Bike Industry Poised For A Breakthrough

by Sarah Mahoney, Aug 7, 2009, 6:31 PM

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Talk about a perfect storm: Between the high cost of commuting, a desire to cut down on air pollution, and the hope of shedding a few pounds, consumers are hopping on bikes more than they have in years.

A new analysis from Mercanti Group reports that at least 40 million Americans went biking more than six times in 2008, making it a $6 billion industry in the U.S. (That is, however, below the peak of $6.1 billion in 2005, fueled by the popularity of mountain bikes.) And those ridership numbers, which gained 11% from 2007, are likely to continue to rise sharply.

"Once gas got above $4 and $5 last year, that really made an impression on consumers," says David Remick, a director at the Minneapolis-based investment-banking firm. "And even though those prices have receded, fuel is still relatively expensive, and people have permanently adjusted to the idea that they need to save money on gas."

Another important factor is that federal, state and local governments are increasingly funding bike-friendly projects as a way to reduce emissions, building a biking infrastructure that appeals more to consumers -- even those who would never have considered biking as a transportation option in the past.

"With more government support for communities building bike paths and roadways, biking is becoming safer, and for many, even a viable way to commute," says Adeel Ahmad, an analyst at Mercanti and lead author. "About 10 percent of Americans say they ride primarily for transportation, for example, and the number who commute on bikes -- while still small -- has grown to 2%, up from 0.4% in 2005."

Since 2005, federal funding for bicycling and walking has more than doubled to $4.5 billion. Innovations include bicycle transit centers, which provide riders and commuters with a safe place to park their bikes; changing rooms; and even locker facilities.

And while mountain bikes continue to generate the largest share of sales, "the strong sales generated by a wide variety of other products, like road bikes, hybrids or comfort bikes, which each cater to entirely different prospective customers, further illustrates the industry's ... nearly limitless base from which to derive potential future customers," the report says.

The biggest producers -- including Giant; Dorel, which owns such brands as Mongoose, Schwinn, GT and Cannondale; and Trek Bicycle Corp. -- have about an 80% share of the market, while distribution channels are much more fragmented. Since most people want a bike for either recreation or exercise, says Ahmad, "they are most likely to buy entry-level products, usually lower-end bikes from mass merchants."

But perhaps the biggest hit with consumers in the years ahead, he says, will be the electric bicycle, or e-bike. While they don't have the travel range or speed of a conventional motor vehicle, e-bikes -- which start as low as $600 -- allow you to pedal as with a regular bike, but also use electrical power to go between 12 and 20 mph for distances between 15 and 20 miles.

"U.S. e-bike sales currently exceed 120,000 units per year, however, many estimates expect that figure will grow to over 170,000 units in 2009," Ahmad says. "In Europe, they've gained much more acceptance, and that could happen here, as well."

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