Will Russia Love Quick Lubes?


Two American entrepreneurs and industry partners who developed and managed key U.S. quick lube brands hope to conquer the Russian oil-change market, funded by a planned $110 million investment.

Prime Development, the company that operates Russias first quick oil-change service, opened its first outlet in February this year in St. Petersburg.

The company branded the service Super Express and plans to open three more by late 2011, Prime Development co-owner Aaron Bogott told Lube Report. In the following five years we are getting ready to open 25 fast lube and car wash outlets, and to develop the business throughout Russia, he said.

His business partner Kelly Rivers said the planned $110 million-plus investment came from a large U.S. investment fund.

Rivers and Bogott are both American citizens who have over 15 years experience in Russian investment funds and the commercial developmental sector. Some of the partners who will help the ventures growth in Russia are John Jacobs and Stan Latos, industry veterans who managed over 40 U.S. fast lubes in their 25 years of experience and were instrumental in developing new designs for modern fast lubes, Bogott said.

The existing car wash and motor oil change services in Russia, mainly owned by domestic businessmen, have always been associated with overpricing, he noted. In the backdrop of lacking budget fast lube and car wash services, a Russian business daily recently dubbed the U.S. entrepreneurs venture as McDonalds for cars.

We segmented the St. Petersburg car service market into three groups, including dealers, who service the market exclusively, based on their warranty restrictions for the new cars. Then there are the branded service garages, and the last category is dyadya Vasya (mom and pop) old Soviet garages, Rivers said, adding that they dont consider them a threat because the effectiveness of the existing market players has always been questionable. People here often have to make an appointment many days beforehand or are queuing up for hours to change the oil, Bogott noted.

Branded garages are more oriented toward mechanical issues like fixing the brakes or checking the engine, and even if you are changing your oil, it will take you about an hour, Rivers revealed, explaining that fast car service in Russia is a wide open market niche with no competition.

St. Petersburgs lube change and car wash market has big potential – around 4 billion rubles (almost U.S. $130 million) annually – and it has reached only 50 percent of its entire potential, Bogott said. We estimate that the oil change demand is twice as big as the amount of quick lube service offered.

Prime Development targets cars that are three to 10 years old. If an owner of a new car services it outside the dealership network, it might lose its warranty, whereas the U.S. laws forbid making somebody use your service in order to keep the warranty, he noted.

According to the Super Express web site, oil change costs range from $16 per liter for 5W-30 lubes (Shells and ExxonMobils brands) to around $5/liter for 10W-40 lubes by Esso or LukOil, plus the cost of the filter. The lube change price includes 16 other services, including refilling windshield washer fluid, checking the condition of all other liquids, and checking the air filter, belts and battery.

The car service market in Russia is very young, and people ask only what the oil cost is, not taking into account other factors like oil filter cost, Bogott asserted. Its one of the reasons why we havent used the American approach of pricing for an oil change, he said, explaining that beside the domestic cars, Russia imports Japanese, Western European and American cars. The market here has a wider selection of oil filters. It means a wider price range, much wider than in the U.S., where the oil filter market is much narrower, and consequently the pricing is more mature.

Though it is new in the market, Super Express has had an extremely warm reception, and the Russians appreciate the western service approach, he noted. We have brightly lit and transparent facilities, so the people can see whats happening when their cars are being washed or the oil is being changed.

Commercial advertising and word of mouth are the most common ways the clients heard about Super Express, he observed. We have not hit our target numbers, but they are growing each week. According to our surveys, almost 40 percent of our clients return to the car wash once during a week, while 30 percent are coming more then once, Bogott confirmed, adding that St. Petersburg car owners change their oil two times a year, in spring and fall.

Developers are currently working on three new quick lube stations in the city. The best deals for us are in zones with high car traffic, big shopping malls and proximity to residential complexes, he concluded, explaining that there are ongoing talks with retailers, developers and banks for opening Super Express stations near shopping malls and big supermarkets parking lots.

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