In this challenging environment, they adopted a simple business plan: Grow as operations allow, but above all constrain costs in order to allow decent profits. So far the company has been sticking to its plan and expanding gradually.

LubesnGreases visited Grom-Ex in July, traveling to its plant and headquarters in the Eastern Ukraine city of Kharkov. Roman Lyubin, the companys managing director, greeted your reporter wearing a grey polo shirt, jeans and sneakers. Seated for lunch later in his favorite caf in downtown Kharkov, his cell phone nagged him every minute.

I want to do everything by myself, the 34-year old said cordially, his blue eyes gazing at the phone display. Ive never adopted the stereotype of a CEO or general director who shouts instructions from the coolness of his office. Im a director, sales manager and a secretary, all in one.

FROM A BARREL TO A BUSINESS

Grom-Ex hasnt changed its approach much since starting its lubes business in 2000, Lyubin explained. Back then, together with my father, I was hitting the road with my old Lada to Kremenchug, to pick up a single 200-liter barrel of engine oil weekly. This lone barrel was purchased from national oil giant Ukrtatnafta, which manufactures lubricants and runs the countrys only base oil plant in Kremenchug. It was an investment in the Lyubins future, a small calculated step toward establishing one of the first family-owned lubricants businesses in Ukraine.

My father taught me how to manually fill engine oil and coolant containers at home, and I appreciate his efforts, Lyubin said. If you dont fight you wont succeed. The love for the oil business and making money is what drives both of us.

Grigoriy Lyubin, a retired Soviet army colonel, gave the companys steering wheel to his son in 2005, after Roman graduated from Kharkov State University with a degree in astrophysics.

My dad still plays a significant role in the companys human resources issues. His military habits make him to do things like form all workers in a morning rank, look in their eyes to see if somebody got drunk the night before, or is not suitably dressed for work, Lyubin said, flashing a big grin. Today, his advice related to management decisions is reduced.

The Lyubins had a few things going for them as they ventured into the lubricants business. With demand estimates ranging between 300,000 to 350,000 metric tons per year, Ukraines lubricant market is the seventh largest in Europe. Kharkov is the countrys second largest city and an industrial center, giving Grom-Ex an ample base of potential customers. In this environment, its lubricant business has been growing slowly but steadily. In the mid-1990s, the Lyubins packed and sold only coolants. Its first foray into lubricants was 2000, when Grom-Ex began marketing Ukrtatnaftas lubricants in one, four, five and 10-liter containers under Grom-Exs brand Bars Oil.

Based in Kharkovs picturesque but dilapidated industrial zone, intersected with narrow, potholed streets without curbs, and hidden behind a huge metal gate, the half-roofed blending facility operates daily, staffed by 40 workers. They unload feedstock and blend finished lubricants that are manually filled and packed, then loaded for shipping. Annual output is approximately 6,000 tons.

The key to the companys success is cost-effectiveness, according to Lyubin. I would never cut costs in upgrading our technology and making better lubricants, but costs for electricity, salaries, rents or loans are watched closely. While Grom-Ex itself avoids taking out loans, he noted. We [do] help collaborators and distributors with loans and other services like transportation or dispatching workers.

FIERCELY DEFENDING QUALITY

Grom-Ex is a name formed by combining the first letters of the fathers and sons names, a common practice in ex-Soviet regions. Dont be fooled, Ex stands not for the English word ex, but for excellence, Lyubin said, proudly showing at least twenty products exhibited on shelves in his office, almost all branded Grom-Ex. The products include semi-synthetics and mineral-based engine oils with viscosity grades ranging from 10W-40 (API SL/CF) to 80W-90 (API GL-5) for gasoline and turbo diesel engines. They also make manual and automatic transmission fluids, hydraulic fluids and several types of coolants.

Categorizing the companys lubes as low to middle quality, Lyubin said Grom-Ex is very serious about quality. The viscosity, antioxidation and flushing properties of Grom-Exs lubes are similar to those of Western branded oils, he said. One might ask how they test and prove this assertion. First, the company has its own small lab with two chemical technicians who make daily checks of oils viscosity and oxidation indexes. Second, all lubricants are certified by MASMA, a Kiev-based institute for the crude oil refining industry.

