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Kenya Report
Marcopolis presents Kenya Report focused on topics such as investments, doing business, economy and regional integration, featuring interviews with Kenya's leaders. The sectors under review in this issue are agriculture, banking, energy, industry, telecom, IT, tourism, logistics and many more.
InterviewsOctober 11, 2019
Spare Parts Sector in Kenya: Overview of Bagda’s Auto Spares, Isuzu East Africa’s Distributor of Choice
Tushar Bagda, Managing Director of Bagda’s Auto Spares Limited
- Written by Sandra Francisco
- Published: October 11, 2019
Interview with Tushar Bagda, Managing Director of Bagda’s Auto Spares Limited
What is your assessment of the spare parts sector in Kenya? What are the latest trends? Is the environment competitive?
The spare parts sector is very different from other sectors. In terms of where our location is physically, one great thing is that there must be about 500 shops from one end of this road to the other. You can get anything you can afford. You can get the cheapest Chinese part for 100 Shillings or a genuine part from our location for 500 Shillings. Affordability is really there in the spare parts industry. However, this comes at a price because many of these cheaper parts are very substandard quality. It is a disaster if they are put into commercial vehicles or school buses. These small things can cause accidents and loss of life. It is a shame and hurts when you read about those things. Unscrupulous businessmen will take advantage of this just to save a few Shillings. But the government is cracking down through the Kenya Bureau of Standards. There is greater scrutiny on the importation of these goods to make sure that they are higher quality. As this is happening, we see that there is a change in people’s thinking as well. This is partly because they are forced to change with the times because of better regulation, but also because they see the value in this. It is good for us because we specialize in genuine parts. Until now, we had a few niche customers like corporates because they cannot have their fleet down for an extended period. Genuine parts are guaranteed to run your vehicle at optimum performance without issues and with other parts you cannot be sure. Those were our main customers but we are now seeing a lot of cash customers who believe in quality and are willing to pay a premium for that. Before it was difficult to convince customers, but it is becoming more acceptable. There is a lot of competition. At a global level, it is not a huge industry like the motor industry here. There are not that many cars and the newer car sales are not very high. But the players that are in the market think it is very lucrative and try to enter. Unfortunately, it often does not work out for them. There are no major barriers to entry. You just import something and try to sell it. Much of the time, they are briefcase suppliers and do not have a good setup. It brings a bad name to spare parts dealers in general when this happens.
How do you distinguish yourself from the competition?
Isuzu is currently about 99% of our business. It is highly ambitious, but by the middle of next year we would like it to be 50% of our business and the remaining 50% to be tires, batteries, leaf springs, and other components that are important as well but are not competing with the Isuzu that we sell.
It is by no coincidence that we have been around for 22 years. Everything is based around our reputation. Whenever you buy from us you can be confident that our products are 100% genuine, will last as long as they are supposed to, and that they are the same as the original parts that came from the factory in your vehicle. There are other people who might even go as far as to package inferior parts in the genuine packaging. They are unscrupulous. For us, our reputation means absolutely everything and we have carefully cultivated the relationship we have with our customers. You can ask anyone and they know about us and that we only deal with genuine parts. For example, we are the distributors of Isuzu East Africa. Our customers might not be buying from us but they will say they are because it is a matter of pride for them and they know that our name means genuine parts.
Who is your clientele?
We have a counter with 4 salesmen. This is a very busy area. There are a lot of mechanics here as well. Many of them come to the counter whenever they need parts. They will even come to the counter from 2 hours away to actually see the part physically and make sure they are getting the right thing, even though we deliver. If they send an employee, they cannot be sure they will not go to another shop, so they come in person. We have counter customers and then part of those are also individual owners who might have one or a few vehicles or a small business. That is about 50% of our business revenue. The other 50% is corporate sales where we have fleet customers who have Isuzu as well as other brands. We specialize in Isuzu so they do all their Isuzu procurement from us. These range from bottling companies to non-profits to construction companies across the board. Isuzu is the best-selling vehicle in Kenya for the 15th year running. The vehicles are out there, it is just for us to find the customers.
