Meeting 12-05-2024 - Keynote: Lori Flees - CEO Valvoline

Thank you so much, Chris. Thanks to everyone for allowing me to join today. I've been in Lexington a little bit more than two years now, and I always enjoy meeting leaders in the community, so I look forward to individual conversations both later today and hopefully in the many months to come. I did have a slide. I didn't realize Chris would do such a great job introducing myself. I am from Michigan originally, and the Leland Chapter is the one that gave me a scholarship when I was a senior to go to college at a school that was called General Motors Institute. It was started by General Motors in the 1920s, and then in the 80s it became a private university, and then sometime later it changed its name to Kettering University. Through that education, I worked at General Motors. I then went to Intel. I got my master's degree and spent some time in consulting before I actually joined a corporate organization at Walmart and was there, as Chris mentioned, for close to a decade before I found my way to Valvoline. Personally, I'm married to a serial entrepreneur who's been in the wine industry and done every aspect in the wine industry except for have a winery himself, because I've refused to fund that. The economics of making wine are not good, and he tries to convince me otherwise, but I do enjoy being a customer. I also have two children: Oliver, who just started his first year of college this year and graduated from Henry Clay in the spring of this past year, and then I have a daughter, Lucy, who is in her freshman year at high school. So you can imagine it's been a busy time. In the time I've been at Valvoline, bringing my kids and acclimating them into a new school system, helping my son with his college applications — which is definitely different than when we all applied — and now helping my daughter transition to high school. But let me talk more about Valvoline. As was mentioned on the first slide, I like to tell people that Valvoline is a 50-year-old new company. We have a unique blend of a legacy brand that was started in 1866, but we have a new focus on being a pure-play retail services business. There are a few key milestones that have shaped us. Obviously, the company started in the 1860s, and Valvoline was the first and only recommended motor oil for the Ford Model T, so we really were at the start of the automotive industry. Valvoline has always been focused on creating high-quality fluids for the automotive vehicle industry. It's now proliferated long beyond just the automotive industry. In 1985-86, we actually ventured from just being a product business and moved into the world of retail. It was not uncommon. We had a lot of product that we wanted to sell, and the best thing we could do is provide a service that used that great product, and so the retail services business was born. Then we actually bought a company called Rapid Oil in the state of Minnesota and then proceeded to grow from there. In 2016, Valvoline had been a part of Ashland Oil, and the company decided as it was going to focus on more specialty chemical businesses, it decided to spin it out, and we became a separate public company, separately run public company, in 2016. And then almost two years ago, in 2023, we actually completed the sale of the product division to Saudi Aramco and became two completely separate companies. It was about splitting the company in half, in a sense. The global products company, which Andy, a fellow guest, is from, is also headquartered in Lexington, and we share a corporate office building. We're very lucky to be great partners with them. They're a strategic partner and supplier to Valvoline Incorporated, but obviously operating completely separately now. And that leads me to today: a pure-play retail business. It took a lot to separate the company. We had to work to take all of the steps to move from one completely integrated company to two separately run companies. So things like HR, finance, legal, customer support, and marketing were all teams that were integrated and working on behalf of both the product and the retail divisions, so we had to actually separate those teams in order to create two very strong standalone entities. We also had to create a new supply chain team, again previously completely integrated. Then the fun began, and we had to separate our systems. So we had one combined finance system, one combined HR system, and a customer management platform. All of those had to be separated, and we had to implement new systems, and that's the work that's underway today. We also had to constitute a new leadership team. So about a third of my leadership team today came from the corporate leaders that were in place when the Valvoline team was combined. We actually took a third from the corporate leadership, we took a third and elevated them from the retail business. Now, the lucky thing for someone like me who was coming in new to the company is these leaders had so much history with the brand and the company. We have leaders on our team that have as many as 30 years of experience with the company, but it gave us an opportunity as we separated to bring in new talent. So about a third of our leadership team was hired from the outside, and they have professional backgrounds in retail, coming from McDonald's, Wingstop, Amazon, and obviously Walmart, and they bring fresh perspectives on how we can be a better retail company but also very strong retail depth. So as much as we've changed in the last two years and over our history, there's a lot that has stayed the same, and that includes: one, we are maniacally focused on delivering a best-in-class customer experience that's consistently delivered across all 2,000-plus stores. When we finished the year, we announced our 2,000th store. We have 2,010 stores in our network, and that kind of focus on the customer has resulted in 18 years of same-store sales growth, which is incredible. I came in at the tail end and am working with the team just to continue that growth going forward. As we continue to grow, one of the main things we focus on is keeping the culture of the company strong and consistent. As some of you may know, we have about 800 people that we employ in the Lexington broader community and more than 11,000 across North America. We have a saying at Valvoline that it all starts with our people, and while it's something that others often say, it really is much more than a saying. It's our way of life. It's core to our culture, and many say that it's the secret sauce of what makes us different and special. In fact, we call our team our family, and every time you go into a store, each store has its own family, and that's because they work so closely together. They communicate and they care for one another, and we're part of perpetuating opportunity for our team. So we know that if we take care of our people and we give them the tools and the training to do their job well, they in turn will take care of our customers, and that's where our business success can thrive. Now, we've been super fortunate. You'll see on the slide on the right-hand side that we have been given a number of awards and recognitions. We rank number 18 on the Forbes list of best customer service, and that's across all service companies in the United States, and we're ahead of well-known companies like Capital Grille or even Amazon. So we're really proud of that because our business is built when customers return and we can create loyalty. We were also first in our category and 27th overall in Entrepreneur's Franchise 500 list. That's because 53% of our stores are run by our franchise partners, and they are growing and performing very consistently with our company-run stores. So I'm very proud to be a member of the Valvoline family, and