I have been associated with the finished lubricants market in the Unites States for just over 36 years, since I was hired to create and launch Valvolines market research department. Over that time, there have been a lot of changes within the industry. What was considered the sexy part of working within the finished lubes market back then-the do-it-yourself automotive engine oil segment-is no longer the volume generator it once was. Instead, the do-it-for-me engine oil market as well as heavy-duty and industrial lubes are the ones getting all the attention.
Over the next 36 years, the U.S. finished lubes market will be changing even further based on changing transportation needs and how the vehicle market reacts to those changes. While I most likely will not be around to see how it all turns out, there are some key emerging trends that point to how it all is going to go.
In January 2014, I wrote an article for LubesnGreases (DIY Punches Above Its Class) saying there were two types of DIY car owners in the U.S. market: enthusiasts and economists. While enthusiasts believe no one can maintain their cars better than they can themselves, economists maintain their vehicles themselves simply to save money.
In that article, I indicated that by 2018 the size of the overall private sector passenger car and light truck engine oil market would be 562 million gallons, down from 582 million gallons five years earlier. In 2013, DIY motor oil consumption was estimated at 175 million gallons, or 30 percent. Enthusiasts accounted for two-thirds of that volume and economists the rest.
Since 2013, vehicles have become more and more complicated to maintain. It is easier, more convenient and now more economical to take ones vehicle to a professional installer. There are fewer young maintainers who own and operate vehicles. As a result, the DIY motor oil change market is becoming more of a niche channel, with car enthusiasts being the more dominant DIY demographic. Strategic Resources estimates U.S. DIY consumption to be around 20 to 25 percent of the passenger car and light truck market, with DIY enthusiast outpacing economist consumption by a factor of approximately 4-to-1, compared to 2-to-1 in 2013.
Stick with the Pros
While the U.S. DIY segment has become more of a niche market, the installer (do-it-for-me) market has taken its place. The heavy-duty commercial fleet and independent truck market and the industrial market are growing channels. According to Parsippany, New Jersey-based consultancy Kline & Co.s latest analysis and assessment of the global lubricants industry, between 2014 and 2019 demand for commercial vehicle lubes increased just under 0.5 percent, and industrial lubes increased 1 percent.
With that said, market volumes overall are lackluster. Kline expects that by 2024, U.S. lubricant consumption will begin to decline. Passenger vehicle lubricant consumption will fall at the greatest rate-down 8 percent; commercial vehicle lubricants will decline 4 percent; and industrial will dip less than 0.5 percent. The key is to grab market share in the right segments.
Within the past decade, several smaller companies recognized that the future of the finished lubes market lies within the installer, commercial and industrial market channels. In the early 2010s, they developed their entire business models to exclusively target the stated industry channels in innovative ways.
Convenience store operator Parkland is the fastest growing independent supplier and marketer of fuel and petroleum products in both Canada and the Caribbean Sea and one of the fastest growing in America. Parkland USA has 50 company stores in 14 states and 220 dealers carrying the Sinclair, Exxon, Phillips66 and Chevron brands.
Our vision was to truly understand the professional installer, commercial fleet/independent trucker and industrial channels from the bottom up, said Doug Haugh, president of Parkland USA. Then develop strategies to best service current and future customer needs.
He believes the key to his companys success lies in providing better services to its customers. Supply security and reliability, including storage infrastructure and relationships with its own suppliers and third-party carriers, puts Parkland in a unique position to rapidly respond to supply demands, Haugh explained.
Another growing company operating within these channels is Cincinnati, Ohio-based RelaDyne. The distributor has increased its business by acquiring and integrating more than 50 other distributors over the past decade. Acquired companies embrace RelaDynes proven sales and marketing programs and business practices. These programs are designed to help the customers improve their businesses and generate greater profits.
For example, RelaDyne analyzes its customers business needs and provides solutions specific to those needs. This includes custom blending, turn-key tank monitoring programs, pre-filtered lubricants to help meet original equipment manufacturer system fluid specifications, and other maintenance programs for industrial equipment components.
Dan Oehler, senior vice president of sales and marketing, boasts, RelaDynes DuraMax brand has grown organically throughout the U.S. installed automotive market over the past 10 years. By carefully designing installer retention and profit programs combined with a very complete product portfolio, DuraMax has already grabbed a 5 percent national share in less than 10 years.
This may be unusual for a smaller company, but RelaDyne continues to swell as it buys up more market share. Last November, the companys latest acquisition was Richard Oil and Fuel, a full service distributor servicing Louisiana.
Customer Service Rules
Successful companies know that services provided in todays market will not be the same as those needed tomorrow. In the mid- to long-term, emerging trends will change things in the automotive vehicle market and subsequently in the finished lubes market.
The first of these trends is autonomous vehicles. Of all the future trends, I believe this has the strongest legs. Elements of autonomy are baked into cars on the road now, such as self-parking capabilities. It seems that they will be first utilized by fleet companies in the heavy-duty markets, followed by passenger cars and light trucks.
James Peng, co-founder and CEO of self-driving car startup Pony.ai, speaking at the CNBC East Tech West conference in Guangzhou, China, in November, said, Theres no question that autonomous trucks will be ready before autonomous cars. A major factor for businesses in choosing self-driving trucks is greater fuel efficiency, which cuts fuel costs by at least 15 percent.
At the same conference, Nasdaq Asia-Pacific Chairman Robert McCooey added that the real benefit for autonomous vehicles is long-haul truck transportation, CNBC reported.
The next emerging trend is electric vehicles, be they fully electric or hybrid. I believe that EV and HEV vehicle registrations will take hold at a greater rate and grow faster within the European and Asian markets. This belief is based on the fact that retail gasoline prices are significantly higher within these markets at $6 or more per gallon versus $2 to $3 in the U.S. market. As long as U.S. retail gasoline prices remain stable, internal combustion engine registrations will most likely maintain their dominance at the 95 percent level.
The industrial market is the most traditional of all traditional markets, and operators are often resistant to change. Over the next decade, industrial operations managers will focus on servicing and maintaining their existing equipment, while new and emerging technology will spur new and more modern equipment to take over. Emerging technology will assist industrial managers with preventive maintenance to keep operations on track. And through the Internet of Things, modern equipment will achieve a variety of goals, including cost reduction, increased efficiency, improved safety, regulatory compliance and product innovation. The Internet of Things existence is primarily due to three factors: widely available internet access, smaller sensors and cloud computing. So, the last emerging trend is industrial equipment evolution.
In all, the key theme for future success is providing the best possible service to current and future customers. It appears that companies like Parkland and RelaDyne have figured that out. They have identified the segments of the finished lubricants market with potential for greater volume and profit for the future and created a new business culture and innovative sales and marketing programs to better serve current and future customers within these channels.
Larry Solomon is president and owner of Strategic Resources Inc., a consulting firm that specializes in the automotive aftermarket and consumer goods products. His experience includes 23 years at Valvoline. Contact him at email@example.com or 859-619-7196.