How has inflation affected business?
The consumer now has less discretionary income. Our channel partners are benefiting from longer vehicles life of an estimated 12.6 years for both service and tire business.
However, consumers are delaying or asking for lower priced options when faced with spending constraints. Kenda encourages our channel partners to actively sell the performance benefits.
As economic pressures continue to stress the consumer, our Vezda and Klever positioning has been a benefit for our channel partners and our end-users. As "miles driven" remains reasonably strong, consumers continue to need replacement tires and our dealers have been able to offer Kenda at value prices without having to sacrifice performance for the consumer.
Are you seeing any volatility in the supply chain?
The ocean freight carriers are currently behaving similarly to the oil cartels to limit supply and raise pricing. Kenda has put a North American team in place to allow us to be as proactive as possible to minimize these issues that do affect the overall timelines to process imported inventory.
Additionally, our team is working daily to constrain the cost impacts to Kenda with an intent to maintain our current pricing levels without need for the freight surcharges seen during the COVID period. Domestically in N.A., other supply chain related issues remain constant as both the rail and trucking industry have intentionally limited supply to assure that pricing and costs remain a challenge to manage.
How important is the North American market to Kenda? Why?
North America is a core element of Kenda's business. We are currently importing our tire products from global factories, but have invested to flexibly support the production sourcing to assure pricing competitiveness for our brand. As a wholly-owned subsidiary of Kenda Industrial, we are also a significant NA manufacturer of wheels for both low-speed and high-speed applications with three factories in the US. As a global company, Kenda must have the capability to be a supplier across regions for our OE customers and the NA region is critical for this reason too.
Additionally, Kenda has one of its four technical centers located in the Akron area. This enables Kenda to provide our premium performing products with shorter development cycles that are specifically engineered for the North American market. This is one of Kenda's core values to provide products for its customers that match their needs. We do this for all of our products, including bicycle, powersports, trailer, specialty, passenger and light truck
Do you have any plans to bolster distribution in Canada?
Kenda has been intentionally growing market share with our channel, brand and product strategies that focus on Premium Performance at a Value Price with higher margins for our channel partners.
The 2023 results showed that we are now at ~1.5 percent for PCR and ~2.0 percent for LTR. Our projected gains in 2024 will relate to the success of our channel partners to win in the market with Kenda Kenetica, Vezda and Klever products.
Kenda intentionally works to provide our channel partners with value for higher margin opportunities than most other brands. We have a deep product screen which anticipates both segment adjustments and sizing needs for the aftermarket, which allows our retailers to meet needs for consumers in growing segments.
As an example, Kenda will have two new Klever products available in the secnd half of 2024: our Klever H/T 4S and Klever A/T Trail products that we anticipate will allow us to grow share.
We have put additional emphasis on Canada in 2024. We hired Clint Cherkowski as our Canadian sales manager, and he has been actively and successfully adding Kenda to our Canadian footprint. We anticipate aftermarket growth across multiple segments in Canada to augment our OE customer base.
How does supporting Formula Drift help promote the brand?
Thank you for asking this question as a lot of tire dealers question why tire brands race other than promoting the brand visibility. Kenda races for three reasons that directly and positively benefit our brand and our channel partners.
First, we only race DOT tires for PCR and LTR venues. We believe this has a visible benefit for our channel partners to show the Kenda Vezda and Klever brands in the most stressful conditions. If the same products that our retailers sell to consumers can compete successfully under these conditions, these products truly demonstrate premium performance—we call this Podium2Pavement to allow our Kenda retailers to easily explain this benefit to their consumers.
Second, Kenda showcases our technologies, which are applied across our products via racing activities. Developing and confirming Kenda's technologies in the toughest "on the edge" environments. As an example, the construction and tread compound used in the Vezda UHP MAX (200 AA A KR20A) allows it to be an unbelievable tire in Formula Drift, SCCA autocross and spirited street driving—competitors often have multiple tires to provide products in these venues, but Kenda provides a product that has exceptional dry and wet grip at very high temperatures while providing exceptional wear at a value price. From our perspective, the Klever products continue to be the best in off-road and on-road environments as they demonstrate technologies and reach podiums in almost every event.
