The Bikeconomics (Mega)Thread

Interesting move... So they have Schwinn and Mongoose at the bottom still, a few other mid level city ebike and commuter brands like gazelle, SC, Cervelo, Cannondale and Focus. 

Focus seems like a weird one as maybe they're big in Europe? But they also have a a very paired down line now, with a few e-mtb's, a gravel line and one road model that all cross over on cannondale. Does Cannondale get shut down or does Focus get folded into Cannondale and Cannondale keeps being the generalist to SC and Cervelo out of the same area. 

They have also closed down Charge which I didn't know which is a shame, they had some cool bike a before they went full ebikes. 

I think bikes are more like beer, at least at the premium level. Look at road bikes for instance. Very small differences in geometry, weight, etc. and roadies openly admit to buying one bike over another based on looks because they know that an SL9 and a supersix aren’t actually that different and when you get used to one, you’ll forget there even is a difference… 

The difference is that one you sit with, enjoy, you’re seen using, is part of a memorable experience etc and the other is ideally forgettable and brief. People build an identity around what beer they drink, not so much for commodities they barely pay attention to. That’s not to say that marketing and branding and all that doesn’t matter, it’s just less powerful. 

The thing with there being too many brands is it comes down to diminishing returns I think. 15 years ago it was pretty easy to ride a bike, pick out a bunch of flaws and say to yourself, man I think I could do this better. Now, I think we’re beyond that and more into preferences. And where this gets really scary for brands is in competition with the Chinese manufacturers. 

With beer, the cost of switching or trying something new is next to zero. Yet people still struggle to do it. With bikes the barrier is obviously way higher. I think this makes it even harder to differentiate your bike from a competitors. Additionally there are obvious problems with reviewing bikes which further obscures any differences you try and make, which is exacerbated in a very crowded market. So if the kind robot were to make the perfect bike for robots to ride in robotic terrain, how would it convince the squishy things of that of the extent that they are willing to part with thousands of dollars? And how scary does that prospect become when you realize x-lab is about to bring their half price stumpjumper clone to your market in the coming months?

I think the main difference between toilet paper and beer is that one is required for most people, the other is not. You also don't get to show off what brand of toilet paper you have (outside your home). I think with many 'essential' items, its hard to compete on anything other than price as everyone has to buy it regularly. 

As onxx said, beer is a relatively low cost thing for people to switch between (compared to bikes). The difference between cheap beer and medium priced beer is a few dollars. Perhaps a closer analogue to bikes would be wine? There are options that are cheap and kind of suck. There are also options that are ridiculously expensive. Wikipedia has an 'incomplete list' of vineyards and wineries which makes it hard to compare.

Bikes are an expensive purchase that gets used for a medium time period, whereas beer and toilet paper are immediate consumables. Perhaps a more similar market would be motorcycles - they can be used for transportation (and therefore are essential to some), but for the most part are a recreational vehicle you hold on to for the medium-term. Wikipedia lists ~120 motorcycle manufacturers on their page List of motorcycle manufacturers - Wikipedia

TP is essentially a commodity. My ass can't tell one 2-ply sheet from another. While there are multiple brands on the shelf, differentiation is based primarily on marketing.

While TP has a single major function, beer simultaneously exists as a drug, near-luxury good [sometimes], social status indicator, and pleasure provider. Wine and coffee are similar. Tasting something is a unique experience for the consumer. It could be said that macro beer lies closer to the commodity side of things [TP], while the thousands of micro brands definitely hit the near-luxury mark. Translating this to bikes, macro beer is like big-box bikes and entry-level bikes from the major manufacturers - they roll on two wheels and are generally cheap to purchase, but nothing special. Micro brew is like "proper" bikes - more expensive to acquire, but far more attention is paid to personal enjoyment, and there's sometimes a prestige factor there as well.

From the manufacturing side, big-box / macro relies on high volume for profitability, while the smallest micro brands maintain much higher margins but with very limited production, like a custom frame builder. Between those two extremes, there are so many ways to make bikes or beer work as a business that there are going to be a lot of brands in both industries. 

I own/operate a [very] small commercial brewery, and will be happy to go down the rabbit hole of the craft beer industry if anyone so desires.

