Strategic Management Class Presentation Outline

October 11, 2000



Market Background



DIFM Strategies

1

DIY vs. DIFM

Quarts Based Total United States By Selected Time Periods % D-I-Y % Installed 12 Months Ending June, 1996 - 2000

43.4

45.5

46.9

50.0

50.4

56.6

54.5

53.1

50.0

49.6

1996 1997 1998 1999 2000

Market Continues to Shift From DIY to DIFM

Factors Causing Shift From DIY To DIFM

•

Age -

The aging population is more inclined to be DIFM’s • •

Convenience -

Higher demand as less leisure time is available

Increased Installed Outlets -

pricing Emergence of new outlets and competitive •

Environmental Concerns -

used oil disposal Public awareness on hazards of improper • •

Female Influence -

Increased number of female drivers, decision-makers

Strong Economy -

Increased disposable income decreases DIY activity

Conclusions

• • More Profitable Packaged Volume Declining While Less Profitable Bulk Volume Increasing Less Brand Recognition / Influence in DIFM 3

MOTOR OIL BRAND SHARE TRENDS

Installed Quarts Total United States 12 Months Ending June, 1996 -2000

1996 1997 1998 1999 2000 Valvoline (0.5)* Pennzoil (0.7) Quaker State (0.6) Castrol (0.4) Havoline (0.4) * Share point change required for statistically significant difference between years, at the 90% confidence level.

Mobil (0.3)

10.7

8.6

11.8

10.9

24.3

PURCHASES BY KEY CHANNELS - INDUSTRY

Installed Quarts Total United States 12 Months Ending June, 1996 - 2000

Quick Lube Repair Garage Mass Merchant

10.2

8.0

10.6

11.7

9.8

7.8

9.8

11.3

Car Dealer Service Station All Others

11.7

8.3

9.1

9.6

24.8

24.6

25.6

9.9

7.7

8.2

11.2

27.1

36.7

35.7

35.9

33.7

1996

34.7

1997 1998 1999 2000

Brand Share within Top 3 Installed Channels Installed Quarts Total United States 12 Months Ending June, 2000 Quick Lubes Car Repair Dealers Garages Valvoline Pennzoil Quaker State Castrol Havoline Mobil 17.8



37.4



19.8



8.0

7.1

3.0



11.3

20.3

17.8



8.6



3.4

4.2

 

15.3

26.2

15.5

10.2

7.5

7.9

   6

Top 10 Quick Lubes by Centers (Fast Lubes Only) Company

1. Jiffy Lube 2. PZ 10 minute 3. Texaco Xpress 4. VIOC 5. Kwik Kar 6. Grease Monkey 7. Phillips Fast Lube 8. SpeeDee

Independent / Company Owned

540 791 740 358 289 34 126 3 9. Citgo Lube 10. Express Oil Change 111 13 Total: 3,055 Source: National Oil & Lube News, March 2000

Franchises

1,603 0

Total 2-29-00

2,143 791 0 252 0 177 0 117 0 95 2,244 740 610 289 211 126 120 111 108 5,249

Add. Stores 12-31-00

100 n/a 60 35 47 18 28 8 n/a 20 316 7

Top 10 Oil Change + Businesses

 GM Goodwrench Quick Lube Plus 4500  Midas Auto Systems Experts  Firestone Tire & Service Center  Wal-Mart Lube Express  Motorcraft Fast Lube 1500 1363 1200 1000  DaimlerChrysler Mopar Express Lube  Shell Auto Care 970 900  Gemini Auto Service Center (Goodyear) 806  Penske Auto Center (Kmart)  Meineke Discount Muffler SOURCE: National Oil & Lube News /

as of March 2000

660 622 8

Service Center Growth

700 600 500 400 300 200 100 0 360 45 315 '92 341 '93 407 66 422 75 455 90 474 100 574 584 630 519 137 183 207 272 347 '94 365 '95 Company 374 382 '96 '97 391 '98 Franchise 377 '99 358 '00

9

Strategic Management Class Presentation Outline

October 11, 2000

 Market Background 

DIFM Strategies

10

Challenge

• Slow Market Growth and Shift to DIFM

Motor Oil Company

• Outlets less Brand Loyal / Switching Costs Low • Differentiate

Response

Grow market share in installed segment Improve bulk oil margins Alliances with distributors / grow together “Controlled” Outlets - Company-owned oil changes - Franchised oil changes - Mid-tier Program: Express Care - Tougher Supply Contracts Understand the oil change business - Offer solutions “Family of Brands” 11

Valvoline Express Care

12

Reasons for Express Care Program

 Accelerate Growth for Valvoline’s DIFM Business  Provides Offerings for Three Distinct Installer Groups: VIOC, Valvoline Express Care and the “We Feature” Program  Provides a “Branded” Program to a Customer Valvoline is not Currently Positioned to Sell  Competitive Program to Sell Against Texaco Xpress Lube, Pennzoil 10 Minute Oil Change and other Branded Independent Programs  Increased “Family of Brands” Purchases, Longer Term (10 Year) Contract, Consistent Marketing and Image Management of Independent Operators  Pulls Several Fragments into One Program

Quick Lube - General

l

Challenges

Location, location, location l Labor expense and turnover l l Offering new products and services Trade-offs between price and brand l

Response

Site Selection Models l “People. Cars. Greatness.” (Become a ‘Most Admired’ Company) l l Benefits New Hiring Methods l l Convenience Ability to sell / focus l Trust l l Constantly shop motor oil company deals Understand impact on customer base 14

VIOC - Specifically

l

Challenges

Controlling Expenses l Investment Base l Geographic Expansion Strength l Differentiate l l l l l l l l l

Response

Real-time Management Systems Labor Scheduling Internal Benchmarking Greater Percentage of Franchisees Protect Existing Markets - 3 Tiers Stay within Areas of Valvoline Brand Concentrate to Leverage Advertising MVP Program Service / Trust 15

Competitive Interaction

•

Protect Your Markets

–

Concentrate / contiguous

–

Fill out existing markets

•

Stay in Areas of Strength

–

Good distribution (cost advantage)

–

High DIY market share

•

Areas Where You Compete Head-to-Head

–

Service (Employee Friendliness / Recognition)

–

Trust

–

Best Location / Convenience

–

Promotions

–

Service (Product and Service Offering)

16