Share

Amazon Is In The Oil Business

Amazon continues to prove that no industry is safe. Amazon has released its private-label motor oil and industry analysts have begun to downgrade oil stocks. (AP Photo/Mark Lennihan)

Amazon is now in the oil business. With the release of its Amazon Basics Synthetic Motor Oil, Amazon has effectively entered into an industry ripe for disruption.

A report from Market Watch announced that shares of Valvoline Inc., sank 4.2% in premarket trading on Friday, September 14, after J.P. Morgan turned bearish on the engine maintenance products company, citing concerns over competition from Amazon.com Inc.

I anticipate that other press releases will become commonplace in the coming months as news about Amazon’s latest product and category entry gains publicity. Retail and business analysts always regard Amazon’s entry into a category as having a detrimental effect on established brands.

Amazon Basics Synthetic Motor Oil is the retailers’ private label oil and a competitor to Valvoline, Quaker State and other leading brands. (Photo: Amazon)Amazon.Com

Although first available in July 2018, reviews of Amazon Basics Full Synthetic Motor Oil have just started to appear with most customers giving the product a positive review. Retail analysts tell me that they find it fascinating how Amazon will release one of its private label products with no fanfare or announcement. The fact that Amazon has a released a private label product in a category most analysts and consumers believed Amazon wouldn’t compete, will become a big story.

Full disclosure: I used the Amazon Basics brand for my latest oil change and so far I have seen no difference in performance, horse power or mileage when compared with the more expensive motor oil brands I regularly use. Like many car owners, I prefer to keep a vehicle for a long period of time. My current SUV has over 100,000 miles on the engine.

What makes Amazon such a dangerous competitor to established brands in the motor oil category is the fact that Amazon can sell its private-label oil online at a cheaper price. In addition, Amazon can introduce the brand in Sears Auto Centers. Amazon and Sears have a relationship whereby car tires can be ordered online from Amazon and installed at a Sears Auto Center. Expanding the relationship to include Amazon’s private label oil for use in oil changes would be fairly easy to do.

I have also been on the record since 2013 that I believe Amazon could acquire Sears as doing so would give Amazon access to Sears Home Services as well as Sears Auto Centers. 

Another option Amazon can pursue is partnering with any number of quick service oil change providers (Jiffy Lube, Kwik Car Lube, Valvoline Instant Oil Change, etc.) which is where most consumers go for an oil change. Pennzoil is a leading brand in such centers but I see nothing to prevent Amazon from being able to take market share from Pennzoil or any of the other brands sold in quick service oil change facilities.

What is certain is this: Amazon is just getting started in the oil business. I can easily imagine Jeff Bezos giving this speech from the movie There Will Be Blood that I posted from YouTube.

Automotive Is A Big Category 

As with other categories Amazon enters, what Amazon looks for is scale. In other words, how big is a category and how much bigger can it become? In regards to the automotive industry, it is a multi-billion dollar industry, especially in terms of the revenue generated from replacement auto parts, tires and maintenance.

Amazon will identify where it can introduce private label products across product lines within the automotive industry. Motor oil is a category few if any oil company executives or automotive company executives ever believed Amazon would compete yet the reality is clear – Amazon is in the oil/automotive business.

As Jeff Bezos has repeatedly said “Your margin is my opportunity.” The automotive industry is ripe for Amazon to disrupt.

I have been on the record since 2013 that I believe Amazon will enter the automotive industry with a focus on two key areas:

  • Replacement Parts
  • Maintenance

Amazon also has the potential to acquire a retailer such as AutoZone or O’Reilly Auto Parts. However, an even bigger acquisition Amazon could make would be to acquire the Genuine Parts Company (GPC) owner of the most widely known  automotive parts store globally, NAPA.

Making an acquisition isn’t mandatory for Amazon as it can form the required partnerships to enter the automotive replacement parts business and expand its private label brands business to include auto parts.

Gregory Henslee, CEO of O’Reilly Auto Parts, expressed sentiment shared by many executives in the automotive industry – Amazon can’t compete in the business. According to Henslee:

“I realize that Amazon is the strongest and the best run, and I obviously have a lot of respect for them and I am a customer for household items and other things,” Henslee said. “But … some of the things that are a barrier to entry for these guys are that we’re in a very technical business.”

Note to all CEOs: None of you are in a business that is too technical for Amazon.