Your use of the word "generalist" hits the root of the problem.

Premium bikes are specialist items in a specialist market. The only reason I see to be a generalist brand is if you want a brick and mortar concept store to be a one stop shop - but brick and mortar retail is struggling even outside of bikes. Pon have some concept stores with the Mikes Bikes chain etc, but they also contain the specialist, premium options so they compete against themselves.

I can imagine a situation where Cannondale could tell a story of being the premium aluminum brand, and the other premium Pon brands were carbon only. But that would mean restructuring all the brand portfolios and removing more affordable options from the premium brands - but it would probably just move sales between brands rather than creating new.

Or they could double down on the moto story and make it an emoto brand to compete with Also/Surron/Super73.

I think beer might be a tough example, since from what I’ve heard, smaller craft breweries are closing left and right. 

How big is the premium aluminum market and how big is it going to be when next Sea Otter x-lab has carbon fiber mountain bikes for less than those aluminum bikes? 

I think most riders seeking a premium alloy frames are buying from companies that have an established history of building long term durability not the cheapest option available.

100%. My decision to buy alloy has nothing to do with price.

And when the time comes to buy carbon, I’ll pay more to go with a known entity.

TP is a commodity, so set that aside. 

Beer is a product where input costs are almost all variable and uncontrollable. Set that aside. 

The bike industry is wildly inefficient in terms of both production and inventory management. That’s why there are too many brands. There’s always some brand doing a fire sale, killing margins. 

Inefficiency means the product costs too much to make. Automate more of it. Amortize development and overhead costs over more units.  

Constant inventory chaos just brings prices back to ~where they would be if the industry were more efficient, but without any profits to be had. 

So would consolidation be good for consumers? Not in the short term. Maybe not at all. But it would certainly be better for the remaining brands and their employees. It would be painful for many getting to this place of greater stability. 

So are there too many brands? Yes. But also no. Just depends where you’re sitting.

Exactly. Although Klein and Cunningham argue over who was the very first, Cannondale were probably the most influential in bringing fat aluminum tubes to market, their CAAD frame story is still told on the road side.

I guess it depends on what you mean by premium. I'm not talking about cool-guy frames like frameworks, raaw, etc. Instead I'm talking about for a company like Cannondale, under Pon, presumably a "big" brand. Stuff like Stumpjumper, Levo, Ripmo, Vala, Spectral, etc. You really think MOST of the people buying those are choosing the alloy versions not because it's cheaper? Why can't you buy an alloy Nomad then? Why are the alloy options so limited across the industry? All those brands have "established history of building long term durability not the cheapest option available" too.  Keep in mind Specialized probably sells more alloy levos than frameworks + raaw combined. 

I think that to you guys it probably looks like there's a bigger gap in the market for Cannondale to go after with that strategy than actually exists. I get that there ARE people out there that actually prefer alloy to carbon, cost no object, but I think that's a very small minority.   I'm pretty sure we know what happens when you put a CAAD 14 on a shop floor next to a carbon RS7 that's over 1kg lighter and $500 less, or alloy RS5 that's $1000 less with the same 105 groupset... and I'm pretty sure Cannondale knows what'll happen to their margins. I wonder, how did x-lab sign up so many dealers so fast?

Again, this really goes back to there being too many brands. The market is crowded AF. 

Toilet Paper consumer choice is mostly driven by quantitative factors : price, number of ply, size of roll, etc. The only real qualitative factor is how it feels when wiping and I don't that think that ranks high in consumer final decision compared to price.

Meanwhile beer consumer choice is more driven by qualitative factors: taste, mouthfeel, bitterness and sourness personal preference, aroma, foaminess.

Marketing can help you spread the word of your quantitative advantage or difference with others brands/products but marketing main force is to impact and differentiate on qualitative factors.

So bike purchase decision can be driven by quantitative factors like price, weight, aero, travel length, wheel size, tire clearance, etc but when there is many options available with similar quantitative spec, qualitative factors come into play, does it look good, does it ride good, does it feel good when mashing the pedals or plowing into tech or jumping. And all those are highly subjective and personal.

