A month earlier, in mid-February 2012, Hero Cycles, the Indian player described as the world’s biggest manufacturer of bicycles, had announced a carbon fibre model called Red Dot, priced at less than Rs 50,000. Traditionally, cycles sporting carbon fibre-frames sell at the top of the heap. On the other hand, Hero’s offering was positioned at the top end of its just unveiled range of premium cycles called Urban Trail with prices spanning Rs 10,000 to Rs 43,000. “ It is important that we adapt ourselves to the changing times. The customer is also changing. The market is slowly shifting from livelihood oriented cycles to lifestyle oriented models,’’ Pravin V Patil, President, Urban Trail, Hero Cycles, said.
Hero Cycles showcased the traditional business of the larger group helmed by the Munjals. Patil described the company as closely held and cash rich. Around it a vast business empire had grown focused on India’s automobile revolution. Amidst that saga in motorcycles spanning the Hero Honda CD-100 to the Hero Impulse and much auto ancillaries in between, the cycle business had remained relatively low profile except for a heavy weight parameter – the tag of being the world’s biggest cycle manufacturer.
About a year before Hero announced Red Dot, TI Cycles – the other big name in India’s cycle industry with a 25 per cent domestic market share – launched its own premium brand called Montra. Compared to Red Dot, the Montra Techno carbon fibre bike was priced at Rs 71,000. Both outlined capability and purpose. As motifs shaping company profile in the media, these developments impressed.
But did they cut ice with the new Indian market, especially its discerning portion?
In a repeat of India’s automobile industry story, there were two contradictory yet convergent themes playing out. Big domestic manufacturers were attempting to convince a new generation of customers that they had what it took to capture the premium market’s imagination. The customers of this segment owed no particular loyalty to Indian companies. A sketch of this customer could be had from Internet chat rooms around cycling. The product ownership profile of several participants kicked off with Indian brand, followed by a churn of foreign brands. As with many things, when you aspired, made-in-India failed to keep pace.
The synopsis of a 2010 sector report prepared by Global Industry Analysts (GIA), available then on the web said that the world’s market for bicycles should exceed $ 77.7 billion by 2015. Asia-Pacific would be the largest growing market therein. According to TI Cycles, the entire Indian bicycle market was estimated at around 17 million units. The industry had 9 per cent growth rate in 2010-2011 on account of rising individual incomes and the higher aspiration level of the middle income group. Four players – TI, Hero, Atlas and Avon – accounted for 90 per cent of this market.
In that, the premium bicycle segment priced between Rs 7500 and Rs 15,000 was estimated at around 350,000 units per annum; the super premium segment – above Rs 15,000 – at 16,000 units. “ These segments are growing at a phenomenal level compared to the industry growth rate,’’ K.C. Ramamoorthy, General Manager (International Business), TI Cycles said. Although companies spliced the market differently, the reading was similar. In a presentation, Hero put the bulk of the domestic market in the Rs 2000 to Rs 6000 range with upward of Rs 6000 being the `mass premium’ and `super premium’ segments.
It was in these upper tiers of the market that the capabilities of Indian companies were getting tested. For decades the major players chasing volumes and catering to customers’ livelihood needs saw these categories as commercially irrelevant because the market was price sensitive. With volumes becoming habit for companies, another twist set in – large players wouldn’t venture into a business unless there was assurance of critical volumes. Simultaneously, as a new generation of customers grew up on a diet of rising affordability and access to information, the Indian brands seemed prisoners of their business model and stuck with traditional cycles while brand appeal shifted to the stuff of passion, performance and aspiration.
Shiv Inder Singh, Managing Director, Firefox, was to the Indian bicycle industry what Maruti was to the Indian automobile sector – the wake up call to think differently. “ Where the Indian automobile industry was 20 years ago, that’s where the Indian bicycle industry is today,’’ he said over tea, February 2012, in Delhi. He provided an uncomplicated picture of the market. Broadly speaking, the Indian cycle market fell into two categories – a standard segment and a fancy segment. Anything unlike the standard cycle was called fancy although even in the fancy bracket, the components were typically standard. The fancy segment had grown to be roughly 50 per cent of the market with its real creamy layer composed of CKD imports.
