vamos Royal Enel takes the mide path in global cde Uvomine st Sana Home Companies Last Modified: Fri, Aug 07 2016.06 60 PM IST Royal Enfield takes the middle path in global ride Enfield sees potential to become a key player in the market for middle-weight motorcycles worldwide Enteryoutemall Subseribe to our newsletter. ‘Amit Raj Docere Kovalamand Poorer [FRE JOURNEYS Goiden Cub Mahindra Poovar.. ) 2000 INR 15399 INR Eicher Motors managing director and chief executive Siddhartha Lal says the potential markets Royal Enfield is exploring to expand into include the UK, rest of Europe, the US, Latin America and South-East Asia Photo Pradeep Gau:/Mint ‘New Delhi: The year was 2000. Siddhartha Lal, then 26, had just returned home from the UK with a Master's degree in automotive engineering from the University of Leeds. One morning, over breakfast, he and his father Vikram Lal tl Ltd. had a talk about what he wanted to do in life. 1 chief executive officer (C >) of the family-run Eicher Motors That was around the time when the senior Lal had been approached by the board of Eicher to pull the plug on Royal Enfield its ailing Chennai-based bike-making unit, The group's core tractors business, to, was performing badly, and the board wanted to “cut off one limb to fund the other’, the son recalls, rink about it Ifyou are motorcycles, espe interview, 20-something, you are not going to be fascinated by tractors, right? You will be more fascinated by ly if you ride one’ Lal, who is er Motors, sald in a rec hp dhww lvemint com/Companiasb6TEEyIGCIYRoFHYItS9VORayal-Erfild--Ravirg-up-or-2-glabal-rde hm 8samn0%6 Royal Enel takes the mide path in global cde Uvomine “That's when it sort of popped out and I said ‘you know, may be, would like to give it (Royal Enfield) a shot! Pethaps, he was ‘waiting for me to say that, said Lal, who was~and is—passionate about bikes, having ridden a red-coloured Bullet, an iconic Royal Enfield bike, during his days as an economics student at Delhi’ St. Stephen's College before going to the UX. Fourteen years later, Lal can say he has pulled it off. In the last calendar year, which is also Eicher's financial year, Royal Enfield sold a record 302,592 bikes, 70% up {rom 178,000 units in 2013, and helped double its parent's net profit to Rs.559 crore on 78.04% increase in revenue to Re.3.031 crore. ‘Thisyear Royal Enfield expects to sell 450,000 of its 800e¢ Continental GT, Thunderbird, Classic and Bullet bikes, the last three of which come in 500ce and 350ce variants. The bikes cost between Rs.,06 lakh and Rs..92 lakh, By the firm’s own reckoning, sales should more than double to 942,000 units by 2021, Compare that with 2000, the year Lal took over the Royal Enfield unit, The company sold 24,000 bikes and Eicher had a net profit of Rs. 23.50 crore on revenue of Rs.392.10 crore ‘The company has a waiting period of three-five months for its most popular bike, Classic, at atime when the automobile industry is facing choppy times, Now that the turnaround in the home market is complete (more on that later), Lal, 42,8 iting Royal Enfield. That spot is for what he calls the middle-weight motorcycles, with engine capacity between 250cc and 780ce and priced between $3,000 and $7,000, locking to conquer overseas markets, where he sees a sweet spot a ‘The global motorcycling market is largely made up of two extremes—the commuter segment, with a size of around 60 million, and the leisure biking segment (dominated by Harley-Davidson Inc) in which one million big and bulky mean machines are sold every year In india, Royal Enfield has successfully managed to create a market space for itself between the two extremes. The rise of young, aspirational buyers with high incomes in the years that dovetailed with the fastest decade of economic growth in India has propelled this seoment ‘hrs Bove sate re ( se coe ) 2000 INR. asian 5399 INR a... ow eck na kkk prema Bee share of that. ‘To achieve his ambition, in the lest nine months, Lal has brought on board some big names in the world of motorcycling, Royal Enfield has hired Red Copes, former sales and customer service head at Harley-Davidson to head its North American business. Rudratej Singh, who was based in Singapore with Unilever as vice-president, South