In the fast food industry, franchises are ubiquitous. Large restaurant chains may include some individual sites owned by the companies that own the brands, but most are owned by separate companies – independent franchisees that may have one or many sites. Franchisees gain permission to use the franchisors brand and to sell its products under contracts that typically provide some revenue to the franchisor and dictate some of the franchises practices.
The lubricant industry mostly uses different models. Large suppliers sell directly to some end-users, but much of their sales go through distributors and, in the case of automotive lubricants, retail stores. Its worth noting that retail outlets may include networks of branded fuel stations, some of which may be franchises.
One lubricant supplier that has made liberal use of franchising is Gulf Oil Ltd., a subsidiary of Indian conglomerate Hinduja Group. A decade ago the company sold lubes in a handful of countries, mostly on the Asian continent. Today it is present in more than a hundred nations on six continents, including much of Africa, Europe and South America. Gulf says it entered many of those countries by granting franchises to local businesses.
Couching itself as your local global brand, Gulf says that franchising gives local partners greater control over strategy and allows them to leverage their knowledge of their markets.
Hinduja is actually one of three companies that own rights to the Gulf brand name – one of the oldest and most famous brands in the U.S. oil industry. Chevron bought the original Gulf Oil in the 1980s and later divided up rights to the brand name geographically. Gulf Oil L.P., which is based in the northeastern United States, has rights to use the brand in that country. French oil giant Total owns the rights in Spain in Portugal, and Hinduja has them everywhere else.
Despite the impressive country count, Gulf Oil Ltd. is still far from counting itself among the largest lubricant suppliers. Thats largely because many of the countries where it has granted franchises are developing nations where volumes of lubricant consumption remain modest. The company is working to accelerate the growth of its lubricant business and in doing so is shifting its emphasis away from franchises.
If and when opportunities arise [in the future] it will be by acquisition of wholly-owned operations, rather than start-ups, spokesman Sam Cork told LubesnGreases, explaining that the company is focusing more on emerging economies, primarily in East Asia. He credited this strategy for Gulfs 7 percent increase in lubes sales volumes since the recession began.
Cork added that Gulf will continue using franchising to establish its presence in new countries. It sounds like the company with experience sees franchising as a recipe for geographic expansion but not volume growth.