As with most products, distribution is critical to successful sales in the lubricants business. Whereas a lubricant manufacturer may have the best combination of base oils and additives ever developed along with bench and engine tests that are off the charts, they will likely have little to no business until they develop their channels to market. And even when they do, the rapid rate of change we are now seeing challenges all lubricant manufacturers and marketers to continually assess their channel strategies. Further, changes in the channels are opening doors for new players to enter the business and compete for share in a market historically dominated by the legacy brands that built their businesses over many decades and hundreds of millions in advertising dollars.
The first indication that channels were changing in passenger car motor oils was seen when Walmart entered the business and included engine oils in its automotive product category. In the 1970s, retail sales of PCMO were primarily enjoyed by auto parts stores, food stores, convenience stores, drug stores and other retailers who together accounted for an estimated 80 percent of retail sales. Walmarts big box stores turned the retail lubricants market on end. In little more than 30 years from its inception, the chain captured nearly 75 percent of retail PCMO sales. In the process, although sales at auto parts stores held their own, food stores, drug stores and some other retail segments ended up selling more popcorn and baby oil than motor oil.
At the same time retail channels were evolving, a major shift was also underway in the installed segment. This shift was born from fast lubes entering the business to meet the need for speed of consumers looking to get their oil changed quickly. As a result, where gas stations and repair garages used to dominate the installed segment with nearly a 70 percent share in the 1970s, fast lube centers pulled the rug out from under them. Today, repair shops account for only about 20 percent of motor oil sales in that segment. Adding to this shift, new car dealers also changed the landscape of the business by leveraging oil changes to drive more cars into their bays for those and other services. When taken together, fast lubes and new car dealers now account for close to 65 percent of the oil changes in the installed segment.
While these changes were underway, there were other hints that channels were changing. One in particular was the appearance of five-gallon pails and 55-gallon drums at warehouse clubs starting a little over 15 years ago. While some distributors dismissed this by saying very few would shop warehouse clubs for 55-gallon drums of oil, others were not sure. They were competing for business with a growing number of installers turning to warehouse clubs and Walmart for drums and skids of motor oils and other lubricants at prices the majors were not extendeding to them. As at some of the big box stores, auto parts stores may take retail bottles off the shelves for use in service fill at their facilities.
With that, the lines separating retail and wholesale channels began to blur. Now, the lines may be going away.
A new path in lubricant distribution channels was cut when Amazon entered the picture in 1994 and grew to become the largest internet-based retailer in the world. And yes, they sell lubricants, and a lot of it. Further, they offer more brands than any other retailer in the business.
Amazon offers nearly 100 brands of motor oils (PCMO, heavy-duty engine oil, small engine, motorcycle oil and marine engine oil) that run the gamut from the big brands in the business to, quite honestly, a few brands I didnt know existed. They offer many of these brands in quart bottles, jugs, pails, drums and totes. And we are not just talking about motor oil. Amazon sells ATF, gear oil, hydraulic oil, turbine oil, air and refrigeration compressor oil, metalworking fluid (cutting, quenching), assembly lube, grease and other commercial and industrial lubricants.
For all intents and purposes, it would seem that they are a major multi-branded lubricant marketer. But they are not. Instead, they are a fulfillment company that says, You sell it, we ship it. And ship it they do. To illustrate their muscle in making it happen, I ordered a case of motor oil from Amazon. Granted I have an Amazon Prime account, but regardless, I was amazed to see that the oil was at the front door of my home before I was.
The same can be seen with Walmart. They too have a large stable of brands and even offer some of them in bulk. And like Amazon, they can deliver at amazing speed, or you can pick up at the store.
Lest this look like an ad for Amazon or Walmart, the point is that the channels to market for lubricants are changing and the changes are occurring at a rapid rate, and lines between wholesale and retail are blurring. Further, although it still costs, it may not cost the big bucks of the past to enter the lubricants market, a particularly important consideration for those with private label products.
Because of this, not only is it important for lubricant manufacturers to establish channels to market, it is critically important for them to continually assess their channel strategies. It is equally important for marketers/distributors to consider changes in the channels and dialogue with their suppliers about how they can grow their business through these changing channels.
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_glennpetroleumtrends.com