Apollo Aiming for 'At Least' The Top 10
If you were playing a word association game with a tyre executive and said “emerging markets” the chances are they would say “China.” However, while China is top of the tree when it comes to tyre production in the so-called emerging markets – and indeed the world – the recent investments of global players (such as Bridgestone and Michelin) in India, coupled with the rapid growth of the market’s domestic producers should make you sit up and take notice of what is happening in the sub-continent.
While most of the world, perhaps excluding China, was languishing under the shadow of the recent recession, India’s economy is positively booming with gross domestic product (GDP) currently growing at between 8 and 9 per cent in a global economic scenario that sees some of the world’s so-called superpowers pleased to report growth of anything more than zero and avoid the dreaded double dip. What separates India from the only other economy in the world that operates on this scale (China), is the fact that it is simultaneously growing fast, home to roughly a billion people and is also as much consumer as much as an exporter. And what’s more the very words that Apollo Tyres chairman Onkar S Kanwar and vice-chairman Neeraj Kanwar both use to describe their own staff, can also be used to optimistically sum up the population – “young, dynamic and innovative.”
Tyres & Accessories recently travelled to India to learn more about arguably the most globalised – certainly the most Europeanised – Indian tyre manufacturer, Apollo Tyres. During our whistle-stop tour of the company’s executive, R&D and production operations across India, the company demonstrated that it is moving towards its goal of becoming a global player and entering the top 10 within the next five years at a rate of knots with the news that it has joined the list of globally approved suppliers to German car marque Volkswagen. Apollo also revealed how it recently launched giant OTR tyre production at its Limda factory, truck and car radial production at its modern Chennai Greenfield plant and gave details of the construction of a new R&T (research and technology) centre at the Chennai site.
Ask any of the managers and they agree that the most significant period of growth in Apollo’s history has taken place in the last five years. Back in 2005, production output equated to around 162 tonnes a day. This year it will be close to 1200. That’s why the last decade – according to chief financial officer Sunam Sarker – can perhaps most accurately be described as “the wonder years.” During the first half of the first decade of the new millennium, Apollo reported a compound annual growth rather (CAGR) of 24 per cent. This is impressive by any standards, but even this is clearly surpassed by the following five years, which saw the company’s CAGR grow even more and reaching 33 per cent.
The “wonder years” followed a period of international interaction at the turn of the millennium, which saw the company take part in technical cooperation first with General Tire (later becoming Continental), then with Michelin with a view to making a domestic market truck an bus radial tyre offer. While the latter relationship fell short of going according to plan by all accounts, one fruit of this period’s partnership was that it resulted in the first (and as far as Tyres & Accessories can recall) only dual branded signature sidewall Michelin has ever put its name to. Nevertheless, by Neeraj Kanwar’s own admission, the Michelin partnership didn’t go well.
And while these partnerships were no doubt mutually beneficial in some respects, Apollo representatives don’t believe they were directly responsible for the later growth. This they say came from within. Talking to T&A Apollo’s vice chairman Neeraj Kanwar explained that technical partnerships such as these are examples of the good being the enemy of the best. He described such collaboration as a “crutch” for the company which – while offering some degree of support to the growing company – also went some way towards hindering its upward mobility. That’s why in a period around 2005 Kanwar told his research and development team to “throw away the crutch and walk” something that, as the analogy suggests, forced the company to stand on its own two tyre development feet.
Now the board and its executives are very much focussed on moving forward, with Neeraj Kanwar announcing that the company has already got winter tyre and run-flat technology; European quality truck and bus and earthmover radial production machinery; and finally finite element analysis and simulation technology in place. (see separate article for more on the company’s research and production developments)
Waving the Apollo [flag] brand – the new integrated branding strategy
Of course this kind of development (particularly bearing in mind the acquisitions of Dunlop International first, followed by Vredestein last year), requires some amount of reorganisation in order to achieve all the company’s goals and harmonise its growing brand portfolio. Rather that just managing the positioning of its Apollo brand in the context of the Indian company’s supporting brands, the company now has Vredestein, Regal, Maloya and Dunlop (in certain African markets) to contend with.
Apollo Vredestein managing director, Rob Oudshoorn described the Dutch company’s time under Amtel’s ownership as “the Russian period,” explaining in typically candid fashion that the two companies’ liaison had been “one year of pleasure and three years of fighting.” More than a year after Apollo bought into Vredestein things do appear to be going better than “the Russian period,” but the merger has brought with it influences and scale that Vredestein did not previously have to encounter. This is important because although Apollo’s management appears equal to its dynamic goals of being a truly global and even top ten player, for the time being at least Vredestein in the brand name that is most valuable to the company in the mature European markets – simply because it is the name that is known and it is the one with the brand equity. However, as the chairman of the new parent company, Onkar S Kanwar said “challenges offer opportunities.”
So, while the new combination of executives appear to be continuing to work together harmoniously in a way that eluded the company during Amtel’s ownership, the real battleground – for want of a better word – is in the minds of the market when it comes to the positioning of Apollo flag brand in relation to the Vredestein ultra-high performance niche brand in Europe.
Oudshoorn explained that the company has already begun selling Apollo tyres into four strategically chosen European markets – Germany, Italy, the UK and the Netherlands. This is likely to stay this way until at least the first quarter 2011 when distribution will be rolled out across the rest of Europe. But for now, due to the reasons alluded to above, the emphasis has been on getting the distribution, marketing and price positioning right in the four pilot markets.