Singh studied at Doon School and later at the Indian Institute of Technology (IIT) and the Indian Institute of Foreign Trade (IIFT). He worked in the export sector, mostly in textiles. From 1980 to 1983 he worked in Taiwan, in the clothing business of a Hong Kong based-group, sourcing from Taiwan, Korea, Hong Kong and Philippines. Then he shifted back to Delhi working for another Hong Kong based-company. In 1996, when that company shut down he started a partly owned outfit in league with the Kapoor Group, exporting lamp shades. He ran this for eight years till 2004. It was during his tenure in Taiwan that he met his current partner Pradeep Mehrotra. The latter sourced cycle components from Taiwan and China and had a manufacturing unit in Sri Lanka which assembled cycles and shipped them out. Those days, Mehrotra owned the Muddy Fox and Silver Fox brand of cycles in the UK market.
In 2005, Singh and Mehrotra started Firefox.
Firefox was launched with 36 models, ready and in stock. These imports were better looking and more contemporaneously designed than models in the Indian market; they were also costlier in a market described by its biggest players as price sensitive and range bound. To sell these bikes, a new retail experience was created. Stores had their interiors designed, store locations were carefully chosen. There were dedicated company outlets at Delhi, Chandigarh, Pune and Bangalore. Firefox also gave its dealers higher commissions. The dealerships had to subscribe to company approved retail design and stock only Firefox cycles. Several dealership enquiries were rejected. “ We didn’t do a market survey before all this because there was no precedent yet in the market on these lines,’’ Singh said. Further with a focus on children and young people, the company’s products and product details were displayed online. That had its problems too. Any shortcoming with the cycles got highlighted in Internet chat rooms and sometimes the fire-fighting took long to be effective.
Competition waited for Firefox to fold up.
Couple of years later, Firefox began distributing Trek bicycles as well. That was probably the validation the industry needed. It was now time for the Hyundais, Fords, GMs, Toyotas and BMWs of the cycling world to arrive. Not to mention – time for the Tatas and Mahindras of the domestic bicycle industry to shape up.
Indeed one interesting thing when talking to senior executives from the cycle industry in India was how much they borrowed imagery and examples from the automobile sector. Historically several automobile manufacturers have marketed bicycles under their brand; among them – BMW, Mercedes Benz, Peugeot, Jeep, Hummer, Ducati and Honda. While I can’t speak for times gone by, the most likely reason for this in recent times – aside from the fact that a cycle with vehicle brand stamped on it provided cheaper, surrogate ownership of the automotive brand – was that the cycle showcased an automobile brand’s design and engineering ability with minimum clutter, not to mention environment friendliness. Compared to the automobile, the cycle was an easier accessed, tangible experience. Unlike automobiles, it was pollution-free. Peugeot however enjoyed distinct reputation in bicycles. This French company, producing cycles since the late 19th century and winner of a record ten Tour de France titles, briefly relinquished its cycle business to Cycleurope. It appeared to be returning. In India, Firefox – a bicycle company – participated in the Delhi Auto Expo. That wasn’t wholly puzzling for the costliest cycles sold in India cost as much as an entry level mid-size car and the act of buying and selling at the upper end of the domestic bicycle market was being decided increasingly by customer and retail experience.
As of 2012 first quarter, customers from Pune and Hyderabad appeared to head the list for the most expensive bicycles bought in India. A Cannondale Jekyll Ultimate was believed to be at the top of the pile. In January 2011, a buyer in Pune paid Rs 650,000 for this model. One of the lightest bikes in the world, it was a versatile mix of uphill and downhill cycling capabilities. The rider could change from one mode to the other, in the process altering the geometry of the frame and his position on it. From Hyderabad, a customer dished out Rs 450,000 for a Trek Remedy 9.9. Early March 2012, a Scott Genius LT 10 worth Rs 425,000 was scheduled for delivery. All these models were full suspension carbon fibre frame-MTBs with top notch components. Earlier Scott India had sold an aluminium frame-Spark 40 full suspension MTB priced at Rs 216,000. Industry officials said that it would be erroneous to dismiss customers of this ilk as merely moneyed because some of the bikes bought had strength in specific applications.
Lifecycle in Pune was probably India’s biggest multi-brand showroom for high end cycles. It had three floors of cycles; brands like Cannondale, Trek, Scott, Orbea, Bergemont, Merida, Giant, Firefox, Axis, GT, Schwinn, Bianchi, Fuji, Mongoose, Dahon and Huffy. Altogether 24 brands, said its owner. The walls had cases stocked with cycling accessories; at one end was a TV showing a video on cycling. Differently from Lifecycle but around the same DNA of passion for cycling, there were other such shops blossoming elsewhere in India too.
