Estimated reading time: 14 minute(s)

Industry Overview:

The number of motor vehicles in Bangladesh is growing at an exponential rate, and the demand for engine oil or lubricants is growing with it. The lubricant market grew from Tk. 1200 crore in 2008 to Tk. 2400 crore in 2013. In 2013 the annual domestic consumption of lubricant was around 100000 tonnes.

The lubricant business in Bangladesh in the private sector is a little over a decade old. Until 2000, only the state-owned oil companies were allowed to import, blend and distribute lubricants here. At that time, majority lube oils (65 percent) contained no additives. The government liberalized the market and banned non-additive lubricants in 2001, to ensure minimum standards. Since then, more than 50 brands of lubricants, including renowned multinationals, have entered the market. But currently seven brands account for nearly 54 percent of the total business.

 

Figure 1 Market share of lubricant brands 2013 (Source: MJL)

Figure 1 Market share of lubricant brands 2013 (Source: MJL)

Mobil is the market leader with its 30 percent share, followed by British Petroleum at 11 percent, French brand Total at 5 percent and Shell, Castrol and Caltex with 2 percent each. (Source: The Daily Star) Mobil has even seen an increase in the amount of its market share over the years, from 26% in 2009 to 30% in 2013.

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Figure 2 Lubricant sales - Market share 2009-2010

Figure 2 Lubricant sales – Market share 2009-2010

The automotive sector accounts for 70 percent of total lubricant consumption in Bangladesh and the industries the remaining 30 percent. But the growth in the lubricant industry in the last few years has mostly been due to the growth in the industrial sectors, especially the power sector. Cement, steel and fertilizer industries also consume a good amount of lubricants. The proportion of lubricant used by industrial sector is expected to increase even more in the future as industries grow and the demand for lubricant to be used in this sector increases.

 

Consumer Insight:

LCP research team carried out a small survey with some retailers across Katabon, Dhanmondi and Mohammadpur to gain a better understanding of the consumer market. Some interesting insights are presented below:

  • People are most concerned about the quality of the lubricant. They do not want to risk anything happening to their car for not using high-quality lubricant. This is corroborated by the fact that in areas like Dhanmondi, where many affluent people live, the market leading product – with respect to quality – sells the most.
  • Price is the second decision making criteria that customers consider when buying lubricants. In areas like Dhanmondi, people do not bargain much with the retailers when buying lubricants; they assume that they are getting excellent product for the price they are paying. In contrast, in Mohammadpur, customers are more doubtful about the product quality and they often argue and negotiate with the retailers to decide upon a price.
  • Promotions do not play any significant part in people’s purchase decision. Availability of brand doesn’t affect people’s purchase decision. Rather, it’s dictated by the brand’s popularity.
Figure 3 The attributes sought by consumers when buying lubricants (Source: LCD survey)

Figure 3 The attributes sought by consumers when buying lubricants (Source: LCD survey)

 

  • According to retailers most customers are quite knowledgeable about the lubricant brand and quality. In fact, for consumers, the main source of information arises from peer suggestions. Findings suggest that consumers themselves and their peer groups play the most significant and equal roles. 42.86% of the responses from retailers interviewed stated that the consumers themselves make the purchase decision. An equal percentage of responses stated that the consumers’ purchase decision is a result of suggestions from peer groups like family, friends or colleagues.
  • Retailer suggestions also play a part in affecting the purchase. Retail shop owners recommend their preferred brand to the customers most of the time. Due to this, customers often purchase brands as referred by the retailers (14.29% responses from the survey). What’s interesting to note is that the promoted brands tend to be aligned with the greatest profit margin or largest volume. This, in turn, puts less pressure on the retailers as cost of the next lot gets reduced. This, however, doesn’t reflect the true state of the brands in the market. Moreover, the suggestions they make vary depending on whether a car runs on petrol or natural gas. According to them, the lubricant needed is subject to the fuel used.
Figure 4 Major decision makers or influencers for consumers (Source: LCD survey)

Figure 4 Major decision makers or influencers for consumers (Source: LCD survey)

Conclusion:

The lubricant market is growing at almost 3% a year, which is on par with India but behind China. With the falling oil prices, the industry can expand at an even faster rate. However, one caveat is a potential disruption in manufacturing and industrial activities should there be an energy paucity. Because of this, the growth potential of this industry may become stunted.