Next up, you got chain of supply logistic that is relatively simple for toilet paper and beer. Wood pulp, water, grains is available anywhere so setting up local factory that take raw materials and turn them into finished products with a few production steps and only buying from another supplier packaging mean simple operations and forecasting.

Bike need multiple assemblies and sub-assemblies. Giant is the most vertically integrated brand in the market and they still need to rely on multiples suppliers to provide sub-parts like bearing, hubs, spoke, tires, drivetrain, brakes, saddle, etc to be able to assemble a finished product. And as much as most of those parts are made in east asia, you still need to consolidate, track, forecast and ship all of them to your assembly line.

Bike seems easy to western entrepreneur because they can just go to one of the frame manufacturer with a rough idea and let the frame manufacturer take care of the rest and then go to an assembler with a rough spec bill of materials and let the assembler take care of all the logistic to forecast, order and receive all those sub-parts and the western brand just take care of the logistics and sales of those completed bikes but that leave a lot of the operations out of your control.

And there are plenty of assembler and frame manufacturer especially for carbon frame that have very low MOQ to start production so barrier of entry for a new brand is relatively low.

In terms of price, Bike is more in between DSLR camera (mostly quantitative based) and mechanical watches (mostly qualitative based in your budget range)

Yeah you've made me kind of think about the situation. From a bike shop sales perspective, people come in and just buy Cervelo and Santa Cruz seemingly independent of marketing for the most part. It legit seems word of mouth at sometimes. Yes racing matters for them to an extent, but minimally compared to other brands. Someone coming in with zero issues to throw down 10-15k on one of those brands has to do with pure "pedigree" if you can consider bikes falling under that word. 

I would slot specialized, yeti and transition under that tent but very few other brands that someone with just come in and say "here is my roll of money for this bike I want please" consistently. 

Cannondale has required lots of money on things that have likely paid out on the road sidd, but I'd say even more dollars per sales on the mountain bike side of things over the last 15 years trying to shake the "Cannondale-ness" of their product has been hard, even through I'd say they are currently better than ever in both product and not being particularly weird as they have before. I do hope they recover if things are rough for them 

None of those products have any real follow up support (I mean you can send them pics if you have a piece of toilet paper break mid stroke, but they never respond!), and very low manufacture cost per additional unit. They rely on retail space in supermarkets that is essentially captured by the huge conglomerates that sell half the stuff in the supermarket. 

Both run on low margins, but in a system with highly predictable and stable margins. No one ever buys my second hand beer or toilet paper either…

Size, barriers to entry, marginal profit. 

From a quick Google, beer is 20 times the size of the TP market. This means it can sustain more players ,(but isn't the only reason, or always true)

Barriers to entry: both have low barriers to entry, beer is a very old and easy to make product. Toilet paper really isn't complex either, arguably both have similar distribution chains at a local level. 

Marginal profit, the next can of beer you sell with have a good amount of profit, encouraging others to enter the market to try take that, let's say it's 50c. TP on the other hand, has been driven down and down, so that maybe your making 5c off each sale, it's all about huge volumes as it's a necessity. This means others are discouraged e to enter the market, as they won't make a profit  overall until they sell millions of rolls.

If I was at my keyboard I could type out more examples, brings me back to tutoring economics days. 

Consideration on the Cdale event. If you look at the bikes in Pon's portfolio, they're essentially competing against themselves in regard to design. Each MTB brand in their portfolio has a Horst option for instance. It'll be interesting to see if SC goes full monty on the design in the wake. It offers benefits over VPP from both performance and manufacturing standpoints. Not saying VPP is a bad performer, far from it, but it does have design and manufacturing challenges that are basically absent from a Horst bike. As a legacy brand Cdale really didn't bring much 'new' to differentiate their models from other brands' designs. That isn't to say they were crap, just an observation on the carcinization of the industry. Their history didn't translate to sales, likely due to lack of differentiation and cost competition in the marketplace.  I'd hate to see it become a commodity rather than performance brand, but I think the co lost its way before being acquired by Pon. They were an engineering company back before Pacific bought em, actually making interesting bikes and parts. That aspect has been dead for well over two decades now.  

This is true. Craft brewing has been hit hard the last 4-5 years. Macroeconomics on a micro scale: Closure and consolidation have been rampant.

