Oil filter sales shift to do-it-for-me market

Discount Store News, Feb 23, 1998

Oil filters have been rushing with motor oils into the arms of quick lube shops and auto dealers and out of the reach of retailers.

Quick lube operators and other do-it-for-me (DIFM) operators captured 56% of oil filter sales in 1997, leaving DIY retailers to fight over the balance of 44%.

In 1997, DIY oil sales declined 2%, and filters slipped 3%, reported The NPD Group, which tracks sales at the register. The ratio this year is expected to shift further to 58% DIFM and 42% DIY. Filter manufacturers estimate that the total market for 1998 will grow about 2.5%.

In 1997, discounters and auto parts chains sold $145 million worth of filters, while all others sold $15 million more, The NPD Group reported.

To counteract the effects of the DIFM trend, filter makers Fram, Purolator and Mobil have introduced premium products designed to provide more profitability for both manufacturers and mass market retailers for what remains of the DIY market. Margins on premium filters run about 32%, while margins on conventional filters dip as low as 10% on promotions.

Kmart and Target will begin carrying Fram Tough Guard next month at about $4.99, or $2 more than conventional Fram filters. Kmart also is going to carry Mobil I premium filters, which carry a suggested retail of $9.99.

Pamida also is stocking the Fram Tough Guard, along with the following auto parts chains: CSK, Al's Auto Supply, Grand Auto, Trak Auto, Chief Auto and Parts America (owned by Sears).

To warrant the higher price attached to premium filters, vendors promote their greater efficiency, filtering up to 96% to 98% of dirt particles on the first pass, compared to as low as 82% for conventional filters. Conventional filters often are promotionally priced to draw customers into stores, but that produces "skinny margins" for retailers, said Ernie Giordano, Fram product manager.

A common promotional price is two for $5 at Wal-Mart or Kmart for either a Fram or an AC Delco filter.

By class of trade for the oil filter market, discounters accounted for 27.2% of total sales, including Wal-Mart, 13.9 percentage points; Kmart, 6.5 percentage points; and other discounters, 6.8 points, according to Purolator estimates. Auto parts chains sold 16.6% of the total.

Retailers that have gotten into premium filters are surprised to find that they account for 15% to 17% of filter sales, said Jeff Jones, retail marketing manager for Champion Labs. Champion produces the Mobil 1, Lee and STP brand filters, as well as private label filters for Target and AutoZone.

"Consumers are willing to pay more for premium products," Jones said, adding that Champion plans to support its Mobil 1 filter with a $5 million and campaign.

Extended drain intervals are also expected to drive the premium market. GM, for example, recommends as change interval for every 10,000 miles on the 1998 Corvette models and specifics using synthetic oil. Chrysler recommends 7,500 miles for normal road conditions and 3,000 miles for hard driving. Ford recommends 5,000 miles for normal road conditions and 3,000 for hard driving.

Last year was a rough one for mass merchants, with some chains down 10% in filter sales, said Julie Diehl, vp, national accounts for Pennzoil.

Pennzoil has no immediate plans for a premium filter. But Diehl added, "There's something to the premium filter trend. It's not just hype."

Christine Zucker, marketing manager for AC Delco filters, said AC Delco has dropped out of the filter price wars by ending rebates last year and instead offers unspecified alternatives for the mass market.

By brand, AC Delco claims a 13% market share with market leader Fram at 29%. Purolator (including its various private label brands) accounts for 18%, while other brands make up the largest share, 38%, including private label filters for AutoZone and Target, as well as the STP brand.