The Torqued Wrench: Industry apes

The Torqued Wrench is a look inside the mind of VeloNews.com tech writer Caley Fretz. Every other week he’ll tackle the rumors, trends, innovations, and underpinnings of the tech world — or something else entirely. You can submit questions to TorquedWrench@competitorgroup.com.

Cycling is a social industry, one dominated by a localized business model centered squarely on the local shop — a place that, when ideally run, is a beating heart of community; a spot for a wildly disparate group of people to connect around the one activity held dear by each. A friendly front sidewalk and public pump beget hours of communal group ride suffering; the shop is our clubhouse, our library, our lecture hall and our dealer, always ready to feed the habit.

Good shops, and brands, understand this community. It is no surprise that small brands still flourish here, within our homegrown and relatively obscure culture. Nor is it any revelation that brands that take advantage of the community within cycling, inserting themselves effectively into the consumer contact point that is the local bike shop, tend to be most successful.

This is all a roundabout route towards the topic of discussion this week: the 800-pound gorillas of cycling. The big dogs: the most powerful companies in our $30 billion pedal-centric industry; the brands that are at the helm, leading the rest of the industry, and therefore the sport. Their success here has been no accident; each effectively tapped into the aforementioned community — but that’s a column in and of itself (probably my next one, actually). This week, I’ll focus on identifying, de-mystifying, and putting into context the key players.

Component giants

These companies should come as no surprise, though the disparity between apparent competitors might. In the realm of skinny tires, the Big Three are really the Only Three: Shimano, SRAM, and Campagnolo.

Oddly enough, Campagnolo is the youthful upstart of the three. Shimano, née Shimano Iron Works, was actually founded 12 years before the Italian company, with their first freewheels produced in 1921. Tullio Campagnolo founded his company in 1933. Despite his fashionably late entrance, the Italian certainly had a greater impact on the development of the pre-STI bicycle than Shozaburo Shimano did, though.

But both are younger than the baby-faced SRAM, which bought the bicycle division of Sachs in 1997 — a manufacturer that dates back to 1895, giving SRAM the longest lineage of them all. SRAM itself, as started by Scott, Ray (CEO Stan Day’s middle name) and Sam, is only 25 years old, though.

But here’s where it all gets interesting, at least for this über-nerd.

In fiscal year 2010, Campagnolo brought in about $150 million in sales. SRAM nearly quintupled that, with an estimated $524 million haul. That includes subsidiaries Avid, RockShox, Truvativ, and Zipp. Both figures come from the National Bicycle Dealer’s Association (NBDA). Campagnolo and SRAM are privately held companies, so precise financial data is a bit harder to come by.

Given the sales figures from these two, I expected that Shimano would pull in somewhere north of $500 million and south of about $1.5 billion annually. They provide a much wider breadth of products, across every price range, and have had the OEM (Original Equipment Manufacturer, the parts sold to frame makers to build complete bikes) market all but cornered in the past.

Nope. Shimano’s sales totaled an incredible $2.7 billion in 2010. Five times larger than SRAM, eighteen times larger than Campagnolo.

About 80% of that comes from Shimano-branded bike componentry; the rest is from subsidiaries like Pearl Izumi and from fishing equipment. That drops the total sales down to about $2.16 billion for cycling hardgoods — still four times larger than its closest competitor. No wonder the company has about a billion dollars in cash reserves, and a few hundred more patents than SRAM and Campagnolo.

In other words, Shimano is still the undisputed king of componentry.

Frame brands

This whole post was partially spurred by comments in my recent story about the Specialized versus Volagi lawsuit currently in progress in California. A consistent theme popped up in the comments section: that Specialized is perceived as an “800-pound gorilla” in the industry, and is just picking on poor little Volagi because they can. This perception was amplified by the fact that Specialized would not comment for the story, giving Volagi an uncluttered soapbox.

If Specialized is the silverback in this analogy, then Volagi is a pack of lemurs flinging poo with a gusto found only in the thoroughly out-gunned. They’re attempting to stink up the gorilla sufficiently to send consumers (or perhaps just a jury) running. Problem is, lemurs can only poo so much — they seem to face an insurmountable problem of gorilla surface area. But that is beside the point, really. The point is that the whole issue begged a question: just how big is the “Specialized gorilla?”

The short answer is that Mike Sinyard’s California-based Specialized, while impressively large and powerful, is still walloped by a bunch of cheeseheads from Wisconsin.

While Specialized may be a gorilla in comparison to Volagi (which sold 175 units in 2010), Trek is the 800-pound ape in the U.S. market, with total sales estimated at just under $1 billion in 2010.

In 2009, Trek sold an estimated 720,000 bikes through shops in the United States, or about 22% of the total market. Two years ago Gary Fisher had not yet been folded into Trek, and sold 109k units. Now that they’ve been brought into the Trek fold, those sales will count for Trek. Specialized slotted into second with 340,000 sold — less than half of Trek. Giant falls in third, with 320,000 units sold. (All figures come from NBDA research and surveys completed by the Gluskin Townley Group, LLC.)

Outside of these top three, the decline in market share is precipitous. Raleigh’s fourth place earned them only 5%, and brands outside the top ten claim less than 2%.

The top three brands obviously hold enormous power relative to their smaller counterparts, but they are still far from monopolizing the industry. To put all of these figures in perspective, global cycling is a $30 billion industry today. That means that the trade’s largest player, Shimano, makes up less than 10% of the industry as a whole. Trek can claim a measly 3%.

Perhaps it is the aforementioned localized, community-centric focus, combined with the disparate personalities of cyclists themselves, that keeps the industry functioning this way.

We all want something different out of a bike ride, and we select different tools accordingly. There is simply no way for a company to provide products that fit the needs of all. Disciplines are too specialized, and riders are too picky for it to work. Plus, as those Specialized v. Volagi story comments proved, there seems to be a deep-seated mistrust of the largest brands. We still revere independent builders, individual innovation, and small brands that push the envelope. We like companies that seem to be in the sport for the same reasons we are. I hope that doesn’t change anytime soon.

Ten best-selling brands in the US in 2010

1. Trek
2. Specialized
3. Giant
4. Haro
5. Electra
6. Raleigh
7. Redline
8. Cannondale
9. Sun
10. Felt

Source: 2011 NBDA Retail Survey