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Batteries: Good Prospects - But Not Yet Awhile Martyn Paul and Brian Taylor At the recently held IBDA (Independent Battery Distributors Association) battery conference held in Kenilworth, it was noticeable that speaker after speaker outlined how the provision of power requirement for the car of the future is undergoing major change. New 36V and 42V systems will be needed with both cold cranking and cyclic features. The battery will even be intelligent, loaded with computer chips to control all major automotive functions. It all seems very exciting stuff. ‘State of art’ technology, batteries becoming key components - and required in increasing numbers. Varta predicts a future that will feature:-
Recent research at Ford Rapid Fit Centres showed that 22% of batteries tested had problems. Of this just 5% could be rectified by a re-charge. The others needed replacing. So there is a considerable replacement market out there right now. However, currently the industry would seem to be heading for another tough year with clear evidence of declining aftermarket sales caused by batteries lasting longer. It’s down almost 15% from 5.5m units to 4.75m units. Some would put it even lower. This reduction - coupled with over-capacity - has led to a squeeze on both prices and margins. Furthermore, favourable exchange rates and low production costs have sucked in a flood of product from Europe, the Far East and South Africa. So the bright new future seems a long way away off yet. All this despite polarisation of the sector within manufacturers and distributors that ought to bring some order to the marketplace. And as there are no noticeable reductions in production schedules from the major producers, the market is expected to remain very difficult. Market Shares and Distribution Channels Based on a total market size of 4,750,000 units, the first pie chart shows the 10 major battery manufacturer market shares in the UK, with the ‘others’ segment covering at least another 6 makes - all looking to advance their share of the market through super-plants and greater efficiency. Examples are Global & Yuasa, Korean Battery, Cobelak/Stecco and Malaysian importers. However, the major threat for 12volt batteries may yet come from the Chinese manufacturers who are rapidly improving product reliability, with the added advantage of having the lowest cost base in the world. So key questions here are, can companies continue to manufacture batteries within the UK profitably? Or will production be switched abroad where costs are considerably lower? The second pie chart shows the market share by brand. The ‘others’ segment here is made up of own brand programmes such as ATS, Hi-Q, National, Motaquip, Unipart, Hella, Direct, Masterparts, RAC, etc. It also includes some smaller manufacturer brands. The third pie chart shows the proportions estimated as going through existing channels. Some of the product going through cash & carries, retail shops and auto electrical specialists will be trade sales and so the product re-appear as independent garage and fast-fit sales in particular. This would push up the true retail market shares of these channels. We’ll come back to channels later. UK market share by manufacturer
Source; JPA estimates UK market share by brand
Source; JPA estimates UK market share by channel
Source; JPA estimates Product/Technology Improvements. Technology improvements, both in design and manufacture, mean that batteries last much longer - on average 4/5 years against 2/3 years only10 years ago. Lead calcium and now silver plate batteries are replacing lead antimony. This provides even better performance and longer life, resulting in companies being able to offer extended guarantee periods. Clearly these new technologies will provide sales and marketing people with something new to say. BUT, longer life equals reduced market size and even more pressure on prices caused by market over-capacity. In truth, most manufacturers now produce batteries of reasonable quality; easily lasting for a three-year warranty period regardless of the plate technology. A few years ago it was hoped that new car technology needing additional power would result in dual battery requirement. And this may still be the case as the Varta presentation at the IBDA Conference indicated. But not everyone thinks so. The twin power battery from Gemini and DMS (the intelligent battery) distributed by Willard, provides both starting and deep cycling technology in one battery - possibly negating the opportunity for additional sales. So it could be the size of the unit required for low drag designed cars that becomes the defining reason for multi-battery systems, rather than the technical restrictions of the traditional battery shape, type and size. In the longer term, major producers are already working on the next generation of batteries in conjunction with motor manufacturers. Controls on the car of the future will be powered electrically rather than mechanically. At the recent IBDA Battery Conference, speakers from Varta, Yuasa and Willard highlighted the development of 36V and 42V systems and the need for differing power requirements to deal with cold cranking and energy throughput for cyclical applications. This will require a battery output of 20KW compared with 4KW for the traditional battery. All in the future? Don’t you believe it. 36V batteries are currently under fleet test and will be on production vehicles by the year 2003. And at the IBDA Conference, Dr. Georg Prilofer, Chairman of Varta Autobatterie GmbH Germany reminded the delegates that the latest BMW’s have up to 100 electro systems run by servo motors and the future is seen as "everything by wire" including braking and steering systems. He said that Varta’s development focus is concentrated on feeding power to four key areas. Automotive Development Areas Utilising Battery Power.