we've been very fortunate and had a lot that we could celebrate over this past year, but even much longer than that. Our success is really guided by an alignment of our team to our strategic priorities, which are shown here, and they're very simple. First, it's about driving the full potential of the core business. What does that mean? It's to really drive transactions and services and margin in the stores that we operate today. Number two, it's about accelerating our network growth. Today, Valvoline stores are only within a 10-minute drive of 30 to 35% of the population, so there's tremendous upside opportunity for us to just put more dots on the map and bring our service into more communities across North America. We also only have 5% market share of all oil changes that are done for customers in our markets, so again, so much potential to accelerate our network growth and drive opportunity for our people. The third one is preparing for the future. What's interesting — I don't know how many of you, but my daughter who's 14, I don't know if she ever is going to want to drive. She actually really likes being driven around. The number of young people who delay getting their license is growing, and with ride share, Uber and Lyft, it makes it really easy for people not to have to drive, and that means we have to adapt our business to the changing landscape of our customers. So more people will be using cars that they don't own but are owned by a fleet manager, so we're very focused on working with fleet managers who make their business based on the utilization of these vehicles. We make it easy for them as well, and that's been a source of great growth and will continue to grow over time. The other change that's happening — and some can argue it will never be as extreme as others have said — is the electrification of the car park. How many of you drive or have an electric vehicle in your fleet of cars? A couple of you, three. That's actually pretty low. On average across the population, there's about 1% of all vehicles driven that are battery electric vehicles. Since I've joined Valvoline, the hype and the excitement around electric vehicles has definitely waned, but what I think you will all agree with is that as a consumer, you're going to want to buy the best technology, the best mod cons, the best efficient transportation that you can. Once infrastructure is available and the price is right and everything comes together, you're going to pick the best technology. So for us, we have to be ready to serve our customers regardless of the technology they choose, whether it's an internal combustion engine, hybrid vehicle, or a battery operating vehicle, or who knows what's next, maybe hydrogen. We have to be there to support our customers because at the end of the day, our customers want quick, easy, trusted maintenance of a high asset on their balance sheet. So we're going to continue to lean in. We do do pilots with EVs. We recently did one in Mountain View, California, which has the highest penetration of EVs in North America at about 15%, and we really worked with customers to understand what services they needed and what our brand had the right to provide them. The reality is we have a trusted brand, and if we can provide the great experience and train our people to do that well, we're going to be fine. So I'm really excited about the changes that will come. Now, as we execute against the strategy, the thing I love to point out is we have a target to get to 3,500 stores, and who knows how much more we'll do beyond that. When I came into the company, we had 1,750 stores, and so we basically talked about doubling. This year we're already at over 2,000, and I think we'll continue to plan for the future and adapt our service model as customer preference evolves, as I've mentioned. So I want to end with the fact that we're very proud to be based in Lexington. Just as the community has supported our business and growth, we're committed to supporting this community. We recently took a fresh look, as we were separating from the products business, to really understand what we want to stand for in Lexington and in all the communities that we serve and do business across the US and Canada. For 15 years, we've had successful fundraising for the Children's Miracle Network. In fact, we just held our campaign that finished at the end of November, and our teams with our guests raised $1.3 million for the local charities in the stores that they made those contributions. We've always had a lot of passion around children's causes on our team, and it's why we recently launched a 'Happy to Help' campaign, an overall program theme that we have. It's a phrase that you'll hear if you're in our stores. When you ask the technician for something, instead of saying thank you, most of them will say 'Happy to help.' So it's very pervasive in our culture, and now we're bringing that same enthusiasm with that saying into our communities to guide our volunteering and our charitable giving. So as we look forward, we're going to be focusing on supporting children's health initiatives and causes, with a slight focus on mental health and mental wellness. Our workplace is largely comprised of young people ages 24 or younger and predominantly male, although I'm trying to bend the curve and hire more women. But our workforce is largely comprised of young people under the age of 24, and I hope you know the demographics and the statistics with that age group and the struggle, the increasing struggle with mental health that that group is facing. In fact, the CDC did a recent study a few years ago and found that men in our sector of automotive service and maintenance roles experience suicide twice as often as the average working man in America, and that's elevated across all demographics. With this knowledge and our own experience since I have been at Valvoline, we have had team members who have taken their own lives, and it impacts our community, it obviously impacts our business, our team, and we feel like we need to make this a focus and do something more. So you'll start hearing more about 'Happy to Help' and the things that we're going to do over the coming months. Our fundraising with the Children's Miracle Network had a great impact locally as well. We raised over $20,000 in this past November for the Kentucky Children's Hospital, and we've raised more than $50,000 since we started our CMN fundraising efforts. So by doing these bigger campaigns, we ensure that the money funnels to the local communities, which we think is so important. We were also a significant sponsor in the Town Branch project. We have been a long supporter of the United Way, funding their Waypoint strategy and build-out of the Waypoint centers across Lexington. And over the years, we've sponsored several Habitat for Humanity home builds. Most recently this past summer, I was able to work on a project, and I enjoyed learning how to put siding on a wall on the outside of a house. I've never done it before, and I don't want you to ask how well I did. I think the person that was chaperoning us had to fix a few of my errors. And then last year, which was one of my first projects, I actually did a lot of painting, and I was able to bring my husband and my son and really give back to the community together as a family. So those are just a few ways that we're supporting Lexington, and we look forward to supporting many more things to come. So as I shared at the beginning, Valvoline has a rich history in the automotive industry and in Lexington, but in many ways we're just getting started. So I'm humbled to lead such an extraordinary team of people, and I'm excited for our future. So thank you for welcoming myself and my family into the community and for having me here today. Appreciate it.

