W h a t D o e s Yo u r F u t u r e L o o k L i k e ?

Look around your business. Do you like what you see? What do you think your
business will look like 12 months from today? What will change and what will stay the
same? It may not seem fair, but maintaining the status quo isn’t an option for most
ILMAs and Jobbers. While we don’t know all of the answers, we have a number of
important questions for you to consider.

Competitive Pressures
The overall demand for lubricants in the US continues to be relatively flat and is
expected to drop off slightly in the coming years as the industrial segment stabilizes and
the transport segment consumers migrate to longer drain intervals. The tough
competition that has characterized the market over the last several years will continue.
In a flat market that is dominated by the top three players (Shell, ExxonMobil and
ChevronTexaco) accounting for roughly 47% of total lubricant sales, competitive
pressure is heating up.
The availability of base oils and their rising prices adds to the pressure that ILMAs face.
An increasing number of agreements between major oil companies and OEMs further
restrict the ability of ILMAs to compete on a level playing field. The environment is also
tough for distributors. The majors are sharply decreasing the number of distributors
that they work with. Today most majors now have between 100 - 300 distributors that
they work with, that number is down from more than 1000 just several years ago. The
remaining distributors are expected to do more, get closer to the customers and in fact
act more like a subsidiary of the majors.
How do you succeed in such a competitive environment?

Start with Your Strengths

In a dynamic, competitive environment it is critical that you fully understand your
strengths and how to use them to your advantage. There are three areas in particular
to look at when evaluating your strengths: your customers and relationships, your
capabilities and capacity, and your organization’s agility. Understanding the value of
each of these areas is a key to succeeding in a competitive environment.
Your existing customer base and the relationships that you have built are a tremendous
source of strength and value. Your knowledge of their business, key personnel, decision
makers and most important, the trust that you’ve built up with them over the years is
something that is difficult for your competitors to duplicate quickly. At a time when the
majors and your other competitors are trying to get closer to the end-users, your
knowledge of your customers is critical. Building on this strength by expanding your
knowledge of your customers’ businesses, nurturing existing relationships and building
new relationships is an important foundation. How else can you leverage your customer
base and current relationships?
Capability and capacity are also important strengths. Proprietary processes, special
expertise in a particular niche or access and expert staff can all be sources of capability
that are difficult to replicate. Knowing your unique capabilities and where they fit in the
market is important to competing effectively. While it may be easy to invest in new
technologies, experience and expertise take time to duplicate. In addition to your
unique capabilities, your capacity may also be an important strength. Excess capacity
that leverages your fixed costs and can be tapped into for only variable costs can be
extremely attractive for customers and potential partners. Articulating your unique
capabilities and accessing your full capacity are important aspects of competing in
today’s competitive environment. What unique capabilities and untapped capacity do
you have to help you compete?
The final strength to consider is your organization’s agility. As the industry consolidates
and looks for economies of scale, it becomes more difficult for many of the larger
players to respond quickly and profitably to new opportunities. Does your
understanding of your customers and their needs, coupled with your unique capabilities,
give you an advantage over other competitors in your ability to identify and respond to
unique customer needs quickly and profitably? How do you quantify that benefit and
how can you use it to help you compete effectively?

Consider your Options

Once you’ve considered your strengths, what are your options?
When considering the future, maintaining the status quo may not be an option. But that
doesn’t mean that you can’t survive and thrive in today’s market. In addition to
maintaining the status quo, you can consider organic growth or some type of merger or
acquisition that improves your competitiveness in the market.
If you do decide to maintain the status quo there are things that you can do to remain
competitive. The key is to compete on your terms, not your competitors. Know your
market and your strengths. Stake out a clearly identified niche and focus your energies
on those things that will enable you to dominate that niche. While you may end up
ceding business outside of that niche to competitors, your focus will help you to
dominate in your niche market.
Fueling organic growth in a relatively flat lubricant market is a difficult but not
impossible proposition. It again begins with understanding your strengths and how you
can best use them to differentiate yourself and compete in the market. Additionally it
requires aggressive sales and marketing strategies and investment coupled with the
ability to deliver on your promise profitably.
These first two options allow you to maintain your business identify and autonomy.
However, they may not always be the best alternative. For many of you, the alternative
is “eat or be eaten.” The idea of joining forces with other companies that you may have
been competing with bitterly for years is often a difficult decision to come to, but may
be the best decision for the long term success of your business. If you do decide that
this option is right for you and your business you have a number of things to consider.
What are both of our strengths? Are they complimentary? When you combine, will it all
you to compete more effectively and differentiate yourselves in the market or is it a
short term fix that doesn’t create a new entity that can effectively compete for the long
term? Don’t only look at the business fit, you must also look at the cultural fit of the
organizations involved. Are the values of the organization in sync? Are you trying to
achieve the same goals? Do you have the same vision of what they new organization
will look like? Understanding both the business and cultural fit is crucial to making the
organization a competitive force.

Define your Path

We can’t tell you what your organization will look like 12 months from today; we can tell
you that is likely to look different than it does today. Don’t leave it to chance and just
let things happen to you, be proactive in determining the future of your business.
Evaluate your strengths consider your options and define a path that will enable you to
survive and thrive in an increasingly competitive market.