The wheels on the vehicle tyre sector are set to keep turning. By JASON BAKER of IBISWorld.
By Jason Baker
The steady but unspectacular growth the tyre retail industry has enjoyed since 2002 is likely to continue in the years ahead. IBISWorld forecasts tyre retailers will experience average revenue growth of 2.8% per year until 2012-13, up from the 2.3% growth of the last five years.
The year 2006-07 was a good one for tyre retailers, the industry generating just over $3450 million in revenue and a healthy growth rate of 2.9% thanks largely to growing household incomes and an increase in the stock of motor vehicles on the road. The 2007-08 financial year is set to be even better, with forecast revenue of 3.1% due to the stronger economic conditions.
Previous years had been a bit more lean, particularly 2005-06, when record petrol prices, increased consumer uncertainty and record consumer debt levels, combined with higher tyre prices, pulled revenue growth down to 1%.
Over the next five years, IBISWorld predicts that consumer demand for tyres will remain volatile, with uncertainty surrounding petrol prices resulting in a number of tyre purchases being postponed. In 2008-09, despite a strong Australian dollar, retailers are expected to pass on higher prices as they seek to offset increased costs in other areas of the business.
The biggest positive for tyre retailers’ revenue growth is the likelihood that a strong labour market will continue to underpin household incomes and consumer spending in the medium term.
In the longer term, IBISWorld forecasts that this industry will achieve revenue growth of 3% in 2009-10 and 2.2% in 2010-11. The structural shift in the new vehicle market from large cars and SUVs to smaller passenger cars will start to have an impact in the tyre replacement market, with the lower price points from passenger vehicles as opposed to larger cars and SUVs likely to put downward pressure on revenue growth. Industry revenue is expected to recover to 2.5% in 2011-12 and 3.1% in 2012-13.
The tyre retail industry is relatively fragmented, with the largest player, South Australia’s Bridgestone, controlling 12% of the market. Bridgestone had a bad year in 2006 as greater industry competition and more expensive raw materials caused profits to decline 72.8% to $2.84 million on the back of $517.3 million revenue.
Bob Jane Corporation holds 9% of the market, making it the second biggest player in terms of market share, ahead of Coles Group with 5% and Tyrepower with 4.5%.
Looking forward, a key factor in determining the profitability of the tyre retail industry will be sustained growth in the size of the national vehicle fleet. The number of vehicles on Australian roads increased by an average of 2.3% per year between 1993 and 2003, a trend which has continued in recent years.
The health of the road transport industry, a substantial source of demand for new tyres, is also an important factor, as is the maintenance of growth in household income and consumer spending levels.
IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au
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