Apollo's Play in Europe
Image: Amit Verma
ack in 1994, Neeraj Kanwar honed his skills in the family’s tyre business on the streets of Piragarhi, on the outskirts of Delhi. Apollo Tyres, which till then mostly sold tyres for trucks and buses, had ventured into serving the two-wheeler segment. Apollo had just introduced a new brand called Black Cat for Bajaj Motors’ ubiquitous scooters. The younger son of Chairman Onkar Kanwar was asked to make the brand known to its customers. Neeraj was up to the task. Every time the traffic signal at Piragarhi turned red, Neeraj would run and change covers of the scooters’ spare tyre. The new cover would have the Black Cat visual on it, of a scooter driver about to skid but saved by two “black cat commandos.”
The initiative did not take off. Old timers believe that the brand could not survive by itself due to “the lack of focus on the mother brand.” The Gurgaon-based company never ventured into the two-wheelers segment again. But it has emerged as the second largest tyre manufacturer in India.
Now, after 16 years, Onkar and Neeraj are taking another risk. The market is new, the customers, unlike in India, are more conscious of the quality than price and the product has to be technology driven. For the father-son duo of India’s first tyre family, this initiative is critical in making their company “truly” global.
Apollo Tyres wants to sell passenger car tyres in Europe, a 250-million-unit -a-year market. It is one of the world’s largest and perhaps the most sophisticated tyre market.
Since September 2010, tyres with Apollo’s stamp have started selling in Germany, the UK, Italy and the Netherlands. “We are already selling around 30,000 units a month now. But we need to breach the 100,000 mark to start getting noticed,” says Neeraj.
Apollo has already spent four years on international roads. In 2006, it bought Dunlop’s operations in Africa and Netherlands-based Vredestein three years later. Apollo’s revenues zoomed from less than $500 million in 2005 to $1.7 billion in 2009. But till now Apollo has depended on these brands to sell locally. Now the Kanwars want the overseas customers to see their homegrown brand Apollo, test it, like it and buy it. And that will be a long, rough ride.
The European market is dominated by the big four tyre players — Bridgestone, Michelin, Goodyear and Continental. And if these giants are not enough, European customers also have their minds clogged by another 300 odd brands. “A customer in the United Kingdom might instantly recall two brands and if pushed, maybe 10. Making a presence in such a market is tough,” says Anthony Christopher, editor of Essex-based industry magazine Tyres & Accessories. Worse, this might not be an ideal time to enter the European tyre market, which is growing at less than two percent annually.
But Neeraj and his father “strongly believe” that selling Apollo overseas is the only way the tyre company can achieve its next five-year target: Revenues of $5 billion and rank among the top 10 tyre makers in the world. The latest rankings released by European Rubber Journal in December have Apollo on the 17th position for the year 2009. But can’t they do the same by selling more tyres in the booming Indian market, especially when Apollo tyres are priced at least three percent more than the nearest rivals? “In India, we face a massive shortage of natural rubber, the basic raw material for making tyres in India. The gap is as big as 2 lakh tonnes. This makes rubber very expensive and impacts the overall margins, which are less in India compared to Europe,” says the senior Kanwar. And success in Europe, adds son Neeraj, will pave the way to enter other markets like Australia, South-East Asia and South America. “A brand successful in Europe can easily enter other markets,” he reasons. Within five years, the Kanwars want to source 70 percent of Apollo’s revenues from overseas operations, from the present 39 percent.
“And we want to do it while remaining the market leaders in India,” adds Onkar. Apollo will commission the second phase of its new plant in Chennai in the first half of 2011, helping it increase volumes. “The new plant will make sure that we retain our market position in India,” he adds.
While Onkar and Neeraj are unified in this globalisation drive, its success or failure will mean differently for them. Onkar Kanwar is a seasoned veteran of many a fight, both personal and professional. First he had a long drawn and “painful” spat with his father over the latter’s diversification plan for Apollo and finally over the ownership of the tyre maker. Onkar prevailed, as he did in the market, even though Apollo was among the younger players. Today, even though he has officially taken a back seat, Onkar is keen to make this globalisation drive successful. It is part of his desire to make Apollo “an institution.” It is the kind of legacy he wants to leave behind.
For Neeraj, the initiative is to make himself count more within the company and outside. Even though it’s been two years since he took over as the managing director, Apollo is still identified with the older Kanwar. Success in Europe will earn Neeraj both recognition and respect.
Dunlop had been bought in 2006 but the African market of 35 million units was small and to make a global impact a bigger step was needed. Early in 2008, the company sent out a team to Europe to study the market potential. “Our studies showed us that Europeans prefer European brands, they like to pay a premium but they prefer a Made-in-Europe tag,” says a former senior Apollo Tyres official who was part of that effort. The Vredestein deal came through in the middle of the economic meltdown, which made the acquisition cheaper.
Rob Oudshoorn, Vredestein veteran and now head of Apollo’s European business is “happy with the journey so far.” The difference between Apollo and the previous management (Russia’s Amtel), says Oudshoorn, is like “between heaven and hell! Apollo has not interfered with what was good but has helped increase capacity by 20 percent.”
For Apollo, Vredestein serves a dual purpose: It has the technology to make quality tyres for European customers and the distribution channel in 17 countries in Europe. “Through Vredestein, we have already created a highway. We now only have to throw up products,” says Neeraj.
That, however, is a tough task. Neeraj has given his team five years to break into the high margin market. But industry veterans warn more time might be needed. Neeraj has placed Apollo’s product in the bottom of the second tier where it will fight with the likes of South Korea’s Hankook and sister brands of biggies like Bridgestone and Goodyear. For starters, Apollo’s price tag is five percent lower than its nearest rival’s. Riding on Vredestein, Apollo has put in place more than 150 selling points each in Germany, the UK, Italy and the Netherlands. But the key, along with distribution, says Christopher, will be the product quality. In a market where an Indian brand is equated with the Chinese, Apollo may be hard-pressed to convince that its tyres are as good as that of European makers.
“Vredestein’s winter tyres are among the top ones and command a premium in the market. Apollo Tyres will make use of the technology available with Vredestein,” says Oudshoorn. Christopher agrees, but warns that the company will have to be careful about not diluting Vredestein’s brand while selling Apollo.
Crucial to preventing this will be breaking through in the OE, or the original equipment segment. Apollo, like the rest of the players, is at present targeting the replacement segment, which makes up for almost 80 percent of the market in Europe. “But if Apollo wants to be relevant to its customers and create a brand presence it will have to get contracts from the likes of General Motors, BMW, Mercedes and Volkswagen. Once you get the contract, you can develop products along with the client and that is very important,” says Christopher. To make sure that its production is close to its partners, Neeraj is looking for a manufacturing facility in eastern Europe.
Apollo is in talks with the likes of BMW, Hyundai and Mercedes for European contracts. Its recent breakthrough with Volkswagen for supplying tyres for its Polo cars in India is seen as a precursor for similar arrangements in Europe. And most of the other contracts might follow the same route — first in India and then in Europe. Thus, the Indian market is all the more crucial for Apollo as breakthrough here will have an after effect overseas.