Asia, HPC (home and personal ‘care) and foodis marketing operations, has become president of Royal Enfield, Ex-Ducati designer Pierre Terblanche will lead Enfield’ industrial design division. industrial designer Mark Wells is the new head of alobal product strategy. Lal is clear about what he doesn't want to do, Royal Enfield will not enter overseas markets with big-bang announcements of setting up manufacturing facilities, and it won't bombard markets with a slew of new products. “We are not going in with a set formula, We have some ideas.. We have to go in with our eyes open, Lal said in the interview at @ Royal Enfield merchandise store in Delhi's Khan Market, “Wearegoing to make mistakes. We are going to learn a lot. But we have to change course with that learning and try something different ‘That he learned the hard way in turning around Royal Enfield should help. When he took over the bike maker, he thought it ‘would be a cakewalk. "I was very naive then’ he concedes now. ‘The firm was bleeding because of over-capacity that took its toll by increasing fixed costs. Although the Bullet enjoyed a cult following, there had been complaints about its design and that the bike was hard to maintain. hpdhww vein com/Companiasb6TEEyIGCJYRoFHYltS9VORayal-Erfild--Raving-up-or-2-glabal-rde hm!samn0%6 Royal Enel takes the mide path in global cde Uvomine “There were all sorts of issues—from quality to management: a plant that opened (newly) and the two plants could not see eye toeye. There was a cash-flow problem. Idid not even understand the concept of cash flow. It was really basic’ Lal recalled. \With their backs against the wall, Lal and B. Govindarajan, chief operating officer, spent days and weeks doing a detailed analysis of costs and crunching numbers to figure out solutions, Turnaround ‘The frm shut its new plant in Jaipur to get rid of idle capacity. People were let go. Changes in the corporate structure to make it leaner and thinner meant Lal was left with only two vertical heads~the human resources head and the finance head, There ‘was no one to head manufacturing or sales. Costs came under control, offering Lal some breathing space. Royal Enfield customers had developed a habit of negotiating for discounts. The firm had no choice but to incentivize dealers as sales were plummeting, An average Rs.3000 discount on abike meant the firm was losing Rs.60-60 lakh every month. Lal put an end to the discounting practice. "We wrote one proper letter to all dealers saying that {rom now onwards Royal Enfield ‘will not offer discounts’ Lal sai. Tobe sure, sales were down the first month. But by the end of the second month, sales started moving up. ‘Within 12 months, ‘we were able to break even and we were not requiring oash from the mother company any more’ Lal sai. ‘Then came engineering and design changes to the bikes that addres: individuality and sugged exterior of the bike. ‘customers’ complaints while retaining the Royal Enfield had come back from the nearly dead ‘The story of Royal Enfield in india dates back to 1954, when the government ordered 800 rugged motorcycles for use by security personnel on the Pakistan border. The chosen bike was Royal Enfield Bullet 360, built in Redditch, UK, by Enfield Cycle co, cate re ( we coe ) 2000 INR coi iow 5399 INR sees ROOINR seater ean SMEMR sorrow wy sles kayla were spent ea Leer Notas tentanle Dah at ade eame slang ators, fomed an lance with the Chennai iesmaker Four years te bough the firm and so heights ue the Royal Enfield name, Pedigree ‘Today, Royal Enfield is the oldest motorcycle brand in the worl stillin production, with the Bullet enjoying the longest motorcycle production run ofall time. ‘That's the pedigree of the bike that Lal now wants to take global after 16 years of hard work that revitalized the brand, which, ‘now enjoys more visibility, more customer interest and more demand than it ever did, reinforced by well-spread distribution and dealer networks, "When |Jook at it personally, [have spent 1 years in the frst phase and I say Ihave a maximum of 16 years left now for phase 11.So, phase I! is @ longer-term idea of making Royal Enfield a global brand. That's what we want to do’ Lal said, Tobe sure, success may prove elusive in the