Anyone have any questions?

You know, John and I talk about this a lot. Attracting great talent is always the biggest challenge of companies that are of our size, and it's not just the talent for the stores that we have, it's the corporate talent that we recruit in that brings digital marketing expertise or recruiting expertise or accounting expertise. I think the Rotary does an amazing job building the community and creating jobs for trailing spouses. One of the things we encounter, and I encountered, is when I come, it's a great opportunity for me. How do we make it a great opportunity for the entire family? So one is about the rich opportunities that the business and nonprofit communities offer in Lexington, but also how do we make it easier to transition with children of a variety of ages? I think most people move when their kids are young, and it's easy to move when your kids are young. It's much harder to move when your kids are older. But I can tell you that the resources that I was introduced to made all the difference. As we look at recruiting talent into our team, we want to bring them to Lexington to be part of our team. It perpetuates our culture, it creates great collaboration. I don't want to have everyone commuting in and out. I want them to come, but the environment needs to support that. I think there's things that we do well, and I think we need to continue to do that as a community.

I didn't hear what schools need to have a system, a team that goes out and... Yeah, I think public schools are harder to integrate than the private ones because they're smaller. I had children do public and private, and I think the public schools, there's not a lot of moving in and out of kids, and it does make it a little bit more challenging. So it's something that John and I have been talking about, how we can help.

Yeah, I think going out 10 years is about right in terms of when we'll see the car park evolve enough where you'll see EVs more prevalent. So for us, we are preventative maintenance. The battery is the core of an EV vehicle, so replacing the battery is replacing the car in a sense, so that's probably not the business we will be in. But there is maintenance required for an EV. I think a lot of people are unsure, uneducated about it. The vehicle itself is a lot heavier than an ICE vehicle because of the battery weight, that creates a lot more wear and tear around the wheel well that requires more regular maintenance. So what we're looking at is what is the preventative maintenance that will keep that vehicle running and keep its value as long as possible. There's also things around testing the battery. So if you're in the market for an EV, if you buy a new one, you get a brand new battery, but if you get a used one, how do you know how much battery life that vehicle has? And can you trust the OEM who made it to tell you that it's good, or the dealer that you're going to buy from? So there are a number of things that we're looking at that I think will play a very important role for the consumer.

