World Economy and upcoming pricing updates

Hello Salsa fans, friends and industry spies. Thought I'd spend a little time and share my thoughts on a few things going on in the bicycle industry and beyond. I'll also update everyone on Salsa's plan for moving forward.

First, a little back ground. There are two things going on right now in the bicycle industry. Our beloved industry is experiencing a raw material cost increase and then there is the controversial US economy recession and it's impact on the value of the US dollar.

Recently, I travelled to China and then I went to the Taipei trade show. In both places, we were continually "Warned" of the looming material crisis. We actually met with the president of China Steel and he said that due to the mass construction going on in China over the last year, that raw steel prices surged 79% in 2007! Additionally, some vendors also indicated that the cost of aluminum and other materials are going up as well.

Regarding the economy, I won't spend much time discussing this. I will only state the one fact that matters to many bicycle manufacturers, the exchange rate. The fact is that the US dollar is weakening. This means it takes more US dollar(s) to buy the same product, labor or service.

So...What does this mean for Salsa? Good question.

The good news here is that due to the way our products are manufactured, sourced and secured, only a good handful of our products are going to be impacted in the short term. Many products will not change until the 2009 model year. Additionally, we have taken other measures to maintain our prices. In some cases, we aren't changing prices right now and will simply reduce our margin a bit. On others, we got lucky and timed our productions right so we won't have to raise prices until 2009. In other cases, we will have no choice but to raise some prices.

So what's our plan?

Well, starting May 1st (tomorrow), we will be raising a good handful of our prices. Depending on the product, one of the two issues cited above made enough of an impact on our margins that we must raise our prices to remain sustainable. Hey, Salsa is a business right?

Here are the details. Effective May 1st, the following products will be adjusted.

Size O Matic Stem - Up a few dollars
Salsa rims - Up a few dollars.
Shaft seat posts - Up a few dollars
Moto Ace stems - Up a few dollars
All carbon bars - Up a few dollars

What are likely the next products to be impacted in the coming months? The short answer is anything made with a considerable amount of steel.

- CroMoto stems - We got a little lucky here and should have inventory for some time at the current price.

- Steel Frames - We are still negotiating prices here. They will be going up, but that shouldn't happen until the next production. This could be on a model by model basis as we don't produce all frames at the same time.

- Complete bikes - We launched 5 steel bikes this year and they are going EXTREMELY well. Our next shipment is scheduled to arrive late May. This shipment should not be impacted by the price hikes from our steel suppliers or the component manufacturers. We are still negotiating pricing beyond the May arrival. I'll prep you though and say that after June, our prices will likely be adjusted up.

Beyond that, who knows. We can only control the things we can control. Our focus is on great product and great service. We are committed to produce fine products at fair prices. We are committed to serve and support our dealers and our customers. Those parts don't change.

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Jason Boucher

Growing up as a Minnesota farm boy, I developed an appreciation and love for land and open space. This appreciation has fostered two passions, cycling and photography. Both of these passions provide freedom, encourage me to explore and foster creativity. More importantly though, my journey with a bike and a camera reminds me that the world is big and I am small.


 Jason |

Thanks for being honest J. We (the consumer) get bamboozeled (spelling?) from the Oil folks enough. At least Salsa is coming out and saying what’s going down and why. <BR><BR>Hell I just realized I’m paying 10? more for a can of freaking black beans than I was last month. Why the hell wouldn’t the price of high end steel bikes go up? And don’t get me started on what I’m paying for a FREAKING AVOCADO!! But sometimes you gotz to pay if you you want your beans and your guacamole, right? ;)<BR><BR>I have no doubt that increases are justified due to the state of our World’s economy (or lack there of). I also don’t doubt we’ll be seeing innovative products in the coming months and years. <BR><BR>I think as long as we the customer see new quality product and innovative design, our pocket books (or credit cards!!) find a way to open up. As long as we’re not bamboozled (I still don’t know if I’m spelling that right!!)and discussions like this help show we’re not and is appreciated (at least by me)<BR><BR>Again thanks for sharing in this forum.<BR><BR>Jason

 Anonymous |

I didn’t think the anonymous poster was asking Salsa not to talk at all. I think everyone agrees this blog is great.  I think he (or she) may just have been trying to say that talk about pricing changes may not be the most exciting thing for Salsa fans to read about.  If Salsa must raise its prices, so be it.  Life goes on.  People understand business, and people understand inflation.  No need for Salsa to explain or apologize.  I think what Anonymous was trying to say was that what truly exictes us Salsa freaks is more talk about new products, ideas, materials, etc.  It’s also fun to read about Salsa’s trips to different shows, races, and so on. You asked that it keep coming, and coming it will keep!