Third, Kenda only races in open competition using DOT tires. We want to show our channel partners, our brand enthusiasts and our consumers that Kenda exceeds expectations when in direct comparison to other brands. We are working hard to elevate our brand position to benefit our channel partners and this is a foundational way for us to showcase our product benefits—the material and construction benefits used in our Vezda and Klever products are used across the patterns that are sold by our channel partners and we believe the success across these platforms demonstrates Kenda value compared to many well-known brand options as we successfully compete against all the leading brands.
Specifically for Formula Drift, the tires maintain grip under extremely high temperature. We have been able to show that our tires provide the consistent grip in both wet and dry conditions while maximizing the wear. This demonstration extends to both SCCA autocross venues and directly to the street performance.
Most products sacrifice wear if they maximize grip, but our Vezda products have provided exceptional performance while maintaining a value price—there truly is not another summer UHP maximum performance tire like it.
How soon do you expect the Martin Wheel headquarters/factory to be complete?
We plan to have the new facility operational in Q2 2025. This will enable Kenda and Martin Wheel to continue our growth in all of the core wheel, tire and assemblies provided for our customers.
How is raised red lettering on both the Klever M/T2 and Klever R/T been received?
We initially wanted to offer tires in the "Kenda Red" sizes that we have been racing in the Championship Off-Road short course and Ultra 4 series to align our Podium2Pavement messaging for our consumers. No other tire brand offers the true red rubber sidewall option and the response from our consumers and retailers has been outstanding.
Our only issue has been keeping enough inventory in our distributor and U.S. Kenda warehouses to meet demand. This "look" is very specific for folks that have a Jeep, Bronco or truck that has a complementary color or wheel that will personalize their ride with these tires—we get a lot of emails and Instagram shares from enthusiasts that want to match the look of Kyle Greaves, Chad Rayford or Cory Winner who all won championships on the Klever R/T or M/T2 red letter tires.
We are evaluating both size and pattern expansions for the Red Letter tires, but want to be sure that we can match the enthusiasm of the product and the consumer.
What kind of future do you see for the independent tire dealer?
There will continue to be opportunities for outside funding to purchase and consolidate independent tire dealers who don't have a formal succession plan in place.
Kenda believes that our tire industry remains unique to develop and grow small businesses. It is an excellent opportunity for families to work hard and have a lifestyle that allows freedoms to run the business "their way" and provide good lifestyles. Kenda has chosen this channel as our primary growth that matches our brand. We have found that the equity firms want to have the same brand values of the businesses that have been purchased and will generally align with our strategies to promote consumer value without sacrificing performance.
Corporately, we have many programs in place which align with our independents and the equity-owned businesses to reduce costs and off-set outside factors which allow us to price appropriately for our brand and product value. Across our product segments, Kenda has tried to price to our customers to provide them the best opportunity to recover margins above the industry average while providing the end-user with a high performance product.
As we move through 2024, we will continue to be cognizant of outside factors that may affect our channel strategy and will respond appropriately in the best interest for both Kenda and its customers.
Could you briefly describe your EV tire strategy?
Kenda continues to work globally to evaluate the very different EV vehicle specifications and tire needs. Depending on the region, EV applications vary. The OEMs in the N.A. region initially focused on higher positioned vehicles priced at MSRP levels above $50k so that they could recover significant costs for tooling and development.
Many have modified their strategies as consumers have adapted to the EV value proposition. Kenda is in a position to supply tires for any OEM that wishes to have products available to meet specific needs and we are working with several now across our footprint.
For the aftermarket, if the vehicle requirements for load and speed rating are met, current Kenda tires will be capable on those vehicles. Kenda continues to evaluate specific performance metrics that drive the consumer satisfaction for different EV applications. These application differences relate to adapted needs for improvements in rolling resistance, noise level and the effects on wear due to higher torque.
Kenda is developing or adapting the technologies to provide both OE and Aftermarket customers with tires that will offer EV applications Premium Performance at a Value Price. In N.A., we intend to offer products under the Vezda and Klever umbrella, which will meet the needs of EV customers and will announce new products soon that address the application needs aligned with this strategy.
What are some of the pleasant surprises in the industry?
