Home / Companies / Honda to sharpen focus on rural India

Mumbai: Honda Motorcycle and Scooter India Pvt. Ltd is sharpening its focus on rural India with plans to sell more of its entry-level motorcycles and increasing its distribution network in the hinterland by the end of fiscal 2014.

The company plans to sell two out of every five of its motorcycle models in rural India, mainly driven by the Dream series in the entry-level segment which “have caught up well in the region", Y.S. Guleria, vice-president, sales and marketing at the firm said in an interview last week.

Honda’s rural focus comes when two-wheeler sales have slowed down, primarily in urban areas where overall consumption is under pressure due to high and sticky inflation, a sluggish economy, lower job creation and lower wage hikes.

Honda had sold 570,000 units of the Dream Yuga (launched in April 2012) and Dream Neo (launched in May 2013) as of 31 October. Before their launch, rural regions contributed 25-28% of Honda’s total sales. The number has now risen to 35%, but Guleria hopes that with the rural push, it will rise to 40% by end of fiscal 2014.

According to Guleria, the entry-level models helped the company address a segment that forms one of the biggest chunks of sales (around 48%) for motorcycle makers across the country.

In a bid to increase overall penetration, Honda plans to add more than 500 sales and service outlets by the end of fiscal 2014 to the 2,000-odd outlets it had at the end of fiscal 2013. Their locations will include smaller towns and cities, Guleria said.

The company, added Guleria, also plans to roll out a last-mile service initiative for both rural and urban customers next month. Honda plans to equip one its scooter models—Activa—with all the tools needed to service a bike or a scooter.

The so-called “Doctor Activa" will be available across all Honda service centres in the country, said Guleria, adding that in rural areas, the move will complement its existing mobile service vans.

Joseph George, analyst at IIFL Ltd, said the success of Honda’s rural strategy would largely be dictated by the pace at which it is able to ramp up the distribution network. “The biggest challenge is distribution," said George, giving the example of how rivals without a comparable sales and service reach have not been able to dislodge Maruti Suzuki India Ltd from its leading position in the car market.

Honda’s move, which has mostly been addressing urban customers, is expected to challenge the dominance of market leader, Hero MotoCorp Ltd that has been turning in brisk sales on the back of strong rural sales—48% of total sales as on 30 September.

However, Honda that started its rural strategy only two years ago after severing ties with Hero in 2010, has a lot of catching up to do with market leader Hero MotoCorp, which has 5,000 sales and service touch points.

Guleria agreed increasing rural sales will not be easy. “The team in Honda is very young with hardly any experience of rural markets," he said.

He has, therefore, been insisting that the sales and marketing teamtravel to remote villages to gain a first-hand experience of the company’s rural strategy based on what Guleria calls the “4Es—experience, extent, engage and expand".

Sales of two-wheelers in India increased a mere 3.5% to 7,016,971 units from April to September, according to lobby body Society of Indian Automobile Manufacturers or Siam.

“We expect most of the incremental growth to come from demand in the rural sector where we estimate penetration at 35% of addressable households," wrote analysts Aditya Jhawar, Nitesh Sharma and Nick Paulson of Espirito Santo Securities (ESS) India Pvt. Ltd in a 25 September research report.

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