Last week a colleague of mine bought a 'Bullet', the legendary bike brand from Royal Enfield. There was one problem though: The bike will not come before 10 months. He has to wait 10 months for his all time favorite motorcycle. That led me to research about the brand and here is what I have discovered.
Royal Enfield is the oldest surviving brand of motorcycles in the world. The brand which is more than 100 years old has been in India since 1949. The manufacturer Enfield India was bought over by Eicher Motors Limited in 1994. The brand is now owned by Eicher Motors. Thus, it is now an Indian brand.
Bullet: A Cult Brand
The company makes five models; Classic 350, Classic 500, Thunderbird, Bullet Machismo and Bullet Electra. Though there are three sub-brands - Classic, Bullet and Thunderbird it is Bullet which stands out. Classic was launched in late 2009 and Thunderbird in 2000. Bullet is the original. We know all the motorcycles and the company by the name 'Bullet'.
There is a sense of aura around the brand. It is very heavy, tough to drive and thus remains elusive to the very few 'men' which can wield it. Very few people drive Bullet but many many more aspire for it. The brand offers a riding experience which no other bike can. The thumping sound, the road presence, the sheer 'ego' boost which the brand gives its rider makes him feel 'arrived'.
Poor Sales to Peak Demand The brand has been strong from the last 50 years but its sales have not been as good. According to newspaper reports, here is what we see: The company sold around 30,000 bikes in 2004. By 2007 the number moved upto 33,000 only. If we look at bottom line the company made losses in year 2000 when the sales were 25000. In 2004-05 its turnover was 162 crores and operation profits were 0.66 crores.
The company went into a restructuring, launched new models and all this has indeed worked. In 2010 the sales were at 52,000 (all time highest) and this year the first six months sales is already at 42,000 (April-Oct '11). They are very likely to meet the annual target of 70,000 bikes.
The story of Royal Enfield is very intriguing. A cult brand from the 1950s. Everyone looks upto it but no one buys it. The company is in the red. It is bought over. It turns profitable.
One lesson we learn is, a cult brand need not be a profitable brand always. There is much more to business than brand. The distribution channels, the cost of operations and the marketing strategy all need to be in place.
It looks to be somewhat in place now. Let us see what changed in the last 5 to 10 years.
1. Launch of new models: Classic was launched in late 2009 and it has turned out to be a game changer. It now contributes to 40% of sales of Royal Enfield. Why forget Thunderbird which was launched in 2000. To keep the excitement going the company has launched two limited edition bikes this year; Desert Storm and Classic Chrome. Both are 500cc bikes and are priced upwards of Rs. 1,50,000.
2. Brand promotions: A cult brand cannot be promoted liked normal brands. One cannot have TV ads running on cricket or hoardings all over. Marketers at Royal Enfield understand that. Their strategy of organising bike trips seems to be working. It takes time but it does work.
Rider Mania, an annual even hosted by the company, was started in 2003 and is now extremely popular. It gives new and old bikers to meet, share their experiences and show-off their 'custom tweaked' bikes. It is a celebration of being a Bullet owner and biker. The company organises many more biking events at national and regional levels.
The brand has run few TV and print campaigns in the past. This powerful line from their old campaign summarises what the brand stands for: "Everyone makes way for the bullet." Their recent print campaign 'trip' focussed on real life stories of Bullet riders. You can watch more of their old campaigns here and here.
Watch their latest TV commercial here:
The Motorcycle Industry
Royal Enfield is positioned in the 'lifestyle' category of the motorcycles market. In 2010, 113 lakh motorcycles were sold in India of which the company sold only 52,000. This however is not an issue. The brand is a niche brand which cannot target the mass market. It needs to ensure the sales grow gradually and the margins keep increasing.
If we go by newspaper reports, there is an increasing demand of high end bikes in India. Kawasaki Ninja, Ducati, Honda all are seeing a spike in sales. Even the legendary brand Harley Davidson in now in India. All these brands are in the 500cc plus segment. The competition however is the last problem for the brand. The only competition to Royal Enfield is Royal Enfield itself. The competitors cannot cause much problem because they are far too costly. While Ninja comes at Rs. 4 to 5 lakhs, Harley is at 7. Compared to this, the price range at Enfield is Rs. 95,000 to Rs. 1,70,000 only.
While competition is not a problem as of now, the problems are internal to the organisation.
1. Capacity: The capacity expansion at the plant has been too slow. May be the company did not expect this kind of demand. As per news reports, in 2005 when the company was selling 30,000 bikes a year they had forecasted a sales of 60,000 by 2010. Their prediction was spot on but they did not ready themselves for it. I guess they forgot their own prediction. Look at the waiting period of the bikes. In 2009 it had waiting period of only 1 month and now it is anywhere between 8 to 12 months. This situation cannot go on for long. The company seems to have woken up now. They are planning to increase their capacity from 70,000 units now to 1,50,000 in one year and 2,50,000 by 2013-14.
2. Distribution: This is a bit surprising. The company has two models; Exclusive Brand Stores and Dealerships. In the year 2000 where they had 227 dealers, they have only 187 now. There are also 11 brand stores. Distribution is not as extensive as it can be. Since it is a cult brand and it is all about experience, there needs to be more 'brand stores' across India. As per reports, the company plans to add 3-4 dealers every month for the next year or so.
Today the company has only one thing to do; ramp up capacity as soon as possible. Once that happens and waiting time shrinks the brand should worry about other things. The brand needs to maintain its image and provide consistent quality as required by the modern riders.
To increase the association of the bikers with the brand, the company has planned an extension. Launch of branded jackets, helmets, boots, etc. This is a good move and will be a hit with brand loyalists.
To conclude, Royal Enfield is a special brand. It is aspired by millions and loved by their owners. It is not owned for mileage, not for its price or for convenience. It is owned for its style and image. The words which describe the brand are: experience, show off, macho, passion, aura, mania, community and culture.
The brand is now on a roll. Katrina Kaif drove it in the movie Zindagi Na Milegi Dobara, Ajay Devgan in Singham, Kangana Raut in Tanu Weds Manu, Jonty Rhodes drives it and so does Gul Panag. If they protect their heritage, maintain their quality and fuel the passion, they will need many more capacity expansions in future.