Shell Unveils New Fuel, Lubes Initiative

Launches cross-promotion with AutoZone; other refiners eye lube oil opportunities

Carole Donoghue, Petroleum Editor

HOUSTON -- Shell has just launched what company executives said is the first cross-promotional marketing campaign for gasoline and lube oil, CSP Daily News has learned. The sales push for Pennzoil motor oil, which is owned by Shell, involves some 6,000 Shell stations and approximately 4,000 AutoZone outlets.

The current test will end June 25, but the concept is likely to be expanded later if the pilot program proves successful, company sources said.

Pennzoil is the lubes market leader, and it is particularly strong in the convenience store and mass-merchandiser category among consumers who use it to top off their vehicle's oil.

Consumers who fuel at a Shell site receive $10 off the price of a five-quart bottle--or five one-quart bottles--of Pennzoil Platinum synthetic motor oil if they take a specially marked receipt to an AutoZone outlet. The promotional code is automatically printed on Shell debit-card and credit-card receipts both inside and outside the store, and Shell is promoting the offer at point of purchase at stations.

AutoZone customers, for their part, receive a receipt that offers them a chance to win free Shell fuel for a year. They are required to register their fuel purchases at a special website and receive bonus entries each time they buy fuel at a Shell site.

Pennzoil is sold at Shell-branded stations in one-quart bottles, but not the five quart bottles. Shell has excluded from the market test sites with service bays, those running Shell rewards promotions and locations outside of a 15-mile radius of an AutoZone store, sources said.

"We're trying to create value for our marketers and their customers together," said David Bunch, Shell's senior vice president for retail lubes for North America. "This pilot is an example of one of the advantages that Shell's leading position in the fuels and lube oil market brings to our customers," he told CSP Daily News.

One reason refiners may be revving up lube retailing efforts can be traced to the aging vehicle population, which has been increasing quickly over the last five years. Consumers are likely to spend more on maintenance because they are holding onto their cars longer, jobbers attending an ExxonMobil meeting were told recently. Houston-based ExxonMobil said it believes that the average vehicle will be 11.5 years old by 2014, according to data provided to wholesalers.

The average age of cars and light trucks currently in operation in the United States has increased to 10.8 years, according to a report by R. L. Polk & Co., a leading global automotive market intelligence firm. Passenger cars showed a modest increase in age since 2010, from 11 years to just 11.1 years at the end of June 2011. Light trucks (including pickups and SUVs) show a more sizeable gain in the same timeframe, from 10.1 years to 10.4 years.

San Antonio, Texas-based Valero is also looking to boost lube oil sales, but it is taking a very different marketing path, jobber sources told CSP Daily News.

According to marketers attending a recent meeting in Texas, Valero has said it will make its Valero Premium brand of oil available to jobbers, but they will have to buy it through local grocery suppliers.

Valero has been selling the oil at its company-operated Corner Stores since January 2011.The company prices the oil at 21% less than high-end Pennzoil and Valvoline lubes, at a suggested retail price of $4.49, versus $5.69. Valero executives told marketers the company had sold 700,000 bottles of the oil, or approximately 58,000 cases, at its Corner Stores.

"They're trying to cut costs by distributing it through grocery suppliers," said one marketer. "We were told we'll have to request supply from our local grocery supplier. They had a chart showing that they had figured into the retail price a small commission margin for the grocery company."

Valero said its Valero Premium Motor Oil and Transmission Fluid are manufactured for its Corner Stores, according to specifications set by Valero.

"We are able to use our logistics and distribution system to offer the products at a price below other national brands," said company spokesperson Bill Day.

He declined to share sales figures, but said that "the combination of the strong brand and its value have moved the product to line to No. 1 in the automotive category in our Corner Store network."

Day added, "At this time there are no plans to offer the products directly to independently operated Valero-branded locations."

ExxonMobil is also looking at lube oil marketing opportunities. The refiner owns the top-selling synthetic oil brand, Mobil 1, and recently combined its fuels and lube oil marketing operations under the leadership of lubes executive Alan Kelly.

According to marketers, ExxonMobil said the No. 1 brand in market share is Pennzoil, with about an 18% slice of the pie; however, Pennzoil is losing ground to Mobil 1, which currently is No. 2 with a 16% share of the market, the refiner said. Valvoline holds third place, with 14%.