Merida s Tour de France ambition

Merida Industry Co., Ltd, Taiwan s second largest bicycle manufacturing company after Giant Manufacturing Co., Ltd, is now actively pursuing entry to the Tour de France. But first, the brand needs a team. Cycling iQ spoke about the barriers to entry with Merida VP, William Jeng, at Taipei Cycle show last week.

William Jeng, Senior Vice President & Spokesman for Merida s Marketing Affairs Department, at the 2012 Taipei Cycle Show.

Two quarter-century anniversaries were publicly celebrated within Taiwan s bicycle industry last week. While Taipei Cycle Show* and Tour de Taiwan* both held media gatherings for the occasion in the upper floors of the TWTC Nangang Exhibition Hall, Merida* was quietly going about its business amongst the sprawling mass of booths downstairs. 25 years after first exporting its Merida branded bicycles (to Norway), the Changhua County-based manufacturer continues to operate in a steady, sanguine, manner. [*Note: see the trivia section at the end of this article to see how all three are interacting at today s Tour de Taiwan]

2011 was a good year for Merida. The company had robust year-on-year revenue growth (14.1%), yielding NTD14.47b in sales from annual shipments totalling 963,600 complete bicycles; average unit prices were in-line with national export averages, at USD520. A further 1,100,000 units were produced in China (where Merida owns two factories), representing a 13% production boost from 2010; whilst highlighting the evolving upmarket profile of bicycle users in the world s second largest consumer market after all, Merida still does not play in the cheapest sector of the bicycle producing market.

Merida shares a common history with Giant Manufacturing. Both companies grew on the back of successful OEM relationships, producing bicycles for other brands. However, where Giant would prioritize its own brand above all others pioneering a business model with a footprint that dominates the global bicycle market, with over 11,000 points of sale worldwide Merida has continued highly successful OEM partnerships; its most famous customer being Specialized. The relationship with Specialized began in 1989, with the production of the iconic Stumpjumper mountainbike. Twelve years later, in 2001, Merida invested a reported USD30m into Specialized in return for a 49% shareholding. As of last year, Merida s stake in the Morgan Hill-based bicycle brand had been reduced to 33%.

According to Jeng, road bicycles comprise less than 20% of Merida s global production (in units), with hardtail mountainbikes representing the majority of Merida branded bicycles produced. We have a very good design and very high technology on the MTB states Jeng, leaning casually on a MY2013 Merida Ride Carbon 95 road bicycle at the company s booth, at the epicentre of Taipei Cycle Show. We can move the technology over from this category; our products already have these qualities. Now it s time for us to go out (into the premium road bicycle sector).

Merida is one of the few companies publicly exhibiting its (almost) complete MY2013 range at Taipei Cycle show; most brands, including Specialized, are not so forward with their new season offerings, so early into the calendar year.

You really have to have something new at each launch opportunity to maintain momentum explains Jeng, boldy. We want to show to global teams that, on the product side, we are ready so they are confident to work with Merida in terms of sponsorship. It s very important they see this.

It s a typical situation; how can we convince the consumer to buy our $10,000 bike when they have the opportunity to buy from Giant or Specialized? Why not Merida? Show me why I (the consumer) should buy it. I (Merida) don t have anything in the budget that shows hey, you have to buy this . I don t have this kind of sponsor for our product. But our product is now tested and certified so we can be at the same level, the top level. It s the same way that Merida MTB is on top, but in road we don t have this kind of endorsement from professionals.

We have a new road frame (the 2013 Scultura SL) and a new time trial frame. Actually, the TT frame will be available at Eurobike (29 August 01 September) this year; it is the only new product missing (at Taipei Cycle show).

At a dealer camp in the Netherlands this January, Jeng made a simple statement that Merida wanted to be in the Tour de France; sooner than later. Surprisingly, this barely caused a ripple; possibly demonstrating how well-disciplined or product-focused its dealers are with such information. Merida is in no doubt about which professional road cycling division it is targeting. According to Jeng, it has to be a ProTeam. Our preference would be for a European team because the majority of Merida s sales will be in Europe.

Two or three years ago we had a chance for high-level sponsorship with an Australian team, Fly V. Obviously, they did not succeed with certification. explains Jeng, when asked to identify when the decision to actively engage a professional road cycling team was made. We have never stopped looking for this kind of opportunity, but this type of feeling must be from both sides. Sometimes we may love her (referring to a team), but she has to want to marry you! We ve had this dream for three of four years, though this year we became more aggressive because we can see that our product is now ready. Our 2013 frames have received UCI certification. We are willing to talk to some potential teams and maybe they are willing to talk to us. We re ready to go.

Should Merida succeed in its quest to supply road bikes to a ProTeam Jeng states that Merida wishes only to be an equipment sponsor, not a title sponsor it will not be able to activate any exposure via sales into two key markets.

Early into its OEM relationship, Merida entered into a Gentleman s agreement with Specialized and its other North American buyers not to sell Merida branded bikes into the USA or Canada markets. According to the National Bicycle Dealers Association, an estimated 19,765,572 bicycle units (of which 6.7% were bicycles with 700c wheels) were sold into the US market in 2010. Market research firm, NPD Group, produced a report for the same period, which estimated the global market for bicycles at 137,000,000 units. This suggests Merida can only access 86% of the global market that Specialized could potentially seize; a significant market capitalization disadvantage.

Pondering this dilemma, Jeng accepts this could be a problem, which is why I say our preference is for a European team. This is something we cannot change because we have a commitment between our company and our long-term buyer and we have to honour this.

It has been a commitment from Merida since we started our own business 40 years ago. In that time we committed to our US buyer that we would never compete with them in their home market. The commitment has been there for years and we follow it. It shows we are a reliable, trusted company.

In contrast to Merida s slow-burn strategy to form joint venture distribution with long-term import partners another key difference to Giant, which insists on a more vertical model of integrated subsidiary Specialized continues to actively build fully-owned infrastructure across the globe. Ironically, Specialized went direct into Taiwan Merida s home market in 2009; the benefit to Merida evidently being increased production orders of Specialized branded bicycles.

In any case, Merida seems content, for now, to pursue growth outside of the USA/Canadian marketplace. So, what is the projected return, should Merida invest into a ProTeam deal? For the Merida brand, we expect road bikes will become 30% of our overall global sales that is our target says Jeng, without delay.

Tour de Taiwan trivia Stage five of the Tour de Taiwan passes Merida s Taiwanese headquarters in Changhua County. In fact, the second intermediate sprint is directly opposite the factory grounds.

Whilst Merida only provides bicycles to one team at the Tour de Taiwan (Merida Senter), it also produces the Specialized bicycles used by two other participating teams; Saxo Bank and Terengganu Cycling Team.