The Survival of Lubricant Jobbers in a Mature Market

Transcription

1 The Survival of Lubricant Jobbers in a Mature Market BY Petroleum Trends International, Inc. 1

2 Agenda Overview Industry life cycle Mature market realities Impact on value chain Surviving in a mature market Thriving in a mature market Conclusion 2

3 Overview The US lubricant business is mature Mature markets are characterized by slow growth, intense competition, tight margins, more sophisticated customers, cost cutting, commoditization, and consolidation Growth can be enjoyed in a mature market, however, it typically requires different strategies and tactics than those used in a growing market Consolidation will ultimately improve the health of the market 3

4 Industry life cycle US lubricant demand 1932 to Maturity Billion gal Growth +2.5 AACG +0.5 AACG Year 4

5 Mature market realities A period of significant changes and challenges Slow growth Increased intensity of competition More sophisticated and price sensitive buyers Commoditization Compressing margins Globalization Cost cutting Consolidation 5

6 Mature market realities Consolidation is a self fueling process Once started, others must follow to stay in the game Organic growth alone frequently does not provide the energy required to grow at the rate of the competition in a consolidating market 6

7 Million gallons Mature market realities A five year look back in time

8 Million gallons Mature market realities Shell - Texaco JV 400 Constant 1997 sales July 1998 Equilon/Motiva JV December 1998 BP Acquires AMOCO 0 8

9 Mature market realities Pennzoil acquires Quaker State 400 Constant 1997 sales Million gallons December 1998 July 1998 Equilon/Motiva JV 0 9

10 Mature market realities Exxon and Mobil merge 400 Million gallons November December July 1998 Equilon/Motiva JV BP acquires Castrol March 2000 Constant 1997 sales 0 10

11 Mature market realities Lubricants Company/Tosco acquires Sunoco s Kendall brand and Sunoco customer lists December 1998 November 1999 July 1998 Equilon/Motiva JV Constant 1997 sales Million gallons January

12 Mature market realities Chevron acquires Texaco and Shell acquires Pennzoil Quaker State /2001 ESTIMATED US SALES, 2001 Million gallons 100 million+ gallon club 0 12

13 Consolidation Impacts every link in the value chain Wax Distributors/Blenders Retailers Majors, 12 with 73% of total Refiner Base oil Additive Mfgs. Packaging Distributors, 7,500 with 80% of total Service End users Chemicals Independents, 250 with 27% of total Rerefiners Waste Oil 13

14 Value chain impact Major oil companies Consolidation Cost reduction Cut staff (7 to 20% cuts in workforce) Reduce R&D expenditures Fine tune product slates and service offering Implement new technology (e.g. e-commerce) Optimization of distribution channels Resolve channel and brand conflicts Tighten relationships/partnerships with key distributors Develop value added services Globalization 14

15 Value chain impact Base stock manufacturers Domestic manufacturers of base stocks in US down from 15 to 12 suppliers over last 10 years; no significant impact on total capacity Hydrocracking now comprises over 50% of US production Unstable supply and demand balances/pricing Decline in expertise and custom blending Increased global trade 15

16 Value chain impact Additive manufactures Consolidation is nearly complete Compressed margins Customer base volatility due to consolidation More central role in R&D Need to look outside of core businesses Decline in expertise Increased global trade 16

17 Value chain impact Independent lubricant manufacturers Cost cutting Consolidation Mergers and acquisitions Exits Compressed margins Business development in niches Globalization Value added services 17

18 Value chain impact Lubricant distributors Angst and uncertainty Consolidation Cost cutting Compressed margins Expanded geographic reach Develop value added services and private label Rapid growth for some, exits for others 18

19 Surviving in a mature market Strategic options Cost leader Focus / niche Differentiation Exit 19

20 Surviving in a mature market Cost leadership Align with low cost/price supplier Supply chain management/ logistic partnering Optimize workforce performance (skates!) Asset management (e.g. trucks, warehousing) Optimize customer and supplier relationship management Grow volume rapidly to capture scale Invest in low cost - high impact offerings 20

21 Surviving in a mature market Focused/niche Identify target markets Align business to focus on serving target market Products, services, distribution, pricing and policies Align with synergistic suppliers Products line and brand Product support and value added services Pricing and policies Although niche opportunities can be found, long-term growth prospects are a challenge 21

22 Surviving in a mature market Differentiation Outrun the competition with higher quality products and services Value-added services Superior distribution Excellent customer service (e.g. answering the phone) Align with suppliers that have respected brands, technical support and a broad portfolio of value added services 22

23 Surviving in a mature market Focus / niche Cost leader Danger Zone No strategy Poorly executed strategy Mismatched strategy Slow to respond Under financed strategy Focus on short-term profits Aligning with the wrong suppliers Differentiation Exit 23

24 Thriving in a mature market Thriving in a mature market often requires more energy than can be gained by organic growth alone Lessons learned from the majors is that mergers and acquisitions are the fastest routes to growth Thriving also requires more trust and tighter partnership in supply chain Drive cost out of chain Understand and meet customer needs Although the potential risks are higher, so is the potential for rewards 24

25 Conclusion The US lubricant business is mature Mature markets are characterized by slow growth, intense competition, tight margins, more sophisticated customers, cost cutting, commoditization, globalization and consolidation Growth can be enjoyed by distributors in a mature market, however, it often requires different strategies and tactics than those used in a growing market Consolidation is a necessary evil that will ultimately improve the health of the business Standing still is to fall behind in a mature market 25