Opinions Mixed About Amazons Entry


Opinions Mixed About Amazons Entry

E-commerce giantAmazon quietly entered the engine oil market this summer with its own brand of engine oils. Industry insiders disagree about how much noise the company will make.

Since July Amazon.com has been offering Amazon Basics branded passenger car engine oils, including conventional, synthetic, high-mileage synthetic and high-mileage synthetic blend products. One industry analyst predicted the company will become a large player that makes a big impact on the market.

Its a game-changer. It will change life as we know it today, claimed Larry Solomon, president of consulting firm Strategic Resources Inc. Its going to affect every traditional channel. They have the leverage to make things different.

Others predicted Amazon will cause less of a stir.

Amazons product launch was low profile, without fanfare or even a press release. As of this week, the companys website indicates that Amazon Basic 5W-20 synthetic is the 15th highest selling motor oil on Amazon.com. The company declined to disclose its sales targets for the products.

Amazon tapped Omaha, Nebraska-based Warren Distribution as its blender, whose portfolio of private label motor oil brands includes Craftsman, Accel Premium and Mag 1.

The company has entered into a variety of industries as it expands from being a platform for the sale of other suppliers products to offering its own private label goods. At least some financial analysts consider Amazon to be a threat in any industry that it enters due to its size and the pivotal role that it plays in commerce. In mid-September, J.P. Morgan turned bearish on engine oil marketer Valvoline, expressing concerns about competition from Amazon. Valvolines stock promptly dropped 4.2 percent.

Valvoline officials downplayed the threat – at least for leading engine oil brands in the do-it-yourself segment – the channel for motorists who conduct their own oil changes. The shift to online purchasing is a very small part of the overall DIY business, Heidi Matheys, chief marketing officer for Valvoline, told Lube Report in an emailed statement. There have always been DIY customers who are sensitive to cost and buy private-label products at retail. Valvolines line of motor oils are also available for purchase on Amazons website.

Photo from Amazon’s website

It may not be easy for Amazon to penetrate the DIY market despite the companys size.

Private-label has been growing in the DIY channel, but it has historically come mostly at the expense of the mid-tier brands, Matheys explained. Tier 1 brands – including Valvoline – have continued to maintain their overall dominant share in DIY. Most DIY customers are passionate about taking care of their vehicles. The quality promise of branded motor oil is critically important in their purchase decisions.

Christopher Leverich, of Menomonee Falls, Wisconsin-based Jax Lubricants, believes that while the sheer size of Amazon means the motor oil will sell well, the e-commerce giants current strategy to offer lower prices than leading brands has limitations.

My question to Amazon is, How long can you do this where the margins are so thin? he asked. Amazons prices range from $16.99 for five quarts of its conventional 10W-30 motor oil to $29.99 for a six-pack of one-quart bottles of its full synthetic 5W-40 motor oil. Its cheap today, but will it be cheap tomorrow? I dont expect the price to stay low forever.

Solomon predicted Amazon will steadily win customers. Sure youll have people loyal to their brands, but over time people will look for the best deals, he said. Eventually if they get into a deal with [automotive shops] to deliver in bulk, now youve got a player. Then theres the convenience and the ability to get stuff delivered to [a consumers] house.

Its also possible Amazon will expand beyond the consumer DIY market to offer other types of lubricants. Leverich suggested that industrial lubes make a lot of sense. I do think they could have an industrial line, sure. I think Amazon has the guts to do something like that, he said. Theres nothing holding them back doing industrial products. They have the warehouse space and would be more dangerous there than in the DIY market space.

They will branch out to every lubricant they possibly can, said Solomon. Motor oil is just the start.

If Amazon is to be successful, Solomon said, it needs to attract at least 1 to 2 percent of the private label market. Build on that and eventually increase it to hold 1 to 2 percent of the total market to become a player. Before that happens, though, companies must not take Amazon lightly, Solomon warns. The biggest mistake [for companies] is to ignore things until its too late. Its worth researching how it will affect their brands, he said. If they want to put their head in the sand, they can watch their shares go down.

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