ConocoPhillips Vows to Keep Four Brands


Shunning the lure of streamlining, ConocoPhillips says it has decided to maintain all four of its lubricants brands.

Officials acknowledge that the decision makes for a complicated business strategy for the fourth-largest U.S. lube producer. They maintain, however, that it allows them to stand by their distributors, and affords the best chance for growth.

When Conoco and Phillips Petroleum Co. announced plans to merge last November, some expected the combined lubricants business to be an ideal candidate for brand consolidation. Thanks to a series of four mergers and acquisitions in five years, these companies had a total of not two brands, but four. Some industry observers wondered how dedicated the new management would be to them. The question was not which brand would fall by the wayside, but whether just one would be eliminated, or two.

The answer, it turns out, is none. Commercial Lubricants Manager Lou Burke told Lube Report yesterday that ConocoPhillips will continue selling products under the Phillips, 76, Kendall and Conoconames.

Each of these brands has its own heritage and particular areas of strength, he said. We believe we have a unique opportunity with this collection of brands and this will allow us to take advantage of the positions that each of them have established.

Thecustomer basesof the four brands certainly represent an eclectic mix: for Conoco, mining, natural gas and power generation and transmission, some areas of off-road agriculture and some industrial applications, such as injection-molded plastics manufacturing; for Kendall, installed passenger car motor oil and on-road diesel engine oil; for Phillips, passenger car motor oil (TropArtic brand), two-cycle engine oil (Injex) and aviation engine oil; and for 76, the commercial segment, on-road diesel, agriculture, logging and industrial applications such as paper making and aggregate mining.

According to Burke, each brand will have a broad range of products – an average of 600 to 700 stock keepers units (SKUs), although 76 and Conoco will have more than the others because of their wider industrial lines. ConocoPhillips plans to produce all four brands at each of its five U.S. blending and packaging plants, in Portland, Ore., Los Angeles, Hartford, Ill., Sulfur, La., and Atlanta.

Theres no question that we have chosen a complex business model, Burke said. In doing so, ConocoPhillips may pass up some chances to cut costs, but the company believes its strategy will pay off in the end.

There are two ways of improving profitability, Burke said. One is by cutting expenses and standardizing operations to make operations more efficient. We have certainly taken advantage of some synergies with this merger; weve recognized tremendous economies of scale.

In the long run, though, you get better return from top-line revenue growth. Thats what were doing. Were focusing on selling the product and selling more product.

ConocoPhillips chose this course largely out of a desire to avoid disrupting its distributors, on which it depends heavily. Distributors account for 65 to 70 percent of the companys net lubes sales in the United States.

I have a belief that this is a business where the marketers have the major say in what happens to us, Burke said. You hear companies say things like, Were going to become thePCMO leader,’ or ‘Were going to shape a lubes business that looks like this. But it really doesnt work that way. Your marketers are the ones that have the biggest effect on how your business develops. So we are really going to strive to be the easiest company to do business with.

If youve got a marketer thats been selling the 76 brand in North Carolina for 70 years – and we have a number of them – their lubes business has kind of grown around what the 76 offerings were. If I throw away 75 years of brand positioning and family relationships – that doesnt seem the way to do things.

All of this is not to say that ConocoPhillips is completely opposed to streamlining. The lubes business is in the process of reformulating all products, in order to come up with core chemistries. The company will then establish tiers of products by using different treat rates or by adding spikes to induce different performance characteristics.

Burke said that maintaining all four brands will help each to grow; those that are strong in certain areas can serve as vehicles to increase sales of those that are not.

Its always easiest to sell to your own customers, he said.

ConocoPhillips is now the fourth-largest lubricants supplier in the United States. It claims 7 percent of the U.S. market excluding process oils, with annual sales of 180 million gallons. The company hopes to increase that volume by 5 to 10 percent.

Burke also sees opportunities overseas. All four brands have operations in other countries, he said, but their business can grow by approaching those markets more systematically and efficiently. He sees the biggest opportunities in Europe and Asia, with Latin and South America becoming attractive once currencies there stabilize.

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