Supply chain disruptions - growth opportunity for challenger brands
External and supply chain factors are creating havoc in the engine lubricants market and various role-players are reacting differently, making it difficult to make accurate forecasts for the sector.
The uncertainty does however create opportunity to put a stake down and capitalise when industry conditions turn.
Supply chain challenges are not the sole preserve of the petroleum and lubricants industry, with many sectors scrambling to try to recreate a sense of normalcy as the COVID-19 pandemic slowly shifts towards endemic.
Not all environmental factors in the lubricants supply chain are a direct result of the pandemic, but they are no doubt compounded by lockdowns and restrictions.
Challenger brands - across industries - have the opportunity to make inroads today if they have the stomach for the long game that will pay off down the line.
In the lubricants industry, factors disrupting the supply chain include input costs of base oils, the availability and demand-driven pricing of containers and freight services, delays in shipping and more.
The result has been erratic prices as various companies try to find ways to deal with the crisis. Large corporates have dealt with this by raising prices which obviously has a knock-on effect for the industry. Smaller players often try to absorb the extra costs to try to capitalise on the increased prices among the incumbent dominant brands, but as margins become more erratic and tighter, this strategy places their very existence under threat, especially in a market where current geopolitical tensions and continued supply disruptions are driving a rally in oil prices.
In times where the supply chain is erratic and unpredictable, chasing margin on its own is a recipe for disaster. Instead, we’ve taken the strategic approach of zoning in and focusing on particular market segments that we think provide the best possibility for future market share growth. While these, presently, are not necessarily the most attractive in terms of margins, they do afford us the opportunity to provide the right product to the right people at the right time.
The logic is built on customer acquisition in an innovative, marketable and scalable manner which we can leverage for growth when market conditions shift.
If a brand does its market research and discovers the segments that are tailor made for its products, and zones in on those segments, it has the opportunity to introduce itself to a host of new customers. If the orientation is not on immediate margins but rather about planting the seeds for return business, the reward is increased market share and market retention.
Looking at the green shoots in South Africa and abroad, there is going to be a market rebound, and the idea is that when this happens, those brave enough to pursue market share over margins will reap the rewards.
Is it guaranteed? No. But the alternative is being at the whim of the market and large incumbents that have the runway to do things on their own terms.