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Right place, right product, right time.


WEST MEMPHIS, Ark- Ive been blessed, declared William I. (Irv) Warren, president, CEO and owner of Warren Oil Co. Here in the offices of subsidiary Warren Unilube, atop a company that is approaching a half-billion dollars in annual sales, Warren modestly said hes happy about his success – especially when looking back three decades to a young family, two kids, hand-to-mouth personal finances, an unproven business plan and a day-to-day slog to prospective customers around rural North Carolina in a well-traveled pickup.

Getting to $430 million is not hard, he reflected. All you have to do is work half-days – either the first 12 hours of each day or the last 12. Warren heard that quip at a conference for aspiring entrepreneurs.

Thats accurate, he told a visitor from LubesnGreases in mid-January, but its only the down payment. Lots of people work hard and dont get too far. In my case, spotting a shift in the market and being able to exploit that shift was the key. Right place, right product, right time.

Mass Appeal

In the mid 70s, Warren recalled, mass marketers such as Kmart were coming onto the scene.Representatives of major oil companies with branded engine oil would sell only their own product to service stations and to mass marketers, which meant a lot of representatives were going to major stores with a single branded product. I went to mass marketers and offered to bring in a bundle of branded products, a multiline, in a single visit. This arrangement was accepted by the mass marketers because it reduced the time they had to devote to engine oils and substituted a single invoice in place of multiple invoices.

In short, it simplified their life without loss of revenue. And it gave me a market toehold which got me started.

Quickly, Warren added his own self-named products to the bundle. With no blending capability of his own, all of his branded product was packaged by a major oil company. I determined I could start blending anytime, he said. What was important at that time was to build up confidence in my own brand.

Non-detergent API SA oil offered another market entry point. Warren pragmatically stated, SA non-detergent oil was the foundation of Warren Oil Co. Again, right place, right product, right time. Major oil companies were primarily interested in selling the latest, most recent API quality grade at their service stations to owners with newer cars. But there was a large market for non-detergent oils in the older car fleet. The majors would not sell non-detergent oil under their brand name but would bottle this oil in a Warren Oil branded container.

This was a big market niche for us for a long time, he said. It still is, but not in this country any longer. We sell a lot of this product, and other products, in many foreign countries, mainly Mexico and South American countries.

87, 89, 91: Magic Numbers

My father would drive across town to fill up at an Esso station, and he was not alone. In those days motorists believed that major oil companies were the guarantor of gasoline quality. But in the early 80s, octane numbers were published and motorists realized that gas labeled 87 octane was identical everywhere. So gasoline brand-name loyalty eroded and independent brands were able to take a lot of market share.

Lubricants didnt have a single number to indicate quality – still dont – but the lessening of brand-name loyalty for gasoline, because of the introduction of octane numbers, transferred somewhat into lubricants and allowed independent lubricant marketers to make a dent in the majors market with our branded products in mass marketers like Kmart, Family Dollar and then convenience stores. As a smaller company with a lean management structure we could be responsive very quickly and in many cases underprice the majors.

Appetite for Growth

In the late 1990s and early 2000s, a wave of consolidation swept through the lubricants industry, and Warren Oil was poised to expand beyond its home base of Dunn, N.C., and a small facility in Alabama. First, Warren Oil bought a former Specialty Oil plant in San Antonio in 2000 from Pennzoil. That purchase kicked off a spree, and was followed by buying two more Pennzoil plants, in Johnstown, Pa., and Marion, Ill.

The really big acquisition came in 2003 with the purchase of rival Coastal Unilube in West Memphis, Ark., which by then was a division of El Paso Corp. Much of the facility was quite new, having been rebuilt after a 1998 fire, but lubricants was not a core business for El Paso. When debt reduction was called for, Unilube went on the block, and Warren snapped it up for $34 million.

