Distribution Channel for Lubricants – Part- II

After my previous blog on same subject, I received number of phone calls and messages to discuss on the subject. As I stated in the beginning of previous blog, this is just noting down how the pattern of distribution channel is changing, and why these changes were required. Here, again I am putting some more information after discussing this with my seniors and my friends in Lubricant industry in India.  Few more distribution channel and its effectiveness are being discussed here, these are more of  non conventional type of distribution channel.

Exclusive Shoppe :

Exclusive shoppe concept was introduced around 12-15 years back. This was effective for few years but could not last for longer period. Here I would like to note down that major visible exclusive shoppe was introduced by Valvoline (in private sector) and Servo (among PSUs). Purpose(in my view) for both these companies were different, it was purely brand image improvement for IOC with an additional channel for sales. Whereas, than upcoming brand choose this way to increase their reach to markets  where they were not available or sales were low compare to potentiality of that market. Valvoline has started these shoppe with quality branding, with end in mind. They wish to exit market after establishing strong market presence and getting sizable distributor in that market. They were successful in many markets yet they had to shutdown few shoppe due to losses. Most of these losses were not due to  low volumes, but because of bad debts. This shoppe concept can be made more sustainable with some innovation in operation.

Bike Points & Car Points :

Leaders in lubricant industry again lead industry to this new concept almost a decade back. Castrol started bike points on two level, one through Franchisee model and other through Non- OE garages. This was promptly, followed by all leading private lube companies. This was initially, new channel to sale directly to service stations with great scope of branding. But now, due to high competition, demands/bargaining power from such service stations have zoomed up. Mid & small sized non-franchisee model is still operative and provides opportunity to by pass competition at retail out lets. Similarly, few companies also set Car point and tractor points as well.

Distributor turned manufacturer:

In last 5 years or so, this new trend is seen. Many big distributor of reputed companies launching their own brands. Few of them has invested in plants whereas others have gone for toll blending. Many new plants was started during this period and their major revenue comes from such new batch of manufacturer/ marketers. Mostly, this kind of small companies are working in their own market and not having dream to go nation wide. These are small marketers & their volumes are ranging from 2 KL to 25 KL a  month. Low base oil prices has provided them a huge opportunity to survive even with lower volumes. However, with government actions like demonetization and introduction of GST has lowered their margin and have proven big obstacle to this comparatively less organised part of lubricant industry. But with all these adversities,  this section is going to be indirect competition to many big companies as these distributors are those who have burnt their fingers in distribution business. And now these people are preferring to push their own brand instead of brands owned by big companies.

OEM channels

In last few years even small OEMs have also gone for their own brand of lubricant and distributed it through their own dealers. A decade back big OEMs like TATA, Leyland, Cummins, kirloskar, JCB and other earth movie equipment manufacturer was available with their own brand, but now even small manufacturer of pump set or mini tractor have their own brand. Many small OEMs in industrial segment has also introduce their genuine oils eg. electronica is leading wire cut machine has tie up for EDM oils with one of oil company.

Yet to see new channels

If we see towards developed market of US or Europe, we will see few options like “Quick Oil Change” where customer get prompt services for oil change. These are mostly, a franchisee model and exclusive for particular lubricant brand. In India, we have recently, seen few quick car wash but they either don’t offer “oil change service” or even if they offer this service its not their primary focus. mobil Oil changeUntitled

Service at Your doorstep :

This days we have seen few operators who provided servicing with oil change for 2- wheeler and cars at customer’s home or workplace. This is seen in metros as well as some big cities. These service providers are small players compare to “quick oil change” workshops available in developed countries, but these could be batter manged and become Indian version of “Quick Oil Change” model. Currently, there are very few service provider who have been stable in this business as they have many challenges from finance to manpower.

History Repeats….

In past Indian lubricant market has been dominated by PSUs through their Fuel pumps. This was before 1991 when Indian market were made open for foreign players. At that time, they were dominating because of less competition. But, few years back we have seen success of “R Connect” of Reliance Petroleum(“R Connect”were the retail chain of reliance that sold products required by fleet operators. They marketed Tyre, Lubricant, filters and auto parts). Even though, the success of this channel were for very short period, they have to shutdown “R Connect” due to government policies in fuel retailing policies. But in current political conditions subsidies are being reduced and further policy change may favor private players in this segment. And success of “R connect” type of operation may be repeated. On other hand service level at retail out let of PSUs are also improving and they may also start similar kind of retail out let that can push their lubricant products to commercial vehicle segment.

Need Some thing new

Businesses need innovations in products, promotions etc., same way we need to think something new about distribution channel. One need to think about the distribution pattern that can make a lubricant company different in crowded market place.

That’s all for now.. waiting for your comments and suggestions. you can also mail me on ajit_guruji@yahoo.com

                   

Advertisements

Distribution channel for Lubricants

Today I thought to write about distribution channel of lubricant and its evolution. Yes, you are right, its nothing great to write about that, but I am just noting it down to understand from where we started and where we have come & why those changes were required. This will help us to discuss and find new way of distribution channel.

Typical Distribution channel for lubricant product in India. –

The old and still prevailing distribution channel for  lubricant products is shown in flow chart shown bellow.Dist.channelGenerally, goods flow from manufacturer to their own depot or carrying & Forwarding Agents (CFA) in different geographical location. From there it is sold to direct customers such as big industries or government institutes or to the distributors. Distributors sell it to either retailers, service station or end users (mid size fleet owners or industries). These retailers or services station sell products to end users generally individuals. Here, mechanics plays his role as influencer in some cases. He recommend products to his customer who purchases it from retailers.