Knowing that the Vredestein brand commands a price level competing at the bottom end of the premium level, Apollo Vredestein’s marketing team were well aware that it would be nigh on impossible to introduce a new brand to market at the same level. But introducing it at a price point that is too low was always going to be a dangerous tactic that would see the company risk shooting itself in the foot when it came to the volumes of wholesale markets and international trading between markets. That’s why the approach to the German, Italy, Dutch and British tyre markets sees Apollo marketed with a pan-European strategy that includes: a single price across all the European markets (the only slight exception to this is the UK which, as it doesn’t use the euro, has to contend with exchange rate fluctuations); a focus on medium sized retail chains rather that national multiples and wholesalers; transparent but non-negotiable prices. The ultimate aim is to select a few loyal, but long-term customers who could typically be characterised as: running multiple retail stores; clearly growing and expanding; have the potential to triple Apollo sales; offer strong service; able to achieve high sell-out prices.
So far, the distribution roll-out is said to have been “very successful in Germany in particular.” And this is demonstrated by the fact that, at the time of going to press in mid-November, there were 212 Apollo points of sale in Germany, 200 in the Netherlands, a further 250 in Italy and around 50 in the UK. The implication is that if the company’s production output wasn’t already running at full capacity then there could have been more. But as the sales and marketing department’s disciplined strategy would seem to suggest, this approach is about more than simply volume and rather emphasises sustainable growth.
While the distribution of Apollo tyres appears to have got off to a strong start in the four pilot markets, the real challenge for the brand is to successfully communicate its brand strategy to the customers that will ultimately play the most direct role in selling the products to consumers. As we have already seen the company has the challenge of promoting a second high quality brand alongside Vredestein, while simultaneously avoiding under-pricing the new arrival and side-stepping brand confusion and market cannibalism from the other brands in its portfolio such as Maloya, Regal, Kaizen (India) and Dunlop (in South Africa).
Chief marketing officer Marc Luyten explained it like this: Apollo brand tyres offer the quality of a premium tyre at the price of second tier product. At this point it is worth clarifying that Apollo are not trying to launch their eponymous brand to customers at the very top of the market or at a price level equal or above Vredestein. Rather the company is offering its flag brand on a completely different basis. Neeraj Kanwar explained it like this: Volkswagen is know by the VW name even though it owns the Lamborghini supersport brand. Neeraj Kanwar also confirmed that Apollo will be positioned a few per cent below Hankook in terms of pricing.
Marc Luyten and his team are also working on a global Apollo brand project that seeks to unify the company’s marketing approach to global markets. The results of this are expected to be published from March 2011.
Global production bases
Describing Apollo as a global company is not to say that the importance of the domestic Indian market (remember this nation is made up of consumers as well as exporters) will be in any way overlooked. For the time being, the company’s domestic Indian production (representing 62 per cent of the total) far outweighs new tyre output anywhere on the firm’s corporate map. In Europe – namely the Apollo Vredestein production base in Eschede, The Netherlands – output represents (24 per cent of the whole), while the remaining 14 per cent of the firm’s tyre output is produced at the company’s manufacturing sites in South Africa.
If you take Apollo’s Indian tyre operations in isolation it is clear to see that this largest segments compound annual growth rate of 17 per cent may be behind the wider group’s impressive total of 34 per cent, but it supplies the majority of the total operations unit sales of tyres and a significant amount of the company’s revenue. 71 per cent of the Indian operation’s revenue is generated by replacement sales. A further 8 per cent is produced by export sales. This figure is expected to more than double to around 20 per cent following the company’s large-scale investment in its Chennai plant, which is clearly developed with global export markets and OE in mind. Interestingly, and in complete contrast with the pre-Apollo Vredestein’s business model, 21 per cent of the Indian operation’s revenues come from OE sales
As far as truck tyre sales are concerned Apollo India’s TBR plans here are roughly five years ahead of the company’s strategy for other markets including Europe. By 2012-2013 the company is aiming to supply 180,000 or 56 per cent of the truck and bus radials sold in India.
VW deal is a European OE breakthrough
Moving forward OE appears to be a key plank in Apollo strategy. According to research and technology chief Peter Becker, the company is “very much in talks with the OEMs,” specifically Volkswagen with regard to supplying the Indian operations. However, as in VW’s case all OE deals are homologated in Germany, the door is therefore open to supply European markets. An example of this is VW’s forthcoming “Up” model, which Apollo has agreed to supply. The model, which replaces the Fox, will be produced at the carmaker’s Brazil factory. By taking on the contract Apollo has positioned itself to receive not only the higher level of marketing prestige that comes from supplying OEMs in Europe, but serial production capacity, plus the research and development benefits of working with a vehicle maker. The fact that the “up” will be produced in Brazil would seem to suggest the door is open to the potential future Latin American tyre market engagement.
However the prestige associated with VW’s global OE approval of Apollo’s tyres is multiplied by the fact that the company has been selected to supply the replacement to VW’s compact Fox model, known as the “Up”, which can be described as a European OE contract. This mini model is expected to be produced at the German carmaker’s Brazil plant, where the Fox was previously constructed.
Progress in the OE arena appears to be moving fairly swiftly as the European OE news seems follows just months after sealing a deal with Volkswagen India. In June T&A quoted Neeraj Kanwar as saying: “We’ve gone into VW, supplying them tyres for the cars that they’re launching in India, and we are in discussions with them to supply tyres to them in Europe.”
In March, Apollo was awarded the contract to supply OE tyres to Volkswagen Polo models sold in India. The compact VW is manufactured at the company’s plant in Chakan (near Pune in the state of Maharashtra), which has a capacity to produce 110,000 Polos per annum. Depending on the model, the Indian produced Polo is either fitted with 175/70 R14 tyres on steel rims or 185/60 R15 tyres on alloy rims. Apollo reports that the crucial 215/55 R16 VW Passat size – a consistent leading fitment in the UK and other European markets – is also said to be “under evaluation” in the sub-continent.