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Need to Know


The do-it-for-me (DIFM) segment of the consumer automotive market remains one of the more attractive areas in the U.S. lubricants business. According to Petroleum Trends International, it has grown at an average annual rate of 1.4 percent over the past 10 years, and is forecast to grow 1 percent a year over the next five. While thats certainly not what one might call robust growth, its fairly attractive considering that the U.S. lubricants business is in the late stage of maturity, and overall demand for consumer automotive lubricants is forecast to remain flat at best over the same period.

But to really appreciate opportunities and avoid the pitfalls in the DIFM segment, one must look beyond the big picture numbers and drill down into the dynamics within each class of trade that comprises DIFM.

As discussed in last months column, fast-lube centers represent the leading class of trade in DIFM. When taken together, fast lubes consumed an estimated 155 million gallons of lubricant, or roughly 35 percent of the DIFM total in 2005. Based on this leadership position and growth over the past 10 years, one would think the attractions are obvious – just jump in and count the cash. But before you do, take a closer look and ask some questions.

Look at the large number of fast-lube centers up for sale, and ask why. Talk to some of the entrepreneurs who wrote a $450,000 check for a three-bay shop and ano ther $50,000 check for equipment, with the hope of making it big. Ask whathas happened to their cost-of-goods-sold over the past two years, and if they were able to pass along the extra $2 or so it costs them now for lubricants to service each car that pops its hood in their bay. Quiz them about employee retention, advertising expenses and insurance rates. Get their opinions about the size of the prize in fast lubes.

Then ask the oil majors and marketers some questions. How comfortable are they extending credit to independent fast-lube operators? What type of fast-lube operators are they willing to offer 2-to-1, 4-to-1, and sometimes even 10-to-1 incentive money? Then hit them with questions about the dirty little secrets no one wants to talk about. Are there really fast-lube operators so desperate to survive that they slip in low-cost oil (and allegedly even off-spec oil) under the guise of it being a major brand? If they believe this to be true, what would drive a fast-lube operator to do it?

If you ask enough questions you will find that although opportunities do exist, the bloom may be coming off the rose in a segment of the fast-lube business – those stand-alone, small-chain quick lubes that only change oil (and often without a smile). Fast-lube operators in this group are under intense fire from large, well-funded fast-lube chains, and from new car dealers, big box retailers, auto parts stores and other DIFM classes of trade. These classes of trade are driving cars out of the bays of many stand-alone quick lubes by offering convenience, low prices, expanded service and well-groomed, courteous and professional employees who know how to relate to consumers. They know their customers and they know how to keep them coming back.

They understand their target market is not 30 and crazy and nothing-but-lazy car owners. Their customers are business people, wives and husbands, tradesmen, retirees and others-in short, reasonable, intelligent, hardworking people who care about their rides. In fact, they often care enough to pay $45 for an oil change (with extras), when they came in expecting to pay only $29.99. They know these customers will often trade up to a premium engine oil if the lube technicians are persuasive and believe in what they are telling and selling. In addition, these operators understand their customers might appreciate having their car washed after their oil is changed. And why not, its convenient when a carwash is on the same property.

Beyond knowing their customers, these DIFM operators understand the competition. They know some of their competitors are charging $65 to $75 an hour (with a half-hour minimum) for a ASE-certified mechanic to change lightbulbs, replace wipers, read a diagnostic trouble code from an electronic control unit, and perform other not-so-challenging tasks. They know which of their competitors are located on the wrong side of the street. They are well aware that some of the competitors staff are rude, careless and cursing when customers come in.

As the herd of car owners migrate from the drying plains of do-it-yourself to the fertile fields of DIFM, there will be growth opportunities. And the greatest of these opportunities will be enjoyed by DIFM operators who know how to participate in a customer-oriented market. At the end of the day, theyre successful because they know what it takes to win in the dog-eat-dog world of a free economy.

It always has been and always will be meeting customer needs at a competitive price while managing costs.

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