I visit MASMA monthly, Lyubin said. Usually we examine several specimens of our oils, one of which is a foreign brand. The fuels and lubrication department makes all necessary tests, and the results show how the quality of our oils is very similar to imported specimens.

The company also has a few MASMA-signed certificates, authorized by the state, that show it is a legitimate and original lubricants manufacturer. We are making an effort to establish a cooperative relationship with Infineum to obtain approvals from certain OEMs, but these talks are still at an early stage, said Lyubin. Infineum is a major supplier of lubricant additives based in Abingdon, U.K.

The company wants to become a modestly bigger producer in the future, making a few investments but not increasing costs. Their next step is to introduce a grease brand and an antioxidant additive. I would put it like this: We plan to increase our production but to stay small, Lyubin said. How it is possible? We possess certain know-how, so instead of buying an automated filling machine that costs a small fortune, we can organize a [half-automated] production process that could increase productivity. It means, for example, filling not 100, but maybe five or 10 times more containers per hour, without affecting quality.

Together with the Kiev institute, Grom-Ex is also developing an antioxidation additive that it plans to begin producing soon.

Because it has a diversified feedstock supply, Grom-Ex hasnt been affected by the 2009 halt of base oil production in Ukrtatnafta. Even if the production halt in Kremenchug [continues], we are always ready to buy from our traditional partner Azerneftyag in Azerbaijan, Lyubin said.

Close proximity to Russias border also gives Grom-Ex the ability to buy feedstocks from Russian producers such as Rosneft, Bashneft and Gazprom. Domestic lubricant producers are now relying primarily on Russian feedstocks, Lyubin said. The price of Russias base oils is more competitive than Ukrtatnaftas, he said.

FACING COMPETITION

The closed base oil production in Ukrtatnafta opened up opportunity to the Russian competitors. They now export much larger quantities to Ukraine than before, including both feedstocks and finished lubricants. Lukoil has a developed distribution network that sells lubes, and now TNK-BP and Gazprom Nefts lubricant brands have also entered the market.

Russian lubricant marketers successfully sell their mid- to premium-quality lubes at competitive prices, said Mikhail Vashurkin, owner of Cherkassy Autochemistry Plant Ltd., a producer of coolants, windshield washing fluids, engine cleaning sprays and leather cleaners, located in Cherkassy, Ukraine. There are only 7 million cars in Ukraine today, compared to over 40 million in Russia, he said.

However, domestic lubricant producers are able to export to the neighboring markets of Moldova, Romania, Bulgaria and Poland. The Ukrainian motor and transmission oil market is growing, and the volume of finished products sold in these segments is about 80,000 to 100,000 tons annually, Vashurkin told the WRAs Base Oils and Lubricants in Russia and the CIS conference in Moscow in April.

Many competitors flock to the Ukrainian market not only from Russia but also from Europe. For example, the local auto dealer in Kharkov offers products from international oil majors such as Shell, Total and ExxonMobil, along with smaller brands like the French-made Motul. A common practice in many ex-Soviet states is the way these sprawling auto markets offer different motor oil brands in bulk at lower prices.

Customers are noticing more new domestic and imported lubes brands on the market, Lyubin said. But it doesnt frighten us, because the market itself is growing.

The company sells its oils primarily in the central and eastern part of Ukraine, using dozens of distributors that supply lubes from Grom-Ex and a few other domestic competitors to local automobile markets or auto parts stores. Grom-Ex also sells its lubes through the nationwide Marshal gas station network.

Recently we introduced a commercial campaign with big billboards in Southern Ukraine, on the Crimean peninsula coastline, where a lot of domestic and foreign tourists visit. We expect big success with this commercial promotion, said Lyubin.

Lyubin is confident that Grom-Ex will soon be capable of shipping lubes to some CIS countries. Because of the states export taxation rules and the red tape, he is holding talks with an intermediary company which has the right papers and the governments blessing to export oils. The company plans to export to Azerbaijan by the end of the year and to expand to Moldovas breakaway Transnistria province and Tajikistan by 2012.