As many of the macro-economic indicators remain mixed with increasing indications for slowdowns, "miles driven" remains strong. Vehicle life continues to increase which provides additional opportunities for aftermarket service and tire replacement.
The continued demand growth for light truck, SUV and CUV's has shown increased end-user awareness of tires as these consumers generally do more education prior to their replacement purchases. This provides retailers additional opportunities to engage these consumers to provide aftermarket products and tires that will properly meet their needs.
Additionally, we are seeing an increased interest and growth in the four-season segment as more consumers have found that they can utilize these tires across geographies that need improved wet performance in winter conditions that don't need dedicated winter tires. Kenda is offering multiple products to address the various consumer segments that want better wet performance, 3PMSF capability, improved ride, noise, wear and aesthetics.
What additional products do you plan to roll out in 2024?
Kenda will be rolling new our Klever H/T 4S light truck and metric product this summer along with our new Klever A/T Trail. These products will address the growing demand for Kenda Klever products in segments with significant opportunities for our Kenda retailers to match the growth they have experienced with our Klever A/T2, Klever R/T and Klever M/T2 products. We also plan to announce new Vezda products at the SEMA show in November.
We are very excited about a new launch in our UTV segment with the Cross Trail all-terrain K3213 tire which is OE on the class-topping Polaris Ranger XD 1500 Northstar. Our Cross Trail will launch into the aftermarket in Q3 in 19 sizes ranging from 27-35 inches.
Finally, Kenda will be rolling out a new value-priced ST Radial tire branded as Loadstar by Kenda in our KR53 pattern. Kenda has been an industry leader in trailer tires and this product will allow our distributors to provide Kenda retailers with an attractive, reliable Kenda branded product. We anticipate that our distributors will have inventory this fall with a program that will offer value to the consumer with a reliable product.
How has Artificial Intelligence (AI) begun to impact business?
The growing awareness of artificial intelligence in mobility is directly related to the progression of information system integration into vehicles. This will also affect the tire industry as many of the advances progress further.
We anticipate design and testing to improve rapidly for those companies that can take advantage of the faster learning and applied applications. There will continue to be increasing opportunities for both mechanical and material design features that AI should accelerate as transportation options evolve, including, at some point, self-driving vehicles. Continued evolution of tire information systems that are integrated into vehicle technology is an absolute game-changer.
Directly related to the AI activities, there are a number of sensor technologies which are being explored that can provide data to integrated platforms with algorithms that can modify the vehicle application in real-time for optimized performance or to alert for failure to prevent accidents. Tire-related sensor and chip technology is evolving quickly and will be a primary element integrated into these vehicle systems, which will progressively move to be extra-vehicle, not just intra-vehicle.
As the available data is turned into actionable information, we will see additional safety enhancements along with real-time performance benefits. For Kenda, our engineering teams are working with OEM's and vendors to anticipate the evolving market to provide the solutions that our consumers and customers will need to succeed.
How do you get your customers to embrace sustainability?
Kenda continues to take the stewardship of our planet seriously and encourages our channel partners to be aware of the opportunities to improve performance of their product offerings without sacrificing consumer satisfaction or increasing costs. Ultimately, Kenda must address government requirements that vary by region, but we need to provide additional information to allow tire dealers to see the benefits due to our work.
Kenda is working tirelessly to incorporate sustainable materials into our products including soybean oil, silica from sustainable sources, and use of recycled materials. We are also working to increase the amount of sustainable materials that are being put into our products. Each generation of Kenda products improves not only the performance, but the sustainability of the products. This continues with our promise of a premium performing product at a value price.
As a specific example, our current launch of the Vezda Touring 4S tire showcases some of these activities. This tire is a true four season product offering exceptional wet and dry performance while adding 3PMSF certification, low noise levels and a 60k limited mileage warranty.
Kenda developed a unique soybean oil and silica-blended tread compound providing tremendous performance at a value price point which has also significantly improved the sustainability of the product. As our Kenda retailers begin selling this product, we believe that combination of technologies and performance combined with excellent margin opportunities can't be beat.
Do you expect any other major investments in the next six months or year?
