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Whos On First … and Why


For three years running – 2006, 2007 and 2008 – Shell has cornered the lead position in the global lubricants market. That gives the multinational some bragging and swaggering rights, but the company now must cope with a very different economic picture. The big question is whether Shell is nimble enough to extend its streak to 2009 and beyond, in the face of global recession, glowing-hot competition and rapid shifts in the marketplace.

In terms of total global volume in 2008, says Little Falls, N.J.-based Kline & Company, Shell held 13 percent of the worlds 38.2 million metric ton market. That was enough to edge out its nearest competitor, ExxonMobil, by two percentage points. It also set a high bar for Lisa Davis, who on Aug. 31 became vice president of Houston-based Shell Lubricants North America, the biggest single contributor to the companys worldwide lubes success. Davis, formerly business-to-business manager for lubes, spoke with LubesnGreases on the day she started her new job, to outline her goals.

But first, we asked Steve Harman, the units departing vice president, to review the business hes leaving behind. The finished lubricants portfolio he handed over to Davis includes everything from research to blending to channel partners to customers, explained Harman. Its automotive, industrial, distribution, Wal-Mart and other retailers, the installed business, and our Jiffy-Lube branded installed channel.

Harman, who is now with Shell Global Downstream in London, said, Shell made the big decision in 2002 to buy Pennzoil-Quaker State, and since has grown the business very aggressively. Were now number one in lubricants in Russia, weve made a large acquisition in China, and weve heavily invested in research and development.

In North America, he went on, we are very pleased with Pennzoils clean message to consumers, which has increased its market share. That message is that Pennzoil reduces maintenance and provides more energy and power. Another example of a successful consumer message was the Quaker State wear challenge – which the other brands chose not to take up. And our Rotella is now the top-selling heavy-duty brand to 50 percent of commercial truck owner/drivers, and to a sizable number of fleet operators too.

On the industrial side of the market, Harman conceded, the recession has hurt lubricant sales to industries like mining, on-shore drilling and steel, but demand is up for our lubes like compressor oils for power generation, food-grade lubes like our Cassida products, and natural gas engine oils. All of these are highly specialized oils.

Carries its Weight

Such achievements might go unnoticed in many integrated oil companies, where lubricants are a mere speck compared to fuels and other products, he observed. But since 2004 Lubricants has been globalized within Shell, and so carries significant weight in its Down-stream operations.

Globally, this business is a growth business, and its a material, sizable business part of Shell Downstream, which consists of just eight or 10 businesses, Harman said. Fifteen years ago Lubricants was smaller, but weve seen growth in a number of ways. There are lots of markets worldwide where industries and car populations are climbing, such as India, China, Russia, Indonesia and Brazil. And in the United States – where Americans are among the most sophisticated buying public in the world – we increased our investment in R&D by 40 percent two years ago.

The costs of technologies and upgrades are extremely high, and were looking every year how to get more benefits, he continued. And yes, this all costs. At our technology center in Westhollow, Texas, we have more than 80 people working on these products. Our short-term pipeline over the next 18 months is the sexiest in the industry, its very exciting.

Shell also is sizing up opportunities that are peculiar to todays economic climate, he said. For example, Do-It-For-Me does well in a recession, so the companys Jiffy Lube division will be advantaged. In a recession, people cant buy new cars, so they do more maintenance on old ones. And weve seen a large number of car dealers go out of business, which drives traffic to our outlets, where car counts have improved.

Our brand re-imaging and new services have helped enormously too. In the passenger car motor oil area, weve offered the Pennzoil Clean upgrade, and we also positioned Quaker State as the antiwear product. We also have improved the actual service at the Jiffy Lube retail sites, with more diagnostic and ancillary offers. Jiffy Lube has emphasized store-level education as well, to bolster sales of higher-value products and services. The service manager at a quick lube only has one or two minutes to convert a customer, to get them to upgrade, Harman noted. Our investment in training has been huge, and weve trained several thousand managers in the past six months.

Thanks to these moves, Pennzoil Clean is up 15 percent in sales this year, he added.

Playing from Strength

All this means Davis was dealt a strong hand, and she plans to grip it tightly. We have a lot of investment in this business strategy already, and will continue on the path were on, she told LubesnGreases. You can expect some solid results around that.

The economic downturn does make things difficult, she acknowledged. Overall, the market is declining, and volumes are down slightly. So well focus on market share, with products and solutions that respond to that.

