Tyre to tyre: rubber retailers on the tyre segment

Stakeholders from the tyre industry in the Middle East gather in Dubai to discuss trends in tyres, and the juxtaposition of recent challenges in the markets with the prospect of growth to come

ANALYSIS, PMV

Ahead of this year’s edition of Automechanika Dubai, Messe Frankfurt hosted a gathering of stakeholders from the tyre industry in the Middle East to discuss major trends and developments in the segment — with a focus on the potential for growth amid both the growing demand for automotive aftermarket products and rising raw material prices.

In all, the demand for automotive aftermarket products and services in the Middle East is expected to grow by 5.9% annually to reach $17.3bn by 2020, and auto aftermarket players continue to sign up to this year’s Automechanika Dubai 2017 amid optimism over buoyant aftermarket trends and rising vehicle sales.

According to an analysis by Frost & Sullivan, while macroeconomic factors negatively impacted vehicle sales in 2016, renewed growth is predicted from 2017 onwards, and sales are expected to grow by 9% annually to reach 4.4 million by 2020 — bringing the total number of vehicles in operation to 44.5 million.

Within the aftermarket segment, there is an upward growth curve across components such as engines, parts and of course tyres. This year, more than 2,000 exhibitors from 55 countries will present to buyers and decision makers from across the Middle East, Africa and beyond.

Frost & Sullivan expects revenues from tyre sales specifically to reach $3.6bn in 2021 — rising at a compound annual growth rate (CAGR) of 9% from the market value of $2.4bn in 2016. Subhash Joshi, regional head for automotive and transportation at Frost & Sullivan, highlighted the development of new channels in the segment, such as digital sales, the improvement in the structure of regional distribution structure and the growing use of established private labels as a successful route to market, especially in Saudi Arabia.

Laying the groundwork for Messe Frankfurt’s roundtable discussion was Surender Singh Kandhari, founder and chairman of Al Dobowi Group, who explained: “Over the last two years we have experienced a bit of a downwards trend due to the rubber price going down and the over production of tyres in China.

“But since December last year the rubber price started to go up [by 30% to 40%] and we have seen a lot of changes in the market. Tyre companies in China have realised that they cannot afford to go on losing money, and so they have consolidated themselves. As a result, 2017 will be a very good year for the tyre industry, and all of the stocks in our stores have appreciated.”

Mohammed Aqel, GM, Central Trading Company, an affiliate of Al Rostamani Group, concurred: “We have had two, three years of hardship, and there have been a lot of challenges. Especially for the premium tyre brands, we face the challenge of parallel importers.

“We see influx of tyre brands that are well established because big local trade houses have invested heavily in those brands, and then someone else will come and reap the fruit of the investment that we have been doing all those years through parallel imports — buying stocks from all over the world and dumping them in our markets.”

Critically, he noted, such players work purely on the basis of price and operate with a completely different cost structure, without any commitment to the market or customer service. He added: “They don’t even care what happens to the tyre or where it is coming from.”

Aqel then turned to the subject of ESMA regulation requiring the use of RFID tags on all tyres, which the major manufacturers and distributors have invested heavily in implementing in the UAE.

Aqel said: “Lately we have seen ESMA trying their best to control the situations by enforcing the RFID, but we, personally, have not seen the benefit of the RFID, because of their inability to do the raids as expected. They told us they would be doing a lot of things that did not 100% materialise. We hope that, as a major trade house who has invested millions or maybe billions over the last 30 or 40 years in developing the multinational brands, we will [start to see] the protection that we are supposed to in return for all that investment.”

Anand Hegde, GM, Automotive Allied Division of Al Naboodah Group Enterprises, touched upon payment issues in the business. He pointed to the common problem of large fleet owners trying to delay payment or more severely customers defaulting altogether.

On a separate note, Javed Iqbal Khan, GM at Dunlop, said: “The industry and the UAE market are going through significant changes and shifting from a wholesale export oriented trade to one that is far more focused on retail. The last 10 years have seen more and more focus on customer service — and that’s where the competition is.”

Countering these comments, Khan added: “Having said that, there is an element of unfair competition being provided by the vast number of players that have entered into the market and who are bringing in tyres in the parallel market, and this is a huge challenge. It has a big impact and we can only hope for stricter enforcement of the existing laws, because it’s not that the laws do not exist; we have very good laws.”

Returning to the overall outlook, Alireza Moaref, GM at Varga Trading, said: “The last quarter of 2016 was one of the gloomiest times in the industry — everyone had problems with credit defaults and huge stock and for the first time we saw the major brands giving very low price offers, and this was a shock to everyone.

“It was a very positive change to see that the prices were increasing. I don’t know what would have happened otherwise: I think we would have seen a lot of closures or maybe even runaways, but the prices hit the bottom last November, so thankfully it’s over.”

Moaref also touched an issue tying together both international and local considerations: the problem of production dates and their perception in the Middle East region.

He explained: “One of the major issues that we face for this region and one that seriously needs to be addressed is how to get the authorities involved to help in making the market understand that a one-year-old tyre doesn’t need to be cheaper. It’s a very serious issue, and it wasn’t like this one year ago.

“The Chinese have started producing tyres with new production dates before the year has even changed, whereas major brands will deliver 2016 stock in June 2017. But it’s a major challenge to sell this in this market, because there is a misconception that it’s now expired.

“So towards the end of the year, everyone starts panicking and they start slashing prices, just to get rid of their old stock — so this is a major issue that needs to be addressed. This needs to be addressed in the same way that Automechanika and the whole industry has advocated against counterfeit parts.”

Ashwin Jain, GM, Apollo International Trading, added: “There have been a lot of issues this year and for the last two years, and they are commercial issues. One of the big changes that has happened in the last half a decade or so is that everybody has become so price conscious. Nobody is talking about performance. Nobody is talking about renewable resources. In a short while all of us will have to start seeing things differently. We have to get back to performance, and back to kilometres per 1kg of rubber used.”

Prachi Satoskar, business group manager for automotive (MENA) at GfK added some closing figures, noting that overall, between 2015 and 2017, the average price of tyres in the market has fallen from $143 to $119. However, organised retailers are seeing greater success with larger, more expensive tyres, as these customers want comprehensive service packages.

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