Strategic advisory for the Global Lubricants industry | A Conversation on Growth (Part II)
Strategic advisory for the Global Lubricants industry
Global Lubricants consultants, Global Energy consultants, Management consultants, Downstream energy consultants, Downstream petroleum consultants, Lubricants strategy, Lubricants business, Lubricants M&A, Competitive benchmarking, Financial benchmarking, Financial advisory, Transaction Advisory, Business models, Marketing models, Distribution models, Performance management, Supply chain optimization, Transformation, Marketing, Distribution, Sales
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A Conversation on Growth (Part II)

By Suzan M. Jagger for Lube Magazine.


Acting now to sustain for the long term…

As a consequence of weakened crude oil and base oil costs, we are in a near-term period of peak lubricant margins and earnings relative to the business cycle, riding well above the long-term trend line. This is driving a wave of consolidations and new investments that for the next few years will position the lubricants business for even stronger earnings power. As the European home-based market and competitive challenges mount, the flight to growth in Asia, Africa, Middle East, and even the Americas becomes an imperative. Europe is ripe for more consolidations to improve operating scale and reduce costs, and at the same time the current financial climate will support selective initiatives to leverage European brands and technology abroad. The reach of Western European marketers into Eastern Europe, Central Asia, and the Middle East has been enabled by an aggressive group of terminal operators and trading companies that are based in the strategic supply & logistics hubs of Rotterdam, Antwerp, Hamburg, and Turkey.


For the Outward Bound, Five Challenges…

National Oil companies have become more competitive since the leading lubricants technologies, and in particular the formulation of synthetics, is available to all players. The challenges of Globally Harmonized System (GHS) and lack of labelling harmonisation in some growth markets drives a complexity of product brands and Stock Keeping Units (SKUs) as registered in costs. Europe still has a sizable direct business compared with growth markets, and the challenge is to learn how to build distributor networks that are strategically aligned with marketers and will execute well their marketing and trade programs. Another challenge is to understand the complexities of market-based pricing to achieve profit goals. And finally, relationship building with regional and global OEMs and strategic accounts calls for a greater direct presence in Asia Pacific, and potentially investment in local technology centres.

Despite the premium prices commanded by the Major brands, Independents are able to generate comparable Return on Sales due to their much lower costs.

The New Competitive Balance…

Leading independents are reaching beyond their legacy borders to find growth. Independents are now armed with leading technology and cost advantages that have literally caught the majors off guard. While majors have been preoccupied with their upstream businesses, and have generally constrained lubricant investments to meet the cash needs of upstream, the growth of independents has been nothing short of phenomenal.


Independents that started as small local marketers, i.e. small, independent, family-owned business, are now investing to extend distribution, building brands, leveraging speed-to-market and flexibility to capture opportunities, and automating, manufacturing and distribution facilities to position for a head-to-head fight with the majors.

These independents are not pure play companies but rather act as marketers for their own branded product line, as resellers for major’s products, as contract manufacturers and distributors for private labels, and even as distributors for base oil and additives to other independents. Despite the premium prices commanded by the Major brands, Independents are able to generate comparable Return on Sales due to their much lower costs. They are finding places beyond the direct reach of the Majors.


At present, if we examine the product offer of any large distributor around the world, we will usually find at least one private label or independent brand. Private label growth accelerated through the recession as distributors and resellers looked for ways to enhance earnings amidst declining volume. Auto parts stores, mass merchants and quick lubes resellers are extending this trend today as we see more conversion of both packaged and bulk product from major brands to private label and independent brands. The trend began with industrial hydraulic oils, and then commercial engine oils, and now penetrating the consumer engine oil market.



Lube Magazine
February 2016, No. 131