Business Models in Lubricant Distribution
|Thomas F. Glenn President, Petroleum Trends International, Publishers of JobbersWorld|
JobbersWorld’s First in a Series on Business Models in Lubricant Distribution
By Thomas F. Glenn
With all the news we hear about large, lubricant-focused distributors expanding geographic reach and growing business through acquisitions, it would be easy to overlook the significance of a number of other large participants in the lubricants business doing the same that might not commonly be thought of as “lubricant distributors.” This is because although they distribute lubricants, it represents only one segment in a diversified portfolio of products and services. The business models of these companies, and how they could transform the future of lubricant distribution, is important for all distributors and suppliers to consider. and it’s the subject of the first JobbersWorld’s Series on Business Models in Lubricant Distribution.
One high-profile example of such companies is Brenntag, headquartered in Essen, Germany. With 530 locations in 73 countries, a workforce of more than 16,000, and sales over $13 billion, Brenntag is currently the global market leader in full-line chemical distribution. In addition, it has the distinction of being a market leader in the formulation, blending and distribution of high-value fuel and lubricant additives, base oils, and specialties.
Brenntag’s interest in the US lubricant market first showed up on the radar of some when, in 2012, it acquired the assets of Lubrication Services, LLC (LSi), one of North America’s leading multi-regional distributors of lubricants and chemicals. But if this didn’t get one’s attention, Brenntag’s presence in the US market and interest in expanding its lubricants business became quite evident when it acquired J.A.M. Distributing Company in Houston, G.H. Berlin-Windward in NH, the lubricants business of NOCO in NY, and Mayes County Petroleum Products in Oklahoma in 2015/16. When combined, these acquisitions contributed close to $1 billion in sales and moved Brenntag into the position as the largest lubricant distributor in the US, and provided Brenntag with a strong platform for growth in the consolidating US lubricants business. In addition, it is believed to have made Brenntag the largest distributor of ExxonMobil lubricants in the world.
But whereas Brenntag is one of the more recognized and successful lubricant distributors with a multifaceted portfolio of products and services, there are others. One in particular that recently got JobbersWorld’s attention is Parkland Fuel Corporation (Parkland). And the reason it did is because although the company is commonly thought of as a fuel and petrochemical distributor, they are also a large lubricant distributor with an interesting business model.
For those unfamiliar with Parkland, the company is Canada’s largest, and one of North America’s fastest growing independent marketers of fuel and petroleum products. In addition, it is a leading convenience store operator, and owns the Burnaby Refinery located in Burnaby, British Columbia, Canada (acquired from Chevron in 2017). Parkland’s subsidiaries include several gas station chains, including Pioneer, Fas Gas Plus and Ultramar, and several commercial fuel distribution operations.
In addition to its retail business, Parkland distributes fuel, propane, diesel, heating oil, and lubricants. And here is where it gets interesting. Because although fuels account for $3.8 billion, or 94% of Parkland’s sales, it sells close to 25 million gallons of lubricants. Whereas this represents only a small slice of the pie, Parkland’s lubricants business ranks right up there with many of the large, lubricant-focused distributors in North America. Its lubricant portfolio includes ExxonMobil, Chevron, Shell, Phillips 66, Houghton, Bluewave Energy, and Parkland’s private label, and most of these lubricant brands came to it through acquisitions.
In 2010, Parkland acquired Bluewave Energy LP for $204.3 million. Headquartered in Dartmouth, Nova Scotia, Bluewave Energy is a national petroleum distribution company and Shell’s largest branded distributor in Canada. With this acquisition, Parkland became the largest national independent petroleum distributor in Canada and brought in the brands of Shell, Phillips 66, and Bluewave lubricants.
This acquisition was soon followed in 2010 when Parkland acquired Island Petroleum Products in Prince Edward Island (PEI) in a cash and equity deal valued at $22.6 million. Island Petroleum is the largest branded distributor of Shell and Phillips 66 lubricants in PEI. Another big boost to its fuel and lubricant business came when Parkland acquired Rhinehart Oil Co. and its affiliates in August 2018 for a purchase price of $139 million. Rhinehart markets and distributes approximately 72 million gallons of fuels and lubricants a year, ExxonMobil and Houghton lubricants, and specialty products in Utah, Colorado, Wyoming and New Mexico. In addition to volume, the acquisition provided Parkland with talented and experienced management and a scalable infrastructure needed to establish a Regional Operations Center for the Rocky Mountain tributary.
Two months later, Parkland entered into a business agreement with SOL Investments LTD. (SIL). The Transaction will result in Parkland acquiring 75% of the issued and outstanding shares in the capital of SIL for total consideration of $1.21 billion. SIL supplies and markets a total of 1.3 billion gallons of fuel volume annually across 23 countries in the Caribbean and generated $215 million. In addition to its fuel business, SIL distributes Shell- and Pennzoil-branded lubricants, and is the largest licensed distributor of Shell-branded lubricants in the Caribbean. Its lubricants business segment represents close to 6 million gallons. This deal positions Parkland to access supply at scale in the US Gulf Coast. When taken together, Parkland’s acquisitions added close to 25 million gallons of lubricant sales to its ledger.
Aside from its very respectable lubricant sales volume, what makes Parkland of particular interest to JobbersWorld, and should be of interest to our readers, is how a large fuel distributor with a national footprint, a refinery, and multiple brands of lubricants (including private label) fits in a consolidating market where majors are encouraging alignment, and in the process working more closely with large, lubricant-focused distributors. With that, one has to wonder if a company like Parkland will divest of its interest in lubricants, or hold and grow it? Further, if they hold and grow, could the Parkland model reshape the future of lubricant distribution and the relationships distributors have with its customers and suppliers?
Rather than speculating, JobbersWorld reached out directly to the Doug Haugh, president of Parkland, and two on its senior management team (owners of acquired companies) now responsible for the lubricants business at Parkland for their perspective.
To start, what we learned is that lubricants will remain an important part of Parkland’s business and they have full intention to grow the business organically and through acquisitions. Further, Parkland feels its diversified offering of products and services in the petroleum space along with its holistic-, customer-focused business strategy, ability to attract and develop a strong management team, and other elements of its business model afford the company a significant competitive edge. In addition, whereas a hyper-specialized lubricant distribution model can be successful in such regions as the Northeast and West Coast with high population densities, Parkland feels such models are challenged in many regions of the US where the customer base is geographically more diffuse and diverse.
More about Parkland’s business model and how it could shape the future of lubricant distribution and relationships with suppliers and customers will be discussed in Part II in the JobbersWorld series on Business Models in Lubricant Distribution.
Note: Currencies stated in this article are expressed in US dollars.