Royal Enfield, the maker of India’s cult cruiser motorcycles, may have gotten its first serious challenger.
Earlier this month, Honda Motorcycle and Scooter India Ltd. launched its H’ness CB 350 (pronounced highness)—a 350cc-engine model for a market dominated by the Classic 350 and the Thunderbird 350 from Royal Enfield.
Honda joins Jawa Motorcycle Co. and Italian two-wheeler maker Benelli that target the same category. U.K.’s Triumph Motorcycles Ltd. and Volkswagen AG’s Ducati also sell premium, but much costlier, vehicles in India. Something American iconic brand Harley-Davidson Inc. tried—and failed. But the competition has so far paled in comparison with Royal Enfield’s success.
India is the world’s biggest market for two-wheelers with more than 1.7 crore motorcycles and scooters sold in 2019-20 fiscal. About 95% of these were mass-market vehicles, a category dominated by Hero MotoCorp Ltd., Honda’s erstwhile Indian partner. Royal Enfield corners the rest—a small, premium market with a 96% share in the 250cc and above segment, according to ICRA Ltd., selling 6.9 lakh units in FY20. But it’s not just another motorcycle.
Honda’s Challenge
Royal Enfield, the oldest running motorcycle brand in the world, started as a British factory making bicycles and small arms parts in the late nineteenth century. The first motorbike came out in 1901. But the World War-era ‘Bullet’ gave it iconic status.
Eicher Motors Ltd. acquired it in the early 1990s. And Siddhartha Lal, chief executive officer, is credited with reviving the brand that churns out models with engine capacity of 350 cc or more, maintaining the vintage styling, and the rumbling exhaust growl. Indians loved that.
Groups of enthusiasts drive the cruisers with the famous cannon crest up the roads of Ladakh, cattle owners ferry cans full of milk on the ‘Bullets’ early in the morning, and millennials are seen riding them to office in Indian cities. For those who don’t own one, there are dedicated Royal Enfield leasing services, offering vehicles for a day to a month. The company hosts expeditions within and outside India, and offers merchandise to enhance the appeal. And Royal Enfield has its own fan clubs.
Or simply, it's to India what Harley is to America.
“People choose Royal Enfield for its brand, it’s an emotional and a romantic buy,” Hormazd Sorabjee, editor of Autocar India magazine, told BloombergQuint over the phone. “They aren’t only buying the bike but are buying into its culture. People want to be a part of the RE community.”
That's what Honda has to overcome. And it's not the only one challenge.
A Stagnating Market
Royal Enfield began facing competition in the past year.
Anand Mahindra, chairman of the Mahindra Group, infused money to revive the Jawa brand and launched three motorcycles with similar retro looks. Hero MotoCorp is developing a range of mid-sized models to expand its premium portfolio. Benelli has its Imperiale 400 at a competitive price of Rs 1.99 lakh—close to what Royal Enfield's 350 cc motorcycles sell for.
“Till now, there was no serious competition, apart from Jawa,” Jay Kale, vice president and equity analyst (auto and auto ancillaries) at Elara Capital, told BloombergQuint over the phone. “From zero to two-three, there has been a change in the number of players eyeing Royal Enfield’s market share.”
The interest is not unwarranted. According to ICRA, India’s premium motorcycle market has grown at an annualised rate of 30% in the decade through March 2020 to 0.68 million units. Royal Enfield’s share in the overall market rose sixfold to 6%.
Still, demand is beginning to stagnate from new buyers of premium models. Replacement or upgrade contributed nearly 85% of the sales, according to Shamsher Dewan, vice president and sector head at ICRA. “A larger concern of the segment is when will it grow.”
Cost of vehicle ownership has jumped by a third after new insurance, safety and emission norms came into effect, according to ICRA, slowing sales even before the pandemic. Covid-19 depressed consumption further, with millions losing jobs or witnessing salary cuts.
Royal Enfield's market share has stagnated to around 5-6% of the overall motorcycle market in the last four years, according to an Elara Capital report. Prior to Covid-19, according to industry lobby SIAM's data, it was selling around 60,000 vehicles a month. Capacity and production issues delayed the launch of its Meteor, a 350-cc feature-rich model touted as the challenger to Honda’s H’ness.
Eicher Motors and Honda Motorcycle and Scooter India didn’t respond to Bloomberg Quint’s emailed queries.
Honda Has Done It Once
Honda, the maker of Activa scooter and Unicorn motorcycle, took two years to build H’ness from the ground-up for the Indian market. The company revived its 1970s classic CB 350. And borrowed retro cruiser looks from Royal Enfield for exhaust pipes, rearview mirrors, engine block and neo-classic headlamps.
H'ness is also loaded with features. It offers a voice-control system, full LED lamps and a traction control system.
“Honda can more than match Royal Enfield in terms of engineering and capability,” Sorabjee said. “They can easily do a very capable ‘me too.'”
And Honda has the experience of building a successful product for the price-conscious Indian market—the Activa. Launched in 2001, it’s the largest selling scooter in India that drew buyers away from motorcycles.
Yet, pricing will be a crucial differentiator. The Classic 350 is the most competitively priced vehicle in the category at Rs 1.6-1.7 lakh (ex-showroom). H’ness costs Rs 1.85 lakh (ex-showroom). The Meteor, the model with comparable features that Royal Enfield has announced, is expected to sell for Rs 1.70 lakh.
“If you don’t launch at an attractive price compared to Royal Enfield, then there will be issues as it is already a high price point category,” Kale said. Without that, he said, it’s difficult to survive as “you are competing with an established cult brand”.
But Sorabjee said the iconic status shouldn’t lull Royal Enfield into being complacent. “It should be watchful and raise its game. It can’t ride on its legacy.”
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