Royal Enfield moves through the gears amid growing competition in market

Competition in the middleweight segment and a growing market for electric bikes pose challenges for dominant two-wheeler player

Its cult status among customers made Royal Enfield a blue-eyed favourite of all its stakeholders. It appears to check the box for almost all brand-building criteria: Pedigree, fully-depreciated manufacturing units, a fan following, British history, antiquity value for used products, and demand that transcends borders. Plus, with operating margins of about 30 per cent (2017) the Royal Enfield is also one of the more profitable players in the industry with little competitive threat.

An auto player couldn’t wish for more. But rivals are watching closely.

In October, Japanese auto major Honda launched its H’ness CB 350 cc bike that blends old-world charm with modern technology. It also produces a roaring thump, just like Royal Enfield but throws in automatic braking tech, traction control and other bells and whistles. There’s also buzz that it may launch another bike built on the same platform in the near future.

In a market populated with Japanese and home-grown contenders, Royal Enfield hasn’t been asleep at the wheel. It recently launched its Meteor motorcycle, a single-cylinder, four-stroke 350 cc bike. Royal Enfield CEO Vinod Dasari said the Meteor was made as a collaboration between the company’s Chennai and UK Technical Centres, was almost four years in development, sports the next generation of unit construction engine, and is the start of a journey for the company.

Still, it will be a challenging run. Motorcycle aficionado Zubin Ponnappa, who runs Zubinndesign, a tuning company for two-wheelers, said though “Bulleteers will always be Bulleteers”, the arrival of the Honda H’ness, which is already overbooked, is a sign that the landscape won’t be as easy to dominate in the future. “The Honda motorcycles sport very smooth gearboxes, good ride quality and terrific service packages,” he pointed out, and added, “Healthy competition is good for the industry.”

Other companies are also looking at the segment closely. Jawa, launched by Anand Mahindra and a consortium of investors, Triumph and BMW Motorrad are examples, but Enfield remains dominant.

Suraj Ghosh, principal analyst, powertrain and compliance forecasts at IHS Markit, said, “So far they have remained unchallenged in a way that has led to the margins they enjoy in all segments, but that may not be sustainable in the mid- to long-term. The next phase will likely have to come from geographic expansion in ASEAN markets where cruise and lifestyle biking is more popular.”

Dasari isn’t fazed. “There is competition. For 10 years we have created this mid-size segment. There is no other automobile company that has grown for 10 years at a CAGR of 25 per cent, has a billion dollars in cash, and is the most profitable motorcycle company,” he said. “When you have that scenario, everybody wants to come into this segment, but people forget we are only a mid-sized player by segment. We are what we call an inch wide and a mile deep. We are between 250cc and 750cc segments. We do not make commodity products and our focus is very narrow and very sharp.”

Dasari’s point is the company offers many combinations, and has an entire supply chain, factory, and dealer, retail and service network focused only on what it does. “So when more people come, it puts more attention on this segment, where we are the best.”

If competition is one possible headwind, the other is an evolving auto sector. Many feel electric bikes are the future. “They aren’t even that hard to build, and with growing regulations on noise pollution in residential areas, it could become the norm to have more silent bikes,” Ponnappa said.

Dasari said electric bikes are in the reckoning and an announcement would be made “at the appropriate time”.

Auto veteran Rajeev Kapoor said the switch to electric is imminent. “As prices go down, consumers would shift to electric. Yes, you will miss the noise and vibration, but those can be regenerated. What cannot be replaced is the smell of gasoline and lube oils, and the Sundays spent tinkering with the engines and getting one’s hands dirty with grease.”

Ghosh agrees. “Financially, Royal Enfield is very strong and doesn’t play in commutator segments where margins are low. Like Ferrari and Harley-Davidson, it could mop up revenue from merchandise and accessories. Their retail treatment is premium.”

This is an area the Royal Enfield is pushing into deeper. “Very recently, we have launched a range of women’s apparel to improve the riding experience and help them express their love for motorcycling,” Dasari said. “We are investing in developing products for varied riding needs, terrains, and weather conditions whilst ensuring they meet global safety norms. The intent is to make them accessible both in terms of availability and pricing.”

In the past 20 years, the biggest change the two-wheeler sector saw was market expansion in the commuter segment (100 cc-125 cc) and the emergence of model designs with cues taken from motorsports, Kapoor said. Royal Enfield has stayed out of both.

How long can a brand ride the distance on the heritage narrative? “Any brand has to aspire to create a legacy as the heritage tag serves a limited purpose. Eventually, customer loyalty, consistent delivery of quality and strong customer support makes one a winner,” Kapoor said.

That’s something Japanese players understand well. They also take time before doubling their bets. Royal Enfield knows that too. Dasari said its global ambition is to lead and grow middleweight motorcycling, because “that segment remains underserved in markets that are otherwise prominent as far as two-wheelers go”.