Honda sets up group to drive rural sales
The group is expected to come up with a rural strategy, including communication and distribution
Mumbai: In early April, the residents of Jaunpur, a village 150 km from Varanasi, the city where the Bharatiya Janata Party’s prime ministerial candidate Narendra Modi is contesting from in the general election, were surprised to see a Japanese visitor.
To them, he may have been a curiosity, but to Takanobu Ito, the president and chief executive of Honda Motor Co. Ltd, the village and its residents were a glimpse of how India is evolving and changing.
Ito also visited Agra, but his visit to the badlands of Uttar Pradesh is far more significant—it marks an inflexion point in the strategy of Honda Motorcycle and Scooter India (HMSI) Pvt. Ltd, the Indian subsidiary of the Japanese company that has, until now, been content to focus on cities.
Honda has created a group focused on rural markets, the stronghold of Hero MotoCorp Ltd, the Japanese firm’s erstwhile Indian partner. The two went their separate ways in 2010, although HMSI was created years before that, in 1999.
Honda already gets 30-32% of its sales from rural markets and wants to increase this to 40-42%. The group, 15 strong, is expected to come up with a rural strategy, including communication and distribution.
As part of this focus on rural markets, seven out of every 10 of the 1,000 dealer outlets HMSI plans to open by March 2015 will be in smaller towns and villages, according to a top executive of the firm who spoke on the sidelines of the launch of the Activa 125 scooter on Monday.
“We need to expand our network further," said Keita Muramatsu, president and chief executive, HMSI, adding that a bigger challenge compared to new product launch, lies in network expansion.
Rural markets hold the key to HMSI’s success as the company takes on its former partner in the highly competitive market for two-wheelers, around a million of which are sold every month. Hero’s dominance over rural markets gives the company an edge in this fight.
In 2013-14, HMSI sold 3.7 million two-wheelers and hopes to sell 4.5 million in 2014-15. It had 2,800 dealer outlets as of 31 March.
Hero has 5,000 and the challenge ahead is not lost on HMSI executives.
“When we started, we thought 500 outlets would suffice to the get the results," said Y.S. Guleria, vice-president, sales and marketing at HMSI.
Guleria said the company also identified an absence of a dedicated finance arm as another challenge in rural markets. Both Hero and Bajaj Auto Ltd have dedicated arms. HMSI has sought to address this through partnerships with banks and finance companies.
But the network holds the key, an analyst said.
“The volume target set by the company is reasonable if it manages to expand network by one-third," said Joseph George, an analyst at IIFL Ltd.
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