When we purchased Coastal Unilube we renamed it Warren Unilube to emphasize its central role in our company, related Warren. Unilube was twice the size of our existing five operating units combined. We successfully integrated it into the company and were then better able to compete successfully with major marketers. It was like the tail buying the dog. So we are not limited at all in our acquisition search to just a small firm. What were looking for is the ability of the acquired company to enhance and fit into Warren Oil Company, as Coastal did.

Update on Unilube

Dale Wells has spent 28 years in the lubricants industry, all of it with major oil companies including Citgo and Pennzoil-Quaker State. Since last spring, as president of Warren Unilube, he has operated in a smaller arena, but not one that is any less demanding or interesting. Quite the opposite, he said. This plant is a remarkable place. Modern, up-to-date in every respect, as environmentally friendly as we can make it with three major operations integrated under one roof.

Watching the high-speed plastic-container blowmolding machine, which was specially designed for the plant and has been in operation for two-and-a-half years, can be hypnotic, from the continuous flow of malleable plastic to the bottles being trimmed out 50 feet away. Containers ranging from 12 oz. to a liter are made here.

Blending is done nearby. Raw materials and blended product are stored in 180 bulk tanks. Base oil arrives at the plant via pipeline from a barge on the nearby Mississippi River, and additives come by rail car; finished products depart by truck and rail car.

Two high-speed packaging lines, each with a capacity of 20,000 quarts per hour, continuously fill, apply labels and move containers onto skids. Forklifts whisk them to nearby floor-to-ceiling storage areas, ready for shipment from 40 truck bays.

Getting it right the first time is important, in blending particularly, because if our testing turns up an off-spec batch we have to either adjust the batch to meet industry standards or, rarely, dispose of the product according to government regulations, Wells said. Either way is expensive and time consuming. As an extra quality assurance check we recently installed two separate devices on the final packaging line to pick up possible mistakes. First, weve put in a simple air-pressure device that ensures that no empty bottles slip through the bottling process, and second, we now have an electronic monitor to ensure that correct labels are being put on the assigned product every time.

He added, We work two shifts, five days a week. Thats a lot of product and were confident it matches any other producer, major or independent, in quality.

Pushing Quality

Four of Warren Oils six facilities, including Warren Unilube, are ISO 9001 certified. The other two are in the certification process and expect to obtain it before the end of the year.

The company also has licenses and approvals from vehicle manufacturers such as Mack and Cummins for heavy-duty engine oil, Ford and General Motors for automatic transmission fluids, and boasts of meeting or exceeding all required API and ACEA specifications.

Warren pointed out, We have no national advertising program, nor do we have a race car on the track on Sunday afternoon. Our recipe for success when we started, and continuing to this day, [is] fast response, competitive price and guaranteed quality.

Perhaps unique to Warren Oil is its owners belief in promoting quality via government oversight. Irv Warren knows that this approach will not likely find widespread acceptance, and possibly faces significant opposition in the industry. But government oversight is definitely in the interest of independent oil companies, he said.

Based in North Carolina, Warren has longtime exposure to that states engine oil inspection program. In 1992, North Carolina state inspectors began picking up samples of bulk engine oil; the next year quart containers from retail outlets were gathered too. Every year up to 2,500 bulk samples and 1,400 quart containers are collected throughout the state. Viscosity and other testing is done quickly, usually within 48 hours of pickup. If an oil fails the tests, the N.C. Standards Division can issue an order to seal a bulk tank that very day, or issue a statewide recall of the offending product.

Last year, 1,133 bulk samples and 747 quarts were picked up for testing (about 1/10th of the number of fuel samples picked up for testing). Nineteen bulk and 14 quart samples were found to be out of specification, and a total of 5,250 bulk gallons and 72 quarts were removed from sale.

Florida and California have oil inspection programs similar to North Carolinas, but do not pick up as many samples. No other state has any kind of engine oil inspection program.

This, said Warren, is where independents should focus their efforts to ensure quality.

