Promoting Out of a Crisis

As China is slowly reopening its economy, Chinese lube suppliers see survival at the top of the agenda and are using promotional events and new distribution channels to attempt to jump start sales.

Examples are plenty. Sinopec in April held a “buy one, get one for free” event to pedal passenger car engine oils at its gasoline stations in Taizhou, Zhejiang province, targeting mostly taxi drivers.

Lopal Technology Co., the Nanjing-based lube supplier, launched a full synthetic passenger car engine oil, Sonic 9000, on May 20 exclusively for the e-commerce platform Tmall during a three-day event, Ju Hua Suan, which is Mandarin for “bargain price.” Priced at just ¥99 (U.S. $13.90) per barrel (a package containing four liters) – compared with typical prices of about ¥200 for synthetic oils – sales are expected to cost Lopal and Tmall’s parent company Alibaba millions of Chinese yuan.

For Tongyi Lubricant, the Beijing-based lube supplier, promotional events are necessary for the time being, but well-designed strategies are more important for survival and growth after the pandemic, Tongyi CEO Li Jia said.

“At Tongyi, we are increasing our supply to new distribution channels. It’s not big now, but my goal is to make it 30 percent of our businesses,” Li told Lube Report Asia. The distribution channels he alluded to are a new generation of distributors emerging with mobile technologies. They include insurance companies such as China Life, used car trading platforms like Guazi and online-to-offline aftermarket service provider Tuhu.

“There are many new channels emerging every year, and some of them will survive and become a top distributor. Tongyi’s job is to become their supplier,” Li said.

Tongyi was one of the first batch of companies in China to resume operations in February, right after the Chinese government called for a slow reopening of economy. Li said its decision to restart early was encouraged by what the company learned during the severe acute respiratory syndrome, or SARS, pandemic in 2003.

“We were the top disinfectant supplier in China during SARS, so when we resumed operation, our priority wasn’t blending lubes but producing disinfectant and hand sanitizer,” Li said. Under the brand CleanGuard, these cleaning products ship to Tongyi clients and distributors nationwide along with Tongyi oils.

Such a pairing strategy helped Tongyi to increase sales. While sales in February were “negligible,” Li said sales in March and April both were higher than the same months last year, and he was confident that he could say the same about May. CleanGuard will become a regular product line for Tongyi, he added.

The company is also building its reputation in less developed areas among lube distributors that want to develop their own private labels.

“We can supply the lubes that meet their requirements, so they don’t have to spend money building a blending factory. It gives our clients a great cost advantage,” Li said.

But in general, Li was not optimistic about lube sales this year, especially for industrial oils and diesel engine oils.

“Most of our clients buying industrial oils are in the export industry. As they are facing an increasingly difficult time, we don’t expect to see good sales from our industrial products,” he said.

The value of China exports dropped 6.4 percent during the first four months of 2020 to ¥4.7 trillion, while imports slid 3.2 percent to ¥4.3 trillion, according to China’s ministry of commerce. As orders from export companies fell sharply, demand for transportation also waned, affecting sales of diesel engine oils.

“The only sector I feel positive about is passenger car oils,” Li said, despite the rapidly falling sales in cars. China sold 4.4 million passenger cars from January to April, down 35.3 percent year-on-year, according to the China Association of Automobile Manufacturers.

“Under the current economy, what we can do as a lube supplier is to continue to provide quality with best price, service and efficiency. We can survive only if we manage to always stay ahead of our competitors,” he said.