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Last Updated : Dec 22, 2015 09:01 AM IST | Source: CNBC-TV18

10x aim in mind, Royal Enfield kick-starts renewed US ride

After reviving the iconic but struggling Royal Enfield brand in India and taking it to utter domination in the premium cruiser motorcycles segment in India, Siddhartha Lal has set his sights abroad.

After reviving the iconic but struggling Royal Enfield brand in India and taking it to utter domination in the premium cruiser motorcycles segment in India, Siddhartha Lal has set his sights abroad.

Lal, scion of Royal Enfield's parent Eicher Motors, outlined his plan -- in an exclusive interview with CNBC-TV18's Ronojoy Banerjee -- that focuses on upping the company's global play in a big way.

The plan: commission a study to enter Latin America's largest market Brazil, apart from considering developing markets like Indonesia and Thailand. Royal Enfield will also set up an assembly plant in Indonesia in the future in order to be more competitive. And finally, there is the elephant in the room: the US market, where premium cruiser brands like Harley-Davidson rule the roost.

It is not that Royal Enfield has not been present in the US. The company, whose Bullet range of motorcycles resurrected itself in India in recent years to make its parent one of the world's most profitable two-wheeler makers, has been present in the US for 15 years -- a foray Lal terms as a "half-hearted play", considering they sold motorcycles under a distributor.

That is going to change starting next year.

"January 1, we start our own marketing company, [undertake] sales. We are appointing our own dealers, we are probably opening up stores or two on our own and that is how we are going forward in US," Lal says.

To give a real push to its first serious attempt at cracking a major market like the US, Lal has got on board 15 senior executives from the top of the US auto industry -- including, according to some media reports, from Harley.

"We have been able to attract them, which is also really exciting for me. Actually that is probably the most exciting part: that we talk to these people and they are actually willing to join us -- but for a reason, I hope," he says.

So while Lal is targeting growth on a low base -- increasing the current sales tally from 100 to about 1000 in three-five years -- the play isn't entirely about volumes or profitability.

"If you can start selling a 1,000 a month that is an interesting start. Then we are making a dent in the market," Lal says. "[But] I don’t care about making a dent in our P&L here in India, that is not important but dent in that market, that is important. People see us as relevant, as somebody who makes quality motorcycles, which are evocative and beautiful; that is important for us."

Below is the verbatim transcript of the interview..

Q: You have sort of explained this new phase in your company as phase two which is where you have sort of set yourself like high global ambition. You have said that you want to sort of target the medium duty segment and by 2030 50 percent of the market you would want. So, just talk a little more about your global strategy, how different will it be for whatever you have done in India so far?

A: In the larger scheme of things it is going to have to be very different and that is where we sort of internally in our organisation preparing ourselves for a new phase. It doesn't mean that we are ignore India. That is our starting point, that is where most of our sales, most of our profits, most of our scale, our business model, our team, manufacturing, engineering everything comes from here. So, this is our bastion, this is what we work with and this is extremely important. So, strengthening India is extremely important for a future play. So, without a strong India nothing happens. So, that is the starting point. So, we are doing a lot of work in India.

Then what we figure in the larger scheme of things is that - me and the team when we travelled a lot in the last 20 years we have spent a lot of time just going to other markets. We are not selling too many motorcycles there but we are understanding and absorbing for many years and what we have understood is that there is a gap and sometimes we see that gap really plain and wide and it is there. It is there for the taking and nobody is really going for it in the manner that we would like to. So, maybe I shouldn't talk that much about it but the gap is that there are not many fun, evocative, simple in that middleweight motorcycles in the world which are accessible.

There are motorcycles, it is not that they are absent, it is just that they are not as super exciting or they are not brands which evoke interest and love and that is where we want to be in and we see in developing markets for example, we see that the trend that has happened in India which is basically commuters - premiumisation or something like that but what they are saying is that we want something more, we want something that reflects our personality, something that we can go long distance. We don't want a simple A to B commuter and that has taken off in India and we have, I believe, been at least on our side pull lot of that market up. We can see that in Latin America and South East Asia clearly right now, it should happen and we want to drive that.

Q: Tell us a little more about the fact that you recently announced your own subsidy distribution company in the US, you have made some high profile hirings from different premium and sports motorcycle manufacturers. When do we see your sales begin in the US and typically what are the kind of products that you would be targeting for a very developed market like America?

A: Similarly to what we started off in India to that extent there is some similarities that my view is that while we are talking about this and we are spending a lot of time and energy a new geography which means relatively new customers, it is a known brand but it is still new. People haven't purchased it as much, new distribution in a lot of cases, not in all cases. If you put all these things together it takes a hell of a time, it is not going to happen overnight.

So, what we are doing is we are building up a team, we are building up capability and knowledge, we are building up presence and honestly we are going to make tonne of mistakes while we go for, we already have. So, what is going to happen is that the phase over the next five years is to just establish foundation of the brand, of distribution, understanding. We will get some new products in, hopefully some will do well, probably some wont. We will get to learn from that, and in the next five years in my opinion is more foundation building and with the right team. So, as you said rightly what we focussed on is we know we have a great brand, people are very receptive to it in the international markets. They secure Royal Enfield, they hear the history and they are like already forward. So, that is already good for us.

So, now we are building a very strong team around that and that is what is going to help us learn and navigate our way to creating a global brand because it is not going to be easy but we know where we want to go.