At the time of writing this article, TI Cycles was due to open a large Track & Trail Cafe – their version of high end retail experience – in Chennai. There was Rohan Kini’s shop with its delightfully irreverent name – Bums on the Saddle (BOTS) – in Bangalore. There was the hard core cyclist community around Venkatesh Shivarama in Bangalore. There was the first Track & Trail Cafe in Bangalore. There was Nachiket Joshi and Lifecycle in Pune. In Mumbai, there was Rahul Mulani and his shop Gear and Prabodh Keny, assembling cycles at his home.
Two cities in particular defined the Indian market for high end bikes – Bangalore and Pune. Both places were blessed by a matrix of old and new India. There was sufficient continuity of old fashioned commitment and passion plus a healthy dose of contemporary, youthful enterprise. Unlike Mumbai, real estate cost had not mono-cropped business imagination. Ideas stood a chance. Not to mention – disposable income, cycling clubs, communities and regular calendar of events around. Roughly similar across Bangalore and Pune, although not exactly so, was the local climate and topography. Bangalore had bearable climate year round. Pune had a harsh summer and distinct winter. At both cities, you could cycle off onto roads with less traffic and if it interested you, court hilly terrain.
The current drivers of cycling in Pune and Bangalore included those who were passionate about cycling when Hero and TI dominated what used to be a seller’s market. They struggled in that environment, first putting Indian bikes to punishing use and then researching and sourcing bikes unavailable in India to feed their passion. Consequently they didn’t bring to the table automatic respect for India’s big cycle manufacturers. They were not in awe of them. Across the new age cycle retailers I spoke to, there was a cool, guarded approach to Indian brands pushing carbon fibre cycles as motif of new found technological advancement. The manufacturer may be pushing something genuinely valuable but the point was – this market had questions, access to information and knew cycling. It chatted, discussed; there was even an Indian mountain bike magazine, `Free Rider.’ It was clearly not the old market. True, there will be those who buy to match peers or because they have money to splurge. Like this customer who called up asking for a bike costing over one hundred thousand rupees. The purchase was approved with photo of the bike dispatched via cell phone. The cycle was picked up by the customer’s driver. But even for this customer, rich enough to buy without seeing the cycle, it mattered who guided his choice. In this case, advisor had been an enterprise begun by cycling enthusiasts. That shift caused all the difference.
Not surprisingly therefore, as much as a good product in this upmarket segment created a reputation for manufacturer, a bad product or a good product abandoned to bad after sales service created ill repute where there was none previously. The old approach to bicycle sales wouldn’t work. Bangalore’s Track & Trail Cafe stocked all the cycle brands that TI Cycles imported and distributed through its network. The best part of it was that it recognized a cycle as a creation and surrounded it with space to appreciate its design, geometry and engineering. You could take in all this with a cup of coffee in your hand, sip it and walk among the cycles, gaze at the posters on the wall or browse through the many books on cycling and magazines on the subject kept on the racks. The cafe served as a point of sale, played host to bicycle maintenance workshops and organized cycle rides. “ The Track & Trail Cafe serves as a platform for engaging like minded community members to make cycling a way of life through active company participation. The concept encourages users to browse leisurely,’’ Ramamoorthy said. Hero had planned Urban Trail showrooms. According to Patil, the top 200 dealers from Hero’s 2200 dealerships nationwide would sell Urban Trail models. There would be additionally, 30 company owned outlets, 30 franchise dealers and three experience centres for the Urban Trail brand in Delhi, Pune and Bangalore. That was the plan, when I met him.
What interested was how the cycling community hadn’t yet (at the time of writing this piece, that is) migrated in strength to these new company sponsored platforms. It was early days. The shift was expected. Both Hero and TI already sponsored major cycling events. But as of then, the cycling community in places like Bangalore and Pune, clustered around individuals and clubs passionate about cycling. Notably, they remembered being under-served by Indian industry and drew people to them without necessarily having on offer all the material frills that the company spaces held.
The best known cycling community in Bangalore was around BOTS. Rohan Kini saw his main job as managing the community and being an evangelist for cycling. Very different from the modern showroom space BOTS had acquired, was the first floor shop of Venkatesh Shivarama. It was packed with cycles. Imagine that – a first floor shop for something that runs on wheels? Yet the faithful arrived, for Venkatesh was perceived as an experienced, technically sound cyclist, an evangelist for cycling in his own way. He anchored a reputed cycling team and the assistants helping him at the shop were committed cyclists into racing. In Pune, Nachiket Joshi was crystal clear – his top priority was the community he had built around Lifecycle.