short run. Lal can live with that for two to three years. What Royal Enfield wants todo is to become relevant in the markets it enters and carve out a space for itself—lkxe it did in India. “We are still a very Indian firm, So, to become a global firm, we need to go there and really imbibe their way of doing things” he said, For that itis important that the brand be close to the leading market of the world. The UX is the birthplace of the brand and Lal thinks itis extremely important for him to establish Royal Enfield there, He is moving his base to London, where he has set up 1 small technical centre, with 30 people. The count is likely to go up by another 60 people. hp dhww lvemint com/Companiasb6TEEyIGCIYRoFHYItS9VORayal-Erfild--Ravirg-up-or-2-glabal-rde hmsamn0%6 Royal Enel takes the mide path in global cde Uvomine *So, the UK is @ nerve centre for us’ Lal said, Apart from the UK, other potential markets are the rest of Europe and the US, where last year it launched the Continental GT. Royal Enfield is planning to push inte Latin America and South-East Asian markets to boost profits Lal told Reuters in May, ‘The firm exports its middleweight motorcycles to these regions, but it plans to boost local sales networks and could even consider setting up production units, Lal was quoted es saying. n paper, Royal Enfield has a potentially lucrative global opportunity to tap, said Deepesh Rathore, co-founder and director, Emerging Markets Automotive Advisors (EMAA). The affordable classic mid-size bike market is under-penetrated. But then, Royal Enfield also hs quality issues it needs to fix to make a mark overseas, he said. “Even though build quality hes improved, itis nowhere near the Japanese defined benchmarks Rathore said, And then, st operates in the classic bike market segment, a segment that's the mast forgiving on quality issues. For Lal, quality could prove to be a humbling experience in the big overseas venture. Brand building “Essentially, the idea is that we want to create a real honest, simple, evocative, classic motorcycle brand which is very experiential’ Lal said. ‘To do that, he has the option of replicating Royal Enfleld’s Indian brand-bullding strategy. Royal Enfield has shied away from mass media advertising, concentrating more on building ts brand around its perceived cult status. Advertising agencies, says Lal, do not understand the essence of the brand. In India, the firm promotes leisure motorcycling as a lifestyle. It organizes annual events and rides suci as the Himalayan (Odyssey, The Tour of Rann of Kutch, The Tour of NH17 (Mumbai to Goa), the Tour of Rajasthan and the Southern Odyssey. t's not only the clattering thump of the engine that draws attention. The leather jackets, faded jeans and boots, and leisurely BE ont Sead cate re ( we cee Zoo ne Sooo ne Deter amt BRNO eee permit 820k Now Hetail wil be its second nucleus. Rather than 20 stores, l will rather have two of these st interest in our bikes through our stores’ he said, stores in the top cities of that country, We want to generate Rathore of EMAA has a different take about generating interest through branded stores Parts, accessories and merchandise (PAM) sales are a serious revenue source for heritage brands, Rathore said, For some like Ferrari they are the core. For others like Harley-Davidson, they account for neatly 17% of revenue. Royal Enfield is yet to seriously explore this market. ‘The problem with PAM is it's an ecosystem that needs to be developed from scratch. Part of itis to identify and nurture vendors who wall provide top-notch quality and designs that extend the brand's attributes. "Royal Enfield has taken the frst baby steps in this direction’ Rathore added. Lal is not dreaming bis, “Small is good for us. We want to be small and focused. Our end gamne is 6 years from now and it isnot three years from now! rit Ra TOPICS: ENFIELD SIDDHARTHLAL EICHERMOTORS GLOBALBRAND CLASSIC READ MORE hp dhww lvemint com/Companiasb6TEEyIGCIYRoFHYItS9VORayal-Erfild--Ravirg-up-or-2-glabal-rde hmvamos Royal Enel takes the mide path in global cde Uvomine ise action to soak up liquicity LBT Q2 result tops estimates, prepares for the next growth wave EDITOR'S PICKS. 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