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December 19, 2017

Volume 7 Issue 4

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Alt Channels Abound for China’s PCMOs

Up to 30 percent of passenger car motor oils supplied in China in 2022 may reach drivers through the country’s unique routes to market, according to a recent Kline & Co. report.

“China has very unique sales channels and methods which are not typically seen in other countries,” explained David Tsui, project manager in Kline’s Energy Practice, during a Dec. 7 webinar outlining findings from the U.S.-based consultancy’s new report titled “The Changing Face of Passenger Car Servicing and Emerging PCMO Sales Channels in China.”

Traditional channels, such as factory-fill contracts with original equipment manufacturers and typical third-party distributor and wholesaler strategies, still account for around 90 percent of China’s nearly 1.2 million tons per year PCMO market.

But variety is necessary in China’s increasingly competitive landscape, and several unique methods of sale have elbowed their way to prominence in recent years. By 2022, five categories of alternative channels could account for the way 30 percent of PCMOs reach vehicles to meet China’s demand at that time, which Kline forecasted could be up to nearly 1.4 million t/y. In terms of sales volumes, Kline projects each of these channels to grow by double digits in the forecast period.

Online sales. The most familiar alternative channel, online shopping, mitigates doubts about product authenticity, as suppliers establish their own web platforms or use reputable e-commerce outlets such as Tmall.com to target consumers directly.

Online-to-offline sales. Instead of Chinese drivers purchasing oil online, then bringing the product to a garage for servicing, the O2O platform streamlines the process: suppliers sell quantities directly to garages participating in online packages for consumers that include both online sales and brick-and-mortar services.

OEM garages. Chinese automakers such as SAIC Group have established branded garages that service all types of vehicles, not only their own makes. Deals with suppliers have extended far beyond typical factory-fill contracts to include all oil changes performed at these garages.

Car-sharing provider contracts. Platforms such as Didi Chuxing contract blenders to provide discounts for oil in bulk that they then pass on to participating drivers who can opt to get oil changes at connected garages.

Insurance companies. Many providers of individual car insurance packages offer discounted or free oil changes, through contracts with blenders, as a perk to attract and maintain clients.

Kline determined through its forecast, which accounted for 15 external forces that could shape various scenarios in the continued adoption of these various channels, that these five methods of sale aren’t likely to lose traction anytime soon.

“Insurance companies, for example, are finding that when they started offering oil changes to get customers to join them, they couldn’t stop,” Tsui continued. “If they did, customers would change insurance providers.” Kline found that some insurance companies were sometimes losing a bit of profitability in bundled packages, but the tradeoff was that they were attracting and retaining larger volumes of customers.

“One of the common things among all these five platforms is that they are not small,” Tsui continued. “They are not mom-and-pop operations. They’re big platforms with huge volumes and lots of capital, backed by major corporations.”

In conclusion, Tsui told Lube Report Asia that “Some major lube marketers have already partnered up with major players in the alternative channels, though there are still many options to form partnerships.”

More information about Kline’s The Changing Face of Passenger Car Servicing and Emerging PCMO Sales Channels in China can be found here: http://klinegroup.com/reports/passenger_car_servicing_pcmo_sales.asp