SNAP #5 Royal Enfield : Rise from the ashes

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Though there are hundreds of successful products that we use in day to day life, very few of them go on to achieve a cult status and die-hard fan following. Royal Enfield, the most loved bike company in India has managed to achieve that status in the past 2 decades.

This iconic brand has close to 95% market share in the Indian mid-size bike segment (250cc to 750 cc) and sells close to 8 lac bikes every year. Not only in India, Royal Enfield also has the highest market share in the UK mid-size bike market as well.

In the stock market as well, Royal Enfield's parent company, Eicher Motors has been among the top performing stocks in the past 2 decades rising from 19 INR in 2001 to 28400 INR in 2017. That's a staggering 57% CAGR growth in the stock price for 16 years.

But things were not always so great. Back in 2000, the brand was close to be discontinued because of its dismal business performance. So, how did Royal Enfield's fortune change in such small time ? That's what we would try to understand in today's snap.

But before we get into that, let's first quickly understand the different segments in the bike market.

The Motorcycle Industry in India

Like other sectors, the motorcycle market can also be divided into mass segment, mid segment and premium segment. And, goes without saying that in a country like India, the mass segment is the largest followed by mid and premium segments.

In India, the mass segment of the motorcycles consists of commuter bikes in the range of 100 to 200 cc. These bikes are generally cheaper in the range of (50,000 INR to 1,00,000 INR). Some of the popular bikes in this segment are Hero Splendor, TVS sport and Bajaj Pulsar. In the period 2012 to 2018, this segment has been shrinking at an annualized rate of 2%.

Coming to the mid size segment where Royal Enfield competes, consists of bikes in the range of 250 to 750 cc, which are more aspirational and stylish than the functional mass products. Some of the popular bikes in this segment are models from Royal Enfield, KTM Duke, Yamaha, Bajaj Dominar and some models from Harley Davidson as well. The price of these bikes range anywhere between 1.25 lacs INR to 5 lacs INR. In the period 2012 to 2018, this segment has been growing at an annualized rate of 3%.

Finally, the smallest premium segment which consists of the costliest bikes mostly above 5 lacs INR. Greater than 750 cc, some of these high performance and luxury bikes are Triumph Street Twin, Kawasaki Z900 and some models from Harley Davidson. In the period 2012 to 2018, this segment has been shrinking at an annualized rate of 2%.

In all these segments, Royal Enfield chose to play only in the mid size segment which is growing at a decent pace. Also, it allows Royal Enfield to straddle the position of being functional for commuting and being stylish and aspirational. Ok, so let's go back to the history of Royal Enfield.

The Beginning - World War connection

Though Royal Enfield is presently owned by Eicher Motors, an Indian company, its story began in 1891 in the UK. Two entrepreneurs, Bob Smith and Albert Eadie bought out George Townsend & Co, a needle manufacturer from past 50 years which had recently started manufacturing bicycles.

After two years in 1893, the company won a contract to supply parts to Royal Arms Factory of Enfield. To celebrate this order, the company was renamed as Enfield Manufacturing Co and called their first cycle "Enfield". Later in 1894, the bicycles were renamed as Royal Enfields with the associated tagline: "Made like a Gun" used even till date.

In 1901, the first Royal Enfield motorcycle was produced with an engine mounted in front of the steering head. It kept improving the model in next few years. In 1914, the company supplied motorcycles to the armies of Britain, Belgium, France, US and Russia for world war one. Fast forward to 1932, the legendary Bullet motorcycle was launched for the first time with 250, 350 and 500 cc models. In 1939, Royal Enfield supplied large quantities of military motorcycles, bicycles and generators during the second world war.

Entry in India and the downfall

Back in India, KR Sundaram Iyer started Madras Motors in 1949 to import British Motorcycles including Royal Enfields. In 1952, Madras Motors received an order of 500 Enfield bullets from Indian Army for patrolling. The order was supplied in 1953 and received good reviews from the army. To cater to the rising demand, Enfield UK partnered with Madras Motors to form 'Enfield India' and set up their first factory in Tiruvottiyur near Madras in 1956. Parts were received from UK which were then assembled in the new factory.

In 1970, Enfield UK closed its facilities and shifted the entire production to the Indian entity which supplied the bikes to all parts of the globe for cost advantage. In India, their 350cc bullet had become a big hit commonly used by Policemen, Army Men and even Milkmen.

