It has been a turbulent year for oils. Top-line sales of the favourite, olive oil, appear buoyant, fuelled by heavy promotion in the multiples.
But despite the rising volumes, many producers admit that margins are dreadful, especially in own label.
UK sales of olive oil represent nearly 50% of the total oils market by value [TNS 52 w/e April 24, 2005]. But this has come at a cost. “Olive oil has always gone up and down in price,” says Aarhus retail marketing manager Suzanne Heffernan. “But 10 years ago it was a speciality. Now it is a commodity.”
This year raw material has been in short supply in the key Mediterranean growing regions. As a result, producers are being squeezed.
Spain, the largest olive oil producer, normally presses 1.2-1.5 million tonnes annually, says Peter Kakolyris, MD of specialist Mediterranean foods importer Bevelynn. “But the last harvest yielded only 900,000 tonnes, due to poor weather. This will create upward pressure on prices for some time to come.”
“It’s a tough market out there,” says Michael Adams of Euro Food Brands, which handles Carapelli olive oil as well as cheaper own-label seed and vegetable oils. “It’s competitive, and the raw material is showing no signs of easing. We’d like to invest [in marketing] but it’s a struggle.”
Total cooking oil sales were up 4.2% in value to £178.7m. Within that, standard olive oil rose 16.5%, despite lower rsps.
Diana Anderson, marketing manager of Filippo Berio, says: “Cost prices have gone up 25% over the past year, retails have come down, especially on own label - the average price per litre on shelf has fallen from £3.86 to £3.74 - and category margins are being squeezed. Having said that, retailers have brought new people into the category through promotion.
“But we believe growth is largely being driven by consumers switching from standard cooking oils to healthier olive oil alternatives.”
Vegetable oil, meanwhile, is almost being given away.
Sales are close to stagnant, rising just 0.9% to £41.3m, with sunflower oil even flatter, rising just 0.2%.
Tesco’s cheapest vegetable oil is now just 43p a litre, and Asda is selling sunflower oil at 47p a litre - a price point described by one distributor as “bloody ridiculous”, although he conceded: “It’s not going to change.”
Low prices are certainly driving volumes.
Princes Foods’ Napolina olive oil is up 23% in value but 43% in volume, making it “a clear challenger to Filippo Berio”, says Remmelt
Jongkind, marketing director for Princes’ manufacturing division.
Princes now has the single biggest share of the total cooking oils market, with 24% of overall volume and a 64% brand share in edible oils, after buying Crisp ’n Dry, Mazola and Cookeen from Unilever. It also produces Flora and Olivio under licence from Unilever.
Jongkind says that while cooking oil is a commodity it remains a staple in the UK diet. “There are no signs that sales are set to decline,” he says. “There has been little or no brand promotion in the category for years. Now we are going to reinvigorate it with educational messages and promotional activity.”
Elsewhere, producers are focusing on health messages and the development of premium and speciality oils in a bid to maintain margins overall. Leading Spanish brand Carbonell, for example, is launching Privilegio, an oil made
from pitted green olives, said to have high nutritional properties. “We’re looking at premium products to boost the value of the category,” says Clare Marsden of Carbonell UK.
Filippo Berio’s Anderson points out that household penetration of olive oil, while continuing to grow, is still only 43%. “With 57% of the market untapped there’s plenty of potential,” she says.