Significant price drops on bicycles are announced. Does the ketchup effect arrive?
At the beginning of the year 2022 we knew about a particular economic term called the 'ketchup effect', and we did it to try to understand what would happen with the rise in prices that we were experiencing in the cycling sector. Now, some brands are beginning to lower the prices of their catalogs in a general way and it seems that this is due, with many nuances, to the rebound effect proposed by the theory of the ketchup bottle.
The ketchup effect, the drop in the price of bicycles and the new normality in the cycling sector
In recent years we have seen how the price of bicycles has risen almost every season, now, unlike the last two, price drops are beginning to be announced directly by manufacturers.
For example, Cannondale has just announced a general discount on its entire catalog and on specific models, such as the Scalpel Hi Mod 1, the discount is up to €2,000. And the same happens with Specialized, for example its Epic EVO Pro model has a current discount on the brand's website of €2,100, and the manufacturer has been announcing direct offers on its website since Christmas 2022, both for bicycles and for everyone its equipment and components.
As we said, this price drop comes directly from the manufacturers, but the stores for their part have also applied discounts on the final price for a long time to try to get the stock out of the store and to be able to comply with the brand schedules.
Now, the difficult part comes when we try to understand what this aggressive drop in prices is due to. Going back to the 'ketchup theory', in 2022 we explained that some economists predicted that there would be a rebound effect, like when you shake a bottle of ketchup a lot to get it to come out and in the end it all comes out at once, and we did it like this: "Once you distribution normalizes, maybe by the end of the year, or maybe in 2023, the supply would suddenly skyrocket, and the bikes would arrive in the stores by the thousands."
But to be fair, it seems that we are not experiencing this effect strictly either and it is a gradual transition towards what we could call a new normal in the sector.
Along with the reduction in prices and immediate stock of some bicycle models, there is still a shortage and infinite waiting times for many other models and components. And to try to solve this problem in the long term, some brands continue with the logistical problems in Asia while they are submerged in structural changes that shorten the distribution chain. For example, Orbea has created its own brand of premium wheels, Oquo, whose production is carried out directly in the Basque Country. And the PON group, where Cannondale, Santa Cruz, Cervelo, etc. are located, is creating mega production centers in Europe that allow it not to depend 100% on Asia.
All this new price movement seems to attend to a normalization of the market and it coincides that the brands that are lowering the price of the bicycles were the ones that first raised their rates in 2020 and 2021, so it could be expected that the rest of the manufacturers follow this new trajectory and also adjust their prices in the coming months. But, once the price adjusts downward, what happens if manufacturers start production outside of Asia with the consequent increase in costs?