During the 70s and 80s, people had to wait for 6 months to 1 year for getting a scooter or bike after placing the order. There were only a handful of bike companies with restrictions on the number of bikes they could produce. The Indian government had strict regulations in place due to which meant the Japanese firms which were technically more advanced could not enter India. This reduced the incentive for the Indian companies to innovate and they hardly tried making any improvements in their products.

In 1983, Escorts India got licensing rights of a bike from the Japanese company, Yamaha and started selling it under the name of Rajdoot 350. This was primarily aimed as a competition to the Bullet 350, the most selling model of Royal Enfield. Another bike called Yezdi from Javas India was also becoming popular in the same segment. Both these players started eating into the market share of Royal Enfield.

In 1991, when the economy was opened up for foreign investment, many new brands with Japanese technology started production and selling bikes in India. These bikes had much better mileage than Enfield bullets. These new and cost effective alternatives reduced the sales & popularity of Royal Enfield. By 1994, Royal Enfield was running huge losses and was close to bankruptcy. This was when it was bought by Eicher Motors, a tractor and commercial vehicle manufacturer.

Rise from the ashes

After the acquisition by Eicher Motors, things really didn't improve much. The younger generation was more attracted to the new 150 cc bikes from Yamaha, Hero Honda and Bajaj which had better looks compared to the Enfield which was going out of fashion. There was an image problem as well since bullet was looked at as a bike for the older men.

By 2000, sales had hit an all time low (only 2000 bikes sold per year) with only 30% of the production capacity getting utilized. There were regular issues and complaints from customers regarding engine seizures and oil leakages. Eicher Motors board wanted to discontinue Royal Enfield bikes as the losses kept mounting with no signs of improvements. But, Siddharth Lal, son of the CEO Vikram Lal asked the board to give a last chance to Royal Enfield & took control of the ailing unit. Siddharth who was only 26 years old back then was a big fan of the bullet.

The first thing that Siddharth tried to address was the mechanical issues with the bike. The team tried to strike a balance between retaining the rugged old looks and getting rid of the issues. They changed the position of the gears, designed a new engine and added an electric starter. This helped in reducing the complaints from 5% to 0.2% in few years.

The second was the image problem among the youth which considered bullet old fashioned and preferred the Bajaj Pulsars and Hero Karizmas. To attract this large market, the company launched a new bike 'Thunderbird' in 2003. This new bike had a fairly modern look compared to the older bullet models.

The company ran ads with the tagline leave home and tried to position Thunderbird as the exploration bike for the youngsters. Thunderbird took the market by storm and Royal Enfield was selling 32000 bikes annually by 2006. To build further on its new image, the company also started biking events like Himalayan Odyssey which promoted biking culture in India.

With improving demand and a new stylish image, Royal Enfield launched the Classic 350 cc model in 2009. This was big success as well. And Royal Enfield sold 50000 bikes in 2010, 25 times up from 2000. From a point where it was considered old fashioned, Royal Enfield had now become an aspirational brand with a cult like following. Royal Enfield bikes would also feature in many big movies especially when the lead actor played a military officer or a police officer. This subtle product placement also worked in favour of the brand giving it an aspirational image.

The company also revamped the in store experience for customers giving it a modern look. They also started retailing headgears, gloves and other related merchandise in 2009. All these strategies helped Royal Enfield combat the problems at hand and make a comeback.

Return to Glory

Today, Royal Enfield has 95% market share in the Indian mid weight bike segment. From 2010 to 2017, the company sales numbers went up from 50,000 bikes per annum to 6.6 lacs bikes per annum. In the last financial year, it sold close to 8 lac bikes.

It has 5 different products with traditional Bullet and Classic, Thunderbird for travelers, Himalayan for adventurers and the latest stylish Continental GT. By 2020, the company had 425 studio stores and 850 dealership stores throughout the country. In the UK as well, Royal Enfield's Interceptor 650 is the highest selling bike in the mid weight segment. The company already has presence in close to 15 countries and is looking to expand in USA big time. In the next 7 years, the company has plans to launch 28 new models.

Given that the company has established a loyal customer base and an aspirational brand image, it is expected to continue on the growth trajectory in India. In western markets, it plans to beat the foreign companies by offering better value for money to customers.

If you wish to read further about the story of Royal Enfield, you can check out this book "Indian Icon: A Cult called Royal Enfield" by Amrit Raj.

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  1. "Indian Icon: A Cult called Royal Enfield" by Amrit Raj

  2. Eicher Motors Investor Presentation FY 19-20

  3. History of Royal Enfield

  4. Solving the mechanical challenges in Royal Enfield bikes