She ticked down other challenges that loom ahead:

Theres the roll-out of ILSAC GF-5 engine oils to consider. These upgraded passenger car engine oils should be commercialized by Oct. 1, 2010, and every oil company will be rushing a new improved formulation to market. GF-5 is a great opportunity to remake the product portfolio, Davis said.

New gas-to-liquids base oils, coming from Shells refining partnership in Qatar, are due to market late in 2010 and 2011. GTL is a significant, high-quality strategic base oil which we can leverage for our customers, said Davis. Well be looking at how best to optimize the Qatar output, and we may put it in U.S. products – highly valued products, that is.

As reported last month, Shell is counter-punching against installers who advertise Shell, Pennzoil or Quaker State engine oils to U.S. consumers, but deliver off-brand products instead. This effort will continue, Davis indicated, supported by the Motor Oil Matters promotional campaign. She expects Shell to be increasingly visible and aggressive on this issue.

Channel Partners

Davis, who joined Shell in 1985, has been involved in almost every aspect of the oil business, from oil production, refining, supply chain, retail and marketing, finance and strategy and portfolio management. She was the strategist behind Shells acquisition and integration of Pennzoil-Quaker State Co. in 2002, which vaulted it into the top ranks of global lubricant companies.

Shes also savvy about Shells many lubricant distributors, because in the previous role I had as B2B channel manager I was quite close to them. This channel, she says, will remain a focus of her efforts.

I want to stress the importance of the distributor channel in our growth journey. We want to strengthen our relations with distributors, and provide support to help them leverage assets to capture customers, Davis stated. These assets include first the strength of the brand, and the strength of our people, the talented staff to help them win.

Shell currently has a network of more than 200 distributors in North America. Is that enough? Steve Harman thought so. Ten years ago, he commented, we did have a larger number of distributors, but now were pretty comfortable with the number we have. We are keen to grow a bit faster in certain areas though, and so well be giving more support to our partners in those certain areas.

Whats unique in the U.S. market, he added, is that distributors here dont handle one oil brand exclusively, but are often multibranded. Other regions of the world do handle distribution exclusively. I dont personally feel that the U.S. has to be the same as Europe, Russia, Brazil and Argentina, but distributors at some point in the future will need to make choices about who they want to be in bed with.

And we at Shell will try to convince distributors why they need to be more exclusive, and will work to move that along. Its like a marriage, where you agree to an exclusive partnership.

Davis concurs with this approach. Our aspiration is to have a distributor network that will identify with the Shell brand foremost. Going forward, we expect to have other distributors too – some that are very highly aligned and some not as highly aligned. And those that are highly aligned will allow us to offer much more support around their selling programs, and more support staff to win new business.

Measuring Results

Looking ahead, Davis said, her goals are to leverage technology, to excel on the customer side, develop our channel partnerships, and stay committed to our growth strategy. And how will she know if shes succeeding?

One metric of competition is market share, she replied. Within market share, we expect to grow our premium brand, our synthetic base products, and products with a unique proposition for customers. A good example is our recent U.S. launch of Tellus EE hydraulic oil with energy efficiency gains. This has been a big success on the industrial side for us, where it takes time to get a product into a plant. Its an example of our focus on growing the business and leveraging technology, and making sure we meet customer needs for efficiency and cost reduction.

In the lube manufacturing realm, weve also made a large investment in Houston to allow us to increase the efficiency at that plant and our cost position, Davis continued. Houston will have new production lines, bigger capacity by 20 to 25 percent, and increasing automation.

However, lights will go out at a Vicksburg, Miss., blending plant originally opened by Quaker State in 1979. Vicksburg will close Dec. 1 this year, Davis confirmed. That will leave us with six total blending plants left, with Houston the largest of these. The Vicksburg plant is closing because its capabilities are largely focused around quart bottles, and the market has shifted away to gallon jugs, she explained.

Our current growth journey started in 2007, with a five-year plan to grow market share and profitability, she said. Were still on that path. Well measure success by our market share, profits, and ability to service our customers. We have the number one PCMO in the United States, with 24 percent of branded sales. And in heavy-duty engine oils were also number one, with 16 percent of the market.

Im very optimistic, and feel positive from a business perspective that we have a very strong foundation. Were intent on what we need to do. We have demonstrated success, and will be pursuing the same strategies and focus on growth.

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