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For many of you, the notion of private label will ring a bell, one that is getting louder in the lubricants industry. The concept is well known and widely practiced in many industries, and is seen increasingly in engine oils and other automotive aftermarket offerings.

Private label products or services are manufactured or provided by one company for offer under another companys brand. They are available in a wide range of industries from groceries to cosmetics to web hosting and more. They are often positioned as lower cost alternatives to regional, national or international brands. Recently some private label brands have been positioned as premium brands in competition with national name brands.

My current curiosity about private label was piqued at the Automotive Oil Change Associations trade show and conference for the quick-lube industry in March, in New Orleans. There were many engine oil brands being touted at this exhibition and frankly I didnt recognize some of them.

Some amount of private label engine oil has always been around. If youve gone to Sears, Walmart or another retailer and bought their branded motor oil, youve had your hands on a private label product. These retailers do not own and operate blending plants; they buy an API-licensed oil from a lubricant blender, have it packaged into containers with their label on it, and mark it up for sale. Same thing with the quick-lube outlet that offers to fill your car with its house brand rather than the nationally advertised product that may be on the big sign out front.

In the case of engine oil, private label products occupy a unique position and can be licensed by the American Petroleum Institute. API Document 1509, the Engine Oil Licensing & Certification System, governs the development of engine oil categories and also permits engine oils to wear the API Service Symbol (donut) or API Certification Mark (starburst) on their labels.

Every engine oil category, be it ILSAC GF-5 or API SN, has a protocol by which engine oils are tested and licensed. This includes a set of engine and bench tests designed to demonstrate satisfactory performance. Once the test data confirm that an oil formulation actually meets the category limits, API 1509 defines the process by which oils are licensed – and how those licenses in turn can be applied to private-label customers.

Now for a math lesson: There are four major additive suppliers who provide additive systems for North American engine oils, plus about 15 to 20 base oil suppliers who market paraffinic base stocks in North America. In my simple mind that says there should be roughly 60 to 80 base oil/additive combinations in the passenger car engine oil market. Right?

Wrong. In the United States and Canada alone there are 227 companies with licenses to sell API SN engine oils, and that doesnt count the rest of the world where there are an additional 208. The list of licensees includes lots of familiar lubricant brands, and also non-blenders like Ace Hardware, Kroger and Walmart. So how does that work?

One of the basic processes used by the oil and additive industries (and defined by API 1509) is rebranding and reblending. Heres how it works: After an engine oil formulation is completed successfully and an API license granted, either the additive marketer or the base oil supplier can approach others to use the license for their engine oil. The rules are that the additive and base oil must be identical to the original formulation, and that the oil either be blended by the original license holder and relabeled, or that the customer take the base oil and additive system and blend the oil himself.

Another methodology is to use the base oil interchange guidelines in API 1509 to run key tests to gain another approval for the additive system. This is very common since the cost of a full testing program can approach $500,000 and a BOI can materially reduce this cost. In fact, this procedure has allowed many more programs to be completed. I would expect that all of the major additive suppliers have a market-general additive package for which they have gained multiple base oil approvals using this method.

The next layer in the private label story is that many companies in the marketplace blend oils but do not market them under their own label. In fact, some dont even have a label or brand of their own. They exclusively blend and package for their many customers using the customers labels and containers.

How does this help the marketplace? Obviously, there is an economy of scale since these blenders are able to produce large quantities of finished engine oil and store them in bulk, waiting for an order from a customer to supply a given amount. Blending facilities are not inexpensive, so a larger plant can actually spread its costs over more gallons, and wind up with cost savings that it can pocket or pass along to the customer.

There are also advantages in terms of quality control since a large batch of oil can be blended and adjusted, if need be, to assure compliance with API requirements.

Cost is a major competitive factor. Base oils and additives sold in bulk (tank cars or tank trucks) are more cost effective than the smaller drum quantities that smaller oil marketers may have to buy. Cost is one key to private label success.

