‘We want to build and supply Nortons in India by end-2018.’
Stuart Garner, CEO and owner of legendary British brand Norton Motorcycles, which has inked a JV with India's Kinetic Group, reveals the make-in-India product and manufacturing strategy.
Stuart Garner, CEO and owner of Norton Motorcycles, the 119-year-old legendary British brand, which has just announced a joint venture and make-in-India collaboration with India's Kinetic Group, reveals the product and manufacturing strategy, his struggle in bringing Norton back to life, arriving at the most suitable ownership structure, and the slow but steady expansion game-plan.
Congratulations on Norton Motorcycles’ alliance with India’s Kinetic Group. What are the highlights of the partnership?
In the last few years, Norton Motorcycles’ engine platform has grown from a 961 (parallel-twin, 961cc) to the V4 (liquid-cooled, V4, 1200cc) and we have a 650 (twin-cylinder, 650cc) coming through now. We will have three engines but with the investments in those engines, it is not enough to just sell Norton in Europe and North America.
A couple of years ago, we knew that we needed to extend our market into South East Asia and may be Southern America as well. We started to think about who would make a good partner. But, more importantly, we began thinking about what structure would be best suited to us. Would it be through licensing or should we go on our own? Would it be a joint venture, an equity-backed joint venture or an investment in Norton?
Thus, we have been working on the correct structure on how to be successful with the venture with the best structure to keep some brand control but also leave something for our partner so that it is attractive to our partner and is an even deal. Some of the deals in the market nowadays are largely in one party’s favour; everybody is excited on day one, later everybody falls out because it was unequal.
It was all about getting the best structure, one in the UK, a 50:50 JV so that it is equal and just like a marriage where both have total commitment with an equal equity stake. We spoke to a few people and realised that people want control. We said the brand needs to keep the same control (for the future).
Then we spoke to Kinetic and they had a very similar view. Kinetic said we want the inputs from our partner to be equal because if we are going to make Norton motorcycles in India, we need the company to come and help us there in terms of engineering, branding and marketing so that we understand all about these components.
We said we want somebody who understands manufacturing, operates in the territory to help us with manufacturing and set up the distribution network (in India and South East Asia). That way, it was really easy because it was really quick. It was almost the first meeting that it took to finalise the deal.
When and where did you meet Kinetic Engineering India’s Ajinkya Firodia before finalising the deal?
I met him in the UK several times now. That helped us arrive at the structure quite quickly. Then as we started to talk, more details started to emerge such as what model (for India). Would it be a knocked-down or a locally manufactured model and we very quickly came to the conclusion that it has to be manufactured in India with a majority of it localised, and some technical components we will probably supply from the UK. We need to get to production as easily as we can involving minimal finance, minimal problems, minimal technical stuff.
Norton Commando motorcycles, powered by twin-cylinder, in-house-dveloped 961cc engine, will be the first to be localised and sold in India.
We already have the bike and we can either take the painful CKD route or the painful new platform but we realise that somewhere in the middle, there is an easy way. We are trying to figure out how to take the difficult bits from Norton UK and do all the easy items in India. We are going through the industrial process, deciding what parts should be make new in India or whether to buy them from Norton in the UK. In the next few weeks, this will be done.
Then we will start on (preparing for) tooling of the components so that we begin manufacturing in CY2018. We want to build and supply bikes in India by the end of CY 2018.
How did you arrive at such a quick production plan for India?
You have to understand the business as they have onus; direct meetings lead to direct decisions and we act. No management committees, no consultants are required.
How long have you been in talks with potential parties?
Pretty much all of this year, just to make sure that we get the right structure, how we go about things and what’s next because the 961 is a nice bike but it will be a difficult platform just in India. We need to look at what other platforms.
The next engine to come from Norton is the 650cc, twin-cylinder, which is a much better platform for India and the Asian territories whether it be Malaysia, Singapore, Thailand or Taiwan. We see the start of this relationship with the 961 but we think the volumes and a lot of commercial sense will come from the 650. The 650cc, twin-cylinder bike is still under development. It will commercialise the whole venture. It’s going to be a very good engine, very compact and I think it will be a very suitable bike for the partnership.
Do you plan to begin your business in India with the completely built unit of the 961?
No, we will go straight into the manufacture.
What would be the level of localisation that you plan at your entry time in India?
I think it will be more than 50 percent on day one.
How many motorcycles do you sell in a year?
In the UK we sell about a 1,000 motorcycles a year. In the next few years with the new model line-up coming, we plan to do up to 4,000- 5,000 units a year in the UK and the Europe. This is really to stay exclusive and niche. I am happy that, as a premium British bike brand, we offer hand-built bikes. We will see where this partnership takes us. One thing that we haven’t done at the moment is set volumes for the future.
Of course, we would like to have volumes and commercialise the production but, first and foremost, we would like to have the correct bikes. Once we have made a good bike and it is industrialised and in production, we can then start to speak about numbers. At this moment, it is too early to speak on volumes.
We currently sell the 961 Commando range and the Dominator range. We will start delivering the V4s in the next few months and then we plan to have the 650 in the UK by end-CY2018. So in the UK, we will have three engines and roughly nine models on those engines by end-CY 2018.
How much have you invested in Norton Motorcycles until now?
