Quick Lube Q&A: Steven Shemesh

From the growth of electric vehicles’ market share to the real estate needs of major quick lube brands looking to expand, Steven Shemesh is keeping tabs on the trends and developments shaping the fast oil change industry.

Shemesh, an equity research analyst at RBC Capital Markets, recently spoke with NOLN about a range of topics, including why it still likely will be decades before the proliferation of EVs makes a material impact on the quick lube industry’s P&Ls, what large fast lube brands are looking for as they add facilities, shifts in oil change industry market share between dealerships and quick lube shops, and other trends to watch.

Editor’s note: This interview has been edited for length and clarity.

NOLN: When you last spoke with NOLN in July 2024, you had said then that it might not be until around the year 2050 that EV demand starts to have a real material impact on the P&Ls of quick lube shops, just because it's going to take that long to reach a critical mass with adoption of those vehicles. Do you feel that projection still holds up?

Steven Shemesh: Yes, based on our EV models, that really hasn't changed. If anything, you can actually make the argument that, based on the change in administration and the change of incentives, EV demand and the infrastructure behind that might not quite grow as quickly as we once thought. Certainly, we have an administration in place today that will be there for another couple years. That might change going forward and the incentives might change, but from what we know today, what we shared with you in the past is probably a reasonable assumption.  

The math basically suggests that based on the amount of vehicles sold today that are electric, which is high single digits at this point, it still represents less than a percent of the overall car parc. Most of the vehicles on the road—over 99%—are still internal combustion engine vehicles. The math here, basically, is that you can ratchet up the amount of vehicles sold that are electric to 60% by 2030 in five years, which again, we don't really have the infrastructure to do that. But let's just go there and then say 100% by 2040. And even then, the car parc itself doesn't tip to over 50% electric vehicles until year 2045 to 2050. So, the math still holds today. We'll kind of reassess that as incentives change and electric vehicle demand changes, but we think we're being pretty conservative with our assumptions here.

NOLN: With that in mind, and internal combustion engine vehicles still really accounting for the overwhelming share of the market, do you see there being room within the quick lube industry for more facilities? At the same time, we're also seeing extended drain intervals, with people going longer between oil changes. That would almost seem to be at odds with the market showing an appetite for more quick lubes.

Steven Shemesh: Where I would probably start with this is, oil changes are accounted for in the US, right? Miles driven are going up, and the U.S. population is growing. So, maybe the number of oil changes has a small tailwind going forward, partially offset by increased EV demand, which is going to basically keep us flat. The bottom line is I wouldn't expect the overall oil change market to grow. I would expect the share shifting to grow.

You look at Valvoline and Driven Brands, they have pretty aggressive store opening targets. And then you're seeing some smaller players open units quite aggressively as well. Quick lube in general still accounts for, by volume, just one-quarter of overall oil changes. Against that backdrop, I think there is an opportunity for quick lubes to grow the number of units by taking share from dealerships and tire and repair shops who inherently have become less convenient relative to these new offerings. 

And I think this really got accelerated to some degree during the pandemic when wage inflation, especially for experienced techs, skyrocketed. If you think about a dealership or a tire and repair shop, they certainly like oil changes for traffic. It brings people to the store pretty consistently. But if you think about where they're actually making money in the highest margin offerings, it's going to be more complex jobs. When you think about that tech who is being paid quite well, you don't want to bog down their time with something like a half-hour or an hour for an oil change, which you're not going to make a ton of money on. So, (oil changes) bring in for the traffic, but even with an appointment, you'll probably still sit there for an hour or two. And then inevitably, they'll come out at some point during that process and tell you that you need to replace your rear differential fluid or a control arm. And that's going to be a much, much bigger ticket, which at the end of the day has become an unfavorable experience for the consumer. 

The quick lubes have popped up and grown in popularity because you solve for a lot of those issues. You don't need an appointment. At most shops, it’s 15 or 20 minutes, (and you) stay in your car. And you generally have visibility into the ticket. Now, most of the quick lubes are going to have an offering of ancillary products, all relatively quick and all relatively cheap. Valvoline has about 17 that they offer across most of their stores. Driven has just expanded to their sixth at this point. So, you can get other stuff done. The check can vary a little bit. But at the end of the day, I think you can walk away knowing that if you drive into one of these shops, you're going to get your oil change done. You're going to be in and out within half an hour, and you're probably going to spend less than $200 to keep your car on the road, which is especially important today when you see how much new car inflation has gone into the market.

