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Many Happy Returns!

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Typically, independent lubricant companies are dismayed when a major oil brand jumps with both feet into a niche that theyve been carefully tending. Not so with Valvolines announcement in mid-March that it was rolling out NextGen engine oils, the first national brand to wholly embrace rerefined base oil as a major component in the formulation.

Made with 50 percent rerefined base oil, NextGen already is on some retail shelves and aims this month to be in 75 percent of Valvoline Instant Oil Change outlets. The company has vowed to go all in on its marketing push for NextGen, including all advertising media – television, print, radio and internet – and its NASCAR racing sponsorship.

Valvoline may be the largest brand to tap this vein, but its by no means the first. Rerefiner Safety-Kleen, for example, introduced EcoPower engine oils several years ago, and since 2009 has built a network of regional distributors to sell its API-licensed recycled engine oil. Safety-Kleen operates two rerefineries, in East Chicago, Ind., and Breslau, Ontario.

Likewise, Universal Lubricants has been busy signing up distributors for its Eco Ultra engine oils, made with API Group II base oils produced in its recently minted Wichita, Kans., rerefinery. Eco Ultra is API licensed, and the brand also extends to hydraulic oils and transmission fluids.

Rather than feel threatened by Valvolines move, these and other competitors say the presence of a heavy-weight contender marks a turning point, and could propel recycled engine oil into the mainstream.

Safety-Kleen Systems vice president of oil sales and marketing, Curt Knapp (who honed his marketing skills on Castrol Syntec early in his career), said he was eager to share the NextGen news with his distributors. We see this as an extremely positive move for the green segment in general, and the EcoPower business specifically, he told them. It presents a substantial opportunity. He urged them to jump on Valvolines coattails and let the bigger company do the heavy work of educating consumers about recycled oils – all the while signing up fast lubes, tire stores and car dealers wholl want a competitive offering.

Similar thoughts came to Aaron Read, division sales manager at North American Lubricants in Scottsdale, Ariz., which offers PureGreen brand recycled engine oils and has found great success placing them in quick-lube outlets, its core market. Valvolines move is a great opportunity for everyone who makes rerefined products, Read declared to LubesnGreases. It brings a lot of credibility to what were doing.

John Wesley, CEO of Universal Lubricants (and himself a Valvoline veteran), commented, We applaud Valvoline for stepping in. The old barriers will be knocked down, and our oil Eco Ultra – which is based on quality rerefined base oil that we make ourselves – will win our fair share of the choice battles.

A Step Up

Valvoline is fully behind NextGen, promised vice president of global brands Blair Boggs at the March launch. The lineup includes conventional, synthetic blend and high-mileage formulations that meet or exceed the new API SN and ILSAC GF-5 categories, added Thom Smith, vice president of branded lubricant technology in Lexington, Ky. All are backed by the same engine protection guarantee – up to 300,000 miles – that its virgin-oil based products offer.

Fran Lockwood, senior vice president for research and development, said, We have always tried to introduce a step up at each oil category upgrade. In 2000, it was MaxLife, the groundbreaking oil for higher-mileage engines. In 2004, it was a new additive chemistry called HyperZDP, a low-phosphorus antiwear system that better protects catalytic converters. Now, its this high-performance recycled engine oil, she said. This initiative came about because at last there is sufficient rerefining capacity and quality to meet Valvolines standards, Lockwood said, plus market research has shown consumers are finally ready to embrace a recycled engine oil.

In the past, consumers were reluctant to buy rerefined oils, but recent research and test marketing suggest that Valvoline NextGen will be greeted with strong acceptance, Boggs said.

Test marketing of the recycled oil was done in retail stores and Valvoline Instant Oil Change outlets around Boston and Columbus, Ohio, Boggs said. We got tremendous results, and it shows that consumers are ready for this. Having the trusted Valvoline brand on a recycled oil product legitimized the concept, he said.

Asked if NextGen will appeal to real guys – a core demographic of do-it-yourselfers that Valvoline has courted – Boggs confessed he had expected to see a sharp split among those saying they would or would not buy it. Instead, what blew us away was the broad acceptance we saw. Consumer interest cut across all types of buyers he said, regardless of their age, geography or car type.

No More Stigma?

Those findings track with what other sellers have seen in their own research. Weve been exposed to a lot of recycling research, some of it automotive-related, some not, said Universal Lubricants Wesley. We saw the motivation of consumers to reduce the negative impact of what they buy. There also can be a one-on-one conversation between the installer outlets and the consumer, to help them choose. We did see that one challenge is when its DIY and the consumer is choosing without help. That told us our packaging has to speak to their concern with recycling, saving the environment and conserving oil.

Weve seen wide acceptance of green products and services, especially with the younger generation thats accustomed to things like using canvas bags at the store, not plastic, concurred NALs Read. Theres been a changing of the guard, to where people understand they have an impact on the environment, and its regardless of age or political affiliation.

Its a pretty recent change, said Knapp at Safety-Kleen. More than 10 years ago, back in 1998, when I was with Warren Distribution which is based in Omaha, I looked at doing this but all the research said consumers absolutely were not ready for it. Thats totally changed now. Now theyre very receptive.