Gas aspect? Gas serious?

Yeah, I think as it relates to broader mechanical needs, it's a very fragmented market overall. I think at least the data that we've seen, dealers get about 40% of both preventative maintenance and broader mechanical. Obviously they do all recall work because that's the way that process works. But there are a number of other channels. They're incredibly fragmented, but you are seeing more consolidation. I'm blanking on names, but there are more brands that are consolidating up locations and trying to create a more premium service and some of the other service menus that we don't do. For us, we are all about quick and easy and trusted. But for us, anything that takes away from us being able to deliver with speed, we want to be careful of. Some of the more complicated mechanical repairs, that's not a 15-20 minute in and out. And if we only have three bays and two of them have repairs that take hours, it's not going to be a very good experience with those who need the quick, easy, trusted service.

Did you have one? Oh, okay. And then there was... I know, change oil, micro test B. You have a list of all services you provide on your site? I believe it's on the website, although I should know that. What I would say is it breaks into a few things. One is oil change for sure. Then it's wipers, bulbs, battery, and air filter, cabin air filters. Those things we look at visually and we can show you whether or not you should get those replaced. We do a lot of OEM recommended services that you'll see are typically listed in a 30, 60, 100 mile service, so radiator flush, differential, and tire rotations. There's also things like air conditioning recharge. That's not a regular maintenance, but your vehicle may need it. So what we try to do is anything that is maintenance oriented that we can do within 15 minutes. And by the way, in all those other services, our pricing is at least 30 to 60% lower than a dealer. Yes, we have a lot of coupons, and I would encourage everyone to use them. Our customers who come with a coupon are more loyal than customers who don't, so we don't discourage against the use of a coupon.

I actually don't know if we've looked at it. What I will tell you is given the number of stores we have, we have to look at the population of the make and model and ensure that we can deliver training which will allow us to deliver a quality service to any customer who comes into any location. I think we do have some makes and models which are very, very low in number that our team is not trained or we don't have the right equipment to do that service reliably and stand behind our brand. I think motorcycles are similar when you look at the make and model differences and making sure we'd have the equipment and all of the air filter, oil filters, and plugs and all of that just to be in stock to do it and do it well. I think is the challenge.

What? Yeah, so we have a little component which is a powdery substance that they put on the oil. It absorbs it, they sweep it up, and we put it in a special container that gets remediated. If it's broader than that, we also took out the drains in our stores, so if there is an oil spill, it doesn't go in anything. It's a drain water separate. Oh yeah, yeah, so we recycle it. There are many re-refiners, in fact they're growing in the United States, and they come and pick up our used oil and then they re-refine it, and they sell it at a discount to fresh base oil. So there's a whole business in that. So every store, that oil is picked up at least once a week and sent in to be re-refined.

Yep. How much business do you do outside the country? So we have a Canadian business, and it is less than 10% of our business today. We have time for one or two. Okay, I just... can I give someone else a chance? But okay.

You know, I think the secret — by the way, this is something I inherited, I did not create it — it's a combination of the way the store is set up that requires teamwork. It is the training, 270 hours of training that's just the base training that we give to every technician in our store just to be ready to give service, combined with the technology program that we have created. It's proprietary, we call it SuperPro. It guides the experience. So when you come in, we scan your VIN, it lights up our system to make that experience custom to you and takes the guesswork out of it for our employees. It's those three things. When you get them right, customers are the beneficiary. If we didn't have the training, if we didn't have the systems, if we didn't set the team up to work together, none of it would work. So it's an amazing business model.

Oh my gosh. Well, we get it from Valvoline Global Operations. That's right. That's a quick one. We could do one more. That's too easy. Inquisitive about running the VIN number. You're scanning it anyway, you identify the person.

Rec guys let them know so we don't. Today, although in Connecticut, in the state of Connecticut, it is required now, and we have built the technology and are piloting it. In the state of Connecticut, when a car comes in, if there is an open recall, we are required to print the document out, provide it to the customer. So we've been doing that in the state of Connecticut with really great feedback, and we're trying to figure out how we'll scale that to all of our stores. To stay for a couple minutes? Yeah, I have a little bit of time to stay beyond, and I know the meeting for many of you may need to finish up, but I just thank you so much for the interest in Valvoline, and I look forward to more conversation.