 Anonymous |

With steel prices rising, steel will become even more of a niche market than it is now, and more customers will be priced out.  The result will be most steel customers will either downgrade to brands such as Surly, or upgrade to brands such as Independent Fabrication. There will be increasingly less customers left at the mid-tier end of the steel market.<BR><BR>In such an environment, it will become progressively harder for Salsa to justify up to $2,000 for a complete high-end steel bike when so many well-spec’d and built aluminum bikes are available at that price range (and indeed well below).  In a couple of years’ time, complete carbon bikes will begin to be offered at the $2,000 price as well. <BR><BR>My advice as a longtime Salsa customer and fan: it is time for Salsa to start launching complete scandium and carbon bikes, and to make it unecessary for QBP to distribute BMC in the U.S.  BMC lacks the ‘cool factor’ Salsa and Surly have, and Salsa can—if it wants to—make excellent high end bikes that can outcompete BMC’s bikes, and sell them for a lower price to boot.<BR><BR>The reason I was drawn to Salsa years ago was I could get beautiful, high-end steel bikes at lower prices than custom builers.  <BR><BR>However, as steel prices go up, aluminum/scandium (already quite affordable) and carbon (becoming less expensive) start to look more attractive at the performance and racing end of the market.  The reasons to pay more money for steel become less compelling, unless one goes custom.<BR><BR>Meanwhile, he leisure/urban end of the low-end steel market is already well-covered by Surly at QBP.  So what’s left for Salsa to do?  Invade BMC’s market! <BR><BR>Salsa’s future lies it its ability to make customers like myself turn to Salsa for beautiful, high-end carbon and scandium bikes that will make BMC’s engineers and designers exclaim with frustration in their native Swiss-German: “Oh Scheisse!”<BR><BR>Footnote:

 Butcher |

Whoa!  I’m continually amazed at some of the responses we get on this blog.  Awesome.  Thanks for the timely and well thought out response.<BR><BR>No arguments here.  My only comment here is to add just a bit more to your post.  While conceptually, I agree with some of the views shared in the above post, we still feel we’ve got some good “steel” based ideas that have little or no competition.  Meaning I think we can still sell steel quite well, at least in specific categories.  Our challenge as a brand is to not only be aware of the polarizing topics called out above, but to also find a way to surprise and to delight our customers.  We think we can still do this with steel.<BR><BR>Don’t take that comment as we are ruling out other materials because clearly we are not.  In my mind, we are just getting started….<BR><BR>Keep it coming.

 Anonymous |

Salsa needs to bring a Campe?n Complete offering to market at Interbike this year if it is to retain any credibility as a road bike brand, and not just an mtb brand.  <BR><BR>It would also be nice if Salsa offered a carbon seatpost and stem in addition to its existing carbon components.<BR><BR>Just imagine.  Barack Obama winning the presidency, and Salsa offering a Campe?n Complete (already with carbon stays and fork) with matching Salsa carbon post, stem and bars.  <BR><BR>One can only HOPE…

 MG |

I agree with you Jason.  I think you still have a ton to offer in steel, but I also agree with the anonymous poster too in that you also have a ton to offer the world in the other materials too.  There’s just so much potential that the bigger danger is to get spread too thin, and lose your focus on the strengths that make the brand great.<BR><BR>It’s a bummer that costs are going up as much as they are, but it’s a reality that we’re going to deal with in the bike world, just as in the “real world.”

 Anonymous |

I just learned Planet X is offering a full carbon road frame and fork for just $999( i.e. about as much as a Campeon) through its direct-to-consumer US distributor.  Planet X is also offering reasonably-priced Ti road frames for just a bit more than Salsa’s much-missed Primero used to cost.  I’m not trying to compare Planet X to Salsa.  I’m just saying this should be an eye-opener for Salsa.<BR><BR>Salsa is my favorite brand, and I love what it’s done with steel in the past, but it needs to get creative and join the 21st century soon.  Otherwise, it runs the risk of being perceived as just another overpriced retrogrouch niche brand—especially if it’s going to start charging even more for steel.<BR><BR>With the price of energy and food both going through the roof, jobs being cut, home values plunging and consumer confidence at historically low levels, it’ll be much harder for Salsa to persuade its staple middle to upper middle class market that steel (whether high or low end) offers the best bang for their buck.<BR><BR>Solution?  More “surprise and delight” customers with scandium and carbon (or even Ti) offerings, and less talk about the economics of steel and the bike industry.  Customers will be happy to pay the Salsa’s prices if they see Salsa delivering its innovative and great-value best.

