Continental sets sights on replacement market

Customers at a Continental tire promotion event in Shenzhen. [Photo/China Daily]

Tire firm to open new test center, enter OEM business

Jay Dhillon is the only expat in his company, Continental Tires Trading (Shanghai) Co Ltd.

"To win in this market, localization is the most important thing. I believe Continental Tires is one of the most localized foreign companies in China," said Dhillon, general manager of the company.

"Our plant in Hefei, Anhui province is mostly local and it provides about 90 percent of all Continental tires in the China market and we want to keep increasing this," said Dhillon. "It's not easy for such a young company."

To further increase the company's localization in terms of product research and development, Continental plans to open a testing center in Hefei later this year. The move will allow the German brand to test locally produced tires much faster, as they will no longer be sent to its headquarters in Hanover.

Continental Tires brought its passenger vehicle and light truck tire businesses to China in 2006, more than 10 years after its rivals Michelin and Goodyear.

However, the company quickly became one of the market leaders by virtue of its advanced technology, reliable quality and localization efforts.

"During the past two years, we have significantly over-performed, doing four to five times more than what the market did. Although we don't expect the same speed Continental will definitely continue to over-perform in the future and we expect to gain more of the market share and provide more jobs," said Dhillon.

He said he expects China's replacement tire market to grow by close to 10 percent year on year in 2014, and continue that rate for the next five years.

"About 16 to 17 million passenger vehicles are sold in China every year and more car owners will have to replace their tires in the near future. Even if the cars are not driven as much because of public transportation they still need to change their tires and this will buoy the replacement market," he said.

Continental has started to establish dealerships in coastal cities and has expanded its distribution network to all provinces, with more than 4,000 authorized dealerships.

"For the next five years, we will try to open 600 stores every year and will be more quality-oriented," said Dhillon.

Continental has 18 BestDrive flagship stores across China, which are three to four times the size of their normal shops.

"We will add about 12 more this year and expect similar growth in the next few years to cover all major cities," Dhillon said.

Dhillon said the company was also heading into the original equipment manufacturer - or OEM - segment.

"From 2015 to 2017, you will see a lot of new cars with Continental tires, from global partners General Motors, Mercedes-Benz and BMW, as well as Chinese brand Qoros," he said. "We are also bidding on some local business with homegrown brands."

Continental plans to double the annual capacity of its Hefei plant from 4 million to 8 million tires in the coming years to meet market demand.

"We are now working on a strategy to balance our business in China from more than 90 percent in replacement currently to a healthy ratio of 60 to 40 between replacement and the OEM business," said Dhillon.

　　Youth focus

"Young Chinese, the major market for Continental's replacement tires, pay more attention to performance, safety and quality than their parents and their consumer habits are different," Dhillon said.

He said the younger generation shops online and pays attention to comments from previous buyers.

"We got some key opinion leaders and consumers to test our tires and share information about their experiences," he said. "It really helped."

As one of the official sponsors for the 2014 FIFA World Cup, Continental took the opportunity to launch a marketing campaign during the summer to further promote the brand and engage with the young audience.

Along with a series of football-themed activities, Continental also rolled out a limited edition FIFA tire - the ContiMaxContact MC5 - to ignite passion among football fans in China. Dhillon said demand for the tire, which featured a football and the 2014 FIFA trophy, far outstripped supply.

"We saw great enthusiasm among Chinese football fans and the marketing campaign was a milestone in our local strategy," he said. "China is one of the most important markets for us and we are keen to continue our global success here to further strengthen the emotional bond between our brand and Chinese consumers."

The company has sponsored international and regional football tournaments for the last 18 years and acquired a rights package from the 2015 AFC Asian Cup to be the first tire manufacturer to sponsor a top Asian football event.