Sameer turns to tyre recycling in tough pricing war
A worker at Sameer East Africa examines a tyre at the firm’s Mombasa Road plant. The firm’s CEO said competition in the market is stiff. FILE
What you need to know:
Sameer Africa's retread unit opens in six months to rival cheap imports from Asia.
Sameer Africa will start manufacturing cheaper recycled tyres to gain market share and lift sales in a business dominated by low-cost imports from Asia.
The Nairobi bourse-listed firm will open the new unit within six months after upgrading its plant to allow for the manufacture of the second-hand tyres in the price-sensitive regional market.
Sameer has faced rising production costs and increased competition from cheap imports in the tyre market that has muted its sales and profit over the past five years, prompting it to diversify its business away from new products to include recycled items.
Allan Walmsely, the firm’s CEO, said the new unit will help Sameer gain market share and defend its business from the cheaper imports in a strategy hinged on pricing.
"People have the notion that our products are expensive but we intend to retread rubbers which will be cheaper but effective as the new tyres,’’ said Mr Walmsely in a telephone interview with the Business Daily on Friday.
‘’We will base our pricing on the current rates in the market. The competition in the sector is stiff but our prices will be reasonable,” added the CEO, who replaced Michael Karanja as head of the tyre firm in September.
A spot-check by the Business Daily indicated that Tyre retreads are retailing at nearly half the cost of new ones. For instance, a size 14 Tyre manufactured by Sameer under the Yana brands was retailing at Sh11, 000 along the Kirinyaga Road with its recycled counterpart from Ling Long Tyre Company going for Sh6,500.
Similar Bridgestone branded tyres—which are distributed in the region by Sameer under the Bridgestone franchise deal—are selling at Sh12,000 while Indonesia GT company selling at Sh8,000. Bridgestone owns 14.9 per cent of Sameer with businessman Naushad Merali controlling 57.2 per cent.
The tyre market has witnessed increased number of players since 2005 when the government reduced import duty from 25 per cent to 10 per cent in favour of transporters in partner States under the East African Community external tariff.
This has posed a challenge to Sameer over the period since its sales remained static at Sh3.4 billion in 2007 and Sh3.6 billion 2011 before recovering last year to Sh3.9 billion.
This has come despite the company having reviewed prices several times over the period, a pointer that its unit sales have remained sluggish.
Tyres can be retreaded up to three times. The process involves replacing tread on worn tyres and its material cost is about 20 per cent of making a new product, offering room to manufacturers to price their products cheaply without hurting margins.
Sameer’s profit increased 95.7 per cent to Sh189.7 million in the year to December. Its share at the Nairobi Securities Exchange has gained 49.3 per cent in the past six months to Sh5.30.