What was opening up in India in the form of a market for high end cycles was a classic chicken and egg situation. New product and market making were debuting side by side. To sell these cycles you required a culture that enjoyed cycling, understood what modern cycles did and wished to buy or promote them. That culture, starting with spreading the joy of cycling, was possible by nurturing communities. Unlike the old cycle shop owner who sold available products brusquely, the new age retailer of bicycles in India noticed customers. The premium segment’s growth rested on everyone’s evangelism for cycling. If cycling turned boring, they knew, the business would fail.
Rahul Mulani, who pioneered BMX in Mumbai years ago and started a cycle shop subsequently, provided a different yet equally involved view. He didn’t want to run a cycle shop. That wasn’t his aim. His aim was BMX. But what do you do when in BMX you were always thrashing your cycle and spare parts were so hard to come by in an India that ignored cycles for niche markets like his? He became an importer. More than one devoted cyclist and at least one dealer told me of cycles in the garage that served purely to be cannibalized for spare parts because import duties and exchange rate fluctuations hampered parts availability.
Of India’s two biggest cycle manufacturers, TI which claimed leadership in the special cycles-segment had in addition to its own product line-up opted to distribute imported cycles. Hero wanted to go it alone. “ I may at best seek a good designer, I have all the other capabilities,’’ Patil said. According to him Hero was targeting 35 per cent domestic market share in the premium bikes category to start with. Over time, the definition of indigenous cycle had become hazy. The standard cycles hailing in origin from the days of controlled economy, had fully localized production. As you moved up the pecking order and this machine called bicycle grew more complicated, the anatomy of the cycle became an international assembly. It transformed from a product wholly made at a factory in India or built with components from India to a product that was assembled from imported components. Uniquely in the global bicycle industry, some components were strongly associated with a handful of manufacturers. Example – Shimano and SRAM in gears. Aircraft manufacturers obsess with the design of planes’ wings for that is the critical piece of technology. Similarly, in cycle manufacturing, the bicycle brands controlled the geometry and technological specifications of the bike frame which was the heart of a given model of bicycle. The frames were unique for their rigidity, measurements, angles, thicknesses, welding and materials used. These attributes altered with intended application of bicycle. Thus the frame of a mountain bike was different from that of a road bike by more than just appearance. To the frame, components matched to performance and price point, were attached. The manufacturer then grew the brand DNA through a diet of field testing and performance. Dig deeper and you found that there was respect for independent designers, fabricators, testers and like. As you moved up the value chain in cycles, you encountered products defined more by design, engineering, build-quality and application. Theoretically, these segments could be cost competitive in manufacture at modest volumes. If the volumes of such cycles in the Indian market slowly gained, that could eventually mean reason to manufacture them locally, which would be an interesting departure from the well entrenched worship for sales volume. In these categories defined more by performance than price, a critical, modest volume would do. What mattered was engineering excellence and craftsmanship. “ That would be an interesting development to watch out for,’’ Jaymin Shah, Country Manager, Scott India, the local arm of leading international bicycle brand, Scott, said.
The country to beat in this game was China. They manufactured the cycles sold by leading international brands and they did it efficiently at low cost. In early 2012, there was talk of South East Asian countries emerging as new manufacturing locations. Was this an exploitable crack? China itself had become low cost manufacturing destination for cycles on the back of Taiwan’s rising cost in cycle manufacture. It was only natural that cost-stories should migrate as economies prospered. According to an article on the Earth Policy Institute website, from 1995 to 2005, China’s bike fleet actually declined by 35 per cent to 435 million units while private car ownership doubled. Yet in 2008, China was still producing almost four fifths of the 130 million bicycles produced worldwide. If in 2012, names like Vietnam cropped up as cheap production bases, it shouldn’t surprise. Will Indian bicycle companies blessed with domestic market and gaining scale in niche segments, catch up and marry scale to technology for a swing at things? (As I edit this article for my blog, the rupee is at 64-65 against the dollar, begging an export culture.)