I don’t think there’s too many brands, I think there’s too many brands in the middle of the K shaped economy.

There will always be a demand for high end (SC, Pivot, Yeti, Ibis, Forbidden etc) and boutique  (Atherton, Unno, Crestline, etc.) Transition I’d include in high end due to their warranty being excellent.

Low end is all trying to hit a $5k price point on an Avinox ebike right now, because of Avinox’s own brand. In addition to all the great DTC offerings (Canyon, Ari, YT, etc) China (aforementioned X-lab) will be coming in soon and competing on price hard. Has already happened in road bikes and with Amflow. Amflows are being sold dirt cheap in bike shops. (once they actually land here)

Where does that leave bikes that are “real brands” (Latin for: still expensive af) but don’t have that high end/bling brand image? (Norco, Nukeproof, Rocky, Orbea, Devinci, Salsa, etc.) GT was here, Knolly was here, and some of those currently operating brands mentioned before have had issues. 

Maybe their are not too many frame brands, but combined with the number of other brands that appear on a bike and the number of SKUs per frame I think it's crowded. Trek has 14 ebikes each with ~3 trims, plus 20 regular bikes with 5+ trims (not including kids bikes, and not differentiating between aluminum/carbon as different 'bikes', just different trims). That seems wild to me. 
Plus, the differentiator between each trim is someone else's products/sale for the most part (other than carbon/alu frames; i.e. the main difference between the entry level and top end bikes are SRAM/Shimano product plus a few low-er margin/cost in-house parts). With how similar groupsets are getting these days (except weight, all AXS stuff is pretty much the same) I'm surprised someone hasn't switched to selling just one low-mid tier trim per model. E.g. if the thing that sells most is GX AXS level price, just sell one trail bike with that groupset, decent aluminum wheels and suspension, and good tires. Even better if there is adjustable geometry so you can get away with fewer frame sizes (e.g. headset flip chips for +/-10mm reach, then only stock three sizes across 90mm of reach). 

In Canada, a car company like Volkswagen sells essentially ~10 different cars, each with 3-5 'trim' levels. I know some of that is all sub-contracted out and some trim add-ons are from another 'brand' (like speakers from Bose) but at the end of the day it's still a majority 'Volkswagen' product changing from lowest to highest trim. 

The other killer for the mid tier brands is how good bikes have been for the past 7 years. I could go get a brand new uninspiring frame with select level suspension and house brand wheels. But I found a V1 Druid frame with a Cascade last winter for $900 and put my used nicer parts on it. My marketplace is full of Yetis and Pivots that are a few years old listed for the same price as a cheap new aluminum bike. 

If I'm going to spend more than a couple grand on a bike, I might as well save up for a couple years and get the factory/ultimate level build at higher cost. I'd prefer my mindset to be "wow this bike is sick for the crazy deal I got on it used", or "this bike is so sick because it is one of the nicest things I'll ever own". I don't want to be thinking "I spent $5k on this bike and it has performance level suspension and it's pretty good. I wonder if the extra cash for the factory version was worth it. Well, I guess we'll never know because I'm not dropping that much cash again any time soon."

Multiply this mindset across the entire bike market and the low to mid tier bike companies suffer. 

For your “real” brands it depends on what they have to offer:

Norco -offer decent bikes across the board and seem to still be working on the lower end of the spectrum with bikes like the torrent and fluid. Not to mention they are a distributor live to play
Rocky/Devinci/Salsa-are probably in the danger zone as they have the premium price tags but are questionable on value.

Orbea- seem to fit the high end around my area and I see a ton of people on their bikes.

Knolly unfortunately I think Noel made some decisions too late or too early that really messed things up. Aka Covid and post covid predictions.

The midsize companies it will be about hitting the trends and price points at the right time in the next few years.

speaking of Orbea, remember how I was talking a few weeks ago about  how Trek was dropping A-level dealers in BC? It turns out they talk to each other and a bunch of them are all talking to Orbea, who in return is naturally very excited at the opportunity and has promised increased support in Canada if a bunch of them come on board. 

People are drinking less. Maybe beer and bikes aren't that different.