Need to Know


In its heyday – think 30 to 40 years ago – there were about 12,000 lubricant distributors in the United States. Most have since gone away, leaving roughly 2,500 of any significant size remaining in the business.

In large part, this dramatic drop in their population is a relatively recent development, spurred by consolidation and rationalization that the majors underwent from 1990 through the early 2000s. But there is more to this story, and what it could mean for both the majors and their market partners.

Whereas the majors consolidation certainly culled the number of marketers in the business, there were other issues that did, and continue to thin the herd. Some marketers were compelled to exit because they were short on cash, or on the credit required to finance the escalating cost of more efficient back-office technologies. Others lacked effective succession planning; faced cancelled or non-renewed supplier contracts; or had family squabbles and other crises that took them off the map. But while some struggled and failed to move when their cheese did, others seized the moment.

As a result, today we have far fewer, yet larger and seemingly more successful lubricant marketers than we have ever seen before. To appreciate this sea change, lets look back in time to the 1980s and 90s, a time when the tide was turning to sink some marketers and sail others into blue waters.

Most lubricant marketers of that era were multi-branded and had one location. They spread their business volume among three or more major brands and a few independent brands. Roughly 95 percent of them sold less than 1 million gallons a year, so a major tended to prize any marketer who moved over 500,000 gallons of its brand in a year.

By 2007, however, the ranks of lubricant marketers had dropped to about 7,000. Although the majority continued to be small marketers, these outfits also were hit hardest by consolidation and accounted for most of the decline over the period. Many a small marketer quietly closed its doors or was swallowed up by merger and acquisition.

This depopulation, along with carrots and sticks employed by the majors to encourage growth and close alignment, emphatically redrew the brackets that had defined a marketers size. Marketers doing less than 1 million gallons a year were becoming yesterdays news; castaways in the business of the brand leaders. Medium-size marketers evolved to those selling 1 million to 5 million gallons a year, and the large were bracketed at 5 million to 12 million gallons.

Those days also gave rise to very large marketers with annual sales of 12 million to 20 million gallons. While some slogged it out on the street to make it this big, many in this group were elevated by private equity roll-ups, alliances, mergers and acquisition.

In addition to getting bigger, by 2007 marketers were also getting smarter – beefing up their management and sales teams, deploying back-office software to improve efficiency, better managing costs, building private-label brands, working with their suppliers to develop business, marketing and succession plans, and more.

And that brings us to today, where the big seem much bigger and smarter still.

Small marketers are no longer those selling less than 1 million gallons a year. In fact, if a marketer today falls below that mark, their future is seriously in question unless they have strong relationships with second- and third-tier lubricant suppliers, are geographically insulated from competition, can focus on specialties such as metalworking fluids, carry products other than lubricants in the portfolio, or are otherwise advantaged. This is because in todays arena a small lubricant distributor sells 1 million to 3 million gallons a year. They are a majority, but even so, many will be forced by market dynamics to either turn off the lights or grow/sell into the ranks of the medium-sized.

Medium-size marketers are currently those moving 3 million to 8 million gallons a year. There are roughly 75 marketers in this category and most are aligned; if not, they are feeling significant pressure to do so. They too are striving to move up the volume continuum via acquisitions and organic growth, to become a large marketer.

Large marketers, estimated to be about 50 entities, have annual sales in the vicinity of 8 million to 12 million gallons and typically have a presence in multiple states.

This brings us to very large marketers (sales: 12 million to 20 million gallons), and the newest group: Mega-marketers, who exceed 20 million gallons in yearly sales. An estimated 45 marketers comprise the former group; only a rough handful make up the latter.

No doubt about it, we have far fewer U.S. lubricant marketers now than in many a decade, and their population will continue to decline. Further, big marketers are now markedly larger than ever before and getting bigger every day.

Does this supersizing present new challenges to the old ways of doing business in the lubricants market? Thats the subject of next months column.

Tom Glenn is president of the consulting firm Petroleum Trends International, the Petroleum Quality Institute of America and Jobbers World newsletter. Phone: (732) 494-0405. E-mail: tom_glenn@petroleumtrends.com