Dorel blazes path for bicycle business in Latin America

Sponsorship has its privileges.

On a sunny, cool September morning, Dorel Industries Inc. chief executive Martin Schwartz stands on the Formula One race track south of Montreal's downtown, schmoozing with Slovakian superstar Peter Sagan and other members of the company's Cannondale Pro Cycling Team. It's the day after the Grand Prix Cycliste de Montréal, which Mr. Sagan won. And it's photo-op heaven as Mr. Schwartz banters and poses with Mr. Sagan for news outlets.

Skepticism over the effectiveness of the sport's doping cleanup aside, Montreal-based consumer products manufacturer Dorel is playing up its sponsorship of the Tour de France team by way of boosting promotion of its Cannondale line of high-end bikes (the top-of-the-line Supersix Evo Black Inc. retails for about $13,000 U.S.).

The Cannondale name now has better visibility on jerseys and tour vehicles and, as title sponsor, Dorel's bicycle division gets more time to market the brand with the team and its star, compared with a few years ago when Dorel was only a technical sponsor of precursor Liquigas Pro Cycling Team. It's a key part of Dorel's big bet on bikes; the bicycle and bicycle-gear unit – the other divisions are juvenile products such as children's car seats and strollers– has grown spectacularly over the past few years.

Dorel has bragging rights as one of the top five global bike companies.

Besides Cannondale, its other well-known brands include Schwinn, GT, Mongoose and Sugoi apparel.

And now the company is pushing hard into the high-growth Latin American market as it seeks to make inroads amid a rapidly growing urban middle class in a region where pent-up demand for consumer goods is massive.

Last month, Dorel acquired a majority stake in Brazilian bike maker Caloi, whose plant in free-trade zone Manaus cranks out more than 750,000 bicycles a year. Established in 1898, Caloi is the largest player in the Latin American market and the leader in Brazil, the world's seventh largest economy.

"The middle class is growing. Wages are good. Compared to a lot of places around the world, the economies are good and people are taking advantage of the lifestyle," says Mr. Schwartz, whose company got into the bike business in a significant way in 2004.

"There's a big demand in Brazil for high-end bikes," he said. "It's becoming just like North America or Europe. The bike people want the top international brands, like anywhere else, the same as China. We're now growing in China."

Besides the Caloi line of bikes, Dorel plans to use its new manufacturing, distribution and operations base to introduce its own brands in the region. Mr. Schwartz and his executive team are also looking at the possibility of manufacturing product for export to Europe, which imposes duties that are much higher for goods coming in from Asia, where Dorel currently makes most of its bicycles and parts.

"The bike business now, with the last acquisition, is $1-billion [in annual sales]. In nine years, we went from zero to a billion. And we've got aspirations to grow the bike business much higher over the next few years," says Mr. Schwartz.

Dorel can also draw on its experience in the Latin American retail channel through its Brazil-based car-seats division as well as its partnership in a chain of juvenile-product retail stores in Peru, Chile, Bolivia and Argentina, he says.

Boosting interest in pro cycling in the region is part of the marketing mission.

"Caloi itself have a racing team. They're going to be sponsoring some of the Olympic biking [in 2016]. Eventually, there will be international races down there and we'll be part of it."

Cracking Latin America, however, will be no easy sprint.

Besides growing competition from low-cost Chinese bicycle manufacturers, Dorel must contend with less robust economies due partly to anticipated sluggish growth in external demand for the region's commodity exports.

Crédit Agricole SA's economics unit recently warned that growth in Brazil this year will "again be mediocre" – 2.3 per cent at best – after sluggish growth of 0.9 per cent in 2012.

While pointing out that there is nothing dire in the country's current situation, Crédit Agricole says Brazil continues to disappoint. "The high growth potential remains latent, due to blockages (e.g., inadequate infrastructures, structural rigidities, a ponderous bureaucracy) that remain unaddressed by economic policy that seems to have been limited to short-term stimulus in the past two years."

But John Price, managing director of Americas Market Intelligence, says the consumer boom in Brazil and throughout most of the region isn't about to fade overnight.

Helped by more easily available access to consumer credit, retailing – including discretionary goods – has done well and will continue to do so, he said.