Based on the current trajectory and market dynamic, its not hard to make a case that todays large-to-mega lubricant marketers could nearly double in size in the next 10 years. This means the largest marketers would be selling close to 50 million gallons a year by 2023. Thats a lot of juice, and with it will come a lot of changes. In fact, we are already seeing some of the changes that are setting the stage for large marketers to become even larger.
The most obvious change is seen in buying power. The larger the marketer, the more buying clout it has. This provides a competitive advantage that helps fuel growth. But size brings other advantages, starting with the relationship that large marketers have with their suppliers, the oil majors.
Historically, lubricant marketers often described their relationships with the majors as guarded, contentious, fearful, lacking trust. Many felt (and still feel) the majors have the muscle in the relationship and will flex it to get their way. First, they have the supreme power of contract renewals and cancellations; the majors can give and take away national account business, establish volume requirements, grant conversion dollars, and set sales targets and other metrics. The majors define who theyll do direct business with and what level of support to give. But whereas the majors have the power in the relationship, the beam is becoming more level as marketers get bigger.
The relationship large marketers have with the majors is evolving and moving into a place many consider healthier and more productive than in the past. Larger marketers say they feel increasing respect from the majors, and more trust and cooperation. In part, this is because the conversation has shifted from one dominated by the majors (and focused on making numbers, brand alignment and conversion dollars), to revolve around growth initiatives, goals, support, acquisitions, succession planning and other high-level strategic issues.
Another positive change can be seen in the peer-to-peer interactions large marketers report having with some majors. In the past, the primary persons calling on marketers from the majors were regional sales representatives and/or territory sales managers. These folks met with the distributors owners, sales managers, sales staff and others. They helped resolve pricing and logistics questions, fielded complaints and concerns, introduced new products, made joint sales calls, and discussed volume goals. Often they were the liaison between the marketer and the majors senior management and marketer councils.
Thats changing for large marketers. While the majors sales reps and area managers continue to call, their roles are morphing. Instead of covering all bases, they now focus on tactical issues such as pricing, logistics and sales support. Further, they work more often with each marketers regional offices than with the head office.
This is because a growing number of majors send in high-level managers to work at the corporate level with the owners and principals of their larger marketers. Its now common to hear very large marketers say they meet regularly with the V.P. or G.M. of the majors they do business with. And rather than tactical issues, these executive-suite sessions address strategic topics: market growth, acquisitions, incentive programs, business and contingency planning, pricing fundamentals, multi-branding attitude and latitude, and more.
Larger marketers consider these changes to be a very positive evolution in their relationship with their major suppliers, and believe they will help drive the growth needed to reach the next level.
Another positive change that comes with size is the quality of the people working for large distributors. Their management teams now include some of the industrys best, often drawn from the legacy companies acquired by large distributors. In addition, large distributors have the financial resources and offer the opportunities needed to recruit talented managers from within and outside the lubricants industry. And this new talent becomes a magnet for even more talent.
In addition to elevating their management teams and tools, large distributors say theyre gaining elevated access to larger accounts – thanks to having the business savvy, scale, support and geographic footprint demanded by such customers.
Technology is another advantage being enjoyed by large marketers. Although commercially available to anyone, many marketers find technology to be cost prohibitive. For example, a customer relationship management (CRM) platform can carry a six-figure price tag; an enterprise resource planning (ERP) system may have a seven-figure cost. In addition, large marketers have the financial resources to acquire back-office and online ordering software and other technologies that provide a competitive advantage.
With so many advantages that come with size, large lubricant marketers are well positioned to become larger. And as they do, there will be less room for others. In addition, there will be less room for the old, lopsided relationships, and more room for both majors and marketers to grow a business built on true collaboration.
Tom Glenn is president of the consulting firm Petroleum Trends International, and of the Petroleum Quality Institute of America. He currently is updating the multi-client study Lubricant Supplier-Distributor Relations. Phone: (732) 494-0405. E-mail: tom_glenn @petroleumtrends.com