Finished Lubricants

“We Create Our Own Playing Field.”


This isnt the time to coast on past wins, says Shells Istvn Kapitny.

In his 27 years with Shell downstream businesses from Singapore to the United Kingdom and South Africa to Germany, Istvn Kapitny learned plenty about building teams, meeting financial goals and developing premium products. And since December 2012, hes been applying those lessons as president of Shell Commercial Fuels & Lubricants Americas.

Kapitny previously was president of the oil companys retail operations in Europe and Africa, running 11,000 service stations in 26 countries. A native of Hungary, he loves motorsports and travel, and is an honorary Zulu, an enthusiastic soccer player and father of two.

Based now in Houston, his attention is largely focused on lubricants, plus some commercial fuels marketing in Canada, the Caribbean and Argentina. The lions share of the business is in lubricants, though, he says. And in lubricants, the Americas region is the biggest one for us worldwide. Shell is the global market-share leader as ranked by Kline & Co. for seven years running, so very clearly this is an important business for us.

In an exclusive interview with LubesnGreases, Kapitny spoke at length about the assets and challenges of the lubricants business. Globally we have a strong supply chain, a portfolio of leading brands, a record of technological innovation, and excellent distributor relationships, he pointed out. In the Americas region (and we consider that to include North and Latin America), the Latin America region is growing quickly. We are very heavily concentrating on Brazil, and our goal is to increase by 50 percent our volume there in the next few years. To do this, well need to invest in human resources and our supply-chain position.

Of course, we also have a strong portfolio of brands. I was so pleased coming to the U.S. to see Pennzoil and Quaker State flourishing so well. Pennzoil especially is rated as the most trusted brand for motor oil. In the premium heavy-duty engine oil category, Shell Rotella T6 full synthetic holds a 60 percent share in the automotive retail channel, he said, then added, By volume, that is more than many other brands have for just their conventional products.

Clear Positions

The brands are a huge advantage for Shell, Kapitny said. Its an amazing set-up, one thats not seen elsewhere worldwide. These brands have very clear positions in the North America context. Pennzoil is the highest quality possible, when you divide the market into good-better-best tiers. Quaker State appeals to the more value-minded customer, who wants a product that meets or exceeds the current specification. With these two strong brands, were able to capture more market share than we could without one or the other.

Is Shell ever tempted to create supply-chain efficiencies by merging these two heritage brands? He scoffed at the question. The automotive retail channel has very, very different customer segments. If you simplify or streamline the offerings too much, you could lose a significant market share. And in fact, the market-share data indicate this is the right choice for us. All three of our major brands are doing well, Pennzoil, Quaker State and Rotella.

Shell has around 120 U.S. distributors for lubricants, and is represented in every state. These distributors earn very high customer satisfaction ratings, Kapitny continued. We also offer them workshops, where we share our plans for the coming year regarding sales targets and marketing, technology developments, and more. In turn, they share with us what we could do better. The goal is for us to be one team.

The team is supplied by five lubricant blending plants in the United States, two in Canada and five in Latin America. Globally, Shells largest lubricant plant is in Galena Park, Texas, near Houston. This plant supplies both North America and major parts of Latin America including Chile, Peru, Ecuador and Central American countries. Other U.S. plants are located in Wilmington, Calif., Portland, Ore., Newell, W.Va., and River Rouge, Mich. The Canadian plants are in Calgary and Brockville.

Playing to Win

In his job, Kapitny gets to enjoy a front-row seat at motorsport events, including Formula 1 races where Shell is a highly visible sponsor. The lessons learned in motorsports really do find their way into its engine oils, he insists. For example, with Penske Racing, our oil has to endure 25,000 to 30,000 rpm. Yet Shells Pennzoil Ultra 0W-40 motor oil, which you can buy off the shelf, is the exact same product that goes into their Indy car – many people dont know that. Thus, the relationship between motorsports and our customers is strongly linked. Likewise, in Latin America the Helix brand engine oil we sell is the same one that really is used by Ferrari in its race cars; its the same technologies.

