After the double rise of 2% experienced in 2018 by Quality and Budget brands (or also known in slang as second and third brands, with value for money as differential axes) in the Spanish consumer tire replacement market ( tourism, van and 4 × 4-SUV), now, in the midst of the world crisis due to the coronavirus, they suffer their particular ‘Q & B … virus’, because in 2019 they closed with corresponding drops of 5% and 8%, respectively, which have increased at the start of 2020: -11% quality and -27% budget !, according to Europool, as reported by the magazine ‘EuroPneus’ in a report published in its latest February issue. Come in and read.
To contextualize this ‘Q & B … virus’, and as we already pointed out in the last issue of January, sales to the channel in the Spanish market for consumer tire replacement (king segment by volume and value) closed 2019 with a fall of 2, 6% (lower than -3% on average for the European market as a whole) and a figure close to 14,955,000 tires, almost 400,000 units less! compared to the 15,350,000 covers of 2018, always according to Europool, a select club that brings together the main groups of manufacturers that operate in Europe, such as Apollo Vredestein, Bridgestone, Brisa (Lassa), Cooper, Continental, Goodyear, Hankook, Maragoni, Michelin, Nokian, Pirelli, Prometeon, Sumitomo (Falken) and Trelleborg. But as we always reiterate, to round off the X-ray of the global real market in Spain, to these figures it would be necessary to add the sales of non-Europool brands such as, for example, Yokohama, Kumho, Giti, Triangle, Ovation, Nexen, GT Radial, Westlake , Toyo, T, Z, Maxxis, Infinity, Goodride, RoadX, Horizon, Zeetex, Nankang, Interstate, Federal, Blackstone, Wanli, Fortuna, BlackLion …, and countless other signatures.
Thus, when analyzing the aforementioned punctures of 5% and 8% of the Q&B brands, respectively, in 2019, and calculating the current volume of both and their approximate share in the Spanish tire replacement market, Cooper Avon specialists point out that “At the end of 2019, Quality brands have registered the first drop in six years, since, since 2014, they have been increasing their market share gradually, year after year, thanks to their excellent quality / price ratio and the enormous effort in R&D that placed them at a level similar to that of a Premium brand. But in 2019, the total market has closed with an overall decrease of almost 3%, accusing the political instability experienced during practically the whole year, economic indicators, with symptoms of a slowdown worldwide, and environmental regulations. None of this has contributed to generating consumer confidence. Given this situation, the market has moved, repositioning prices downwards, with offers, discounts, etc., especially among Premium brands, which have dragged the rest, which has generated increasing tension in the fight for quotas in a market whose margins are already more than reduced. We estimate that the Q&B Europool brand market in 2019 is around 4 million units, to which we should add non-Europool brands ”.
Kumho specialists are of similar opinion: “2019, in general, has not been good for the tire sector. The fall in Q&B has not been as pronounced as the Europool indicates, since many brands in these segments do not enter these calculations and we believe that in the three segments (Premium Quality and Budget) the market has performed practically flat. All these data affect the sales to the channel that end, also affecting the sales of the final consumer. We estimate that the Quality brands approximately have a weight of around 25%, while the Budget ones are close to 20%, within Europool. As for imports, the Q&B weight is much higher. The percentages in van and, especially SUVs, will be lower, especially in Budget brands, since the offer does not cover all types of vehicles and is more focused on tourism. ”
Continental believes that “the market indicates a positive trend towards large rim tires. The main players in these types of tires are the Premium brands. An example of this situation is that in registrations the only segment that continues to grow is the SUV. In both segments the value of the sell-out has a slight drop compared to 2018. The weight of Quality brands in Spain is around 25% with a slight drop compared to 2018, while the Budget segment falls to a percentage lower than the 18%. The volume of Quality in Europool is eight times that of imported tires, while in the case of the Budget segment, imports are two and a half times the weight declared in Europool. The weight of passenger tires is ten points higher in the Budget segment, while that difference is reflected in the Quality segment in van and SUV. “
The acor accordion effect ’of the Q&B
Experts at NEX (exclusive distributor of brands such as Maxxis and Kleber in the consumer segment) acknowledge that “Quality brands continue to suffer greatly from the ‘accordion effect’. On the one hand, they have the sell out positioning that certain actors in the market offer to the top brands and the great investment they make in promoting their products. On the other hand, we have a large number of cheap brands of import or European manufacturing that the market offers. And in the middle are Quality, which is a very good product that cannot and should not compete for price with cheap brands and, due to what was explained at the beginning, they do not stray too far from premium brands. It is normal that they suffer and all a merit that they still maintain such a high weight in the market, thanks to the defense that specialists make of them ”.
Regarding the volume of the Q&B brands, NEX estimates that “between the two (Q&B) we will be talking about a weight of 14 million tires, that is, 63% of the market. But it is that the Budget brands already represent 45% of the tires sold in our country. “We must highlight the growth in trucks, where the Quality have a lot to contribute and benefit from a segment that has been booming in our market in recent years.”
