My maiden write-up is on the Indian motorcycle market and the growth opportunities it offers to Harley Davidson (HOG). For any aspiring motorcycle manufacturer that is looking for an expansion, the Indian market is very important because it's the world's second biggest motorcycle market. Harley Davidson is trying to get some support from the emerging markets (10%) for growth in the face of slowing down US and European markets (80%). However, Harley has failed to gain much since 2009, the year it entered the Indian market. Affordability is the key for success in an emerging market like India where a non-premium bike rules. With the demand for super bikes <650cc beginning to gain some traction, Harley could be one of the beneficiaries in India's competitive super bike market.
India's growing premium segment: The market can be segregated into three segments of entry-level (100cc), executive (100-250cc) and premium (>250cc) segments. The premium segment (~17% of total sales) is at a nascent stage of growth and is further divided into the mid sized (250cc-650cc) and the super bikes (650cc-1800cc) markets. Although from a lower base, this segment has grown by 25% CAGR for the past three years and estimated to grow in double digit in coming years. An increase in disposable income and growing number of High Net worth Individuals (HNI) are the two main factors which will drive this growth . There is also a gradual shift in the affluent customer taste and preference for a stylish look and a powerful engine.
Fewer takers for >800cc bikes: Normally, a price-sensitive Indian customer prefers bikes from the non-premium (~83% of total sales) segment for daily commuting within city limits. Demand for mid sized market is growing in the emerging markets like India. These bikes are reasonably fuel-efficient and not as expensive as super bikes. In 2012, the top five companies sold 248,097 units (220-350cc) as compared to ~16,000 units (>500cc) out of which Harley with 12 models (800-1800cc) managed to sell only ~1,300 units. Further, if we compare this number with ~1.63m units sold under premium segment, then Harley's volume is insignificant with a market share of 0.08%.
Harley's bikes are the most expensive at 0.7-4.5m INR even after assembling them locally. Demand is being driven only from hardcore Harley's fans who are affluent young enthusiasts. These HNIs love biking, like traveling and often go for long drives. The company is doing its best at targeting them. Harley has a dealership target of 17 to 20 by 2015 by expanding in second tier cities like Chandigarh, Cochin, Bhubaneshwar, Imphal etc. besides having a presence in large cities like Mumbai, Delhi, Kolkata, Hyderabad and Bangalore where ~70% of HNIs reside.
India's strategy has failed: There was a widespread rumor sometime back that Harley is going to launch a sub 800cc super bike in 2014 with competitive pricing customized to Indian market. This would be a right move by the company if it has a big plan to grow in India. However, it would not be easy to compete with other well established international brands considering stiffer competition by 2014.
However, Harley has ruled out any possibility of building a sub 800cc bike smaller than its entry-level Sportster 883. MD of the Indian subsidiary has said that its approach would be the same in every market. The reason could be because Harley doesn't want to dilute its global brand image.
I believe Harley need to change its India's strategy to cater to a larger customer base, offering what customers want instead of something for what Harley is globally known. Harley needs to understand that emerging markets are quite different from US and European markets where a bike is purchased for commuting and not as a lifestyle product.
Stiffer competition soon: Harley's bikes are expensive as compared to its immediate competitor Suzuki whose bikes are priced at 0.97-1.55m INR. Harley's 800cc is the only bike that is competitively priced at 0.7m INR lesser than that of Suzuki's IntruderM800 by ~0.2m INR. Suzuki is the market leader who first entered the super bike market in 2007and now commands 40% market share. Honda also has a strong presence, offering 1000cc-1300cc bikes at 1.2-1.77m INR. Italian company Ducati is increasing its footprint and sold ~450 units in 2012 through its Devil and 848 Evo and announced the launch of Monster 696 and Panigale 1199R. UK-based Triumph is also planning to enter India. Although Harley is assembling 9 out of 12 bikes locally with price reductions by 0.5m INR on an average, prices still rule higher than the competition.
Heavily depend on affluent youth: Super bikes are popular among the youth with age group of 18-35 years, who are students and single working professionals. This is unlike a consumer based economy like the US where Harley is a market leader in the middle-aged customer group with >35 years of age. This restricts Harley to a limited customer base of youth with high disposable income.
In India student's life ends at the age of 23 years on an average and these students depend financially on their parents. Only those having affluent parents would be able to buy super bikes. While single working professionals having a strong financial background with high disposable income, get financial help from auto financiers. Of late leading finance companies have started actively looking at this lucrative and less risky business opportunity. Auto financiers like HDFC bank, L&T Finance, IndusInd bank, etc. has started offering loans at attractive terms to these niche customers.
Maintenance and servicing not very convenient: Harley provides assistance free of cost for motorcycles that are within 150kms from the nearest Harley-Davidson dealerships. Beyond 150kms, the owner will be charged Rs 40/km for towing and Rs 25/km as petrol charges. In case of accidental breakdown or puncture, the company will tow the motorcycle to the nearest dealer. Although this is a good initiative, customers have to wait for the service to reach them, plus they have to shell out extra money on towing. This also discourages the riders from using the bikes for travel.
On the other hand, maintenance and servicing a sub 800cc premium bike is convenient in case of breakdown on the way as there are many road-side auto mechanics who are expert in repairing the bike quickly. Spare parts are also easily available to them due to more demand.
Conclusion: If Harley does not change the policy of not offering customized bike to the Indian market, I do not see it expanding its market share in an important market like India. However as a player in high margin niche super bike market Harley would do well to expand its presence in India for its worldwide sales growth.