Need to Know 

Past experiences demonstrate that products sold based on specifications are vulnerable to commoditization. They often lose differentiation over time as more competitors meet or exceed readily accessible specifications. This leaves little room for uniqueness, leading to intense competition, price erosion and diminishing brand loyalty. It’s a natural outcome of market evolution, driven by technological advancements, consumer preferences and competitive forces. But the shift toward commoditization, particularly in the declining PCMO market, presents serious issues that can have negative consequences for lubricant suppliers and buyers.

Although it may seem straightforward to focus on expanding within the industrial market segment—which is still growing—and to diversify by introducing new products to current customers while offering established products to new and emerging markets, the reality is that implementing these strategies is significantly more challenging. However, on a positive note, the changes occurring in the lubricants industry have equipped majors and many distributors with the resources required to implement these strategies effectively and to foster growth. 

To understand the underlying factors and leverage them for business growth, it is essential to examine two structural changes affecting the lubricants business. 

Consolidation is one of the most notable structural changes. The evolution of this process commenced in the 1990s, marked by the consolidation of major oil companies, and it persists today with ongoing mergers and acquisitions. As a result, the total count of lubricant distributors in the United States market has plummeted by approximately 70%. Furthermore, many of these remaining distributors grew significantly, now operating at more than 20 times their sales volume compared to the 1990s.  

The ongoing consolidation in the lubricants business has enabled numerous lubricant distributors to expand their operations, with some establishing a national presence as well as national private label brands, and attracting top management talent. As a result, they are now equipped to execute sophisticated management strategies, cultivate more sustainable partnerships and strategic collaborations with their aligned majors, and secure greater capital for investment in growth. 

Another significant change has been the implementation of digital technology. Today, almost every employee at a lubricant distributor has access to computers connected to high-speed networks. These systems typically manage all back-office operations and feature portals that enable distributors to monitor customers’ tank levels in real time. Additionally, they allow customers to place orders, pay invoices, track deliveries and access product information, among other functionalities. Furthermore, these systems are often integrated with the distributor’s website and the majors’ ERP systems to enhance transaction efficiency and support planning activities. 

In addition, some lubricant distributors utilize advanced integrated systems that encompass custom software, real-time fleet tracking and telematics devices. Often, these systems also incorporate advanced artificial intelligence (AI). With the support of AI, distributors can optimize product delivery cycles by predicting and reacting to customer behaviors and buying trends, automate processes, enhance operational efficiency, forecast market trends, refine pricing strategies and manage inventory more effectively, resulting in increased revenue, lower costs and improved profit margins. 

The primary takeaway from these structural changes is that today’s lubricant distributors are operating on a significantly larger scale. They are leveraging outstanding management teams, developing stronger collaborations with key suppliers, extensively adopting digital technologies across their operations and now possessing increased capital for growth investments. These advancements empower many distributors with the capabilities and resources needed to broaden their impact in the industrial sector. They also deliver substantial data that supports data-driven strategies to optimize profitability, assist in launching new products to current clients, and enable the growth of established and new products in both new and emerging markets.  

The extensive scale and geographic presence of certain distributors also provide them with a significant advantage. This is, in part, attributed to the growing tendency of large corporations to source from a limited number of major suppliers, thereby improving their procurement strategies. Large distributors can capitalize on the established and strong relationships their major suppliers maintain with their large clients in various industries, enabling them to tap into emerging markets for both current and complementary products. While this method echoes past chemical management strategies, the principal major partnering with the distributor can set a precedent in relationship-based sales, promoting shared benefits in both traditional and emerging markets. 

A significant number of professionals assert that to sustain growth in today’s industry, it is vital to investigate new and non-traditional markets beyond the conventional lubricants sector and that collaboration with majors is key to facilitate this growth, since many of the potential emerging markets are dominated by large corporations.  

One exciting example of this is seen with cloud and data centers, and such other energy-intensive technologies as electric vehicles and cryptocurrency mining. These applications are rapidly implementing the use of highly refined mineral oils, advanced fluorocarbon-based fluids and silicone chemistries as heat transfer fluids used for immersion cooling. This market for lubricant distributors was virtually non-existent just ten years ago. 

So the good news is that while lubricant demand is decreasing in certain established markets, there are new opportunities arising in emerging markets—especially within the energy sector—that could enhance demand. However, it is crucial to highlight that certain major oil companies and their distributors are in a stronger position than others to identify and leverage these growth opportunities. Their competitive edge is influenced by their size, expertise, operational capabilities and the extent of their collaboration with channel partners. 

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