Costa Oil founder Costa Kapothanasis
“This is an industry that has barely changed at all in the past 30 years,” says entrepreneur Costa Kapothanasis. “The biggest players have been around for a long time, and we felt there was an opportunity to do something new and different.”
It’s a familiar theme – the technology sector is full of stories of new entrants hoping to disrupt legacy players and incumbents with innovation. However, Kapothanasis isn’t a tech founder. His business, Costa Oil, is decidedly old economy; it operates 32 outlets, mostly in the Eastern states of the US, where American drivers can have their oil changed.
Now the company is set for expansion. It is today announcing that it has secured a significant strategic investment from ABACO, a mid-market private equity firm led by Managing Partner Michael Abdy. With ABACO’s support, Kapothanasis hopes to build a chain of franchised outlets with the scale and reach of the industry’s biggest players – he expects to open 25 to 30 new stores a year in the coming years, though says this trajectory could accelerate.
The Costa Oil approach is based on serving drivers well and quickly. “Our business is all about convenience,” Kapothanasis says. “We deliberately set out to do whatever we could to reduce the friction between the customer and the service.”
In practice, that translates into Costa Oil offering 10-minute oil changes. The business doesn’t waste time trying to upsell other services, such as tyre changes or brake fluid replacement. And customers don’t need an appointment – they simply drive up whenever it suits them.
There is also the potential to undercut rivals. The company has deliberately eschewed the use of branded oil products, preferring alternatives that offer the same quality but don’t feature expensive marketing. “We can pass the savings on to customers,” Kapothanasis says.
It’s a model that appears to appeal to American drivers. Since its launch in 2013, Costa Oil has performed more than 1.8 million oil changes and recycled more than 1.5 million gallons of oil. Kapothanasis has opened 18 stores under his own steam, with the other 14 in the current network operated by franchisees.
Nevertheless, the company remains small relative to the market leaders. Research published earlier this year by Franchise Chatter, a resource aimed at Americans considering operating as franchisees, identified at least four national chains of oil change businesses with more than 500 locations each.
The list is headed by Jiffy Lube International, which has close to 2,200 outlets, followed by Valvoline Instant Oil Change on around 1,600, Take 5 on around 750, and Grease Monkey on just over 500.
Still, this is a big market. Given that the average American drivers around 15,000 to 20,000 miles a year, and needs their oil changing every 3,000 to 5,000 miles, there is huge amount of recurring business to go at. Moreover, argues, Kapothanasis, there is a window of opportunity for a new entrant. “I saw a major gap in the market,” he says. “We can serve more cars more quickly at a lower price point using a small building footprint with tandem doors.”
This blueprint – for smaller, more efficient locations – allied to modern sales and marketing techniques, including targeted spending on social media, has enabled Costa Oil to establish a healthy foundation for the business. Kapothanasis’s aim now is “to become a brand that every American knows”. New capital from ABACO, along with professional support from a private equity investor with a long track record of working closely with investee companies, can get Costa Oil to this point, he argues.
Industry consolidation is a potentially supportive trend. In a mature industry, many smaller operators are now looking to sell up and retire, points out Kapothanasis; that provides a ready supply of buildings and locations to speed up expansion. “Using technology to spot these opportunities, as well as relationships we have developed thanks to our new equity partner, we often have first mover advantage when they become available.”
That partner certainly believes in the potential of the business. “Our investment in Costa Oil represents a unique opportunity to become a leading brand in a primary service category,” says Abdy. “Costa is owning the minimalism trend by operating with a much smaller footprint kiosk than typical oil change brands and offering a faster and more cost-effective service.”