Most people are familiar with the big brands of motor oil in the United States market. These include Pennzoil, Valvoline, Mobil 1, Castrol, Havoline, Kendall and others marketed by major oil companies. In addition, there are a number of recognized brands among car enthusiasts and hobbyists like Amsoil, Royal Purple, Redline and Lucas. Importantly, however, there are over 600 other American Petroleum Institute licensed private brands produced and sold in the U.S., and demand for these is growing.
Based on Petroleum Trends International data, when defined as a brand name offered by a company other than a major, sales of private label passenger car motor oil in the U.S. is on target to reach close to 150 million gallons in 2019, growing at a rate of close to 16 percent over the past five years. In addition to strong growth in retail, private label is posting double-digit growth in the installed sector and is also growing in the commercial and industrial sectors.
The reason for growth is clear: Installers, consumers and commercial enterprises are becoming more confident in the quality of private label, and it typically costs less. We are also seeing lubricant distributors in particular pushing private label products because they return higher profit margins than those of brand leaders.
Brand ownership is another growth driver. An ever-present concern on the minds of many lubricant distributors is that most supply contracts with majors have a 30-day cancellation clause. There is always a chance they could lose the rights and privileges that come with being a direct distributor for a major and only have 30 days to fill the void. This is not the case with private label. The distributor owns the brand and has control of its price, where it is marketed and how it is promoted. This helps explain the number of API licensed private label motor oil brands trademarked by distributors.
The fundamentals fueling growth in private label lubricants in the consumer automotive sector are also at play in the commercial and industrial sectors. Here we see lubricant distributors capitalizing on growth opportunities by adding company-owned private label to their line cards. One example is RelaDyne. In addition to its Duramax brand in the consumer sector, the company offers its Allfleet brand in the commercial automotive sector and Relatech in the industrial sector. Other examples include PetroChoices Medallion Plus brand, PrimeLubes Prime Plus and Prime Ultra brands and Parman Energy Groups Signature brand.
These distributor brands include consumer and commercial automotive oils as well as a wide range of industrial lubricants, such as hydraulic oils, gear oils, compressor oils and turbine oils. Rather than being offered as no frills, lower cost alternatives to major brands, many are positioned as quality products supported with oil and failure analysis, inventory management, training, plant audits, custom blending, used oil recovery and other value-added services typically seen with major brands. Some even back the quality and performance of their private label with warranties. One example is RelaDynes 10 years or 300,000 miles of guaranteed engine life.
Where majors used to push back on their distributors showing and growing their private label business because it cannibalized sales of the majors brand, we are now seeing something different. Although it took a while and there was a good deal of pushing and shoving along the way, the majors are increasingly accepting the business realities of private label in the portfolios of their channel partners businesses. In the process, there are new business models emerging where the majors and marketers are collaborating to help assure both their brands and those of their channel partners can coexist and be profitable.
But while acceptance and cooperation are developing between majors and their marketers, private labels from other sources continue to chip away at the majors market share because, in addition to distributor brands, there is growth in private label among independent blenders, retailers, convenience stores, OEMs and others. To this point, consider that 90 percent of the PCMO brands licensed by API in the U.S. are owned by companies other than the majors, nearly 300 are blenders, and over 60 are retailers. Similar to the distributors, retailers enjoy higher margins and better control of the aisle with their private label.
In response to this threat, its clear some majors are also working to limit the encroachment of private label on their business by compressing the price gap between their products and the private labels they compete with. Although its uncertain how tight the gap needs to be, one sure thing is that, at least for now, private label continues to present growing opportunities and threats in the lubricants business.
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