This is a time proven distribution channel. Even today most mid size and small companies are following same pattern of distribution channel. But with increasing competition price war has increased and thus many companies and channel partners started to cut this channel.  Many companies increased there business through direct channels, few distributors started selling to even small mechanics and gave them more share of profit instead of being just influencers. And more elaborated channel looks like…

adv.dist.channel

as you can see the distribution network became more complex and efforts were made to cut length of chain. This happened around 2002-2005, where yet many companies were entering in market, market was expanding. For some new comers , cutting channel was essential as they were not getting entry at distributor of retail level. At the same time, few MNCs operated direct distribution channel and were selling to retailers in metros like Mumbai, Pune. This new move has increased market share of new comers and old giants were worried as they were not growing if not shrinking. End users hesitantly started trying new products from competitively new companies.

In this scenario, leaders were pushed to think about new techniques to retain there leading position. And thus, companies like  castrol came out with rural sub-distributors, followed by Gulf Oil. These companies tied-up mostly with leading retail out let in smaller town and gave them small areas to distribute their products. It was a success and gave good growth for few years at least.

At the secondary level, distributor has to start direct supply to mid size mechanics to by pass leading retailers who were not co operative to new comers or struggling companies. At present a big portion of 2-wheeler and car mechanics specially in urban market has started buying directly from distributors. Thus, focused was to cut distribution channel not only to fight price war but also to cross hurdles in distribution channel.

New distribution Channel that Failed…….

For industries like FMCG there were a huge change as malls came up in first decade of 21st century. Almost all urban FMCG distributor faced problem as number of small retailers were shutdown because of huge discounting from new big malls. Few lubricant companies has also tried to use this retail revolution, but none of them can do remarkable business despite giving huge discounts to this modern trade partners. The reason I feel was that Indian customer is unaware of DIY (do it your self) concept and till date enjoys services from mechanics or retailers.

Second revolution was online marketers. Traditional distributors & retailers in Garment, white goods, footwear industries were badly effected by this online trend but yet again, Lubricants could not be sold by this channel. Number of lubricants  are available on leading online stores like Amazon & flip kart but not getting reasonable volumes.  But this internet revolutions made B2b business more competitive as industrial users get more competitive suppliers through websites like IndiaMart and Tradeindia. For the companies offering specialty products are now able to advertise their product through social media marketing to their target customers, which otherwise were out of their reach.

I think this is enough for now… I am waiting for your comments and discussions and we will continue to find out ways and means to increase distribution & sales in coming years…

you can also mail me at ajit_guruji@yahoo.com.

Distribution channel for Lubricants

Today I thought to write about distribution channel of lubricant and its evolution. Yes, you are right, its nothing great to write about that, but I am just noting it down to understand from where we started and where we have come & why those changes were required. This will help us to discuss and find new way of distribution channel.

Typical Distribution channel for lubricant product in India. –

The old and still prevailing distribution channel for  lubricant products is shown in flow chart shown bellow.Dist.channelGenerally, goods flow from manufacturer to their own depot or carrying & Forwarding Agents (CFA) in different geographical location. From there it is sold to direct customers such as big industries or government institutes or to the distributors. Distributors sell it to either retailers, service station or end users (mid size fleet owners or industries). These retailers or services station sell products to end users generally individuals. Here, mechanics plays his role as influencer in some cases. He recommend products to his customer who purchases it from retailers.

This is a time proven distribution channel. Even today most mid size and small companies are following same pattern of distribution channel. But with increasing competition price war has increased and thus many companies and channel partners started to cut this channel.  Many companies increased there business through direct channels, few distributors started selling to even small mechanics and gave them more share of profit instead of being just influencers. And more elaborated channel looks like…

adv.dist.channel

as you can see the distribution network became more complex and efforts were made to cut length of chain. This happened around 2002-2005, where yet many companies were entering in market, market was expanding. For some new comers , cutting channel was essential as they were not getting entry at distributor of retail level. At the same time, few MNCs operated direct distribution channel and were selling to retailers in metros like Mumbai, Pune. This new move has increased market share of new comers and old giants were worried as they were not growing if not shrinking. End users hesitantly started trying new products from competitively new companies.

In this scenario, leaders were pushed to think about new techniques to retain there leading position. And thus, companies like  castrol came out with rural sub-distributors, followed by Gulf Oil. These companies tied-up mostly with leading retail out let in smaller town and gave them small areas to distribute their products. It was a success and gave good growth for few years at least.

At the secondary level, distributor has to start direct supply to mid size mechanics to by pass leading retailers who were not co operative to new comers or struggling companies. At present a big portion of 2-wheeler and car mechanics specially in urban market has started buying directly from distributors. Thus, focused was to cut distribution channel not only to fight price war but also to cross hurdles in distribution channel.

New distribution Channel that Failed…….

For industries like FMCG there were a huge change as malls came up in first decade of 21st century. Almost all urban FMCG distributor faced problem as number of small retailers were shutdown because of huge discounting from new big malls. Few lubricant companies has also tried to use this retail revolution, but none of them can do remarkable business despite giving huge discounts to this modern trade partners. The reason I feel was that Indian customer is unaware of DIY (do it your self) concept and till date enjoys services from mechanics or retailers.

Second revolution was online marketers. Traditional distributors & retailers in Garment, white goods, footwear industries were badly effected by this online trend but yet again, Lubricants could not be sold by this channel. Number of lubricants  are available on leading online stores like Amazon & flip kart but not getting reasonable volumes.  But this internet revolutions made B2b business more competitive as industrial users get more competitive suppliers through websites like IndiaMart and Tradeindia. For the companies offering specialty products are now able to advertise their product through social media marketing to their target customers, which otherwise were out of their reach.

I think this is enough for now… I am waiting for your comments and discussions and we will continue to find out ways and means to increase distribution & sales in coming years…

you can also mail me at ajit_guruji@yahoo.com.