Patil said that scale was his primary asset. As the world’s largest producer of bicycles with 45 per cent market share in India, Hero had the capacity to source globally. That however begged a question in the eyes of observers – precisely because of faith in scale and because the cycle is increasingly an assembled product with brand identity divorced from manufacturing location, there needn’t be urgency for Indian manufacturers to produce high end cycles in India. Till costs compel otherwise (the sharp rupee depreciation of 2013 could be one), why not outsource, assemble the product and push the brand? As said, such assembly was established industry pattern. It made no sense to keep reinventing the wheel. Except, the foreign bicycle manufacturers came across as more experienced and tested for unlike in India, they built brands around credible performance and not scale. You may be buying a mass produced brand. But it was traced to company with strong DNA in performance. Indian companies were yet far from acquiring such link. This made attempts in that direction very important, for unless you evolved by aspiration and imagination, the product – no matter how dominant the brand – would remain an unconvincing shell. The market never failed to argue – every year the foreign brands were at the races and something from those outings should be rubbing off on the brand as learning. DNA by performance – the market valued that in a bicycle brand.
When I mentioned Indian carbon fibre cycles to one of the new age dealers, he quipped, “ do you know what grade and quality of carbon fibre that is?’’ How much of everything on the cycle is carbon fibre and how much isn’t? Evidently, the young man knew the material and its use on cycles well enough not to be felled by a claim. In contrast, he pointed out that many of the foreign brands newly into India had been at least once to Tour de France, not to mention won it. And just in case you thought that dealer’s quip was spot on, here’s another observation from another dealer – why can’t an Indian manufacturer be successful and iconic when many of the foreign brands despite their heritage and reputation have ended up being made in probably the same factories in China? Are you sure the old care and personalized attention which makes products distinct are still there in the foreign names?
It showed the possibility open to Indian manufacturers if they wished to genuinely try.
As of early 2012, the impact of all this was visible in select home brand-products near the Rs 10,000-price level in the domestic market, where design and quality had improved. “ Indian bicycle manufacturing had been bogged down on the price and mobility platform and had not made any investments as made by international manufacturers. We are slowly building capacity for alloy and carbon frame bikes and eventually other materials also,’’ Ramamoorthy said. Alongside new approaches to the market may be tried. TI Cycles for instance, was examining the scope to start a rental business for performance bikes at its Track & Trail Cafes. Its well located bike stores may also host this business, which provided the market an easier option to experience the new bicycles besides allowing cycling aficionados to continue their lifestyle when travelling on work.
Then on March 16, 2012, a game changer happened.
The premium cycles segment found mention in the Union Budget with the customs duty on imported cycles and bicycle-parts going up. Very broadly, this move spelt impact from price points like Rs 5000 – 6000 and upward in the market because models, right from children’s bikes, used imported components. What survived untouched was the mass market livelihood-cycle category, which incidentally wasn’t the growth segment of the market. The growth segment and what was evolving to be the next centre of gravity for the bicycle market, was the beginning level of the premium category taking to the market concepts like alloy frames and gears, which were not mass produced in India. Suddenly the very fun centre of the market had been choked by the Finance Minister! The budget was speculated to trigger two to three trends – the cost of imported cycles and cycles with imported components would go up; there was the likelihood of down-trading to cheaper technology as models strived to preserve price points and finally, there could be greater manufacturing in India to get over the higher import cost. None of this would have pleased cyclists left wondering why cycling – an activity that burns no imported oil or contributes to pollution – was penalized.
The budget left many cyclists angry. But in the months since, room to complain steadily eroded for it was life by game changers. The rupee at 64-65 against the dollar would have further reinforced protective barriers. The currency’s real exchange rate, some said, was yet away. Every generation has its challenges. The last one capped its imagination at ordinary bicycles. New generations defined by consumerism alone don’t make for a great generation. They must create convincing products. On the bright side, indigenous models in the premium segment have grown. TI’s Montra brand for instance, has spawned models at a pace not seen before in the market.
The field is wide open in Indian cycling’s second youth.
UPDATE: Mid September 2015, media reports said that Hero Cycles had acquired Firefox Bikes in an all cash transaction. The deal included distribution rights for Trek and other brands.
(The author, Shyam G Menon, is a freelance journalist based in Mumbai. This article was written in mid-March 2012. Some rewriting and updating was done for this blog. However minutiae in context, as well as officials and product prices quoted herein may have changed since. Serious readers are requested to note that. The blog’s intent is – perspective. A very abridged version of this article was published in Man’s World [MW] magazine. A portion of this material was also used for an article in The Hindu Business Line newspaper soon after the Union Budget of March 2012.)