Source: Varta Batteries-IBDA Conference. The new batteries will also encompass diagnostic computer chips providing advanced information - similar to that of a Midtronics tester that is used by many vehicle manufacturer franchised dealers. They will also be able to control voltage charge/discharge - creating a ‘real time’ system avoiding ‘highway gassing’/over heating and excess loss of energy when starting a vehicle. To meet the additional power requirements the automotive battery will need new materials such as silver alloy and nickel metal hydrate, new technology such as AGM (absorbed glass mat) stopping any acid leaks within the car. Distribution Battery distribution channels are also changing. They are being stretched and crossed over by manufacturers keen to take market share and keep production moving in very trying market conditions. Price differentials between large and small buyers are being squeezed This process has been accelerated by the development of buying groups such AIMS, IBDA, FSG, IFA, CAAR, FTM, Group Tyre and First Stop. These groups cover all distribution channels and offer large company economies of scale to the sole trader. Some battery manufacturers are creating a ‘grey market’ with their products - another area of disruption. Excess stock is sold on a wholesale basis to specific customers through a separate division in an attempt to avoid conflict in traditional markets. However, this stock inevitably finds a place in the usual chain. So what’s new? Some battery manufacturers are incurring additional costs by the provision of better service to battery outlets. In this light, daily and even twice daily deliveries are promised locally from some manufacturers. Obviously this has led to reduction in stockholding by larger distributors because the manufacturers in effect have stolen part of the stocking role of factors and WDs. So they use this frequent delivery from manufacturers to operate their stocks on a fast-mover only basis. As distribution costs have soared for manufacturers it is noticeable that some of them are drastically cutting back on the number of outlets they deal with on this direct basis. So the future could well see less outlets in the middle of the distribution channel. Those remaining will likely be bigger in volume sales potential and they will get better service from the manufacturers they deal with. But how many distributors or installers will have the technical ‘know-how’ and back up resource to support the new on-board systems? The independents face the toughest prospects, unless they can find a partner to support them. This issue was the theme of Neil Fryer from (Lucas Aftermarket Operations UK) at the IBDA conference. Those distributors remaining on the battlefield will need to be more professional or work closely with key manufacturers who will choose their partners carefully and may control the new technology. Installers too will have to see themselves as part of a dedicated and integrated distribution channel. Some manufacturers may target o.e. markets - for example Ford who will control a large part of the aftermarket through Rapid Fit/Kwik Fit. The ‘Real’ Cost/Selling Price. Trade prices in real terms have declined by 15% to 20% in the past 18-months - further evidence of the poor market economy. But although prices are on the floor, manufacturers still offer further incentives. Promotional support including battery stands, catalogues and sponsorship costs all add up. And the most costly incentives are extended credit, rebate deals and stock cleanses at the end of the season. Many suppliers have debtor days in excess of 100. Some new season ‘sell-in’ promotions commence prior the last deal being paid for. Suppliers are desperate to keep customers, so they end up financing them (an extension of 30 days is the equivalent of a 3% price reduction). However, customer loyalty is fickle and on this basis alone sensible sales forecasting is a difficult task. Calculating a profit even more so. The retail consumer really does view a battery is a distress purchase. Rescue company breakdown cause analysis puts a faulty battery at the top of their call-out list, and the general polarisation of sales towards the winter months support this view. Further evidence can be drawn from people inside the industry. " We sell a great deal of batteries through our 400+ retail outlets. I would estimate that at least 70% to 80 % are sold as a distress purchase." Mike Clarke, Purchasing and Marketing Director, Motorworld. " There is no doubt that the bulk of automotive batteries are sold as an emergency purpose, particularly in the winter season, although a hot summer creates