Market penetration of private label lubricants in retail stores has increased dramatically over the past 20 years. Where they accounted for an estimated 8 percent of passenger car motor oil retail sales in the United States in 2000, today its above 30 percent. Assuming the robust economy doesnt dampen demand by putting more cash in pockets to buy national brands, private label motor oil is on track to reach 50 percent in five years. Without doubt, private label PCMO is a force to be reckoned with.
Understanding how private label oil has risen to prominence and where its heading starts with a look at the retail segment. But before we get there, its important to define how the term private label is used in the context of this story.
Private label lubricants include products manufactured by a contract or third-party manufacturer (i.e. toll blenders, independents and major oil company manufacturers) for retailers, lubricant distributors, original equipment manufacturers, oil installers and others. Examples of private label PCMOs include Supertech, Proline, Carquest, OReilly, STP, Beck/Arnley, NAPA, Dollar General, GTC, Honda, Motorcraft, 7-Eleven, Medallion Plus, Amazon Basics, DuraMax and Service Pro, to name a few. Although the brands of some major oil companies are manufactured entirely or in part by third parties, they are not considered private label, nor are lubricants sold under brands owned by independent lube manufacturers.
Walmart has an estimated 75 percent market share in retail motor oil sales and is by far the leader in sales of private label products in the retail channel, but the big-box giant is not the first big retailer in the space. Kmart, Sears, Speedway and a number of other retailers, including food store chains, auto parts stores and others, had private label motor oils on their shelves long before Walmart was founded in 1962.
Private label motor oils entered the market because retailers wanted more control (over price, quality, promotions, etc.) of this high-turnover, high-profit consumables category. They achieved it by offering store brands at a price point significantly below the big brands. In fact, back in the 1940s Pep Boys Western Motor Oil cans were prominently marked all-purpose low cost lubricant, American Refiners Outlet sold A.R.O. Thrift, and Tankar Gas Stations sold Tankar Special Motor Oil with a label stating, Be Thrifty Go Tankar.
Although most private label oils back in the day did not have such conspicuous language positioning them as economy brands, the price tag for the products typically made it clear they were. Further, the lower price connoted lower quality, and private label motor oils were burdened with this stigma for decades. But times have certainly changed.
While private label motor oils are still marketed as low-priced alternatives to the major brands, perceptions about quality have evolved to a point where many say it is on par with the brand leaders. They base this on the belief that nearly all private label products meet the current API service category (API SN/SN Plus) and are a good value for the money.
This is not unique to the motor oil category. Over the past 30 to 40 years, consumers increasingly believe the quality and price proposition provides the best overall value for most high-turnover, high-profit consumable categories, from laundry detergent to dog food to health and beauty products. In fact, a Nielsen survey of 30,000 online shoppers conducted in 2014 revealed that 73 percent of consumers in the U.S. believe private labels are extremely good value for the money and 67 percent say private labels are at parity with name brands on quality. Earlier this year, Packaging World published a highlight from a survey by Daymon Worldwide that shows 85 percent of consumers indicate they trust private-brand products at least as much as national brands.
To expand and build on that trust, most of the big dogs in retail work hard to assure that the manufacturers of their private label motor oils meet industry standards and their companys margin goals. To get there, they favor doing business with lubricant manufacturers that operate efficiently and have quality production processes in place, and those that are innovative, responsive and prepared to invest in growth. Further, in some cases they look for suppliers that have the talent to help them develop new motor oil products and creative and compelling packaging and promotions that differentiate their products and help increase sales, brand loyalty and margins.
When you look at the numbers, it becomes clear that demand for private label motor oils is increasing, the price differences between private label and national brands are decreasing, and the perceived gap in quality between the two continues to diminish. Whats not clear is when and if market penetration of private label reaches saturation, if the price gap shrinks to a point where demand reaches an inflection point, or if it continues to eat away at major brands to a point where it drives a fundamental change in the market. These are critical unknowns that marketers in the retail space are wrestling with, but some say they pale in comparison to the impact and implications of private labels in the do-it-for-me segment, where volumes at play are significantly higher, as is interest in lower-cost products.
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. Email: tom_glenn@petroleumtrends.com