Count on Consolidation 

Consolidation amongst lubricant distributors is certainly not a new trend, but it is one that will likely continue to shape the distribution landscape for years to come. 

In his column in the May 2023 issue of Lubes’n’Greases, Thomas Glenn, president of Petroleum Trends International, explained that there was notable merger and acquisition activity amongst the major oil companies in the 1990s and early 2000s. On the tails of this activity, the majors were forced to pare down “the combined number [of distributors] they were doing business with to minimize channel conflicts, improve efficiency and reduce costs.”

The distributors that were retained by the majors were those that fit the majors’ alignment models, which were “based on volume metrics, brand commitments, sub-jobber arrangements and other methods,” Glenn wrote. 

Knowing that not all of them could make the cut, some distributors chose to increase their competitiveness by joining forces. This led to the conception of companies like PetroLiance, which formed in 2006 when four ExxonMobil distributors—Boncosky Oil, Commercial Ullman Lubricants, Young Oil and Lubricant Technologies—merged. An additional three distributors were tacked onto PetroLiance before it was acquired by PetroChoice in 2014. 

Other factors further accelerated the consolidation trend. For instance, the Great Recession—which lasted from 2007 through 2009—weeded out a significant portion of small distributors, who either closed their doors or were forced to sell their businesses. 

More recently, the industry has waded into what Glenn referred to as the “second phase of consolidation.” This phase is marked by large distributors working with much vigor to build scale through acquisitions. Examples of large distributors that have been making a notable number of strategic acquisitions during the past few years are RelaDyne, PetroChoice and Parkland, among others. 

Moving into the future, Glenn predicted that the industry is now beginning to usher in a third phase of consolidation in which the number of mergers will begin to slow, while the scale of those mergers will likely increase. 

Reliability Reigns 

If the fallout from the COVID-19 pandemic taught the lubricants industry anything, it’s that reliability of supply is king. At various points throughout the past four or so years, availability of key lubricant components—and consequently finished products—experienced some major disruptions. These disruptions left lubricants industry players—from additive and base oil suppliers to blenders and distributors—scrambling to figure out how to meet demand.  

So how has the quest for reliability shaped the distribution landscape?

Perhaps the most notable development is the emergence of private label, which saw its day in the sun when the usual suppliers were unable to deliver the necessary volumes to fill orders. Despite worries that unfamiliar private label products might result in damaged equipment and increased downtime, large holes in the supply chain forced consumers to make the transition, at least for a time. The kicker is, though, that consumers quickly realized that most of these private label products met the same standards as those from the major brands and were often less expensive. 

(Turn to the “Need to Know” column on Page 13 to learn more about how private label has penetrated the heavy-duty lubricants market.)

Reevaluation of Product Offerings

Changes in market dynamics have, of course, forced distributors to reconsider which products make the most sense for them to be moving. For instance, it is no secret that there has been an organic decline in demand for passenger car motor oil over the past few years. This decline will likely steepen as the world’s car parc becomes increasingly electrified. Because of this shift, many distributors are now looking to other types of products that will enable them to best grow their businesses. 

Which products might present the best growth opportunities for distributors in the next few years?

Top of mind for many are fluids for electric vehicles, which include coolants, transmission fluids and greases. After all, more EVs on the road are bound to lead to increased demand for applicable fluids. 

A close second, however, might be industrial lubricants. According to a September 20 webinar hosted by Kline & Co., the industrial segment is ripe for the picking, as it accounted for about 50% of total lubricant demand in North America in 2022. Kline also predicted that the segment will continue to make up the largest portion of the market through 2027. 

Collaboration Is Key

A certain degree of collaboration between the majors and their distributors is necessary to make their symbiotic relationships work, but it is likely that collaboration will intensify in the coming years. 

“I think there will be increasing collaboration between the majors and their aligned distributors, particularly as it relates to strategic planning,” Glenn said. “Although they have been doing this, there will be more reason to build on it moving forward.” 

Why might that be? 

According to Glenn, majors and their channel partners will likely be interested in higher levels of collaboration for a wide range of reasons, including but not limited to the following: 

• Align and adjust to both near- and long-term goals and objectives
• Strengthen risk mitigation
• Grow business in a declining market marked by devaluation of premium brands, customers becoming more transactional and increasingly intense competition
• Lower operating costs and optimize the supply chain
• Manage pricing to distributors and consumers
• Meet carbon neutralization initiatives.  

Sydney Moore is managing editor of Lubes’n’Greases magazine. Contact her at Sydney@LubesnGreases.com