Our partners at Ferrari tell us that lubricants play a very, very important role in saving fuel – and if they can go further without stopping for fuel, it can make a big difference. Every refueling stop is a disadvantage when youre in a Formula 1 race.

Regular drivers can also reap these gains: Our latest formulations of Pennzoil Platinum synthetic motor oil have active cleansing agents – a proprietary chemistry which keeps engines clean throughout their life – so motorists can drive an extra 550 miles per year on average versus a dirty engine. So like Ferraris professional drivers, theyll go farther without refueling.

Saving fuel was also the idea behind a cross-promotion that ran last fall, where consumers who bought or had their oil changed using Pennzoil synthetic motor oils earned discounts of 50 cents per gallon at Shell service stations around the country. Around 12,000 stations participated in this promotion, plus 20,000 automotive retail stores and 6,000 installers – including Shells 2,000 Jiffy Lube outlets.

Speaking of Jiffy Lube, it is really running well, Kapitny interjected. A significant part of its sales is premium lubricants, and Entrepreneur magazine recently named it as the number three franchising operation in the country.

Although some believe the fast-lube market is slowing, Jiffy Lube is still adding stores in the United States. Generally, car counts have been down at fast-lube businesses, he conceded, but Jiffy Lubes have actually seen car counts go up. And there are parts of the U.S. that do not have Jiffy Lube outlets yet, and we want to be there. Many say the market is saturated, but that doesnt mean you cannot compete. We have excellent franchisees and relationships, and we support them with national ad funds. Its very healthy.

Growth and Challenges

Over the next few years, Kapitny said Shell has strong ambitions for Latin America. Its plants in Venezuela and Trinidad produce lubricants, those in Brazil and Argentina make both lubricants and greases, and the companys plant in Colombia produces greases alone. Wherever we can, we use our own supply chain, so were not typically using third-party blenders. Weve chosen to concentrate on a limited number of plants, including increasing the Houston plants capacity and efficiency.

Because North Americas lubricant market is flat, he added, Latin America is the area we want to grow, with a target of increasing by more than 50 percent. In Latin America, we generally have two routes to market. In Brazil, Argentina, Colombia and Venezuela, we have direct operations and a select number of distributors. Elsewhere, sales are essentially run by macro-distributors who are responsible for the whole market. Usually, this involves the Shell Helix and Rimula range of products. Mexico is another story too; thats where we have a big Pennzoil presence and licensed partners.

Another focus for the near-term will be the roll-out of new engine oil specifications, PC-11 for heavy-duty (due April 2016) and GF-6 for passenger car engine oils (expected January 2017). Were involved closely in the development of PC-11 and GF-6 both. These will lead the drive to higher quality oils and well be ready for it. We are more than prepared for these upgrades. We have a strong supply chain, and our R &D is excellent. Our technology center at Westhollow [Texas] supports our capability to react to this changing business environment. In fact, we have 200 scientists around the world working on lubricant developments.

Even within these industry-wide specifications, there will be opportunities for Shell engine oils to stand out, Kapitny asserted. Weve heard all these comments before, about how lubricants are being commoditized. In fact, we have far better engines now, with stricter and harsher qualifications. This offers the ability to differentiate your products. We need to concentrate on our own game, produce better quality than our competitors, and to explain this quality to customers – thats also important.

As North America shifts to higher quality products, he aims to keep Shell in front of the trend. In both North and South America, the share that synthetic motor oils have is relatively low versus whats seen in Europe. We have to be realistic: North America is very strongly a conventional motor oil market, but change is happening and we need to be able to produce higher performing oils for newer engines.

We are not shying away from investing in our business. There must be returns for this investment, of course, but I am very pleased with Shells spending in this area. Weve increased the number of employees, and also have spent significant dollars with our distributors. In the Jiffy Lube operation, we have plans to significantly grow in the U.S. and Canada, and also to grow this business in selected Latin American markets like Mexico and Brazil.

Wrapping up, Kapitny said, Coming from a small country to this very big market, I find the U.S. to be very energizing. My goal here is to concentrate on world-class brands and support our quality systems. Overall, its size may not grow, but with our quality and our brands, we create our own playing field. And I believe we are heading into a marketplace where quality is going to be more important than ever.

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