In speaking with lubricant distributors on a daily basis, its clear there are some very pressing issues on their minds.
For some, its the text received at 4:30 a.m. saying, The deal is done. It had been rumored, and its now official: Your leading competitor was just acquired by a company that has a strong relationship with an oil major that is key to your business. The rest of the night is shot thinking about discussions with suppliers, staff and customers.
It also can mean being distracted when walking into the house to a welcoming family on a Friday night, after reading an e-mail on the way out the door of the office announcing a key supplier, the first to move, will increase prices by 45 cents a gallon, effective in 30 days.
Other concerns may include a sales rep or office manager who gave notice, an upcoming meeting with a lender, a letter from a lawyer about an accident a driver had while delivering product, an accusation of slander from the competition, the unexpected knock on the door from a fire inspector, a pump thats gone south, or a forklift that was driven off the loading dock.
Or perhaps its a major customer talking about switching suppliers because they were offered a better deal for a product you know is not even close to an apples-to-apples comparison, since your rivals product is unlicensed.
Although all of these and others are important issues, what are the big concerns that keep owners and managers of lubricant distributorships up at night? The answers are interesting, maybe even surprising and instructive.
While there are many concerns on their minds, most lubricant distributors that Petroleum Trends International speaks with say they dont lose much sleep over short-term issues. These day-to-day issues are part and parcel of running their business. Theyll meet with the vendors, replace the pump or forklift, deal with the disgruntled sales rep who says he will take his book of business to the competitor if he is not compensated for what he is worth. Many say if you lose sleep over these issues, you either dont know how to run a business or are in the wrong business.
Instead, what keeps owners and managers of lubricant distribution businesses up at night are the near- and long-term issues in which there are many unknowns, a great deal of uncertainty and little control, or steep risks and rewards.
Pricing is one example of a near-term issue that is currently first and foremost on the minds of distributors. Its not uncommon to hear lubricant distributors say we are looking at lubricant prices and paper-thin margins that are reminiscent of those in the 1980s. Although such statements might be a stretch (considering that distributor buy-in prices in the 1980s ranged from $3 to $3.20 per gallon for passenger car motor oil), they are not far off the mark.
Some second-tier oil majors are offering bulk prices for PCMO sold to distributors in the area of $5 a gallon, and some independents are pushing prices across the table that are below $4.50 a gallon. Adding to this, distributors say they are now being quoted full-synthetic, Dexos-licensed PCMO at $5.60 a gallon, and ISO 46 antiwear hydraulic fluid as low as $3.25 a gallon. Okay, maybe its not the 1980s, but these prices are well below what we have seen in the last two decades. But while depressed lubricant prices are top of mind for lubricant distributors, as is the quality of such discounted products, the leaders in the business say these are issues they understand and feel confident they can manage and adjust to. Its called competition.
Instead, what concerns many of the movers and shakers in lubricant distribution, and keeps them up at night, are longer-term issues that speak to the future of their companies and their legacies.
Understanding the evolution marketers have been through over the past few decades, many distributors are tossing, turning and losing sleep over what they believe will be more industry consolidation – not only among marketers, but quite likely in the ranks of the majors. The big will get bigger, and in the process, it will take a great deal of planning, foresight and maneuvering to assure distributors are aligned with suppliers that are a good fit and will be with them for the long haul. In the eyes of some, getting through the next decade is a game of chess that would have Kasparov and Karpov scratching their heads.
Adding to the challenge of alignment, the presence of private equity in the distribution business complicates decisions. Some say they lose sleep thinking and planning around the possibility that theyll be left on the outside looking in, as their fates are determined by private equity investors and the majors they do business with. For many distributors, these are high stakes gambles over which they have little control, and they envision some big-time winners and losers.
Lubricant distributors say they also lie awake thinking about ways to attract new talent to drive growth. Many distributorships are owned and operated by first and second generation family members and legacy employees. This can be a positive factor if the succeeding family members have the smarts and drive to carry on the business. But if they dont, sleep is lost thinking about finding someone who does, or selling the business.
Lubricant distributors say they also lose sleep adjusting their heads to rest on a pillow filled with sales dollars built on lubricant value rather than volume. This is a big change for both distributors and majors. While continuing to focus on growing volume, distributors are quickly coming to grips with the fact that top-line growth is paramount. Because of this, they are thinking long and hard about ways to expand and enhance their value-added services.
Here at last is good news, and good reason to lose sleep. In being alert now, some are gaining a competitive advantage over those who are asleep and out of touch with the markets changes and challenges. While others doze, the winners – in the parlance of the great chess masters – are calculating and building bridges to victory; they sleep soundly, with smiles on their faces and always with one eye open, thinking about the future and planning their next move. z
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