A Big Bear Enters the Camp

Amazon is Now in the Lubricants Business

In what may come as news to some, Amazon added its own line of private label passenger car motor oil (PCMO) to the Amazon marketplace on July 23, 2018. The products are sold under the Amazon trademark, “AmazonBasics” and they are manufactured by Warren Distribution in Omaha, NE.

As seen by the product labels, there is nothing fancy or flashy about the brand. Instead, it is simple and projects an image of an economical motor oil available in the same viscosity grades and types as others in the business, and meeting the same minimum API Service Categories. There is, however, one big difference that consumers will quickly see when comparing AmazonBasics to the big brands, and it’s the price.

Whereas the average price for the leading brands of synthetic PCMO on Amazon is $29.50 for a 5-quart jug, AmazonBasics Full Synthetic is currently priced at $19.99 a jug. Similar differences are seen in conventional and high mileage products.

So it’s clear, there is now a new and formidable competitor in the motor oil business, and it is already having an impact on the market. In fact, one example was seen on the stock market this morning when Market Watch announced that “Valvoline’s stock falls after J.P. Morgan turns bearish on competition from Amazon.” Market Watch reported that “Shares of Valvoline Inc. VVV, -7.21% sank 4.2% in premarket trade Friday, after J.P. Morgan turned bearish on the engine maintenance products company, citing concerns over competition from Amazon.com Inc., which recently launched a private-label motor oil.”

Whereas private label motor oils are not new to the business, and they have certainly captured a significant share of the market over the past 20 years, the big news here is that we are talking about private label motor oil sold under the brand name of a global behemoth with a market cap more than twice that of ExxonMobil, and the ability to deliver next day to a consumer’s doorstep. But rather than what we have seen in the past where private label lubricants were poking the bear of the big brands in the business, an even bigger bear has entered the camp. And although you can be sure it will be looking to munch on the lunch of the majors, it will be interesting to see how the dynamics between Amazon and Walmart play out, particularly considering that Walmart’s private label motor oils are currently priced below Amazon’s.

But that’s all about retail sales and retail accounts for only about 25% of the PCMO consumed in the US. With that in mind, the most disruptive outcome of Amazon’s entry in the lubricants business could come if, and when, Amazon decides to enter the do-it-for-me (DIFM) segment. Although margins are generally tighter in this segment, as Bezos said, “Your margin is my opportunity.”