Russia is one of the biggest automobile markets among the developing nations. In 2008 it was on the verge overtaking Germany as Europes biggest. However, the global economic crisis struck one of its hardest blows at Russias booming car market, which suffered a 49 percent sales slump in 2009, compared to the year before. But prospects look brighter now, helped by a government program that pays motorists to scrap old vehicles as they buy new ones. Sales of passenger cars and light commercial vehicles in 2010 stood around 1.9 million, a growth of 30 percent compared to 2009, according to the Association of European Businesses in Russia.

Speaking at the Engine Oil and Automobile Chemicals Market 2010 conference held in Moscow in November, Alexander Gruzdev, general director of GiPA Russia, said that 72 percent of Russian passenger car owners took their vehicles to be serviced at least once in 2009. The result was the same for 2007 and 2008. The total number of car service visits, [entailing] one or more operations – like an oil change or checking fluids – in 2009 was more than 41 million, Gruzdev said. GiPA is an automotive aftermarket research firm.

Russia offers a huge opportunity for ventures such as Prime Development, which claims to have opened one of Russias first fast lubes. There are almost 1.8 million cars in the St. Petersburg metro area, Aaron Bogott, the companys general director, said during an interview in October. The citys car wash and oil change market is around 4 billion rubles [100 million] annually – and it has reached only 50 percent of its entire potential, he said. According to company estimates, oil change demand in St. Petersburg is twice as big as the amount of service currently offered.

Lacking Fast Lubes

Bogott and his business partner, Kelly Rivers, are both American citizens and had been doing business in Russia since early 1990s. They easily interact with the customers who come for lube changes, approaching them in Russian. In an October interview with LubesnGreases, they discussed the hurdles and pleasures of developing a fast lube venture in Russia. The conversation took place in the spacious premises of Prime Developments first car wash and fast lube outlet, in which they invested 3.4 million. With water splashing and mechanics buzzing around, Rivers and Bogott, both former top property managers, eagerly told the story of their transition from the once lucrative real estate sector to the uncharted territory of Russias consumer automotive aftermarket.

In the early 2000s I was working on a redevelopment plan six days a week, 15 hours a day, said Rivers, the companys founder. The only day when I had time to change the oil of my corporate sport utility vehicle was on Sunday. I knew that oil change could take me all day. But I wouldnt give up the only free day in the week I had with my family either. He recalled that he was pushing the prescribed drain intervals and thinking about the classic fast lube experience during his adolescence years in the United States. He smiled. That was the point when the idea for a fast lube business in Russia was born.

They began raising funds for the project in 2005 and had enough two years later. With those resources and Bogott and Rivers property development experience, their venture became attractive for other Americans with experience in the development of U.S. quick lube franchises. 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, Bogott said, adding that their 25 years of experience is instrumental in developing new designs for modern fast lubes.

The company branded its service Super Express and plans to open three more outlets in 2011. Over the next five years we are planning to invest 76 million in 25 fast lube and car wash services in the city and then to develop the business throughout Russia, Bogott said. To accomplish this, we are raising new investment financing and are specifically looking to bring onboard a strategic investor with experience in the industry, Rivers added.

Since February 2010, when they opened the first outlet, St. Petersburg residents have started to grasp the purpose of a quick lube center. The whole concept of a fast lube – what kind of service is that, what kind of quality is offered – it took awhile for the people to adopt it, he said, observing that drivers are not pulling in as soon as they see the station. There are at least ten points of contacts such as advertisement or word-of-mouth before someone actually comes.

Middle income Russians readily grasp the point of a quick oil service, Bogott said. Those are people who are now making more than their parents did. They can take a car loan, and car ownership has a certain role in their life, he said. Many are white collar workers who put in 10 hours a day, he added, and dont have time to shop for lubes and oil filters. They want the service to be provided for them quickly, unlike in the branded garages where it can take up to an hour.

Little Competition

Russias consumer automotive aftermarket is divided in three categories, according to GiPA. Independent garages account for 50 percent of the total auto service market, and a small share of them are so-called quick fit or branded garages. Official dealers performing warranty service and repairs hold 20 percent, and the remaining 30 percent falls into the other category. The latter are mainly mom-and-pop garages that date to Soviet times, according to Rivers. There are a number of players who are trying to do this quick fit approach, which is a German car-service model that involves fast repairing, like changing the brakes or a muffler, he said, noting that Super Express doesnt do car repairs. We dont consider them a threat because the effectiveness of the existing market players has always been questionable. Besides, in the northeast region, we are the only one solely doing car service, which primarily includes car wash, fast lube change and checking the fluids.

Shell is trying to establish a fast lube service model in Siberia and the far east of the country, where recently it outsourced approximately 100 third-party car services or gas stations. Some of our express lube services have seen good business, some not, said Svetlana Shakova, head of light vehicle lubricants marketing at Shell Russia. On the fast lube adoption side – in some outlets there have been 30 visits daily, which we consider a good result.

Shell says it chose eastern Russia because of the specifics of the car market there. In the early 1990s, a lot of secondhand cars were imported from Japan. These cars were in good condition and required no repairs for long periods of time, Shakova said, meaning they needed only regularly scheduled maintenance.

Car owners usually failed to change motor oil by themselves and to maintain the automatic transmissions, she said. Therefore, service stations specializing in replacement of technical liquids emerged first in the Far East and then in Siberia. So there is demand for the services offered by quick lubes.

People in Russias most populous cities and regions often have to make an appointment many days beforehand or are queuing up for hours to have their oil changed, according to Bogott. For example, Moscows automotive aftermarket is not as developed as St. Petersburgs.

Notably, a service package consisting of a car wash, oil change and liquids checks is a novelty for this part of Russia, a fact that is crucial for Prime Developments business success.

Educating Customers

Prime Development targets cars that are three to 10 years old. [In Russia] 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, Bogott noted. He added that 80 percent of the citys vehicle fleet is older than three years.

The price list at Super Express lists each component separately. Lubricant prices range from 12 per liter for Shell and ExxonMobil-branded synthetic 5W-30 oils to between 3 and 7 per liter for LukOil and Castrol semi-synthetics. The cost of the filter is additional. 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.

As many customers are new to the quick-lube approach, it is not strange that 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 in addition to the domestic cars, Russias car park includes Japanese, Chinese, Western European and U.S. models. 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 standardized, and consequently the pricing is more mature.

Commercial advertising, promotions with coupons or flyers and word-of-mouth are the most common ways for clients to hear about Super Express, Bogott continued. We have not hit our target numbers, but they are growing each week. According to our surveys, almost 40 percent of our clients in 2010 claimed to have washed their car at least once a week, while 30 percent said they do so less than once per month. St. Petersburg car owners change their oil two times a year, in spring and fall, he said.

Super Express advertising, combined with the thorough explanation about the process to window-shoppers, resulted in an extremely warm reception, said Bogott. Its obvious that Russians appreciate the western service approach. We have brightly lit and transparent facilities, where customers can have a coffee or children can play. They can see whats happening when their cars are being washed or the oil is being changed.

Prime Development is currently working on three new quick lube stores 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 centers near shopping malls and big supermarket parking lots.