problems for the batteries also due to overheating, especially if the motorist is stuck in motorway traffic." If I had to estimate a figure I would say well over 70%." Martin Griffin, Managing Director Griffin Batteries, Vice President IBDA. "Batteries are a major component of our member’s sales, particularly between October and March. There is no doubt that the bulk of the sales are bought as an emergency purchase, I would estimate over 60%. Customers do not buy them unless they cannot get their motor started, they would much rather spend there cash on styling products or sound systems" John Murray, Purchasing Manager, A1 Motor Stores (AIMS)-200 members "I would say that an overwhelming amount of batteries are sold as a distress purchase, at least 70%. However it has always puzzled me why some of our branches sell more of the product than others. I have come to the conclusion that those branches prepared to look after stock, maximise the opportunity by never missing a sale-always having the correct expertise and stock available. Even distress purchase opportunities will be missed if the stock is not on the shelf." Bob England General Manager County Tyres. NTDA Regional Chairman, South- West. In this competitive environment the good retailers compete with price led advertising and then sell up to make reasonable profits from higher quality units. And clearly price is a key factor in a motorist’s buying decision regarding batteries. But apart from a limited knowledge at the time of a distress purchase, the irony is that if you were to ask them the price of a battery, they will have little or no idea. They would take a guess and a recent survey amongst retail customers indicated they thought a replacement battery would cost between £50 and £60. Much higher than many sell-out prices today. It begs the question what is the true achievable retail price? It’s a fact of life that the battery of the future will be more expensive to manufacture, with higher material costs, dual power sources and intelligent feedback. That added value to the product will have to be paid for somehow. It will either be funded by a higher retailer/installer charge that feeds back into distribution, or by fewer manufacturers producing higher numbers of units per production plant in the lowest cost countries. Maybe a combination of both. Marketing and Brand Development. Somehow, the industry has to put itself into shape by being more proactive rather than reactive and plan ahead. Major brands have to be nurtured; the brand says everything about the company. It is the major company asset and should reflect its aspirations and culture to distributors and the end user. And the current ‘push’ selling culture the market operates within needs to move closer to a ‘pull’ marketing culture. The ‘Push’ Selling Culture Starting Point Focus Means Ends
The ‘Pull’ Marketing Culture
Put simply, ‘make what will sell instead of trying to sell what you can make’. In the current market it’s probably easier to say than deliver. But planning must be a better option than drifting into another season clutching a weather almanac and prayer mat hoping for deliverance. Some leading manufacturers are already encompassing the marketing concept to develop the new generation of batteries required for power demands on new vehicles. But without a distribution channel that supports the marketing culture in all aspects it is bound to fail. And in a global market, cross-border dumping (sorry, strategic selling policies) will always screw up the best plans. If common sense cannot prevail, many companies will fold and the industry runs the risk of losing a complete tier of distribution! Somehow the key consumer interface has to occur before that distress purchase scenario. Testing has to clearly indicate to consumers that the battery condition is deteriorating. And to such an extent that, although the car may still start, on-board systems will soon be compromised and an automatic system shutdown will likely occur. This allows a features and benefits discussion to take place in a positive environment that is not clouded by emotional turmoil caused by a recent series of breakdowns. Remember 22% of batteries tested required replacement or recharge. Investing in a premium promotion targeted to encourage motorists to come in for that free test must be worthwhile. Particularly when you consider all that other possible work you might get associated with tyres, servicing, etc. And what about the value of adding new names to your customer database? Investing in the best testing equipment and selling the benefits of regular testing to motorists has to be a sensible tactic. (10/99) |
