If the past 10 years have been defined by the global banking crisis and subsequent austerity, no one seems to have told Castrol China. As well as celebrating a decade of uninterrupted growth, the lubricants business has seen its brand power position shift from number three to number one in just three years: all the more impressive given that its products can cost more than twice as much as local Chinese brands.
In many ways, Castrol China is the poster child for BP’s global downstream strategy, which is looking to drive market-led growth throughout the whole segment. “China is one of our most material markets anywhere in the world,” says regional vice president for Castrol Carlos Barrasa. “It’s not just large in scale, but it’s also been leading the growth globally, which is ultimately good for the entire downstream business.”
That growth has undoubtedly been helped by the corresponding boom in China’s car manufacturing business in the first half of this decade – around 20% year-on-year until 2016. And, while that growth has now slowed to about 11% in 2018, China still sells an eye-watering 25 million cars every year – compared to 17 million in the US – making it the world’s largest car parc. It’s also one of the youngest, with the average passenger car less than five years old. In the US, it’s more than 11 years.
“What this means,” says Barrasa, “is that there are a lot of cars coming out of their warranty period and Chinese consumers are having to decide whether to stick with the franchise workshop or choose the open, independent market. That’s a massive shift.”
Seizing the opportunity in this shift is fundamental to Castrol’s strategy in region. China is what’s known as a ‘do it for me’ market, meaning that consumers trust their day-to-day car maintenance to mechanics. No surprise, then, that the country’s independent workshop sector (IWS) is also booming – with some 400,000 sites, ranging from what Barrasa calls the ‘mom and pa’ local workshop to larger, very slick sites.
Castrol introduced the ‘Partner for Life’ independent workshop programme, which provides training to help increase capability and improve the profitability of businesses, as well as recognizing outstanding performance of individual workshops. All this in exchange for selling – in some cases, exclusively – Castrol’s products. The workshops also receive branded signage, tools and equipment, in-store and online training and regular seminars to help them keep up to date on advances in China’s emerging ‘after-service’ market.
Some 75,000 independent workshops are now part of the programme and, says Richard Chen, sales director, the business has “aspirations to grow that number to 100,000 in the next three years.”
Castrol research suggests there’s no reason why it can’t achieve this goal. The brand surveys more than 9,000 customers every year and time and again the findings show that they have a stronger loyalty to Castrol than its competitors and that they will often spend more, buy more, recommend the brand, and resist competitive offers.
This last one is crucial, Chen explains, as it’s difficult for the business to compete on price alone, given its premium status. Instead, Castrol competes on the value that it offers its customers. Every year, for example, Castrol conducts around 600 workshop seminars for about 30,000 customers. And, in the past two years, it has introduced a micro-marketing programme for some of its best workshops, which provides more in-depth training for mechanics. “We started with two cities, now we’re in 24, and will be in 40 by the end of this year,” says Chen.
“Castrol has given us great support in terms of facilities, tools and workshop branding. Their distributor teams make a difference to our daily operations as they are on hand to offer pre-sales and after-sales support, while we also benefit from their advanced technology and strong branding power.”
“Facing fierce market competition and increasing costs for rental and labour, our partnership with Castrol has provided us with a number of solutions that other brands can’t offer. Their in-store displays help to attract customers and increase consumer confidence in our workshop. I believe their training and toolkits have helped us to improve our business and contribute to our sales volumes and profitability.”
25 million cars are sold in China annually, compared to 17 million in the US
The average age of a car in China is less than five years, compared to 11 in the US
400, 000 independent workshop sites offer day-to-day automotive maintenance in China
But, the team is mindful that the global mobility market is changing. In China, radical improvements in public transport, coupled with growing environmental action – a number of major cities, including Beijing, now ban a certain number of cars on certain days as part of the Government’s anti-pollution campaign – mean that brand competition will be fierce.
One of the biggest potential changes in the market will depend on the rate at which consumer demand for electric vehicles grows. BP’s Energy Outlook suggests there could be more than 300 million on the road by 2040 – others predict higher. What is known is that China wants 7 million on its roads by 2025 and has already surpassed the US to become the world’s largest market.
This figure may not seem much when compared to the combustion engine, but if there’s one thing that China proves time and again, it’s that when it makes up its mind to change, it doesn’t hang around.
“Things that might take 10 years in other countries can happen in two in China,” says Elaine Tai, regional marketing director. It’s more than likely, then, that China will lead this automotive transformation and, that when it takes off, it will be at a speed and scale unlike anywhere else in the world.
Quite what role a lubricants business will play in this transformation is a live conversation but Barrasa is upbeat: “The way I see it, electric vehicles represent a direct challenge to our business today, but we have a strong brand that 25 million consumers trust – and are willing to pay for. I think we’ve shown with the IWS programme that we have a role to play in the broader servicing industry and that that will continue to develop regardless of vehicle type.”
Right now, the combustion engine remains king and the market is still growing, which is why, in late-2017, BP announced it would build a third lubricants blending plant in China. The plant will cost around $230 million, making it the organization’s largest blending plant investment in the world.
The more pressing issue, then, is how to help customers reduce their emissions today, says Barrasa. “I am confident that we have a role to play in a future with electric cars and shared mobility, but, in the meantime, we are excited to help BP to advance a lower carbon future and to help China meet its environmental goals with the current lubricant technologies that we have.”
One of those technologies can be found in the reinvented Castrol MAGNATEC, launched into the Chinese market in 2016. Its breakthrough DUALOCK technology is a result of 10 years of research and development by Castrol’s technologists – in partnership with scientists at one of the world’s leading universities. It uses a combination of two different protective molecules that lock together at the engine’s surface to form a force-field of protection, delivering a 50%-reduction in warm-up and stop-start wear.
For all its financial success so far, the Castrol China team knows it’s only as good as its next innovation and the next 10 years are going to be challenging. “But,” says Barrasa, “we have the technology, unique products that people trust, and an incredible team. We want to help our customers to adapt. This is an exciting market to be in and we want to continue leading it.”