Engen, a leading challenger for downstream petroleum product market share in Sub-Saharan Africa (SSA) and the Indian Ocean Islands, is taking its successful lubricating oil franchise, The Oil Centre (TOC), into Zambia, in an on-going drive to grow its business south of the Sahara.
The company plans to roll out another eight TOCs this year, in selected countries across its footprint of 17 SSA countries outside South Africa. In addition, it is introducing a further diversification of its business channels, a non-branded distribution partnership model, of which it envisages rolling out nine this year, throughout the rest of SSA.
EPIC growth plans
Andre de Wet, acting GM of Engen’s International Business Division (IBD) explains the need for a third-party model. “In terms of Engen’s strategic plan for growth, we’re aiming for top-three lubricant supplier status in the region by 2016. Partnering is the only way we can achieve the growth needed to support this aggressive target.”
He says in-country realities will determine which of the two available tiers will be followed as the preferred channel to market. “Both models allow aggressive growth without significant capital investment from Engen. To manage growth, Engen must control its own fate, while leaving room for local business partner success.”
“The region has seen the departure of many traditional oil majors in recent years, presenting increased opportunities for us. But we have to take a view as regards our mode of entry, if we decide to enter the market at all. Do we enter directly by acquisition, do we leave it alone, or do we appoint a business partner?”
Engen has successfully taken over several in-country operations in recent years.
“In many of these countries, lube oil businesses tend to be local entrepreneurs without the access to leading lube technology and expertise that a company like Engen could offer them,” says De Wet. “In such cases, Engen will follow a distribution model, as opposed to the bigger investment of entering the country or running a TOC model. In slightly different scenarios like the DRC, Engen is indeed present in the capital, but not in other areas of that vast country. So where our own distribution infrastructure doesn’t cover the entire opportunity, the distributor model once again comes into play.”
Because of the growing importance of distribution to Engen in such low-density areas, the company has appointed a distribution manager for the entire IBD region.
The company plans to roll out seven or eight distribution agreements before year-end.
Whereas the distribution model with its three-year renewable contract terms is suited for immature markets, more developed markets have the volumes to justify bigger investments by TOC franchisees and Engen alike.
“TOC franchises will offer customers a Total Engen experience on the ground,” says De Wet. “It goes beyond distribution – the partner is responsible for warehousing, managing and building a customer base, and ensuring supply. It is the same experience as going to an Engen garage, but with a lubricants focus.”
He says if volume throughput by a distributor is such that its agreement justifies being revisited, Engen will convert the distributor to an authorised TOC partner.
With Zambia the first SSA TOC outside South Africa, Engen foresees launching another eight this year.
The third party advantage
What counts in the favour of partners is the ready-made market quantification undertaken by Engen, and its concession that it cannot meet current needs on its own. “Some clients require flexibility in volumes. Partners will be perfectly positioned to augment any shortfalls, whilst always being assured of minimum sustainable business within our market estimations.”
Partners can count on receiving leading product and market knowledge from Engen Lubricants, which operates out of South Africa and in turn receives input and supply from PETRONAS Lubricants International, Engen’s Malaysian parent company.
Partners also have access to global brands, including oils from ExxonMobil. In addition, Engen has numerous factory fill and service contracts with leading global automotive manufacturers.
De Wet says the opportunity is big enough to allow both Engen and its partners to meet the burgeoning need for automotive and industrial lubricants on the continent.
“The model allows entrepreneurs to scale up really quickly without the capital that would otherwise be required. With access to the same marketing and sales support, best-of-breed product, technical knowledge and security of supply as internal resources, this is a rising tide that will lift all boats.”