. "We desperately needed to improve the shopping experience. Dingy shops in congested places and poor display of models invariably meant that people ended up buying the wrong cycle, which contributed to poor satisfaction levels leading to people exiting cycles altogether,'' says Singh.
Today, TI Cycles has 90 stores (BSA Go, Track & Trail, etc.) in five different formats and over 240 Hercules BSA zones (shop in shop) inside major dealer outlets. In a bid to bring urban adults back to cycles, the company launched newer models and tied-up with international brands such as Canondale (USA) and Bianchi (Italy) to offer their latest bikes for sale in India.TI Cycles also decided to leverage its BSA and Hercules brands to a wider age group by venturing into fitness equipment and battery-operated e-bikes. "Our brands stood for fun, freedom, fitness and environment. We saw fitness equipment for home segment as a good business fit with health awareness just about beginning to spread. We wanted to offer e-bikes to people exiting cycles and looking for an environment-friendly option," explains D. Raghuram, Senior Vice President, Bicycles & Fitness, TI Cycles.
These measures coupled with back-end measures such as vendor development, revamping of manufacturing- outsourcing most component production and limiting in-house production to just frames and forks and setting up production facilities in Nasik and Noida (closer to the markets and supply chain) saw sales jump to Rs 736 crore in 2008-09 (from Rs 577 crore in 2007-08) and profit (before interest and tax) to Rs 29.20 crore (up from Rs 21.80 crore in 2007-08).
Challenges Remain
With the overall industry volume remaining stagnant, pinching market share from the competition has its limits-especially when the competition is strong and has already begun replicating TI Cycles' successful strategy. The market is also refusing to evolve. Acceptance of premium bikes is still low (less than 1 per cent) with the standard black and green bikes accounting for 45 per cent of the sales and special bikes making up for the rest. The company's effort to popularise cycling and thus grow the industry also has limitations as the infrastructure in India is anticycling. In the absence of dedicated cycle tracks, Indian roads are a cyclist's nightmare. Also, there is a social stigma attached to cycles-more so in rural areas-where shifting to a motorbike or moped is a wealth statement.
E-bikes are still a nascent and low-volumes market in India and world over its sales have been driven only by governmental sops. Selling home fitness equipment would call for path-breaking marketing and financing schemes to make it a part of every Indian household.
At 40 million bikes a year, export is a big opportunity. Demand for cycles in USA grew by 20 per cent in 2008. Europe, too, witnessed a double digit growth. In some markets demand is such that there is a waiting period for cycle delivery! But TI Cycles-which was exporting about four lakh bikes a year worth Rs 80 crore to Europe in the early '90s-has been left watching from the sidelines, as it had quit the export market in the mid-'90s in the face of cheap Chinese bikes.
TI is trying to play catch up, shipping frames and forks to a French sports retailer. "USA and Europe have moved far ahead of India in cycle technology. They prefer carbon fibre bikes while we are still a steel bike market. Carbon fibre is a difficult technology to master and the entire component eco-system needs to be developed. It is a priority area for us but will take a while,'' says Raghuram. TI Cycles also has a brand issue to contend with. It can use the BSA and Hercules brands only in India and a few neighbouring countries.
"We would want to emulate Taiwan, which is a major player in the premium export market. We are constantly evaluating options. When opportunity comes, we are not going to sit quiet," sums up Arun Alagappan, Senior Vice President, Retail and BSA Motors, a nextgen member of the promoter family responsible for some of these changes.
SOLUTION-1 Hit the export track The cycle is fondly remembered by all of us as the first sign of personal freedom and mobility. As motorcycles and scooterettes became more affordable and available, cycles declined in urban as well as rural markets. So, are cycles destined to fade away like the typewriter? The answer is: "NO!" Some of the measures taken by TI Cycles have accelerated its growth by nearly 30 per cent, against the market growth of less than 10 per cent. The strategy has been to change the shopping experience and shift market shares and this seems to have worked well. Sustaining higher growth in a slow growth market also requires dominant players to create market segments and regenerate interest among age groups that have moved away. For example, many upwardly mobile professionals use cars for shopping in their neighbourhood. This segment may switch to cycles if it is seen as a cool thing, given the health and environmental gains. TI could also explore the possibilities of entering the toddler segment, now dominated by smaller companies. TI should also give serious consideration to exports, especially if it has to de-risk its market concentration. It is likely to face stiff competition in exports, but there are few industries globally that do not face competition from China. Product innovation would be necessary to stay competitive. Although TI has entered fitness equipment and e-bikes, it should treat these lines as a separate business unit and not sell them through its existing network, as it is doing now presumably for short-term savings in distribution costs. Investing in e-bikes will be important for TI to grow as it capitalises on the current trend towards environment-friendly transport. SOLUTION-2 Fancy segment holds the key In India, the cycle industry is largely divided into kids, fancy and standard segments. While the fancy segment is getting bigger, the standard segment is slowly shrinking. Though the kids segment (4-8 years) is growing steadily, it is not on the radar of big bicycle manufacturers due to the wafer-thin margins. They prefer to import them from China or contract manufacture them through smaller players. Today, most bicycle companies including TI Cycles face similar challenges. The prices of steel, a crucial raw material, have almost doubled in the last two years. The steep jump in the minimum wages has only been adding to the woes. The bottom line has been under pressure as there is little scope for increasing the product prices from the current levels. In such a scenario, the only way out is to focus more on the fancy segment. More and more urban adults, including office-goers and students, are taking to cycling as a mode of recreation and fitness. Considering the rising fuel costs and pollution, it looks likely that more young urban people will switch to this low-cost mode of transport. This segment can bring in relief to TI Cycles as the affordability range is higher and there is more scope for innovations. However, I think the cycling culture will take some more time to develop. TI Cycles could also benefit from many state governments plans to subsidise cycles for school-going kids in rural areas. Rural markets, which are primarily suited to the standard segment, cant contribute much to the sales in future. Rising incomes and easy finance facilities are prompting people to go for motorcycles. There is also huge potential for companies like TI Cycles to expand its presence in the international markets. But even on that front, companies need support from government in terms of better transport infrastructure and subsidies. |
