Although the economy of Indonesia, Southeast Asias biggest lubricant market, is beating at a somewhat slower tempo these days and vehicle purchases have slumped, marketers still see opportunities for products catering to specific needs of local consumers.
Lubricant demand will grow due to government expansion in sectors like manufacturing, marine, transportation and agriculture, Muhammad Taufiq Setyawan of Indonesias state-owned Pertamina Lubricants told the ICIS Asian Base Oil and Lubricants Conference in Singapore in June. But 2.5 percent growth in the lubricants market is an optimistic number, dependent on economic recovery and the governments commitment to its master plan.
With about 250 brands on the market, projected lubricants consumption is 788 million liters [208 million gallons] in 2015, and will exceed 800 million liters by 2016, said Setyawan, who is the companys overseas market development manager.
Pertamina plans to make acquisitions in China and Africa from 2018 to 2020 and, through organic growth, tolling partners and acquisitions, to become one of the top 15 global lubricants brands. The company is also upgrading its lube oil blending plant in Jakarta to reach 280 million liters of annual capacity.
According to the companys forecast, Indonesian consumption of transportation lubricants this year is expected to reach 527.6 million liters, or 65 percent of the total lubricants market, with a projected cumulative annual growth rate of 3.3 percent.
Industrial lubricants have a 21 percent share of the market, about 173 million liters, and he expects these to see moderate growth of 1 percent this year due to the economic slowdown.
Marine lubricants are the remaining 14 percent.
Looking more deeply into the transportation segment, Setyawan said motorcycles account for 80 percent of the vehicles on the road in Indonesia, and consume about 137 million liters of engine oil.
Passenger car engine oil sales clock in around 117 million liters, servicing 12.4 million vehicles, and are projected to grow by 3 percent this year. The remainder of the transportation segment involves diesel engine oils for the countrys trucks and buses and other vehicle lubricants.
Automotive manufacturers have fastened their seat belts during the first quarter of 2015 as car sales have dropped by 12 percent while sales of trucks and other diesel transport vehicles were similarly affected, said Setyawan. During the first quarter this year, truck sales fell by about 30 percent.
He noted that according to Secretary General Noegardjito of Gaikindo, the Association of Indonesian Automotive Industries, the slump in car sales was partly caused by a fall in the Indonesian currency against the U.S. dollar, resulting in an increase in car prices. Setyawan said motorcycle manufacturers saw their sales plunge by up to 29 percent for the first quarter this year.
The motorcycle markets immediate future still looks positive, another speaker told the ICIS event. There is room in under-penetrated rural markets and the motorcycle replacement market. However, given the large population, motorcycle sales growth will be rather slower, said Patrick Adhiatmadja, president director and chief executive officer of PT Federal Karyatama, an Indonesian lubricant manufacturer.
Through its analysis of Indonesian market characteristics and consumer profiles, Federal Karyatama has found opportunities in different lubricant market segments despite a soft consumption market.
According to company estimates, in 2014 there were 88 million motorcycles in Indonesia making up 83 percent of the automotive population and consuming about 40 percent of automotive lubricants.
Although original equipment manufacturers strictly regulate authorized workshops, Adhiatmadja said counterfeit oils have been a problem, as they compromise brand equity.
He suggested developing agreements with brand manufacturers to create volume, taking advantage of being the recommended oil. In Indonesia, the OEM brand is the sole recommended genuine oil, so non-OEM oils must compete in the aftermarket segment, he explained.
Apart from the importance of creating strong brand loyalty and product compatibility, he suggested that opportunities can be found within the distribution chain, including manufacturers, sole distributors, distribution channels and consumers. Distribution channels themselves are multi-layered, involving wholesalers, retailers, oil shops, parts shops and medium and small workshops.
To win in each of the distribution channels is the real battle, as buying decisions are weighted by both demand and incentives and promotions at these channels, said Adhiatmadja.
He added, The top five major brands have about 80 percent of market share, while wholesaler channels control up to 60 percent of the nationwide market distribution.
