Vespa aims to make a buzz in India

India Dispatch: Vespa is being lined up to take a slice of the huge two-wheeler market in India and the company is confident its upmarket style and reputation will help to make its venture a resounding success.

An Indian Piaggio employee assembles a Vespa scooter on a production line at the newly inaugurated Vespa plant at Baramati, some 150 kms south east of Pune in the western Indian state of Maharashtra oShow more

It is as Italian as a frothing cappuccino, pizza margherita or Fellini's famous flicks: the Vespa.

Now, the renowned scooter company - Vespa Piaggio - wants to bring a bit of la dolce vita to India by launching its zippy little two-wheeler in the country.

Vespa was first introduced more than 60 years ago, but its allure is still intact today. The makers of Vespa are bullish that Indians will be eager to join the style posse as the company ventures in to the fast-growing market.

"We are confident that fashion and style-conscious consumers will make Vespa a resounding success in India," says Ravi Chopra, the chairman and managing director of Piaggio Vehicles India.

"The Indian two-wheeler market is mature, and we believe this is the right time to make a premium offering", he adds.

Sales of two-wheelers in India have almost doubled in the past five years from 7.85 million in the 2006-2007 financial year to 13.43 million in 2011-2012, according to the Society of Indian Automobile Manufacturers (Siam). Currently the market is estimated to be worth about US$2bn (Dh7.3bn), but market watchers say India offers plenty of growth opportunity for two-wheeler makers.

"The drivers for the Indian market include [a] favourable demographic profile [and] moderate two-wheeler penetration levels in relation to several other emerging markets", says Mr Subrata Ray, the senior group vice president at Icra, a market research and ratings agency.

He adds that India also has an under-developed public transport system, growing urbanisation and strong replacement demand,

Style does not come cheap, though. At more than $1,200 per scooter, and twice as expensive as some of the country's best-selling models, Vespa is being pitched at wealthier consumers.

"Piaggio will not compete with existing players in India, but will chart an entirely different course by creating an exclusive segment for the brand," Mr Chopra says. "It will be a disruptive force in the two-wheeler scooter space."

Vespa is not alone in accelerating its drive for the style-conscious urban consumer.

The Indian Hero MotoCorp is also keen to grow among this segment.

"We have recently launched our first scooter under the new Hero brand," says Anil Dua, the senior vice president of marketing and sales at Hero MotoCorp.

Called the 110cc Maestro, this scooter is targeted at young college-going males and first-time job-holders.

Hero MotoCorp is currently ahead of the pack in the two-wheeler market in India, with a 45 per cent market share.

Bajaj Auto follows with 19 per cent, then Honda Motorcycles at 15 per cent and TVS Motor at 14 per cent, respectively, according to Icra.

Analysts say the Indian two-wheeler market is undergoing changes, and foreign brands are breathing down the necks of domestic players.

The appetite for foreign-branded bikes and scooters has increased by almost two-thirds in five years. The Japanese makers - Honda, Yamaha and Suzuki - accounted for 20 per cent of the market in 2011 to 2012, compared with 12 per cent in 2006 to 2007, according to Siam. Meanwhile, the domestic players such as Hero MotoCorp and Bajaj have been losing market share steadily in the past few years.

Honda said recently India would be the biggest market for its two-wheelers by 2015, and the company has embarked on an aggressive growth plan to boost its market share in the country. And even the posh Vespa is planning to launch lower-priced scooters for the masses.

"Piaggio's plan is to progressively extend its product range to leverage growing demand in the two-wheeler market. Piaggio has a wealth of technology and a wide portfolio of world-famous brands, and we are evaluating the potential opportunities," Mr Chopra says.

It will be a bumpy ride ahead as domestic players are not willing to give up their market share easily.

Indian manufacturers are trying to lure customers with new products and striving to improve their existing products while diving deeper into the rural and semi-urban markets to seek further growth opportunities.

Many are also widening their distribution networks to stay competitive and boosting their supply chains and manufacturing to stay ahead of the competition.

"We have been ramping up capacity at our three manufacturing plants, and we will be soon taking up our installed capacity to close to 7 million units," Mr Dua says. "Simultaneously, we have been fast ramping up our [research and development] set-up both in terms of infrastructure and people. We are strengthening our own capabilities both organically as well as through tie-ups".

However, the shortage of dealer networks and poor logistics could hamper even the most aggressive of foreign companies. Inflexible regulations do not help, either.

"There has been a reduction in exports incentives since last year, which has impacted profit margins of companies such as Bajaj, TVS and Yamaha," says Mr Ray.

Despite the challenges, Vespa is banking on its Indian venture becoming a success.

Piaggio has already ploughed $30 million into its Indian venture to produce 150,000 Vespas a year, and it is planning to spend an additional $20m to double the plant's capacity.

"We will bring India into the league of international markets where consumers are looking to own nothing but the best," Mr Chopra says. "I am optimistic about the India growth story."