European tyre e-tail worth 5.47 billion euros by 2021

Monday 21st September 2015 | 0 Comments

 
Online tyre retail is on the up across Europe
Online tyre retail is on the up across Europe

Tyre manufacturers and OEMs working together to exploit online revenue streams

Automotive tyre manufacturers in Europe are focussing on electronic retailing (e-tail) to serve increasing customer preference for convenience and low prices, according to a new report published by Frost & Sullivan. Currently, tyre e-tail accounts for nearly eight per cent of the total tyre aftermarket in Europe. The report concludes that this figure will continue to rise as tyre manufacturers recognise the potential to access global markets through e-tail and invest in online sales and marketing tools to meet their growth objectives. Here Tyres & Accessories engages with the Frost & Sullivan data in order to better understand and begin to apply it to the current market context.

Frost & Sullivan’s “Opportunity Analysis of e-tailing for Automotive Tyres in Europe” finds that the market earned revenues of 2.90 billion euros in 2014 and estimates this will nearly double to 5.47 billion euros in 2021 at a compound annual growth rate (CAGR) of 9.46 per cent. Fleets and fleet leasing companies, which account for almost a quarter of total vehicles in operation in Europe, are expected to be key end users of online tyre retailing.

Currently tyre e-tail accounts for about 8 per cent of total European tyre aftermarket sales. As we have seen, according to Frost & Sullivan’s figures, revenue in the sector is set to double by 2021, but as the overall size of the market is also projected to grow significantly, this does not mean online tyre retail market share is expected to grow by the same amount. Rather, Frost & Sullivan’s data suggests online tyre retail’s share of the overall Europe tyre replacement market will break through double-digit market share during the next seven years, but not by a huge amount. Seeing as a doubling would equate to a 16 per cent share, and our logic has already ruled this as too high, Frost & Sullivan representatives predict it will reach 9.3 by 2021 (see table 1).

While, as we have seen, online tyre retail market share is hovering around the 8 per cent mark when you average out Europe as a whole, there are significant variations across the continent. For example, as well as being the leading European tyre market, German online tyre buying has long been a particular high-point owing to the fact that market leaders such as Delticom are based there and because e-tail runs in parallel with broadband/fibre take-up. And because Germany has always a particularly good telecoms infrastructure, it has always been strong in terms of online retail too. As a result German market sources are very bullish about both the current state of the online sector and its growth potential. Delticom/BRV data published in March suggests Germany online tyre retail broke through the 10 per cent market share barrier in 2013 and is on-track for 20 per cent by 2010 (see table 2 for further details).

Bearing in mind the UK’s less modern telecoms infrastructure – ask anyone in Scotland or the South West – it is no surprise to learn that UK is slightly behind the peak in terms of market share. However, such is the strength of the players already present in the market, leading tyre manufacturer sources have been telling Tyres & Accessories that e-tail market share has been approach double digits for years. And yet few have publically suggested it is over 5 per cent. This year however, at least one leading wholesale source told T&A that they concur with the earlier manufacturer information we received. The result is that we believe UK online tyre retail market share is now in line with the figure Frost & Sullivan quote as the Europe average – roughly 8 per cent. Because it is in line with this European average, it is reasonable to conclude that the UK will also be in line with the European average in 2021 – around 10 per cent and some way off the 20 per cent the most bullish German sources are predicting for their domestic market.

“Stable currencies, safe payment systems and strong legislation supporting cross-border eCommerce are lending impetus to the e-tail trend in Europe,” said Frost & Sullivan Automotive and Transportation Research Analyst Oindrila Bhar. “Strict policies for tyre labelling also instil customers with the confidence to buy online.”

Although Europe is a mature eCommerce market, we have seen that there are varying levels of Internet penetration across the different countries that make up the continent. Together with diverse buyer expectations and different languages, this diversity continues to make Europe a challenge for tyre manufacturers seeking to expand their e-tail operations across countries. Instead, while some firms (such as Delticom) have managed to set up a number of businesses across European borders, there are a number of localised success stories.

Moreover, the intensely competitive landscape pushes traditional suppliers looking to be more active in the e-tail space to offer discounts in order to draw customers, thus affecting profitability. In addition, the exit-seeking dotcom mentality has seen some players continue to run businesses at a loss for a period of years in order to demonstrate a functioning site concept to prospective investors. Whatever the reason for offering low prices, achieving economies of scale will be crucial for e-tailing participants in Europe. Providing new services such as mobile fitting or enhanced delivery and payment options will enable tyre manufacturers to stand out in the e-tail market, according to Frost & Sullivan.

“Tyre e-tailers must forge symbiotic relationships with garages and tyre dealerships to multiply business opportunities,” suggested Bhar. “Building partnerships with original equipment manufacturers that are looking to retain their share of the aftermarket will help tyre e-tailers appeal to a wider customer base.”

Frost & Sullivan’s conclusion is a good one: As original equipment manufacturers, dealers and e-tailers leverage each other’s scale and knowledge, an integrated, omni-channel strategy will become the new industry standard in the automotive tyre aftermarket. Indeed’s Michelin’s decision to purchase Blackcircles and buy a sizeable stake in the French Allopneus site earlier this year would seem to exemplify this thesis.

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