Every state has a gasoline inspection and monitoring program, and an engine oil monitoring program is a logical follow-on, he continued. Independents should make a determined effort to push their states to replicate the North Carolina engine oil inspection program. The Independent Lubricant Manufacturers Association should coordinate this initiative and API should provide the technical oversight. This is where ILMA could help its members most.

He added, The North Carolina program works well, consumers are protected. I know of some companies that wont sell in North Carolina because they are concerned that their products might be restricted. Thats a tribute to the program as well as a caution to independent providers.

The lubricants market is not growing. Its been flat for a while and will stay that way. If independents want to increase market share, we have to instill confidence that our products have the same quality as the majors, which by virtue of their name recognition alone, have more brand-name quality credibility than independents. An upfront quality assurance program like North Carolinas, in every state, is the way forindependents to gain credibility.

Warren pointed to quality programs run by ILMA and API. ILMAs ethics program is fine, a good initiative, as far as it goes. So is APIs engine oil licensing program. But the quality of our products cannot be assured by a trade association which represents the producers of that product. It just cant happen because it doesnt have effective enforcement. It has to be done by a government agency, or at least an organization independent of producers.

Rewarding Work

Another value Warren emphasizes is loyalty. Employees are the key. We dont have yes men around here. When we have an issue we sit down, talk about it and come to a consensus – although its true that I have the last word and can override any decision if I feel its necessary. But we all work towards whats right for the company. We value our employees, and many have been with the company for a long time. For example, Ronnie Walker, my very first employee, is still here and is V.P. for operations. I trust the judgment of our employees, can relate to all of them, and they are a foundation of the company.

Warren noted, somewhat wistfully, When youve reached the age of eligibility for Social Security, whats going to happen to the company down the line takes on a greater importance. He added, Ive established a nine-member board of management employees, relatives and others outside the company, that would lead the company if something were to happen to me, thus ensuring daily operations would continue.

Treating employees well and being concerned about their welfare is both considerate and a help to the bottom line. In late 2006 Warren offered cash incentives to each employee who would stop smoking for one full year. In late 2007 he announced that 16 employees, about 5 percent of the work force, had succeeded in kicking tobacco for one year. Each took home an extra $1,000 for the Christmas holidays.

That doesnt mean Warren wont get tough. Last September, Warren Oil announced that it had won a lawsuit against three former senior level employees to enforce noncompete and nonsolicitation agreements. In the settlement, the companys former vice president of finance and two others who had established a new company, ZXP Technologies, were prohibited until May 2008 from any direct competition or solicitation with Warren Oil.

This whole thing pained me. I dont care if anyone does his own thing, thats what I did, he insisted. We just want to continue our own progress and not have it rubber-stamped.

Rising Expectations

Warren said his company is not finished growing, whether through organic growth or acquisitions. Its just a matter of finding the right fit.

One way is to offer products that meet an unmet need. In late 2006 the company got approval for the trademark DEXMERC, suggestive of an automatic transmission fluid that meets DEXRON and MERCON specifications. This echoes the companys early success with SA oils, as both DEXRON and MERCON specifications are obsolete (withdrawn by GM and Ford respectively). Like SA oil in the 1970s, though, there is still demand for the fluids. As Warren said, Thats the kind of forward motion we like.

Another way forward is through distributors. Warren Oil recently announced that Spencer Oil Co., a 30-year-old lubricant marketer in eastern Michigan, will market a full line of Warren Unilube products. These kind of relationships bring our price-competitive and quality product advantages directly to a new geographical area, Warren said. Geographical expansion is a major emphasis for us.

Finally, there is the rising Do-It-For-Me market, which buys in bulk, rather than quarts. The DIFM market is now around 60 percent nationwide, and it will only get larger, said Warren. Weve targeted the DIFM market for several years with a great deal of success and expect to hold our own in the future.

As for acquisitions, Warren sees them as an accelerated way to expand, particularly in the Northeast and West. We dont have any acquisition targets at the moment, Warren noted, but we have our eyes peeled all the time.

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