Sunday, September 19, 1999
Valvoline revs up to compete
P&G strategy used in run at Pennzoil-Quaker State
BY MIKE BOYER
The Cincinnati Enquirer
In neat rows like soldiers lining up for transport, the plastic quart bottles of Valvoline motor oil stream out of two filling machines at the company's Riverside packaging plant.
The bottles, moving along the filling line at the rate of 400 a minute, are lined up in groups of 12, slipped into boxes and stacked on pallets. They're then trucked to auto dealers, auto parts stores and mass merchandisers across much of the eastern United States.
Tucked along the Ohio River shoreline, the 90-employee Valvoline packaging plant, the company's largest, is a key outpost in the Ashland Inc. subsidiary's battle with recently merged Pennzoil-Quaker State Co.
Houston-based Pennzoil, the acknowledged motor market leader that acquired rival Quaker State last December for $950 million, is a formidable rival.
The combined companies, which some Valvoline executives refer to as “Penn State,” have twice the market share and three times the revenues of Valvoline.
The nation's oldest lubricating oil brand dating from 1866, Valvoline has annual revenues of about $1 billion from sales in 140 countries.
Besides its oil and chemical products, the Lexington-based company operates about 520 Valvoline Instant Oil Change outlets, a combination of company-owned and franchises that do oil changes for customers in about 34 Midwest states.
Confident that it can compete more aggressively against “Penn State,” Valvoline is charting a new course in its marketing strategy. Executives plan to adopt “brand marketing” tactics used by such successful giants as Procter & Gamble and Nike.
Jay Wilson, an analyst who follows Pennzoil for J.P. Morgan Securities, said Valvoline, “is clearly competitive. But this is a slow growth business, growing about one percent a year so the competition is fierce.”
But James J. O'Brien, a Circleville, Ohio, native and Valvoline's president, thinks his company is ideally positioned to take on its larger rival.
Valvoline has about 14 percent of the U.S. motor oil market vs. about 37 percent for the combined Pennzoil-Quaker State.
“To defend that takes a lot of effort. So you'll find yourself on the defensive a lot more than on the offensive,” Mr. O'Brien said.
“The only way you can be offensive is to have something to go after. If you already have it, then you have to play defense.”
Last year, Mr. O'Brien said Valvoline decided not to pursue its own bid for Quaker State.
“We felt that our strategies were in place and well understood and that we wanted to be an offensive machine rather than a defensive machine.”
Since being named Valvoline's president four years ago, Mr. O'Brien has refocused the company's marketing away from sales promotions to a branded marketing strategy, expanded the company's product line “above the hood” with the acquisition of the Eagle One brand of premium car waxes last year, and opened a $4 million product development lab adjacent to its Lexington headquarters last April.
Mr. O'Brien says Valvoline is already making headway against its larger rival.
Valvoline is on the verge of cracking the stranglehold that Pennzoil and Quaker State have held on Wal-Mart's Tire Lube Express business in the Midwest.
Although Valvoline has been in Wal-Mart's for a long time, until now it hasn't been one of the choices Tire Luxbe Express, the string of quick lube outlets adjoining many Wal-Mart stores.
“Historically that was all Pennzoil and Quaker State,” said Mr. O'Brien.
“Last year, they gave us 20 stores (in the Cincinnati-Lexington region) to demonstrate our ability to service that market. The reports that came back through Wal-Mart was that we exceed their average core performance by about 16 percent as far as number of oil changes and attracting customers.”
As result, he said, Wal-Mart has indicated it will make Valvoline a featured product in up to 300 of its Tire Lube Express outlets.
Valvoline's strength in the Tristate comes as no surprise. Historically it has been the best selling brand in Cincinnati, said Steven A. Kirchner, senior vice president worldwide marketing, most recently with about 29 percent of the market vs. about 23 percent for Quaker State.
Mr. O'Brien, who previously led the highly successful Ashland branding effort for Ashland Inc.'s former petroleum marketing business, said Valvoline isn't as concerned with market share as it is with building profitable growth for all its products.
“If we get 20 percent share that's fine. If we get 15 percent share that's fine. The most important thing is we grow the product in a profitable manner so that as we go up the sales curve we don't lose marginal revenue and our profitability,” he said.
Mr. Kirchner said one of Mr. O'Brien's first initiatives after joining Valvoline was changing its marketing approach.
“Our strategy for years was that Valvoline was a motor oil brand. The company was pretty much dependent on how we did selling motor oil,” Mr Kirchner said.
Now, Valvoline has shifted to a brand management strategy, recruiting brand managers from Procter & Gamble Co. and other leading consumer marketers.
“It's been a huge change,” Mr. Kirchner said. “Previously this company was interested in top line growth. Now we're interested in bottom-line growth. That's the difference between brand management group and company intest in sale volume.
“We run the company very differently now. It's run really to build brand equity and leverage to get incremental profits,” he said.
Mr. O'Brien, who joined Valvoline after leading a successful branding program for Ashland's petroleum business, said, “It became pretty clear that if we were going to have a breakout strategy in this marketplace we had to become more externally focused, brand-oriented and marketing oriented.”
“We had to present ourselves as a company, not by the products we sold but by our position in the marketplace and really the identity the consumer could have with our company and our products beyond the performance of the product.”
It's much the same strategy used by Nike and other popular consumer brands, Mr. O'Brien said.
“You wear a Nike hat or run in their shoes, you have a certain feeling about that product beyond just the functionality of whether it cushions your feet when you run,” he said.
One of the reasons, Valvoline acquired Eagle One, a California-based brand of premium car waxes and polishes last year, was that while Valvoline had strong brand identity “under the hood,” it didn't have that same identity in consumers' minds for appearance products.
While motor oil sales is a relatively slow growth business, Mr. Kirchner said sales of automotive appearance products are growing from 6 percent to 8 percent annually.
“Eagle One is small brand, but has all the same qualities and reputation as Valvoline, so now we are putting the marketing horsepower behind it and growing it aggressively,” he said.
Although it won't disclose sales figures for Eagle One, he said, they increased nearly 50 percent in the first under Valvoline's ownership “and we're looking to increase it another 30 percent next year.”
The new product development lab, under the direction of Dr. Frances Lockwood, is a further extension of Valvoline's branding strategy.
“In the past our technology people were more product focused and they were all over the place,” said Mr. O'Brien.
“We didn't have that tight interface between marketing and our technical side that was trying to solve specific problems for consumers. Before, our research people would find technical fixes and then hand it off to our marketing people and say why don't you find someplace to sell this,” he said.
“Now, we look at problems out there and find a solution and then the marketing and technology people take it to the marketplace together.”
One example is Valvoline's new windshield rain repellant product, designed to improve visibility in wet weather, which is now starting to roll into stores.
Unlike Pennzoil's Rain-X glass treatment which is applied with an applicator, Valvoline's is simply added to the washer fluid.
“One of the reasons we decided to work on that, I'd be driving in a rain storm and think darn, I wish I'd gotten some Rain-X on my windshield,” said Dr. Lockwood. “In a rain storm, the last thing you're going to do is pull over to apply some rain repellant.”
Mr. O'Brien hesitates to forecast Valvoline's growth plans.
“Those numbers always get you in trouble,” he said.
“We want to grow and I have a number in mind where we'd like to be (in five years) but it's going to take acquisitions to get there. Right now our profitability keeps growing and that's the most important thing.”
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