Royal Enfield In Deep Financial Troubles As Jawa And Bajaj Eat Into Profits
India’s popular two-wheeler company Royal Enfield is going through a rough phase for a while now. To come out of this rough phase RE is considering a new 250 cc to get back some hold on the sliding volumes and to push the ideology of being more accessible to buyers.
Royal Enfield, a cult-bike brand which has a definitive image amongst the people in the country, has experienced a slump and not being on the list of bikes of aspiring youngsters looking for an upgrade. This can be blamed on the increase in prices of about 8-10% over the last few of years owing to the transition to BSIV emission norms, rise in insurance cost and mandatory instalment of Anti-Lock Braking System (ABS).
Above that, a slow economy and several options by competitors in the 1 lakh to 1.5 lakh price bracket have spelt trouble for the company. CEO Vinod Dasari is planning to set up 350 small outlets in far-flung areas along with considering a new 250 cc bike variant. The Indian R&D centre is carrying out the study for 250 cc base, even as the UK Technical Centre is working on bigger displacement bikes for the global markets.
Other plans include debuting a no-frills bike for all its brands. This gives its future buyers freedom of choice to personalize and accessories their bikes as they want. According to this plan, RE will be able to address the value and premium segment, giving power to prospective buyers.
If a buyer walks into the show and doesn’t want anything accessory to be fitted to the bike, they can buy a no-frills version. If the buyer wants their bike to be fitted with all the accessories and gizmos, they can go through the list to make their bike stand out.
Talking to experts, it is clearly visible that the brand’s significance and consumer interests are still intact and in high reference. But this interest is not translating into sales and the culprits being steep prices and features which the company needs and aims to address as soon as possible.
On their plans about accessibility, Royal Enfield spokesperson said, “We will continue to focus our efforts on bringing classic, evocative and fun-to-ride motorcycles for our customers. We have persistently worked on keeping our motorcycles accessible, from the perspective of availability, ride experience, as well as ownership experience.” When asked about customization, they added, “We have a range of genuine motorcycle accessories that allow buyers to customise and personalize their motorcycles. We believe it is a core aspect of self-expression for our riders. We will continue to work towards making this experience more seamless for the customers.”
The company is one of the most revered brands in India and has enjoyed one of the highest operating profits in the auto industry due to the ability to pass the higher costs on to its customers without much fuss. But no increase in volumes points to the fact that customers are keeping away from buying at any price point and the rising product price are playing as the biggest deterrent in the conversion of customer enquiries into sales. Royal Enfield’s volume growth was only 0.6% in the last fiscal year, the lowest volume growth since 2010.
RE’s sales are on a double-digit decline for four consecutive months which means a year of de-growth in almost a decade. Couple this with the scenario where the company will not be meeting its production guidance of 9.5 lakh units.
The company admitted that the current slump in sales volume is largely due to economic slowdown rather than brand fatigue. In the last 5 years, RE has been in control of strong pricing with volume and realization being in the limelight. However, experts in the field differ with the company and say that the impact of price increase on volumes in the last nine months clearly shows brand fatigue is in play already.
Meanwhile, a new initiative, Royal Enfield Studio Format Stores, is another way to ensure wider accessibility across smaller towns in India. The company has planned on adding 350 new Studio Format Stores in 2019-20 meaning retail touch points to 1,100 towns and cities with 1,350 stores. All these stores will provide everything from sales, service, spares to apparel, accessories and rides and events. The small stores will have an area of 225 square feet for sales and 275 square feet for service.
Royal Enfield is expecting 12-20 unit sales per month from these small format stores.