Focus on Original Equipment to Target the Aftermarket

When the bottom fell out from under crude oil prices, companies like tire maker Hankook took the opportunity to pass on its savings by way of a steady diet of discounts for its customers, bolstering its overall sales. Now that prices have rebounded from lows, those discounts are fewer and farther between, and Hankook says it will widen its footprint to keep growth at targeted levels.

Costs in the tire manufacturing segment are highly dependent on prices for raw materials, especially crude. “When oil prices plunged from US$108 to US$31 in January 2016, companies like Hankook Tire could offer attractive discounts on their products to boost their overall sales,” says Sergio Álvarez, Commercial Director of Hankook Tire de México. However, that situation could not last forever and now that the cost of crude is rising again, those promotions are no longer viable. “Higher oil prices are managed gradually, with seasonal discounts in the summer or over the Easter holiday,” says Álvarez.

Oil price fluctuations have contributed to the company’s overall growth, which hit 12 percent in 2015, and 16 percent in 2016. Though the situation is not as favorable as in 2016, Álvarez still expects the company to close 2017 with double-digit growth. However, to meet this expectation Hankook Tire will have to expand its distribution footprint in the country, he says.

Since 2010, Hankook Tire has been strengthening its distribution network but Álvarez says the company is now trying to target a niche segment. The company is growing its Hankook Masters network, which are highly specialized shops focused on the premium market. At the same time, although previously focused on medium and small-sized retailers, the company is looking for new distribution channels among large supermarkets, such as Sears, Sam’s Club and Chedraui, which offer a more attractive option for clients looking for their preferred product. To support these goals, Hankook Tire will be opening a new distribution center in Monterrey. The project will be finalized in the third quarter of 2017 and will serve customers in Nuevo Leon, Coahuila, Chihuahua, Durango and the northeast of the country. This new distribution center will complement Hankook’s operations in Queretaro, which will focus on the center and south of the country.

The company also plans to target the digital market with a new website that allows customers to locate Hankook distributors or service centers more easily. To shop online, customers only need to input the brand and measurement of their tires to locate several related outlets. “We are committed to e-commerce,” says Álvarez. “In Mexico, only 1-2 percent of all sales are carried out online. In about five years that number will grow to 5-6 percent. The success of e-commerce starts with young people, who are not afraid to buy products through the internet.”

Álvarez says, however, that the aftermarket will not be Hankook’s sole objective in Mexico. In 2017, the company will open a tire factory in Tennessee that is expected to produce 6 million tires annually. This project will help Hankook target the original equipment market in Mexico. “We have 10 percent participation in the global market. We keep growing thanks to our work with brands like Ford, GM, Kia, Hyundai, Volkswagen, Nissan, Mercedes-Benz, Audi and BMW with our run-flat tires. These allow cars to travel at a speed of up to 80km/h, even after losing air pressure due to tire damage. We are the sole suppliers for the Chevrolet Spark globally and will soon be working with a Japanese OEM,” says Álvarez.

The heavy vehicle market also represents an opportunity for Hankook. While the brand targets the light vehicle segment with the Hankook and Laufenn brands, truck fleets and manufacturers favor its Hankook brand. Together with fuel, tire replacement costs are the two main expenses truck and bus fleets have to face. Álvarez says Hankook tires offer the performance and safety necessary to ensure driver comfort while cutting costs per kilometer between 10 and 15 percent. “Hankook protects its presence with logistics companies by offering long-lasting premium tires, thus reducing maintenance costs,” he says. “Our company follows four main values which are performance, safety, comfort and sustainability. We apply all of these with the goal of maintaining the same growth we have achieved in the past 10 years.”