Q: Just give us an idea of when do we see you entering then the US market. Since you have already markets, since you already set up a company?

A: It is not exerting US market. We are actually present in the US market for 15 years through a distributor. But it was a half hearted play. So, now we are nearly 15 member team and like you said some really good people from the top of the industry in the US. We have been able to attract them which is also really exciting for me. That is probably the most exciting part that we talk to these people and they are actually willing to join us. So, that is great, but for a reason I hope.

So, January 1 we are starting our own market company sales. So, we are appointing our own dealers. We are probably opening up a store or two on our own and that is how we are going forward in the US. It is going to take time. Hopefully we will have sales growth, we will have sales growth but on a small base right now. So, our objective of reaching - it is a very loose objective because every market is different in size but basically from 100s what we were doing in markets we want to reach in 10,000 plus range - that is a very round number but in any international market of size because that is then a sizeable play in the market. So, it is not about our percent of export from India, we don't care about that. What we care about is being relevant in that market. So, firstly we want to have enough so that there is enough distribution, there is enough presence on the road. All of that.

Q: So, from 100 to 10,000 you are talking about the developed world per se or just the US or North America?

A: Certainly in the US the idea is that in order to sustain the number of stores that we require, in order to get some traction in the middleweight market that is - I am just giving you an order of magnitude in the next 3-5 years, if we can start selling a 1,000 a month that is an interesting start. Then we are making a dent in the market. I don't care about making a dent in our profit and loss (P&L) here in India, that is not important but a dent in that market, that is important and people see us as relevant and somebody who makes quality motorcycles which are evocative and beautiful that is important for us.

Q: Will this also be gateway to other North American markets like Canada and places like Mexico?

A: The Royal Enfield North America team is going to run Canada as well but other than that we have not yet decided. It could happen but it is not in our current vicinity. There is enough on the plate between US and Canada.

Q: You have said that fulcrum of growth, the main boost is going to come from the developing markets and hence with that idea you have entered the Indonesian market, you announced that in August. So, tell me a little bit more about it in terms of the developing market, are you seeing similarities between India and Indonesia since this is the world's third largest motorcycle market?

A: In the longer term if you are going to develop markets in the order or magnitude of India that is going to be developing markets, we are not going to sell many tens or thousands or hundreds of thousands in developed market. I would love to but I don't think that is going to happen. The focus is that in developing markets where you have an India like environment, where there is millions of population of commuters, that is the important part. So, there is already in Indonesia probably 20-30 million people on commuting motorcycles. So, that is our audience and it is when they are looking for an upgrade we want to be right there in their upgrade path. So, when the brand is quite different, when you see a Royal Enfield brand in a showroom or  it is extremely different from seeing a Indo Japanese, Chinese sort of brand. However from an accessibility point of view it is in their direct path. We want to be a brand which is an upgrade brand not a super high brand. So, there Indonesia and all fit in extremely well.

Q: The fact that you have now sort of setup your own distribution company in the US, will a similar sort of strategy also pan out in the developing markets because that is where you are looking at the volumes and logic would suggest intuitively that you would have to follow similar sort of an approach in the developing markets?

A: We are taking each market individually. We don't want to be there in too many markets. In fact if you see on paper we have actually reduced the number of markets we are in the last few years because if you are selling a container here and 50 bikes there and it is not strategic we are in fact pulling out. Every single market that we want to enter into it is a market that we will take individually. So, just to give you an example, in Columbia we found an amazing partner, they are really good, they understand Royal Enfield brand, they have existing distribution, they are willing to invest in new distribution for us. So, we went to them and in Columbia people want to buy from a Columbian firm, that is what we believe, it may be wrong but that is what we have understood after spending couple of years there and understanding market. So, there we have gone with a partner.

In Indonesia which you asked about for example, we have said right now the duties are extremely high, we don't have any plans immediately to start manufacturing there for example. So, instead of going for a wide approach like we are going in Columbia, in Indonesia we have said - Jakarta is the big guy there. So, if you can crack Jakarta then you are sorted I think. These are all assumptions. So, what we are saying in Jakarta is that let us put up a beautiful single store which has all of Royal Enfield and then to really get under the skin, to get with the people, to get with the riders, to create a demand pull for Royal Enfield so that people in Jakarta are saying this is interesting, I like this motorcycle.

Q: In that region do we also see you looking at a later stage local assembly there considering you are saying that will be the growth driver? How will you do it because people will say you will lose your competitiveness if you are sort of importing the bikes?

A: Once we see that success, we are in Jakarta, we are also in Bangkok now and once we see success  in few of these markets we will certainly have to do local manufacturing to be a relevant player there. That is step two for us, that is not step one. So, we first go and create demand and then we will local assembly as well.

Q: Apart from the developed markets you have talked about Columbia, you have talked about Indonesia, you have talked about Thailand, more in the pipeline, are you studying more markets in this region?

A: If the big guy in South East Asia is  Indonesia and Thailand is pretty large as well, in Latin America it is Brazil, that is the big daddy out there.

Q: Have you started internally studying?

A: Our team has studied that market a lot, we have been spending a lot of time there. We have local, Brazilian chap sitting there who works for us. So, there is a lot of stuff going on behind the scenes right now to understand the market, to see what play we can make. It is a very tricky market.

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First Published on Dec 21, 2015 05:37 pm
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