Valvoline Inc. announced last week that it plans to restructure its business model, shifting to a more service-driven strategy that it believes will allow for accelerated growth.
The company will consolidate its current three-segment model into two segments – Retail Services and Global Products – at the beginning of its third fiscal quarter of 2021.
Retail Services, formerly known as the Quick Lubes segment, comprises Valvoline’s oil change stores in the United States and Canada. The company’s former Core North America. and International segments will be combined into the Global Products segment, focusing on sales of lubricants and other maintenance products through channels other than quick lubes.
The changes are also intended to simplify Valvoline’s financial reporting and provide further transparency and more direct comparisons to competition, the company said.
“Our business realignment strengthens our strategy and is the next step in our transformation to a more service driven business model,” CEO Sam Mitchell said in a May 18 press release. “This realignment and related changes enhance our ability to leverage our strong brand equity and product platforms to capture opportunities in both segments, drive focus in deploying capital and provide improved transparency for investors while also positioning us for faster growth going forward.”
The operations that will be combined as Global Products accounted for two-thirds of Valvoline’s earnings before interest, taxes, depreciation and amortization in 2017. The company estimates that by 2025, Retail Services will make up two-thirds of its EBITDA.
“We believe [2021] is an inflection point, as Retail Services makes up half of our EBITDA,” Mitchell said in an online webcast. “We expect Retail Services EBITDA to continue its rapid growth in the years ahead due to the segment’s proven repeatable growth model.”
Mitchell noted that the Retail Services segment has experienced consistent growth the past five years in added stores and total store sales, including 14 consecutive years of systemwide same-store sales. Valvoline estimates a 14%-16% compound annual growth rate for the segment through 2024.
On the Global Products side, Mitchell said Valvoline averages approximately 10% market share in the U.S. and Canada, but less than 2% in international markets. The combination of the former North America and International divisions will allow the new segment to leverage more global marketing and partnerships.
“Individually, our former two segments have substantive strengths that – when combined – are expected to accelerate share gains,” Mitchell said. The company estimates a 4%-6% compound annual growth rate through 2024 for its Global Products segment.
Valvoline expects its total revenue compound annual growth rate to hit 9%-11% through 2024.