BackRoyal Enfield sells, then struggles
While sales are rising, capacity and quality issues, all too familiar to Bullet riders over the past decades, continue.
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Chennai: Royal Enfield—the maker of the iconic Bullet motorcycle—found a winner with the 2010 launch of its Classic series wedded to a quieter and more fuel-efficient engine than its regular models. But while Royal Enfield sales are speeding up nicely, the company continues to suffer from capacity and quality issues, all too familiar to Bullet riders over the past decades.
It’s a peculiar situation to be in—prospective customers of Royal Enfield’s bikes are chafing at 5-14 month waiting periods while buyers are unhappy, complaining about sloppy service. Capacity constraints, which forced the company to delay a project launch, are expected to be resolved with a new factory, while an expanding dealer network equipped with repair docks could make Enfield owners happier.
Hormazd Sorabjee, editor of Autocar India, summarises Royal Enfield’s problem.
“At its price point, there is no real competition," he said. “The technical problems arise because they don’t have the scale to invest in high-end tooling. In manual assembly, there can be inconsistencies in quality."
The company has sought to make the hand-made quality a virtue though, and with success.
It’s the afternoon shift at Royal Enfield’s unkempt 12-acre factory in a northern Chennai suburb and M. Anand, 36, gracefully twirls a shiny, black, motorbike tank shell on a bench while eyeballing the pincer grasp of a brush drenched in gold paint in his right hand to precisely follow a large tear-drop shaped stencil mark around the mouth of the petrol tank.
The company—bought by truck maker Eicher Motors Ltd nearly two decades ago—pitches the handiwork of people like Anand to stress the brand’s exclusivity. Two years ago, this unique selling proposition was coupled with design tweaks and a revamp of the bike’s engine, renowned among enthusiasts for the reverberating, deep thud that it emits.
Those tweaks, which included moving the gear-shift to the left as in regular bikes and a push-button start, won over leisure biking enthusiasts. Sales surged 54% to ₹ 666.5 crore in 2011, according to data provided by brokerage Ambit Capital Pvt. Ltd.
“We are doing a zig while the rest of the economy is doing a zag," said Venki Padmanabhan, chief executive officer of Royal Enfield that focuses on the premium, or above 250cc engine category that’s growing at 73.5%, albeit over a smaller base than others, according to the Society of Indian Automobile Manufacturers (Siam).
Most economy segment bikes, or those below 125cc, are averaging sales growth of just about 10% amid high petrol prices and faltering rural demand.
But the Chennai-based company’s CEO—an American citizen since 1993 with experience largely in the automobile sector through a long stint with General Motors Co.—is keenly aware that Royal Enfield’s thump could lose a beat.
“The potential to screw up exists when you are having such a good run," said Padmanabhan.
Production hurdles
Of the 13 million two-wheelers sold last year in India, according to Siam, 70% were entry-level commuter bikes priced below ₹ 50,000. Niche super-premium bikes from Triumph Motorcycles Ltd and Harley-Davidson Motor Co. have prices upward of ₹ 6 lakh.
Royal Enfield falls between these two segments with prices of ₹ 70,000 to ₹ 1.75 lakh, appealing to budget-conscious leisure bikers.
Inside Royal Enfield’s 57-year-old Tiruvottiyur factory, located 16km from Chennai along a moonscape road, its 12-month-old 10,000-sq.ft paint shop is bursting through the seams. In a glass-enclosed compartment, a worker in a pink T-shirt and blue track pants is busy spraying white paint on metallic headlight frames trapezing across on wires.
The company had initially outsourced this work but brought it back in-house following cost pressures. However, as its new paint shop also failed to cope with rising demand—sales soared 42% to 74,626 units in 2011—the company was once again forced to ship parts to Kinetic Motor Co. Ltd’s paint facilities in Ahmednagar in Maharashtra.
Such ad hoc measures are bound to impede product quality as Royal Enfield churns out 9,000 bikes a month compared with half that number in 2009, analysts said.
Even then, waiting lists stretch longer than a year for some models.
The second-quarter launch of the Thunderbird 500 motorcycle has been delayed as Royal Enfield executives worry whether the factory, rapidly touching 10,000 bikes a month, can cope with another barrage of orders. “We are in a rapid pace of improvement to deal with capacity and improve service," said Padmanabhan.
“We are trying to fix it but it is never fast enough. It is as frustrating to me as it is to customers."
Buyers’ woes
Vinod Selvarajan, who runs an information technology business and is a nature enthusiast, didn’t mind paying ₹ 1.48 lakh for the Royal Enfield Classic 500 as it offers a great suspension ideal for long drives. But after 14 months of waiting, when the bike finally arrived, the 42 year old was distressed to find scratches and even patches of rust on the vehicle. Other niggling issues emerged.
“I had to change my key set three times (free of cost) because the bike would inexplicably stop," Chennai-based Selvarajan said. “On the whole, the bike has its inherent advantages, the hum of the bike cannot be replicated in any other bike. But if you ask me, ‘Is Enfield is doing a great job in building a great bike?’ I would say, ‘No way!’"
Royal Enfield sales are expected to touch the 100,000-mark this year and double that figure by 2014, according to Padmanabhan. This means that even the new facility at Oragadam, poised to produce 150,000 bikes a year, may need rapid expansion to prevent long waiting periods. The new plant is 30km from the existing factory and nearly 50% automated compared with the 30% at the existing facility.
A salesperson at a Chennai Royal Enfield company showroom—one of the 11 company-owned outlets in the country—admitted that 10-15% of prospective buyers dropped purchase plans because of the long gap between order and delivery.
While the increased automation and expanded capacity could trim waiting periods, Royal Enfield is fervently hoping a 30% jump in service-bay-equipped franchisee stores to 230 resolves vehicle repair issues.
That may be putting the cart before the horse. If Enfield vehicles didn’t have quality issues when they left the factory, frustration levels would be lower all round.
The last thing a weekend bike enthusiast wants is a machine that refuses to run properly. A sentiment understood by M.P. Vikram of the Harley Davidson dealership in Chennai.
“People buy our bikes for pleasure," said Vikram. “They usually take the bike out on a weekend and if it doesn’t start or breaks down on those days, it will be a huge problem for the brand."
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