More recently, we did some market research and pilot programs with stores, and found that if consumers had a recycled engine oil made available, a decent amount would choose it, he continued. In fact, 5 to 20 percent of consumers would, depending on how well the outlet communicated the choice. So theres been a sea-change in the past three or five years in consumer attitudes.

Outlets are responding by clamoring for green products, said Knapp. EcoPower is in approximately 1,000 quick lubes, tire stores, car dealerships and general repair shops. We also have some penetration into Jiffy Lubes, as an approved co-op vendor, and the Grease Monkey chain. And American LubeFast has us in their 72-store quick-lube chain.

Read also is seeing healthy uptake of PureGreen oils. Its seeing the largest category growth of any product we supply now. Quick lubes for the last two years have really jumped on this. It means they can differentiate their service offerings. Its also good when theyre trying to acquire fleet business, as more of them are trying to do. We see recycled oils going into fleets like rental car companies and the U.S. Postal Service.

A Few Dollars More

Packaged in bright green plastic containers and shoulder-to-shoulder with Valvolines familiar white bottles, NextGens suggested price will be at parity with regular Valvoline oils on store shelves, Boggs said. However, at Valvoline Instant Oil Change centers it likely will cost more, since it will lack the efficiency of bulk tank delivery. Boggs thought Valvoline may offer some kind of incentive to consumers to ease that cost as well, but declined to provide details.

Others, by contrast, report strong willingness by educated consumers to plunk down a few (or even many) more dollars for a green product. Some installers are able to charge more, with premiums of zero to $15 over the cost of a regular oil change, said Knapp. We dont set the price, thats up to the individual outlet. American Lube Fast, for example, offers it at little to no upcharge because it wants to be known as green. Some sellers do charge more though.

Weve sold a million gallon of Eco Ultra into the professional installer channel, Wesley said, and the Association of Independent Oil Distributors just agreed to roll out the brand at the end of April. We dont suggest prices, but in some cases the installer has been able to make a higher dollar for this choice – weve seen where they can upcharge $3 to $15 for an oil change.

Read, too, sees most quick lubes offering PureGreen at a premium. They find people are willing to pay more because they see it as higher quality. But the other thing to remember is that it usually is something they have to offer outside their bulk costs, so its more expensive for them to handle, too. Most are pricing it equal to or more than a major brand motor oil, or upcharging $2 to $5 for the service. So its a higher price point and also lower cost of goods versus the major brand. Its a significant value for the quick-lube operator.

It does take a lot of sales support, he emphasized. A key challenge is getting through to the individual consumer or distributor. Weve got a great story to tell, but you need to go over the benefits, and get it across in a short time to the customer. We have training videos for quick lubes to use, but with distributors we do a little more to explain the market opportunities. The price may be higher than private label, so its up to the distributors rep to explain the product and its benefits and the profit aspects.

Material Questions

One question looming ahead is whether theres enough rerefining capacity to supply this growing market. Players like Safety-Kleen and Universal Lubricants have a head-start with their own supply, but Valvoline doesnt have that advantage. Other U.S. sources include Bango Oil in Nevada, Californias Evergreen Oil and Heartland Petroleum in Ohio. And next year could see the opening Heritage-Crystal Cleans new plant in Indianapolis.

All told, rerefiners today only tap about 12 percent of the continents supply of waste oil, according to a study released last year by the market research firm Kline & Co. Although North American collection rates for used oil are nearly 90 percent, more than 80 percent of whats gathered gets burned for fuel.

Valvolines Boggs declined to reveal the source of NextGens rerefined base oil, but Fran Lockwood said, we do believe the volume is available that we need, at the quality needed for this product launch.

Nor does Knapp expect any problems with recycled base oil supply: Safety-Kleen represents 75-plus percent of all high-quality rerefined base stock sold in the United States, he pointed out. Its two rerefineries can produce 100 million gallons of base oil a year, with about half of it being the grades needed for use in engine oils. He added that Safety-Kleen plans to expand its Canadian plant by 25 percent later next year, gaining about 8 million gallons of capacity.

NALs PureGreen is made with more than 75 percent recycled base oil content, so Read watches supply very carefully. Only about 10 percent of used motor oil is rerefined into base stock at this point, he commented, and some distillation cuts arent suitable for products like ATF. But more rerefiners are making the base oils we need. Supply is actually tighter now on conventional virgin base oil than on rerefined. I think well be all right.

Our rerefining process is sophisticated, and produces base oil that is water-white and odorless. However, there are only a handful of U.S. producers of high-quality Group II base oil like us, so theres a finite amount of material, said Universals Wesley. Our ultimate goal is to consume 100 percent of our rerefinerys production into Eco Ultra automotive products. I have to say that the countrys rerefiners have done great work in debottlenecking their units, increasing capacity. The industry will have to build more and more rerefineries, and then to feed them youll have to have access to used oil – which traditionally has been burned.

That pains Read. This has been top-of-mind with consumers since 2008 – like anything to do with energy costs and dependence on foreign oil. Today they see that burning kills the life-cycle of the product. Rerefining is the highest and best use for used engine oils.

Looking ahead, Valvolines fielding of a recycled engine oil will help the entire category, reiterated Universals Wesley. Itll lift all boats. Youll see, other large marketing companies will join the fray as well.

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