What a difference a year makes.
Twelve months ago, the oils market was looking decidedly out of kilter. Despite commodity-driven price hikes, value sales were down 7% [Kantar] and while volume sales were up 3.6%, this was largely the result of heavy promotional activity that was only serving to further undermine category value.
A year on, many of the same pressures still exist. Yet the category appears to have undergone a dramatic reversal of fortunes. Value sales are up 5.3% and are now far more aligned to volume growth, of 2.8%. Indeed, with the exception of speciality oils, every sub-category has grown in value and volume the standouts being standard and light olive oil and rapeseed oil (albeit from a low base). So what's going on?
It would be easy to put the value growth entirely down to reduced promotional activity (see p51) and rising inflation, especially in light of the slight fall off in volume growth. But not every category has been hit by inflation and even when they have been, it hasn't necessarily had a negative impact on volumes showing that consumers are prepared to fork out a bit more when they think a product merits it.
Suppliers are keen to deliver such products so they can justify higher prices and the much-needed reduction in promotional activity this year. The past year has seen a wave of new innovation including the UK's first major chilled oil brand Flora Cuisine which was launched in March and is being supported with an £8m ad campaign featuring Vernon Kay and his mother.
Innovation is key in a category that has been hostage to significant commodity and retail price volatility. The commodity costs of sunflower oil and rapeseed oil, the key ingredient in most UK vegetable oil, have risen sharply and this is reflected in the value hikes recorded by Kantar (left) and the 8.4% and 8.7% retail price inflation noted by Nielsen in the year to 19 March, as Lisa Mullins, marketing manager of brand leader Filippo Berio, points out.
Olive oils on the other hand have experienced very varied fortunes on the commodity front, oversupply pushing the cost of Spanish and Greek extra virgin olive oil down by as much as 5% according to the International Olive Council (IOC) and under-supply (to its domestic market) pushing the cost of Italian oil up a whopping 44%.
The upshot has been sharp variances in the shelf price of olive oils depending on their provenance and/or fluctuation in those prices. In the overall sub-category, Nielsen has therefore gone from recording a 6% fall in the shelf price of olive oil to £4.27 in the year to 22 January to measuring 1% inflation in the year to 19 March.
To complicate matters further, the IOC is now forecasting that 2010/11 will be the second best-ever year for olive oil production thanks to increases in Algeria, Morocco, Syria and Turkey. This could place downward pressure on shelf prices, believe some experts. Others are not so sure.
"It's a very strange situation," says Filippo Berio MD Walter Zanré. "If you look at the Mediterranean as a whole, there's plenty of oil. Spain is very weak in terms of pricing. But we don't see prices coming down much. We've seen an increase in Greek and Italian oils."
That doesn't mean producers sourcing Greek and Italian oils will suddenly be seeking price rises, however, says Zanré. "You go to Tesco and say I need a price increase and they hear I want to be delisted!"
He predicts a period of price stability that will enable olive oil consumption to grow at the expense of oils more susceptible to price rises. Retailers are keen to develop their olive oil ranges, because they deliver high retailer margin and drive category value, adds Mullins. With olive oil sales accounting for 44% of the market by value but only a third by volume [Kantar], there's a clear opportunity for further growth.
Asda has already increased its category share 3.3% in the past year [Kantar] by extending its range and adding products such as infused olive oils. "Despite oil prices rising, we are still seeing growth in the market, driven by olive oil, so customers are clearly opting for healthier options when it comes to cooking and are willing to try more unusual flavoured oils within olive oil," says Catherine Poole, Asda cooking and condiments buyer.
Consumers staying in and cooking at home during the downturn have also helped, says Remmelt Jongkind, marketing director for Edible Oils, part of the Princes group. "This, combined with celebrity chefs encouraging consumers to be more adventurous, is getting consumers to introduce a wider variety of ingredients and cooking methods into their repertoire."
More consumers are repertoire buying, agrees Dean Towey, marketing director for Napolina, another Princes brand. "They're choosing extra virgin for dipping and drizzling, standard olive oil for marinades, light and mild to complement delicate flavours and seed oils for basting and frying."
To improve consumer understanding, RH Amar has put neck tags on the Bertolli range it distributes to highlight the products' suitability for different uses. One sub-category that's already done a lot of work around consumer education and is now reaping the rewards is rapeseed oil, with value sales up 30.8% and volume sales up 20.8% [Kantar]. It may still be a relatively small market at £5.9m, but just two years ago the market was only £3.2m.
This near-doubling of growth has been fuelled by UK suppliers raising their game. Quex Foods, Borderfields, Just Oil, and Farrington's have all played the regional/artisan card and promoting the health benefits of cold pressed rapeseed oils to great effect. "For many years rapeseed oil was perceived by consumers as a cheap 'industrial' oil," says Duncan Farrington, founder of the Mellow Yellow brand. "We have created a following for it."
If only some of this growth could rub off on the 'other oils' category, which includes grape seed, nut and sesame oils and was the only sector to fall both in value (2.8%) and volume (2.2%).That hasn't deterred some niche oil brands. The Groovy Food Company, for instance, says its healthy oils range, which includes Organic Virgin Coconut Oil, is growing strongly.
Others and not just niche oils could struggle in the face of mounting competition and cost pressures. "Prices for vegetable oil and oilseeds are expected to remain volatile," says Mintec analyst Robert Miles. "Higher crude oil prices often raise the price of vegetable oils."
Home-grown rapeseed oils and imported olive oils, on the other hand, appear to be relatively inflation-proof. Crucially, many boast added value credentials either as premium products (in the case of speciality rapeseed) or as part of a repertoire of oils (as with olive). And that should make riding whatever volatility the market has yet to offer that much easier.
Focus On Oils