For Bridgestone, the falls in Q&B brands “follow the general downward trend in demand that we have seen in 2019. Premium brands have managed to end the year at the same level as 2018 but with a significant erosion in prices, which has led to position some brands at a level where they have even captured the demand of the Quality segment. Q&B volume? Taking into account the brands that Europool does not reflect, we can be talking about a market of around 10 million tires in Spain ”. As for the share of Q&B in the fashion segment, the ‘all season’, which in 2019 closed with a rise of more than 33% and some 910,000 units in consumer, Bridgestone experts estimate “a weight of around 14% ”.
The Tiresur specialists (exclusive distributors of brands such as Triangle, GT Radial, Ovation …) analyze that “if in general the sector closed the year with a drop of 2.6%, this slowdown in the sector became more palpable in Q&B brands , although it also affected the premium segment, which saw just 0.5% growth. This decrease has been logical and expected, since our sector is no stranger to the evolution of the economic environment, where the reduction in GDP growth forecasts, the slowdown in enrollment and political instability, have attacked the most vulnerable segments. sensitive to the crisis, those whose target audience is the one that is willing to make a lower investment, therefore, more vulnerable before complicated scenarios ”.
Regarding the share of Q&B brands in consumer ‘all season’ tires, they acknowledge that “it would be somewhat risky to figure in exact numbers the percentage of participation of Q&B brands in the All season segment, but we can affirm that, although still little Significant compared to the premium offer, there are more and more Quality and even Budget brands that are developing this type of four-season tire in light of the growing market demand. And this is also thanks to the increase that the big Q&B brands are doing in Research and Development. In our case, both Triangle and GT Radial, Quality brands exclusively distributed by Tiresur, have developed very competitive All season tires. Their advanced technology and excellent value for money make these two options a smart choice over premium tires. Tires developed with European engineering and extensively tested on the best circuits, which are fully guaranteed by the manufacturer, whose enormous investments in R&D continue to bear fruit with constant range extensions ”.
From Pirelli they analyze that “2019 closed conditioned, on the one hand, by the reduction in prices of Premium brands, which has made their products more attractive to the final consumer. On the other hand, it is worth noting the increasing specialization of the tire and the demand of the main manufacturers, which causes the Q&B brands to gradually reduce their weight in the market. We estimate a non-Europool market of around 4 million units in which, if we subdivide the main segments, we find that the tourist covers would be around 8% and the SUV covers around 9% ”.
For Grupo Zenises (brands Z, Westlake and T, mainly), “the cause of the Q&B falls could be the approach of prices and the deterioration of differentiating margins between all channels, with the consumer being the beneficiary, who can pay one premium – quality brand. We calculate that the weight of the quality is around 20%, and from there, 60% would be passenger tires; 15%, van, and 25%, covers 4 × 4-SUV. The budget share is around 40% and of them, 70% tourism; 10%, van, and 20%, the 4 × 4-SUV. And in the ‘all season’? The total weight does not reach 5% on the total of the national market; In ‘all season’, the Q&B ranges are very few compared to the premium ones ”.
In Hankook they analyze that “the reduction in prices of Premium brands has helped to maintain the mix and has lowered the expectations of B&Q brands. In addition, the type of car registrations of recent years, where UHP tires predominate, help Premium brands to continue with their weight in the market, since we can offer a wide range of tires over 17 ”Where the Q&B brand ranges have less dimensional range. It is difficult to establish a percentage since these segments today are being subdivided between different levels of quality and budget brands, including in this subdivision also ultra budget brands, with all this our estimate is around 20% the weight of Quality brands and Very similar to the Budget within Europool. Q&B in ‘all season’? Due to the product offer, the weight of the Premium brands is greater in the all season segment than in the general market. However, we note an increase in weight mainly in quality brands, although the Budget are also starting their offer in this segment, which without doubt is strategic due to its increase in recent years. “
For Grupo Andrés, distributor of brands such as General Tire exclusively for Spain and Portugal, “indeed, both Q&B categories are falling considerably in market share. The second brand is stuck in a difficult point to overcome given the Premium strategy, which, without launching the bells on the fly, holds its space, gaining in sales volume, although this has meant adjusting for value gains. The inexplicable offers of the Premium brands since the beginning of the year completely deposed Tier2 (Quality) that did not find their space and had no capacity to react. In consumer, Quality occupies 28% of the market and Budget 27% in Europool ”.
From Zafco, distributor of brands such as Zeetex, Toyo, Otani or Armstrong, they recognize that “the enormous pressure of the sale has modified the entire price-margin structure in the market, making the distance between premium and quality brands be every less and less, tilting the balance towards premiums due to the greater ease of sale / argumentation of the same. The last estimate we have is that, apart from the 15 million tires declared by Europool, another 7 million would correspond to brands outside this registry, with approximately 20% being Quality brands and the remaining 80% Budget. By segments, we estimate that the weight would be similar, not having great differences. Q&B in ‘all season’? We estimate that the Quality segment could be around 15%, around 136,000 units, and the Budget 25%, around 225,000, the rest being Premium ”.
