Synthetic Lubricants Market

It Was Only a Matter of Time

We’re all familiar, I suspect, with U.S.-based warehouse operator Costco Wholesale Corporation and its extensive, trusted Kirkland Signature private-label line of products, such as gasoline, wine, spirits, cashews, laundry detergent, vitamins, beef hot dogs, and my personal favorite, funeral urns and caskets. When it’s time for Uncle Leo to meet his maker, send him out in style and on a budget in a Costco casket.

During a recent visit to my local Costco warehouse in Wayne, N.J., I walked through the automotive and hardware section, like I always do, to see what’s new, what solutions there are for problems I may or may not have, and check prices. Passing the familiar passenger car motor oil (PCMO) brands stocked by Costco, I came across several pallets of Kirkland Signature Full Synthetic 5W-30 PCMO in 2/5 quart packs for a posted price of $24.99. From Costco’s website, applications are for use in gasoline, flex-fuel, or gasoline-electric hybrid vehicles requiring SAE 5W-30 API SN PLUS, SN, SL and ILSAC GF-5, GF-4, or previous standards. Approved for use in all GM gasoline engines requiring dexos1 Gen 2 5W-30. Two other viscosity grades, 0W-20 and 5W-20, fill out the offering.

According to Kline’s analysis of the U.S. PCMO market, SAE 5W-30 is the leading viscosity grade used in 2018, accounting for 51% of total demand, down slightly from 53% in 2013 and forecast to yield its lead to 0Ws by 2027 and take the #2 spot.

With the U.S. consumer automotive market still supporting a do-it-yourself vehicle maintenance base, including lube, oil and filter change, Costco will have no problem appealing to value-oriented consumers seeking advanced synthetic performance and engine protection at lower price points. In addition to serving the needs of individuals and families, Costco serves commercial customers who buy product in bulk to support their businesses, ranging from paper products to bottled water and candy for resale. Assuming there is no sale limit on Kirkland engine oil, what is stopping the owner of an independent workshop (IWS) whose synthetic engine oil needs are served by a local lubricants distributor or the commercial side of an auto parts store from forgoing these two distribution channels and filling their weekly/monthly synthetic engine oil order from Costco along with their regular product purchases? While it may be unrealistic for a large engine oil volume consuming B2B entity, such as a quick lube, or franchised workshop to buy Kirkland PCMO, surely Costco will win over a share of the IWS operators in areas surrounding its warehouses and displace volume from distributors and auto parts stores. Moreover, Kirkland PCMO will displace sales of branded and private-label/house brands from these two channels. Among the challenges that the major branded aftermarket synthetic PCMO suppliers face from Kirkland Signature is that, because the product meets the current API Service Category of SN PLUS, it won’t run afoul of most OEM warranties, and the per quart/jug price point is very attractive.

Amazon entered the space in Q3 2018 with its AmazonBasics product line of conventional, semi-synthetic, and full synthetic PCMO at low price points. Primarily targeting the same customer base, Amazon has a competitive edge over Costco in the sense that it can efficiently deliver products to a private residence or business location, often in one day, plus its product line is not exclusively full synthetic like Kirkland’s.  It’s also important to note that Kirkland’s initial product entry into the synthetic PCMO space does not cover all the requirements of all passenger vehicle OEMs. For example, owners of BMW, Volkswagen, and Mercedes-Benz vehicles must use a product that is formulated to meet the respective OEMs’ approvals. Given the demand for shelf space in a typical Costco warehouse, perhaps products meeting these OEMs’ approvals is online sale only at some point, and the majority of product sold meeting the approvals of mass-market OEMs is sold in the warehouse to individuals and business members. It’s important to note that Costco does not try to cover every customer demographic with its Kirkland Signature offering but rather focuses on the fastest-moving segment, offering a quality product on par with the segment leader(s) at attractive price points that make it extremely easy for a member to pick it up, put it in their shopping cart, and give it a try.

Kline will continue to monitor the roll-out of Kirkland Signature Full Synthetic PCMO over the coming months, but for now, the biggest impact, in our opinion, is the low price point and the potential to disrupt market dynamics and the sales and marketing strategies of all industry participants.

Kline’s just-published syndicated study, Global Synthetic Lubricants, analyzes global, regional, and country market trends and opportunities in synthetic automotive and industrial oils and fluids. For more information about the report, contact a regional sales associate for details.





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