I have invested many million euros. In the UK, we have had positive EBIDTA for a couple of years now. We have been around for 7-8 years now just with one model and have gone quite slowly because in terms of making all new motorcycles we have made mistakes and have learnt from them.
We have come through that and what we didn’t do is sell the equity. So there is no venture capital, there is no private equity. We did it the hard way and kept everything very tight and having done so, we now can make good decisions. Now that we have got the investments to build the bikes, we can start to move very quickly. Growth in the next five years will be good.
The first five years were very difficult. There is a reason why some of these (old) brands don’t come back. It’s difficult to bring an old brand back to life because when you make a motorcycle, you have no idea if it is going to sell, what will the costs and margins be. Even if it sells, you would not know how much you will make on each of them, and even if you have made some money, you might have a warranty problem. How long will the bike last in the market? It could have a three- or five- or 10-year life and then you will have to invest in another engine. If the models change, then you go from a cruiser to a sportster to a café racer or a race bike. So it’s a very difficult business to get investments for and to know what models to go for and how to plan and build a cash flow for the long term.
So it’s been a very difficult first few years for us. In the last few years, we got some traction and we have started to grow volumes and got some profitability. We got the investments and the new engines, which give us that critical mass to do more volumes and appoint more dealers because we have a wider offering. When you have only one engine and one model, it’s very difficult to open a dealer network.
What is your outlook for the business in the foreseeable future?
We go as fast as we can at a speed that’s comfortable for us and the business. So, if we can get to making several thousand units (4,000-6,000 units) of hand-built British bikes out of the UK and if we can do the same in India and the Asian territories and if we win the Isle of Man TT going racing, I will be happy.
We have a lovely business, Norton is a fabulous brand, we make nice motorcycles, we have great dealers who become good friends and the business is driven by passion rather than money. We go out riding together on the Nortons. We are enjoying while doing all this.
Would you be making hand-built bikes in India or would it be a proper manufacturing and assembly setup?
I think we need to build what’s correct for the market for Norton and that might be an industrialised, normal manufactured bike, which will be a first for us. But maybe we could do some limited editions (for the India market) which are hand-built.
Why are you planning a twin-cylinder 650cc engine platform for developing markets like India?
When you have Norton, it’s difficult to make a 500cc single-cylinder for the western markets. However, we could have made a 500cc single for India. If you look at engines and the sweet spot for an engine that I can do in Europe, in the UK and in Asia, our view is that the 650cc can do both markets. So one investment in one engine. Then it can go slightly one way for the Indian market and slightly the other way for the premium European markets. But it’s going to be the same platform.
We think that’s the optimum engine to go across all of these markets. If you go any bigger, it would struggle in India and Asia and if it is any smaller, it will struggle back in the Europe and the USA.
This is not rocket science or calculations. Norton is a small business. How can we maximise our engineering spend? We need to get as much model range out there from our engineering costs. Every company has to do this but it applies more for us because we are a small business.
What’s the roadmap for Norton Motorcycles in the foreseeable future?
I could be really happy with Norton-Kinetic if it does 2,000 units (per year). We can go into the emerging markets if it is correct for the brand and if that works. Like they say, cut the cloth according to the size of the business. When we learn what the size of this opportunity is, we will make sure that our overheads are smaller.
A lot of businesses go straight in and incur a 30,000-unit overhead cost and sell only 20,000 units. That results only in losses. We need to grow from small while we learn how big the market is and when we will learn that, we will scale up the business according to the size of the market.
For us to identify how big is the opportunity is like a blank piece of paper. While commercialising the bike, we will learn about the size of the opportunity. It is very important for a small business to understand how to scale up without destroying the capital. We need to take our time to learn about the journey that we are about to start and then scale up very slowly. We don’t put any pressure on the partnership with immediate volume (targets).
Norton is an iconic British motorcycle brand. Once you locally begin retail sales of Norton bikes in India, would you prefer a select chain of exclusive stores for the brand or a multi-brand store and why?
Of course, with me being on Norton’s side, I would say that the brand to so successful that it becomes standalone. However, in the early days, it is much better to share the costs than to make big investments on your own. So, if we can share some distribution costs and brand space, we are happy with that. You have to understand when we are a small business, we need help. Even in Europe, I have to be multi-brand because I can’t give the volumes to say that I am going to have a motorbike dealer in Milan exclusively for Norton.
I can’t do the volumes because I don’t have the model range. We are already experienced in being available across multi-brand retail stores.
We are building our footprint in Europe. We have distributors in Italy, Spain, Portugal, Germany, France, Poland, Czech Republic and at other locations. What we are looking is now to build the dealer network through these distributors. We met with a lot of potential dealers during EICMA and having the network across Europe is a priority. Dealers have more interest in you when you have a bigger model range to offer.
Some of your European vendors may also have a presence in India. Are you speaking to them for procuring localised parts to support Norton’s India manufacturing plan?
This is exactly what we are doing now. We are talking to them to participate with us and increase volumes and thus sharpen the price. We are working a lot on the vendor side for the UK and also for the Indian operations. We will put everything in the mix and then will recognise the best vendors.
Also read: Norton Motorcycles plotting 650cc twin-cylinder Royal Enfield rivals?
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