But the company isnt making these oils in or for Russia – at least not principally and not yet. Instead the company took production to a refurbished blending plant in Ploiesti, Romania. Officials said they picked the location partly because LLK wants to become a bigger player in Europe. But the decision was also made out of recognition that Russian companies in general face perception problems in their home market.

Aiming for the Top Tier

LLK is the leading lubricant supplier in Russia, claiming to hold almost 30 percent of the countrys market for finished products. Lukoil is also Russias largest base oil producer and in 2011 accounted for 45 percent of the countrys combined lubricant and base oil output.

Genesis is LLKs entry into the upper tiers of the engine oil market. Low in sulfated ash, phosphorus and sulfur – collectively referred to as SAPS – these oils are compatible with emissions control systems that help cars meet Euro 5 and Euro 6 pollution standards. They also help improve fuel economy and meet ACEA C3 and API SN standards from Europe and North America, along with original equipment manu­facturer specifications MB 229.51, Dexos 2, VW 502 00/505 00, BMW Longlife-04 and Renault RN 0710.

Launching Genesis in Romania is part of LLKs strategy of expanding into Europe – a strategy that leverages Lukoils facilities in Ploiesti and Hamina, Finland. The company plans to begin making Genesis products at the latter facility next year. Because Romania and Finland are both members of the European Union, products manufactured there can be transported to other member states without incurring import duties.

Ploiesti also offers logistical advantages, according to Michael Weis, general manager of LLK Lubricants Eastern Europe. It is the proximity to our customer base [in Europe] that allows us to cut costs and offer competitive prices, he said.

LLK plans eventually to sell Genesis oils in Russia, but officials said they must employ a different strategy there because of motorist perceptions. Many Russian consumers have long-held stereotyped opinions that domestic manufacturers make low-quality products. This is a preconception that we have to fight with, and it is not possible only by doing aggressive advertising, said Marina Kondrina, head of marketing at LLK.

Overcoming a Reputation

LLK officials say they also face some image issues in Europe but that customers there are more open-minded toward products that meet performance demands.

There is… sometimes a certain myth associated with being a Russian company, such as not having the latest technology, said Michael Weis, general manager of LLK Lubricants Eastern Europe. This is absolutely not true in our case, and we want to use the launch of Gen­esis to show our consumers that we are a modern company with state-of-the-art facilities in Europe.

Lukoil believes that the performance of this product range will begin the process of establishing a brand identity that helps it expand in Europe. In Romania we have a total lubricants market share of about 25 percent, said Weis, who is based in Ploiesti. Our target for some countries in Eastern Europe such as Bulgaria, Hungary or the Czech Republic is to have a minimum of 10 percent lubes market share.

He added that the company is offering two grades of Genesis engine oil: 5W-40 and 5W-30. By next year Weis expects the plants output to reach its capacity of 30,000 tons per year.

LLK believes it has more groundwork to do at home. Kondrina said the first step will be to win contracts supplying Genesis oils for factory fill at foreign auto plants in Russia. Second, we should win more customers with service and official dealerships where maintenance of new cars and cars with expired warranties is taking place, she said. Only after these steps are realized, can we talk about selling the Genesis line of premium lubes in retail stores and other points of sale.

Recent market research indicates that 60 percent of Russian car owners still buy lubricants mainly from retailers but that the purchasing pattern is gradually changing toward workshops, which hold much influence over brand perceptions. Thirty-nine percent of drivers consider mechanics reliable sources of information, LLK said.

The company has a start on its OEM strategy. It has long supplied engine oils for factory fill to Avtovaz, the countrys biggest domestic automobile manufacturer. In the past few years, it began supplying other engine and automobile producers in Russia and neighboring countries.

The biggest coup was landing an exclusive deal to supply Genesis engine oils to General Motors Powertrain Uzbekistan, a Tashkent, Uzbekistan, factory making up to 225,000 engines annually. LLK is now also supplying Genesis oils to Avtotors enormous Kaliningrad manufacturing site, which assembles some GM and GMDat model vehicles.

Its worth noting that Lukoil is still a relative newcomer when it comes to lubricant marketing. Formed in 1991, the company did not begin making finished lubes until the late 1990s and did not begin to commercially market them until 2003, when a blending plant and finished products storage facility opened at its refinery in Perm. In 2005 it became the first big Russian oil company to form a business unit (LLK) devoted to lubricants, a move since mimicked by most of the countrys other big oil companies.

LLK is confident that Genesis can help it combat the biggest threat to its domestic operations – loss of market share to foreign competitors. During the 2000s, sales of foreign cars grew rapidly in Russia. Owners of these vehicles usually fill them with foreign-branded lubricants, so suppliers such as Shell, ExxonMobil and Castrol have steadily gained market share at the expense of domestic companies. The impact on domestic companies is made more severe due to the fact that foreign brands get most sales in the premium category, where margins are larger.

Russia is an emerging market, with around 100 domestic and international lube market players competing for a bigger piece of the pie. In addition, the end users – Russian drivers – are increasingly educated and use different sources of information.

LLK already markets a few lines of engine oils in Russia – including Lukoil Luxe, Lukoil Super and Lukoil Standard. The company says these products meet the requirements of cars that exist in Russia and that they have all necessary approvals of international leading OEMs. These brands hold prominent positions in terms of volume market share, but they are purchased mostly by owners of Russian-branded vehicles

Leveraging Ploiesti

The Ploiesti refinery was Lukoils first acquisition abroad. Lukoil bought the facility from the Romanian government in 1998, when it was renamed Petrotel-Lukoil. The transaction included a blending plant that at the time was nearly obsolete, having received no improvements since the Communist era. But Lukoil has steadily invested to upgrade the facility in recent years, including 2.7 million last year and 1.9 million this year.

The investments are aimed at fully automated blending, filling equipment and in storage, Weis said.

Lukoil has made several other overseas acquisitions, including the blending plant in Hamina, another blend plant and a chain of fuel stations in Turkey. It formed a lubricant additive joint venture in Belarus and now sells products in more than 30 nations. If things go as planned, the Genesis engine oil line will help the company expand its presence in Europe and also to bolster its business at home.