 Butcher |

Keep it coming.  <BR><BR>I just want to address the last anonymous poster and the advice regarding “Less Talk”.  <BR><BR>I want to be clear about how and why we are using the blog.  We believe that educating our consumers is good for Salsa AND good for our consumers.  This blog is one key element in that.  An educated consumer can plan purchases and make good decisions.  We are an honest brand and don’t want to mislead people.  We believe that few, if any, other brands offer this direct interaction or integrity.  Salsa intends to be THE leader in communication with our dealers and consumers.  <BR><BR>Also, we are committed to make sure this communication doesn’t slow us down.  We feel the same way, we need to deliver and not just talk about it.  <BR><BR>Regarding Salsa charging more for steel.  To address the first point I made in this comment, we are telling everyone the truth and sharing our direction.  We did not raise our steel prices right now.  The facts are that steel prices are rising worldwide AND the cost to ship that steel is also rising.  Other brands may simply not be telling you that this is happening.  It will just happen.  Some cheaper brands will also raise prices.  Some more expensive 100% custom brands will also raise prices.  Some brands will eat the lost margin because they are fearful of loosing customers.  Generally speaking, material costs and shortages impact everyone that uses said material.  <BR><BR>All that said, much of the thought behind these comments are true.  Salsa needs to deliver.  Salsa needs to always be looking for new ways to surprise and delight.  That is happening.  <BR><BR>OK, enough talk.  Keep it coming.

 Guitar Ted |

Wow!  Came on this a little late in the game, so to speak, but a lot going on here! <BR><BR>I’d like to comment on something that seems to be getting overlooked in all this steel vs. carbon/scandium offerings from Salsa. <BR><BR>That being “all” of it is getting more expensive. It’s not just prices of stell, it’s our dollar’s exchange rate, as Jason mentioned up front. That means that your desires for new carbon and scandium offerings built overseas is going to be more expensive than comparable stuff today, incluiding Planet X or whomever else you’d like to name. <BR><BR>Even their stuff is going to go up, unless the economy/dollar reverses it’s downward spiral. <BR><BR>Next, I think Salsa can indeed grow and offer new choices in alternate materials other than steel, but still offer steel frames. I think that they should, and I agree that it will help keep Salsa in the forefront of peoples minds when thinking about a new rig. The thing that I see Salsa doing, and doing quite well, is offering products that avoid being “me too” offerings. While my comment above is to encourage Salsa to explore new materials for their bikes/frames/components, I also would caution that it shouldn’t be done at the expense of the current philosophy of offering products that no one else is doing, or doing very well at. <BR><BR>Salsa doesn’t need a “me too” carbon road frame just to stay “relevant”, as an example. If Salsa can figure out how to do that and bring extrordinary value, performance, and design to the table, then by all means, offer a carbon road frame, (or whatever product you wish to insert there)<BR><BR>Finally, an observation: If ya’all can manage to type in the word verification code on this blog to submit your comment, then how about putting a name to your words. Own it folks! Just an observation.