Quality is another key, and if you dont see the API Starburst or Donut on a private label product, thats no ringing bell but a screaming alarm. API does monitor oils in the marketplace, including private label oils, to make sure that they meet the requirements of the category shown on their labels. When licensed oils are found that are not in compliance, API works to make sure that the problem is rectified. Often the non-compliance issues are related to blending errors in viscosity or additive content. If a blender cannot or will not fix the problem, API can revoke the original license and the associated private label products, too.

In addition, API has a program called Motor Oil Matters, or MOM. As API states, Motor Oil Matters has one main goal: to make sure that consumers receive high-quality oil. This happens by maintaining a secure chain of custody for motor oil from oil marketer to distributor to installer to vehicle. MOM follows the motor oil trail from the blending plant all the way to the consumer, to assure drivers receive the oil they expect.

How does private label help the quick oil change operator, or for that matter, other outlets such as auto parts stores and big box stores? I think the first point to make is the cost issue. My fellow columnist Tom Glenn has pointed out that private label made deep inroads into this market, especially during and after the economic downturn that squeezed consumers and made auto maintenance tougher to afford. For many quick oil change stores, margins remain painfully tight. If their oil costs can be reduced without sacrificing quality, it means a better chance of remaining successful.

Although some quick oil change stores may use bulk private label, they still carry some major brand oil (usually packaged) for those customers who are concerned about unknown oils or who have a unique need, such as an unusual viscosity grade, a General Motors Dexos oil, or oil for an exotic car. Some stores use a major brand to bring in a certain class of trade, but rely more and more on their private label sales, which far exceed the branded oils.

What about the private label marketers? What benefits do they gain from these oils? First, they have a ready-made sales base to cover many of their operating costs. The engine oil piece of the sale is also a way to get other products into the quick oil change store.

Private label marketers can bring gear oils, greases and transmission fluids to the fast-lube operator, and fuel system cleaners and fuel treatments are another common product line (and a lucrative one). There are engine cleaners, coolant system flushes, brake fluids, power steering fluids and flushes, and more that a marketer may handle.

Thats just the fluid products. The cars and light trucks that come into quick lubes also need batteries, windshield wipers and even light bulbs. The secret here is to cover as many different areas of the quick oil change store as you can. By capturing the engine oil business, the private label marketer may have an opportunity to include other very high margin items.

So private label is here and is doing well. When the products are licensed to the current API categories, they can offer advantages including price, basic quality and variety, and can help blenders operate their plants more cost effectively.

Industry consultant Steve Swedberg has over 40 years experience in lubricants, most notably with Pennzoil and Chevron Oronite. He is a longtime member of the American Chemical Society and SAE International, where he was chairman of Technical Committee 1 on automotive engine oils. He can be reached at steveswedberg@cox.net.

Causes and Competition

Want to do good while appealing to the community-minded small businessmen and women who make up the quick lube industry? At the AOCA trade show, I met a representative for Throttle Muscle, which offers aftermarket products like many other private label folks. Each sale they make results in a donation to the Muscular Dystrophy Association. In this aspect, they have taken a page from the Jiffy Lube playbook (not surprising, since one of the partners worked for Jiffy Lube earlier).

This tactic is referred to as cause marketing. Cause-related marketing has exploded in recent years, though it is a relatively young concept. It began on a national scale in the early 1980s, when American Express joined with the nonprofit group that was raising funds to restore the Statue of Liberty.

Cause marketing can be good business as well as good citizenship. In 2014 its estimated that $1.84 billion in sales will be the result of cause marketing. The Cause Marketing Forum, which tracks these efforts, indicates that 91 percent of customers will switch brands to cause-related products if quality and price are equivalent. Forty-four percent will switch even if the price is higher, it adds.

Heres another example of cause marketing: Jiffy Lube outlets last year offered customers a coupon booklet with $100 worth of savings, in return for a $3 donation to the Muscular Dystrophy Association. Jiffy Lube said 100 percent of its outlets participated, enabling it to collect more than $1 million for MDA from Aug. 1 to Sept. 2, 2013. Earlier programs with the American Heart Associations Go Red For Women movement were similarly successful.

Even in this highly competitive and cost-conscious industry, there can be potential to help a worthy cause.

– Steve Swedberg

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