NOLN: For the operators looking to expand, what kinds of factors should they be considering? Are their needs evolving with regards to real estate and building needs?

Steven Shemesh: I don't know that the core has changed a ton. When you think about the big players in this industry—a Valvoline, a Jiffy Lube, and a Take 5 owned by Driven Brands—their real estate analytics have just gotten a lot better. Historically, you've probably run that in Excel, and it's basically a function of understanding your population density and income in those areas. I think for all three of those players and even beyond the top three, the analytics behind that have just gotten a lot more sophisticated. So, just out of the gate, you probably have better productivity out of the new locations that you open. I think there's a much finer blueprint for what those stores look like as well from a box standpoint. Certainly, you need to understand the demographics and the amount of traffic that you expect to come through the store. Most of these players at this point are still looking for two to three different bays. 

It's important in this market because we've seen such high inflation to really manage the opening costs to ensure that you have a pretty good cash-on-cash return. That's something that I know a lot of companies are focused on. Valvoline, for instance, has been talking about opening a modular facility where basically it's a two-bay facility. And on the outer wall of that facility, you're not going to put any water or anything. So structurally, at some point down the road, if you did want to expand to three bays, you can knock out that wall. And it's not a highly cost-intensive operation.

NOLN: Are there any other big trends that we should be keeping an eye on as we move toward 2026?

Steven Shemesh: The big thing to pay attention to at this point is competition and just understanding the cadence of demand, and then share shifting between quick lubes themselves and then within tire and repair shops and dealerships at the same time. If we think back to early days post-pandemic, you had a lot of inflation going to the market. You had Valvoline and Take 5 putting up pretty strong comparable store sales numbers or same-store sales numbers up to 21%, when historically this has been an industry that same-store sales tend to run in the I would say like the 4% to 6% range is probably the right ballpark, or 5% to 7%. So when you saw inflation go into the market, the comps got very high, and pretty much since then, we've been working our way back down to that normal level.  

In this environment, when you think about dealerships, as you've seen a lot of new car inflation, it's been tougher to get customers on the lot to digest a big price, especially because that's a longer replacement cycle industry.The last time a consumer bought a car, a lot of inflation has gone into the market since then, so there's a little bit of a sticker shock component to that. And then rates are quite high as well. Affordability has definitely come down.  

You have less demand on their end. It’s the same thing with the tire and repair shops. By default, you tend to have a larger ticket for consumers at a time when we're in a little bit of a K-shaped economy right now where the high-income consumer is doing okay. They're benefiting from the wealth effect of the stock market. They, for the most part, still have jobs. The middle- to low-income consumer is definitely under a lot more pressure with all of the inflation that's gone into the market. We're also starting to see some signs of unemployment starting to tick up. Those headlines are coming across. For those consumers, I think they are deferring as much as they can. We've seen that in replacing tires, people driving a little bit longer than what is recommended on the typical replacement, or trading down to the opening price point tires. We've seen on larger jobs, if your brakes aren't at the point where you definitely need to address them, you maybe try to squeak a little bit more out of that. And in that backdrop where you're not getting the consistent traffic that you're used to, (operators are) trying to lean into oil changes to drive some of that traffic. So, we have seen a step up in promotional activity—$15 off an oil change, get people in and give yourself the opportunity to trade it up to other services. It becomes a little bit more difficult for the quick lube players to put price into the market, or they might have to promote a little bit more than they have historically, which has kind of kept your comps at bay. Competition is one of the key areas that we'd be looking for. 

Another thing to keep in mind on that front would be, as we saw with car wash, another popular auto service industry, they kind of became their own worst enemy because the economics of that business are so good. You saw a lot of people come into the industry. You saw private equity come and be a pretty big player in that industry. And you flooded the market in a service that there are some differences, but for the most part, it's commoditized, right? It's an oil change. It's a car wash. So, if a new car wash opens next to an existing car wash that maybe hasn't invested and doesn’t have the latest technology, you end up losing a good amount of your customers, or at least there's some share shifting going on there. And that became a little bit of a demise for the industry. 

That's something that we'd be watching out for as well, given the economics of this business are very good and because, you know, it's kind of ripe for disruption at this point.