 Anonymous |

Dear Smitty,<BR><BR>First, BMC is not owned by QBP.  It is distributed by QBP.  Salsa and Surly, on the other hand, are owned by QBP.<BR><BR>From the above, it follows Salsa cannot cannibalize BMC, as they’re in fact not owned by the same parent.<BR><BR>That said, I realize perhaps I could’ve been clearer in my suggestion to Salsa.  <BR><BR>You’re correct that Salsa and BMC are different brands with different products and strategies.  BMC will likely never make high-end steel or CrMo bikes.  <BR><BR>My suggestion was not that Salsa should try to become BMC.  My suggestion was that Salsa can develop certain high quality products that might make it unnecessary for QBP to have to distribute BMC, which is a brand now unfortunately associated with doping cyclists and everything wrong with the professional sport (Salsa doesn’t currently have that problem).<BR><BR>For instance, Salsa already makes high quality scandium (i.e. aluminum) road and mtb frames that are racing-oriented.  So does BMC.  So Salsa is already ‘competing’ with BMC in that space.  <BR><BR>What Salsa doesn’t currently make is carbon fiber frames.  My argument is Salsa could make one excellent road and one excellent mtb carbon frame, and so compete with BMC in that space as well.  Unlike BMC, Salsa doesn’t need to make four different carbon road frames.  One is enough, just as one scandium road frame has been enough for Salsa.  <BR><BR>Where one could argue Salsa is already cannibalizing a bit is with Surly.  Salsa now has two CrMo road models which, though a bit different from Surly’s, could arguably be just at home there.  So you see it wouldn’t be so radical if Salsa were to develop a couple of products that might appear at first to be more at home at BMC.  Besides, as I mentioned earlier, Salsa and BMC already overlap with some of their aluminum offerings.  <BR><BR>My opinion, which obviously no one need agree with, is Salsa can continue to make affordably-priced high-end steel frames/bikes the core of its business, and then also have a few excellent CrMo, scandium and carbon frames/bike offerings that would round up its product line.<BR><BR>The advantage of such a strategy is a Salsa customer wouldn’t need to leave the Salsa brand in order to satisfy different needs.  For example, I can have my high-end steel Salsa El Mariachi for my casual mountain biking and then, rather than turning to Surly or BMC (or elsewhere), I can have a CrMo Casseroll for my city riding and a scandium (or a future carbon) Campeon for my road racing.  All my needs could thus be covered by a single brand—Salsa.  With this same strategy, as my needs change in the future, Salsa can probably satisfy those as well.  <BR><BR>Whether or not QBP continues to distribute BMC, or even if it buys BMC, I think there are benefits to Salsa becoming a provider of high-quality, reasonably-priced product that covers the gamut from CrMo to high-end steel to scandium to carbon.  There are certainly dangers to this strategy as well, but I think Salsa can do a bit of CrMo and carbon and still be Salsa, still be its own brand.<BR><BR>As has been discussed on this post, steel is becoming even more expensive and even more of a niche market than it already is.  Bianchi, which had been making steel bikes for decades, got rid of its entire line of steel bikes this year.  One may not agree with Bianchi’s decision (and Bianchi is a very different brand from Salsa anyway) but their exit from the steel market after such a long history says something.  <BR><BR>I think Salsa would be wise to diversify its offerings a bit more and explore more scandium and carbon product in order not to miss the boat.  Salsa has been known in the past for its creativity and flexibility, and it can be known for those in the future as well.

 Anonymous |

The last rider to win the TDF on a steel bike was M. Indurain in 1993.  That pretty much speaks for itself.  Time for Salsa to take the 6th element on the periodic table a lot more seriously.

 Smitty |

Mang, this is fun.  Armchair Product Management.  It must give Butcher and the gang the heebie-jeebies, but they are good sports for letting us do this.<BR><BR>It is interesting that as this thread continues, I think a consensus has developed.  <BR><BR>Anon #1, I liked your response to me, I really think we are on exactly the same page with regard to Salsa’s potential trajectory in the marketplace.  <BR><BR>It would be fun to toss back some brews as we discuss this stuff.  There should be a S.O.G.

 Butcher |

Smitty….This is fun.  I think it’s fun for readers because Product Management and talking about product IS fun.  <BR><BR>It’s fun for us for different reasons.  Sometimes we need thick skin.  Sometimes it simply reinforces some of our choices.  Other times it identifies a blind spot.<BR><BR>S.O.G.  A good idea.  Who knows where this blog might go?

 Anonymous |

Hi,<BR>I have been keeping a tabs on basic commodities like iron, aluminium, etc. Yup, iron is up in price so is aluminium, so is the price of the eletricity. Aluminium needs a lot. I suspect steel and alu to both go up. Same percent. I’d buy steel, as it can be welded back up together after a chain stay goes. Lets see how the price of Carbon fibre bike frames goes, we are in a world where cheap fuel is ending.  <BR>I have purposefully just bought a steel s&s touring bike,  before prices rose, had my a la carte welded/fixed. So on. Scandium is good, but i still prefer decent steel frame; 853 or whatever is flavour of month.<BR>Thanks for the blog. very good. <BR><BR>Cheers alex<BR><BR>ps. in 2010 I would like to buy a complete salsa racing bike.

