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Tom Bock had just sold his company when he heard about Pedego electric bikes. “My friend had a bad experience with service, went to see Don, and he got him squared away. I bought one and thought, ‘This could work. I could rent them out, do tours.’”
The Don was Don DiCostanzo, co-founder of Pedego Electric Bikes. The problem then was service at the mercy of bike-store owners. No control over the 4 Ps.
Bock had an idea. Maybe they came to it together: Branded dealers. One brand. Pedego. Exclusively.
“I met with Don, easy to convince him. In business, distribution is the hard thing.”
That was 2011, a handful of electric bike brands. Today there are 205. By recent measures, Fountain Valley-based Pedego is No. 1 in the U.S., $20 million in sales last year, up 35%, opened 24 stores to reach 120.
“This year 30, and we’ll be at 150,” DiCostanzo said.
The boys are on their fifth Orange County warehouse in Fountain Valley, up to 47,000 square feet.
“They execute,” said Ryan Citron, senior analyst at Navigant Research, a consulting firm that conducted the last global market study on electric bikes in 2016. “They have a lot of branded stores. When you sell quality, that helps.”
“We ended up disrupting the bike business in a big way,” the founder said.
DiCostanzo is New York-bred, became a Corona del Mar Sea King in 1975, a California State University-Fullerton Titan, and met Terry Sherry—now lifelong best friends and partners in Pedego.
Today, electric bike guys—neither man can change a tire—DiCostanzo spent 30 years as a car guy, many with Wynn’s International. He was marketing, rose to division president. Parker-Hannifan Corp. bought Wynn in 2000 but kept its president of innovative product. DiCostanzo’s entrepreneurial belly was making noise.
He started companies, sold trade-publishing company Prism Automotive. The Great Recession arrived, a good time to start a venture in the much-derided electric bike business, right?
“That’s cheating people we would call e-bike riders,” DiCostanzo said.
Electric bikes use a battery—a Pedego costs 9 cents for a full charge that ranges 60 miles—that’s if you don’t pedal. Pedaling or triggering the throttle drives the electric motor, providing power to the wheels. Motors of 250 to 500 watts supplement pedaling or throttling and boost speeds up to 25 mph—“convenience, health and fun factor,” DiCostanzo said.
He still had to figure out how to sell the e-bikes. A man who could sell ice to the Eskimos could make “acceptance” happen. Cultural factors and time have helped—to some extent. Navigant pegs the worldwide electric bike market at 40 million units by 2024, but 75% of that is China.
Pre-partnership, DiCostanzo was selling Pedegos out of his Zclipse bike-repair shop in Newport, and the following few years at reluctant bike dealers’ shops.
Along come branded stores, not franchisees. “They can color outside the lines all they want,” DiCostanzo said. They just have to sell exclusively Pedegos bought from the man in Fountain Valley.
The owner journey tends to go like this: They rent or buy a bike, like the bike, ask to become an owner. It’s been a quick, pedal-assisted ascent to $20 million:
• 2015: 29% ($12M)
• 2016: 31% ($15.5M)
• 2017: 34% ($20M)
• 2018: 40% to 50% ($30M) F/C.
Jobs: 24 in 2014, 60 at the end of last year.
Founder takes pride in the last figure. “My mechanic, bet he’s the best-paid mechanic in Orange County.”
DiCostanzo knows what he knows. “I’m a 4 P marketing guy.” He believes in retail. “Our website is to get people into stores,” he said. He doesn’t fear the disruptor. “1% of Amazon sales are over $1,000. Ours is a minimum $3,000 product.” He does stick close to Amazon—sort of. Find a Whole Foods Market, you’ll likely find a Pedego dealer within eyeshot. “Sophisticated location analysis, huh?”
When they open their seventh OC store this year, for the seventh time, Whole Foods will be nearby.
They know their demographic. The average buyer is 62, discretionary income. A cheap electric bike, $1,500 to $2,000, “that’s someone else’s sale.”
Quality, service, and style—the boys like colors; Pedegos come in hundreds of combos and models—cruisers, tandems, commuters, mountain bikes, and even a folding electric bike.
Don came up with Pedego. He has two trademarks, the name and style.
Pedego Magazine, fifth edition, 80 pages, goes out this week. Neither it nor any other magazine has Pedego ads.
“Customers.” He has deployed an influencer—he’s 87.
“Best influencer is William Shatner,” DiCostanzo, a nuevo Trekkie said (see related story, OCInsider, page 3).
Best-selling bike Interceptor is a $3,000 cruiser. New models include Elevate, a full-suspension mountain bike, and Conveyor, a commuter bike. Those cost more, Elevate about $5,495.
Swiss company Stromer sells at the same price point through retailers like REI. Stromer, like Pedego, is independent, severing itself from BMC. Its new commuter starts at $9,000. There are lots of sellers in the $1,500 to $2,000 range, and there are companies like Malibu-based Sondors, a crowd-sourced, online e-bike seller that gets $500 to $1,000.
There’s a waiting list of 25 to 30 store owners. Bock’s store on Fifth and Main is 652 square feet. Most Pedego stores are double that. Bock’s buy-in was $90,000—inventory, signage, point-of-sale equipment—$125,000 gets you started today.
Store owners make money from e-bike sales, rentals, tours, service and merchandising, which is increasing. In fact, Pedego debuts its second branded product this month, the Pedego Lock.
Here’s how the electric bikes get made: Pedego handles design, prototype, source and final assembly in Fountain Valley. Production is in Taiwan and China, two to three factories chosen from about 1,500, with one full-time employee there.
The sales model for corporate is wholesales to dealers and independent electric bike sellers, called royalties—that’s 81% of revenue; retail sales at the O&O’s, and merchandise. Pedego corporate runs e-commerce, but “online is a showroom.”
Bock says he’s growing same-store sales at Pedego No. 1 15% to 25% every year and is freed up to open stores for new dealers—this month St. Petersburg, Fla., Tulsa.
DiCostanzo seeded Pedego with $300,000. He’s majority owner, Sherry owns a stake, and a few years in they took on a “silent minority partner,” a businessman. “I wanted his expertise, not his money,” DiCostanzo said, “But to get one, we needed the other.” Private equity guys pester weekly. “Scared to death of an exit,” DiCostanzo said. “No one would employ us.” He says Pedego’s now completely self-funded with no debt.
Don’t Fear the Peleton
DiCostanzo isn’t peering at the passing lane. “We have the best markets, locations. Our store owners are evangelists. We have the distribution channel.”
On the speaking circuit, the “Mad Man” likes to say Pedego is ubiquitous. “You Google, you Pedego.”
He’s hyper-focused on the domestic market, where 60% of sales come from California, Colorado and Florida. “Lifestyle product in lifestyle markets,” states with bike paths and bike trails. But the U.S. electric bike market overall has been slow to adopt.
Navigant forecasts the ex-China market to go from 3.3 million sales in 2016 to 6.8 million in 2025, an 8.2% CAGR. They see the U.S. market going from 140,000 to 400,000, a 12.2% CAGR. But at 400,000 sales per year, U.S. e-bikers compose only 5% to 6% of the global market.
“Selling a ton of electric bikes in Europe,” Citron said. Germany and Netherlands, 17% of bikes sold in Holland are e-bikes. People use them to commute.
“In the U.S., you have lower gas prices, car culture and lack of consumer awareness, and still a bit of the attitude problem—“‘It’s cheating.’”
The Pedego boys see a tough but growing love, and the best growth here in the stubborn U.S., even those millennials they’ve been courting for years—“they’re now buying electric bikes for commuting. Average age is coming down,” DiCostanzo jokes. “It’s approaching 61.”