Q: With the new retail strategy, what’s its likely impact on Mercedes-Benz India’s profitability?
First, with franchise partners. The new car business has always been volatile. There were big swings. Some years are a little profitable, some not. It’s different for different dealerships. Overall, we have seen instability of profitability in the new car business. The service business has always been reasonably profitable though.
What we believe is that we’ll have a consistent positive business in the new car sales for our franchise partners going forward. How much profitability, time will tell that, but we have done simulations based on actual cost, and shared and discussed with all our partners collectively and individually. They have looked into that, and they are all for the new model. So, I presume that they trust that this is changing profitability for the better.
It might not be the same level for every dealer but overall it will go in that direction. That’s because we have fully reviewed the cost structures of our investors and how we can increase productivity. We have put out a margin level which is satisfactory.
For Mercedes-Benz India also there are several benefits. We would expect that our inventory carrying cost will substantially reduce, even if the dealers pay it, because the dealer margin also was factored in the inventory cost earlier. So, we take out a lot of the inventory cost. Required inventory itself will now be 20%-25% less because we have a central repository.
It will allow us to optimise between what we saw at dealers and our site. For example, we now don’t have to have 10 GLCs in certain colours standing at every location. We will be able to optimise both our cost of inventory and the financing cost for it. We have also had capital infusion and we are less dependent on financing costs, so we have some savings on that end.
ROTF should help us also in terms of keeping our market position, and even increasing it.Martin Schwenk
I would expect that we get a higher efficiency in sales, and in sales outlets we will get higher staff productivity because we have standardised systems and structured processes. Even if we have any ageing stock, we can centrally manage it by offering a programme to customers across India, unlike earlier when a car may be sitting unsold for 12-18 months with a dealer in a certain location. It might take some time to get there, can’t give any precise time frame. But overall we expect substantial positive impact for us, including in terms of savings. Selling is the bigger part of it. I believe we will be able to explain better to the customers what they get with a Mercedes, how to select the car they really want, give them the best price with absolute transparency, and the trust they have with their dealer and with us. This will also build a stronger future for sales. I am confident that this is a USP, and an advantage which should help us also in terms of keeping our market position, and even increasing it.
Q: Under the new strategy what is the level of potential gains in volumes?
Difficult to say because there is an overlay of several things like product portfolio, market dynamics, and product lifecycle. I think with the new format we’ll see a lot of enabler criteria like improving customer satisfaction, increasing residual value of vehicles as there will be no random discounting, which means the customer gets a higher value for what he buys.
I would expect that also to translate into sales but I don’t think we’ll ever be able to connect the dots and say, ‘this is what we did, and this is what the output is’. That’s why in our plan we never considered that we will sell more, but we considered that we will sell better. If there’s more, which I hope, but it’s not needed for the same to be profitable.
Q: Would you say ‘Retail of the Future’ is the boldest move you have had in your career so far?
For me, for sure. I can clearly say that it is the biggest thing I could ever witness and work together with my team, because here we are not only changing or bringing say a product, we changed the course of our company and I believe we will have an impact on the entire industry from what we are doing. I can for sure say it is a pivotal point for our company, and the world afterwards will be substantially different to what it was before.
Q: Can this,or a similar model be adopted across the industry?
I can’t comment on other brands, but I don’t see why it can’t be done by others. I don’t wish that all of them do it because it will take some of our advantage away! But I am very convinced whatever we have shown under the ‘Retail of the Future’ model is interesting to many players in the industry. Let’s see what their conclusions are under their framework. I know well enough that one has to consider one’s framework. For example, it is very difficult to do such a bold move without the trust between us and our franchisees and investors. We did everything in a very collaborative and open spirit and that’s why we are here, and that’s why we are able to do this bold move. I can say we have conducive conditions for this business.