Unlike its motorcycles, lubricant consumption for Indonesias 12 million four-wheelers – 10 percent of the automotive population, aside from trucks and buses – is dominated by international brands, though authorized service stations can sell other oil brands with OEM agreements. The entry barrier for new lubricant brands here is high, as consumers in this segment are hesitant to use unfamiliar brands.
Indonesian passenger car consumers favor global lubricant brands for their overall better quality perception, remarked Adhiatmadja. Once satisfied with a particular brand, they are less likely to explore others.
Federal Karyatama claims to have 35 distributors nationwide, 3,300 branded service centers, about 15,000 outlet channels and more than 15 million loyal customers nationwide. The company launched its new flagship synthetic-based passenger car motor oil brand, Federal Mobil Lubricants, this year. It also blends and packages OEM lubricant for Honda motorcycles in Indonesia (AHM Oil) and produces OEM genuine oil used for initial filling of new motorcycles.
One of the key factors for successful marketing of lubricant products would be developing product benefits, like the extension of average drain intervals, said Adhiatmadja. Develop products that the market wants, and dont leave it up to the engineers, he urged.
He also reminded, The market is highly concentrated in Java (about 75 percent) and the competition is very tough. Having Java-based distribution solidly covered is a must.
Just as with motorcycles, it is important for passenger car lubricant blenders to partner with OEMs so their products can be endorsed and sold in authorized workshops, thus creating consumer confidence, Adhiatmadja suggested.
This is especially important for Indonesia, since 79 percent of car owners decide which oil to use before going to the workshop, added Colin Morton, product manager for engine oils at Lubrizol.
Overall, Morton noted that Indonesia is a demanding environment for lubricants. Fuel and emissions standards are basic, and outside of Jakarta diesel quality is quite poor, at greater than 3,000 ppm sulfur. The majority of the lubricants market is at low to medium quality level, he pointed out.
Research with Indonesian drivers found that friends and family members, prior experience and advertising had the biggest influence on engine oil purchasing decisions; by contrast, only 14 percent of respondents said they were influenced by their vehicles owners manual.
Another audit looked at retail outlets, and found that over 90 percent of oil sold through workshops was labeled as either mineral or semi-synthetic, Morton said. Mineral oils were 57 percent, semi-synthetics 40 percent, and a slender 3 percent were marketed as full synthetic.
Just six brands represent over 86 percent of the oil sold through the workshop channel, he went on to point out. In the mineral oil segment, Pertamina brands hold sway, but in the semi-synthetic and synthetic tiers, major multinationals come to the fore, such as Shell, Castrol and Mobil 1.
Despite the current slowdown, Indonesias GDP is growing, Morton added, and the government is investing in roads and public transportation. Meanwhile, sales of cars are strong, with Japanese brands representing 90 percent of the market as consumers move from motorcycles to car ownership.
And dont overlook the commercial side of the market, said Adhiatmadja: There are about 7 million buses and commercial vehicles in the country consuming about 35 percent of automotive lubricants. With these aging vehicles, owners are price-sensitive and tend to be less concerned with quality, using drum oils to compensate for rising fuel costs.
To penetrate the aftermarket segment, it is important to understand the profile of the consumer. In general, drivers of both two-wheelers and four-wheelers have limited knowledge about lubricants.
There is awareness of the different types of oil, but understanding tends to be superficial. Influencers, advertisements, workshops all intrinsically play roles in brand decision, said Adhiatmadja.
According to Federal Karyatamas research, about 71 percent of consumers purchase lubricants and get oil changes at independent workshops. Four-wheeler owners are likely to determine oil change by distance, ranging between 5,000 and 10,000 kilometers (3,100 to 6,200 miles), or an average of 2.8 months. Two-wheeler owners base their oil changes more on time – about every two months, or an average of every 1,520 kilometers.
Each motorcycle brand and class type has different lubrication specifications, like viscosity, JASO and synthetic. In addition, each market segment has distinct consumer characteristics, like aspiration, buying power and values, and behaviors, concluded Adhiatmadja.
At the end of the day, opportunities exist to drive the use of higher performance and higher value lubricants by aligning performance with the end-user benefits they deliver, said Morton.