At Nexen they analyze that “2019 has been a year in which the initial forecasts have clearly failed, and where we all expected sustained growth. We find that the market, both sell in and sell out, has turned around. The drop data that Europool gives us for the Quality and Budget brands is important, but we must bear in mind that they reflect the data of the manufacturers within Europool, clearly focused on the Premium segment. We do not have the general data for the total market, possibly it follows the Europool trend, but focused on Quality and Budget, and where the falls are not as significant. As for value, it follows the same trend, slightly downward, although it is offset to some extent by the improvement in the tire mix, where all manufacturers try to join forces.
When analyzing the start in 2020 of the Spanish tire replacement market in the consumer segment (tourism, van and 4 × 4-SUV) referring to Q&B brands, all experts agree on the effects of the ‘Q & B … Virus’ Given the aforementioned falls of 11% in quality brands and 27% in budgets: “The start of the year confirms the downward trend in the market in these two Q&B segments.” Thus, some recognize that “the beginning of 2020 is not being good. For the moment, it maintains the descending line, more pronounced, even, with which the market has closed 2019 “, and others that” according to data from Europool and, comparing it with January of last year, has had a sharp fall that undoubtedly will drag in subsequent months. We are starting the course and it is early to draw conclusions. The important thing is not how it starts, but how it ends. “
Q&B: market launch in 2020, effects of coronavirus, forecast …
And other specialists go deeper: “The beginning of the year has been worrisome in general, but in line with those expected in light of the macroeconomic data that showed, as we said before, a reduction in the number of registrations and a downward revision in GDP growth, among other magnitudes. All segments are down, and even premium has been affected, falling 6% according to Europool data for January. The start of the year has therefore been a warning of what this exercise can be, although logic leads us to believe that seasonality will help mitigate the bad results of this first month. “
When listing the current keys to the Q&B tire market in Spain, the majority of experts consulted agree that “Q&B brands have long since offered more complete ranges, with higher speed codes (V, WYZ) and rims from 17 “to respond to the demands of the car park. That is, there is a marked trend towards high performance to compete with Premium, not only in price, but in performance. In this way, the excellence in the quality / price ratio of Quality brands is reinforced as a sales argument. Manufacturers offer more and more versatile products, with greater benefits, keeping prices adjusted to meet customer demands. Thus, the gap between premium and Q&B is decreasing. In fact, today there is more technological proximity between a Premium and a Qualiy brand, than between this and a Budget. In other words, the keys remain the same: better and better benefits with adjusted prices. ”
At the wheel of this, others are resounding: “The key in recent years has been price. The pressure of Premium brands to tighten margins complicates Quality to maintain its space in the market ”. And others add: “the success that has led to positioning Q&B tires with so much market share, and that has forced premiums to reduce their margins in the face of their competitive threat, is the high technological development that this type of tires. The latest technology is no longer exclusive to the premium segment, and the options to choose certain Q&B brands have become quality options at a very competitive price. Therefore, the key to the success of these segments is for manufacturers to continue betting on making large investments in R&D, so that Q&B tires continue to be a commitment to quality at the best price. In addition, the continuous expansion of the range is another key, with winter tires and ‘all season’ ”.
They also underline that “the keys to the success of Quality brands are exclusivity in distribution, apart from the margin that they provide to the distributor / workshop, and in the budget segment, price is still the main factor for their sale, although a rebound in the quality of these segments, together with the increasing dimensional range they offer. We believe that the key to growth may lie in the replacement rate of fleet vehicles and, on the other hand, in the reaction of companies and consumers to the general changes in the mobility market in environmental matters, for example ”.
Some even predict that there will be a natural natural selection ’:“ We are many actors and brands: we will begin to normalize this situation and many brands under the umbrella of premium brands will not continue in the market. In some quality brands it will not be a surprise if it is absorbed by a competitor to add to the market share ”.
When forecasting the evolution of Q&B brands in the Spanish market during 2020, most specialists agree that “Q&B sales forecasts in our sector are not entirely rosy, after the fall suffered in 2019 and the bad start to the year. With the current price battle, it is difficult to interpret a behavior pattern between brands from different segments ”.
And they acknowledge that “for Quality brands the scenario is one of uncertainty given the result of the second half of 2019 and the trend is expected to continue. In the Budget brands it is believed that we maintain the growth trend driven by non-Europool brands. However, there are important factors to consider, such as the price of rubber in international markets, the coronavirus and its effect on the production capacity of these brands and exchange parity. If the dollar continues to strengthen against the euro, it can generate a progressive change in trend in both segments, increasing competitiveness in second brands and reducing in third brands. Looking ahead to 2020, passenger tires have a downward trend in both segments, while SUV and van tires are forecast to rise in both Quality and Budget.
Article courtesy of: Euro Pneus https://www.europneus.es/
