Challenging the engine lubricants monopoly is a duty

Ridwan Gany, CFO at Petrocam

Bringing an alternative product into a market with dominant incumbents is both a privilege and a challenge, not least because the status quo has held firm for so long. Compounding this, is the perception that any challenge, or substitute, to the dominant brands is of inferior quality.

It is often said that displacing incumbents in an established market is near-impossible. This is likely true, but irrelevant in our case. Petrocam is not trying to displace anyone, rather our unrelenting orientation is to bring comparable, reputable products to an African consumer at a price point we believe is fair. The mission is to provide viable alternatives at a more palatable cost.

To achieve this, the consumer must be front and centre. It is no secret that the key ingredients from which engine lubricants are created have recently experienced price increases in the international markets. The natural outcome of this is that the consumer will ordinarily bear the brunt, but it doesn’t have to be that way.

How then, one may ask, is a company – such as ourselves – able to bring quality and comparable products to market at a substantially reduced price if we are all at the mercy of international market prices?

This happens in two ways.

Firstly, any market challenger needs to have control over every element of its supply chain. In essence, what this means is you are not a price taker, rather you can control your own downstream destiny. This includes getting the highest quality base oil from source – the refineries – and then negotiating key relationships with suppliers of the highest-quality additives, including the processing, and blending. Having control over logistics – from shipping to overland transport – as well as key distribution channels, means that product goes from raw material to shelves in the most efficient and price-sensitive manner possible.

Secondly, listed entities carry immense cost burdens. This is obvious, but a closer look reveals at why the dominant, listed players are stuck in their pricing structures and need to maintain a near-monopoly over the market. The price you pay at the pay point of a retail outlet needs to take into account a bloated workforce, at all levels, and a very intensive marketing, branding and corporate machinery. It needs to ensure costs are covered and that the market position is protected so that the ultimate beneficiaries, the shareholders, are rewarded.

An unlisted, private entity, such as ourselves, is able to work in a lean state. There is no top-heavy corporate salary base, and teams are small and agile. By cutting out this excess fat, the unlisted entity can remain agile and instead of delivering value primarily to shareholders, this value is carried over to the consumer – evident in the product’s shelf price.

One could make the argument that challenging the monopoly in any industry is a duty – especially on a continent that just doesn’t have the collective wealth and buying power of wealthy nations. This is challenging the model of developed countries. The South African reality demands alternatives because of the socioeconomic and living standards measure of the majority of consumers.

The challenge that remains, is shifting the perception in the minds of consumers who have been conditioned to believe that more expensive equals more quality.

This is a long road, but a road we – and others like us – are committed to travelling because the winners at the end of the day are going to be ordinary citizens, mechanics, taxi owners, bus companies, logistics operators, and others, who are feeling the economic squeeze.

Web: www.petrocam.co.za

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