What is the key to success in this business?
There is competition so having a relationship with the customer and building it over time is number one. If you are out of sight, you are out of mind. You need to continuously call them and email them when you have not heard from them in a while, tell them when their service is due, etc. Secondly, you cannot sell what you do not have, so availability is a massive part of our business. If you do not have an item, the customer will just go somewhere else to buy it. While his vehicle is down, he will not wait more than a few hours to be loyal to you. When your vehicle is down, everything is urgent. Hiring a vehicle costs so much money so availability of the right parts is key. Thirdly, dead stock is a major issue in this industry. Within a few months, parts could become dead stock because the vehicle has either gone to a third owner or is more than ten years old so the investment in premium parts is not worth it. We try to minimize dead stock as much as possible because it will eat up your capital and it can be disastrous. We need to identify dead stock, what is about to become dead stock, what already is dead stock, and try to liquidate them by any means possible so we can recover something and reinvest it into good stock. On just this road, there is easily 1 billion Shillings minimum of dead stock in the shops. It is a massive challenge.
Are you looking for international investors or partnerships?
We would be open to it, but we are not yet at that level that venture capitalists or investors would be interested. You have to be at over 1 billion Shillings and need to scale rapidly like Auto Express has done. In the medium term, that is something that we would look at, but we are not there yet.
What are some success stories that you are proud of?
One thing we have done more and more now is to have predetermined agreements or procurement contracts with customers. For example, we give them the prices that are valid and for what amount of time on a fixed contract price, they send us a purchase order, and we deliver to them as soon as possible. We have gotten a lot of positive feedback about this. We give them the best, most fair prices. They do not have to go to 10 different places and it saves them time and effort. We have minimized their procurement time by so much and every bit helps when you use less time and less money. I was not expecting this reaction. I thought people would push back, but it has taken off and they are happy to use this service. In these companies they are not just procuring one part but hundreds. In a tea factory or bottling plant, they have so many types of suppliers so when we make their lives easier it is a success for us.
Are you looking for technological partnerships?
Currently, we are not evaluating any partnerships as such. We have been self-sustained until now. Whenever there is an opportunity, we will look at it. In terms of the digital scope of things, we do realize that it is very important to get there sooner rather than later because we have a young population in this country. This is traditionally a blue collar industry, but there will eventually come a time where people will want to buy parts online like on Amazon and not come all the way here fighting traffic. Convenience is king and time is of the essence for everyone. If you take the newspaper industry for example, when I was growing up, everyone on the street had a newspaper under their arm. Now, you have to really look to find someone with a newspaper. The younger generation especially are just not interested in this anymore. Here, we get the newspaper every day because of tenders, otherwise there really is no need to even have them. Internationally, you can see this with the New York Times. They had major challenges monetizing. When they introduced their paywall, it was somewhat successful. People got used to free content so quickly that they did not want to pay for it anymore. Similarly, in our industry, there are many people who have tried to crack online sales of parts. I have had various people contact me and have had numerous meetings, but it is still not ripe because the customer base is still very much blue collar. Some ecommerce sites wanted us to put our parts on their site and they would deliver for us, but they never took off. They were more interested in other regular consumables like electronics, handicrafts, clothing, etc., that are more conducive to ecommerce. I predict that this will change dramatically in the next five years.
What do you want to achieve in the long term?
We do parts only, so the next logical step would be to have a service outlet and a tire center. In the longer term we would even sell vehicles. Isuzu is currently about 99% of our business. It is highly ambitious, but by the middle of next year we would like it to be 50% of our business and the remaining 50% to be tires, batteries, leaf springs, and other components that are important as well but are not competing with the Isuzu that we sell. We have not really done that up to now, but with increased competition we believe this is the right time and the right way forward to diversify.
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