On the up? Pricing trends in the UK car tyre aftermarket
With raw material prices reaching the sky-rocket part of their lifecycle, as well as realisation by some Chinese tyremakers that unrealistically low prices can’t go on forever, all in the presence of the now ubiquitous post-Brexit vote uncertainty, many industry observers have suggested that tyre prices – including those for passenger car applications – are likely to rise during 2017. Tyres & Accessories spoke with Encircle Marketing’s resident industry analysts David Myers and Jason Cunningham in order to find out more.
Of course no-one knows precisely what the future holds, but looking back at the key trends that took place in 2016, we can immediately see that there is some truth in the suggestion that car tyre prices have been rising. While 2016 price activity appeared relatively quiet during the first three quarters of last year, in the last three months this changed. What’s interesting to note is that this change doesn’t appear to have been across the board, but rather at the top of the market. 17-inch products began to pick up speed in the last quarter of 2016, along with 18-inch tyres. However the biggest change was in 19-inch tyres, which went up roughly between 10 and 15 per cent during the final quarter of 2016 – up from an average of around £120 per tyre to something like £135 a tyre (see chart 1 for further details).
A similar trend can be seen when the data is broken down by speed rating. Looking at the H, S/T and V speed ratings (the more budget and economy-orientated speed-ratings), prices were either flat or slightly down in the fourth quarter of 2016. The WYZ category, on the other hand showed the same up-tick seen in the diameter data (see chart 2).
However, when you look at the same data separated by brand segment (budget, mid-range, premium) and look at the year as a whole rather than focus on the fourth quarter, the increases are basically invisible. Instead of registering clear upticks during the last quarter of 2016, the data shows decreases when the beginning and the end of the year are compared. In practice, this means that premium brands are relatively flat (down just half a percentage point). Mid-range products are down 2.2 per cent during the same period. Meanwhile, budget tyres are down 5 per cent across the year as a whole (see chart 3).
When we focus on the top-end size (19-inch) and speed ratings (WYZ), but filter the data by segment, we can see that certain budget products and premium products are the ones that are increasing their prices (probably due to the structural pressures in China and the raw material price hikes, discussed earlier). This is causing a mid-range squeeze that appears to have resulted in a slight price dip in mid-range in the last month of the year, leaving mid-range tyre prices static for the year as a whole (see chart 4 for more).
Fast-fits slashed £5 from tyre prices during 2016
Looking at the data broken down by retail channel the trends are even clearer. While the data appears all over the place at first glance, look a little closer and you can see that – across the year as a whole – national Fast Fits oversaw a £5 per unit car tyre price cut from between £77 and £78 per tyre at the start of the year, to about £73 per tyre at the end of 2016. Local independent prices also fell almost as much as the Fast Fits, albeit from a lower baseline, declining £62 to about £58.60.
Autocentres did something similar but at a slower rate, with prices falling £2 from between £66 to £64 at the end of the year. However, this final figure includes a £2 recovery from the channel’s £64 low point between August and October. For their part, regional independents oversaw another £2 drop, falling from £65 to £63.
However, car dealers showed that price increases are possible, bucking the trend entirely by raising prices around £4 from £68 at the start of 2016 to just under £70 at the end of the year. And regional independents demonstrated their ability to do the same putting £1 on their price points between November and December.
None of the channels managed a steady increase or decline, with all parties altering their price points in both directions throughout the year.
Online prices show clear increase
Things were much more ordered in the online segment where e-tail prices followed similar patterns across the market. Average online price points may have varied hugely between etailers, with north of £20 per tyre difference between the highest and lowest price points (although there is more clear water between the top and bottom bricks and mortar retailers), however when you consider just how closely each of the technology-drive operations track each other, this is all the more remarkable.
Nevertheless, most players followed the same patter and that was up. The highest price online retailer (national.co.uk), for example, began 2016 on about £97.50 and finished the year on £115. At the other end of the scale (blackcircles.com), the range was different (around £71.25 to £86.25) but the trend was the same – significant price rises and therefore significant more income over the year as a whole.
According to Encircle’s analysts, “price adjustments online look to be correlated to Euro/Dollar exchange changes in July and subsequent movements by Delticom” not to mention that the online channel “mirrored price changes that followed suit”. As a result we cannot infer that the online players were more profitable during 2016, but it seems clear that they should be able to post significant turnover increases from last year’s performance.
So are car tyre prices on the up in 2017? The structural pressures (China, raw materials etc) would seem to say yes. And the rapid price increases implemented by the online players during the course of 2016 would also seem suggest that sell-out hikes are likely. However, things are far from clear in the majority bricks and mortar businesses, when the 2016 hints that prices may be on the up, but also that anything can happen.