Kenda prefers to make announcements closer to the time when it will influence the effected markets. We are continuing to add personnel across many regions and segments to support our growth. For Kenda America, we have a number of investments and personnel additions that will have a positive impact for our customers and will provide details as we approach implementation.
What are some of the challenges of the industry going forward?
The tire industry remains one of the few opportunities where families can own and run a profitable business in modern society. There continue to be challenges for retailers and channel partners including the continued push for consolidation driven by primarily by private equity as we discussed earlier.
Additionally, the end-user will continue to look for online sources for information and sourcing opportunities for tires. Kenda has developed strategies to assist our channel partners related to these challenges which will attract consumers to our brand and offer our channels the opportunity to recover higher margins.
We have already discussed a number of product issues. An ongoing challenge is SKU proliferation. As the automotive industry continues shifts toward alternative vehicles from traditional ICE applications, we will continue to see more SKU's, particularly in the larger wheel diameters 18"+.
Unless the consumer is willing to accept compromises or vehicle manufacturers reduce the platform variations, this trend will continue. This affects development costs, manufacturing efficiencies, inventory carrying costs and retailer education needs. Kenda is working hard to provide aftermarket solutions to assist these issues to reduce costs and provide value.
Supply chain costs and challenges will remain a concern moving forward. With the overall demand for consumer goods dropping in 2024 due to the inflationary concerns, most of the supply chain challenges we saw in 2020-22 had been reduced, but now are resurfacing. There remains significant infrastructure issues within N.A., including rail, ports and underlying concerns with supply for trucking that remain issues for the future.
As U.S. duty policies remain inconsistent, it is difficult for global manufacturers to properly plan and anticipate costs to support the vehicle application needs. It is difficult to plan production when supply chain elements and duty rates remain in flux. Kenda is focusing on the elements that we can control and anticipating possible issues to provide the most cost-effective solutions based on our global capabilities.
Our CEO, Jimmy Yang, has worked to provide Kenda with resources to allow us to adapt quickly in this environment. Kenda has a very strong balance sheet which enables us to be more flexible and nimble as the market dictates. We believe that the independent dealers should value working with companies and brands that have strong resources, management that understands the North American market challenges and has a history of working to provide opportunities to provide grow profitably together.
What do you want tire dealers to know about the company?
Last year, Kenda made a significant brand announcement as a follow-up to our 60-year anniversary when we announced our new logo expressing our tagline Designed For Your Journey. We have been showcasing our new logo to express our brand identity in a modern, relevant way to consumers and our channel partners. We are already using it across our online and social media platforms with a positive response. We will continue to update and integrate across all of our product segments globally.
We introduced our tagline several years ago as an expression of our brand that Kenda products are designed at a premium level for your life's journeys, whether it is driving your car on Vezda or Kenda on a bicycle, motorcycle, golf cart, working industrially or towing a trailer on Kenda Loadstar with Klever light truck tires. We want our channel partners to know that our value proposition is a two-part message:
First, we offer premium performance at a value price with products designed at our Kenda American Technical Center (KATC) specifically for our end-users in the Americas. Read our reviews—our products perform at levels that will compare to any recognized brand in the segment. For our automotive products, Kenda offers a complete product screen for PCR and LTR products which is updated to offer solutions to consumers looking for outstanding tire performance from a global company.
Second, we design our channel programs to consistently offer above-average margin opportunities for our channel partners. This allows the end-user to buy value-priced products performing at a higher level with confidence. Our warranty rates are very, very low, but any issues are addressed with our channel partners from our engineering team at KATC.
We work very hard to offer all of our retail partners the chance to sell the brand confidently and consistently to make higher margins than other choices. We encourage you to ask our Kenda retailers why they are selling more Kenda tires every day and consider joining our Kenda family.
What other topics do you think are important for our audience to know?
The last and most important thing that we want to express is a sincere thank you to the channel partners in our Kenda family. As a company still managed by the founding family, Kenda recognizes that our customers have many choices.
Our team, regardless of product segment, is working very hard to provide our partners with the best services and products to enable them to provide premium performance and an opportunity to grow your business. We are selective in adding to our family, but are very control to minimize any impacts on our customers and remain flexible in a dynamic environment.