 Anonymous |

Those of you who think this discussion is about the price of steel vs. aluminum or carbon miss the point.  No one knows for sure where these prices are headed in the future.  The same is true for the U.S. dollar (which is actually in a strengthening trend in the past couple of weeks).  Companies can (and normally do) hedge against currency and commodity price fluctuations.  I don’t think the average consumer chooses a bike based on which frame material happens to be more attractively valued in the market at the moment of purchase.  The average bike consumer could care less about oil futures, the price of steel, the U.S. dollar exchange rate, etc.  So what does the average consumer care about?  Brand.  Design.  Value for money.  Technology. Beauty. Innovation. The average consumer also cares about how these things come together in a single package.  The average consumer will pay whatever price they can for these things in a bike, without bothering to check the financial pages for commodity prices.  The economy in recession you say?  Then the average consumer buys a less expensive bike, or puts off the purchase temporarily.  No big deal.  An expansion always follows a recession.  Now, having said all this, different consumer segments care about certain things a little differently.  For instance, ‘serious’ tourers tend to prefer steel.  ‘Serious’ roadies tend to prefer carbon, and so on.  Notice the word “tend”.  So what does this mean for Salsa?  Well, my take is there will always be a small market for steel.  This market can be profitable at the high end, but it also appears to be shrinking.  There’s a much larger market for aluminum/scandium, but the margins on this market seem to be decreasing as aluminum becomes more and more common and falls further out of favor vs. carbon.  Today, most (though not all) aluminum road bikes/frames are on the lower end of the quality spectrum.  Carbon is currently the big growth market, and the material that appears to have the greatest potential to become as ubiquitious as steel was up until the 80’s, and aluminum in the 90’s.  As carbon frames continue to become more common and fall further in price, high end aluminum (and steel) frames become relatively less attractive for the average consumer (again, there will always be some exceptions—e.g. the hard core tourer will probably stick with steel no matter what).  So the average consumer will probably choose a $4,000 carbon production bike vs. a $4,000 high end steel custom bike.  But again, what does this mean for Salsa?  Well, Salsa is not a custom builder, which is where most of the high end steel market appears to be headed longer term.  So Salsa may do well with high end steel for a few more years, but ultimately it will find itself in a shrinking market for production high end steel frames/bikes.  What about Salsa’s scandium (i.e. aluminum) frames?  These are also risky long term.  Scandium does not appear to be gaining favor in the bike marketplace, and consumers do not appear to be understanding its benefits vs. other materials.  It is very hard to find production scandium frames these days.  Salsa is one of literally only a handful of brands offering them.  Production scandium is also more expensive than plain production aluminum, so the average consumer tends to prefer plain aluminum.  Further, as carbon becomes more ubiquitous and affordable (not quite there yet) scandium becomes a harder sell.  Conclusion?  Salsa should start to venture into carbon frames/bikes full steam ahead by 2010.  This doesn’t mean Salsa needs to abandon the niche high end steel market, though it does mean it probably needs to jettison scandium eventually, as scandium will become a super-niche, if not a non-existing market within the next three years. Whatever Salsa does, it does very well, and personally I’d buy a Salsa carbon frame/bike in a heartbeat.<BR><BR>PS—What about titanium?  If prices come down, could become the new “steel”.  If they don’t come down, it’ll remain a niche market at best.  Ti mountain bikes are no longer a rarity.  Can Ti fixies and touring bikes be far behind?  I know of at least one production brand (not Salsa) that’s bringing them to market soon.  Will be interesting to see what happens with this material in the next five years.

 Smitty |

Thanks for the straight dope on steel prices, Butcher.  You are not alone, I’ve seen other companies addressing this in their blogs too.  It is what it is - was there ever a more appropriate use of that tired phrase?<BR><BR>Anonymous #1: I don’t see why an expanded Salsa range should have to cannibalize the BMC line (Ha - it took me three tries to type BMC - my fingers are hard-wired to type BMX.)<BR><BR>Surely there are some of us who would make a BMC vs. Salsa decision when choosing a new bike, but as the brands evolve their marketing strategies, the two brands can be posititioned to coexist in the marketplace, or rather compete for different market segments - which I think they are already doing.  <BR><BR>i.e. - I bet that BMX - er, BMC’s - TT-Bikes are among the best sellers in the lineup.  If they are not, they are going to be, with all the growth in Triathlon.  But still, Salsa doesn’t appear to be bringing back the El Go Go anytime soon.<BR><BR>Truly most consumers don’t realize that these brands share the same corporate parent (heck, one brand is Swiss, the other’s what, Mexican?), and thus consumers wouldn’t naturally group them together anyway - they’ll just consider each on its own merits.  And in the end, both brands will take market share from the Big T, S and G…oops, if any of you readers work for the the Big T, S or G - no offense.

 Anonymous |

Jason, I’m not like some of Salsa’s fans.  I really don’t ask for much.  All I ask for is for Salsa to gift Barack a Campe?n Complete when he wins the presidency (Campe?n means “winner” in Spanish—get it?), under condition he arrives at the swearing-in ceremony on his ‘09 Campe?n Complete, his secret service detail riding just behind him in ‘09 Moto Rapido Completes. Think of the publicity this would generate for Salsa! This is not too much to ask of Salsa, is it Jason?

Carly | November 21st, 2012

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