Olive Oils Face Slower Growth Ahead

by Karlene Lukovitz, Apr 17, 2009, 2:02 PM

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After years of robust growth driven by greater consumer awareness of olive oil's health benefits, these oils now face the growth challenges that come with a maturing market -- as well as current pressures resulting from consumers turning to lower-cost oil/ shortening alternatives.

That's the overall segment prognosis from Packaged Facts, which estimates that total U.S. retail olive oil sales declined by 6.5% last year, to $1.69 billion. Sales of the oils grew 39% (by more than $500 million) between 2004 and 2007. However, '04 actually marked the start of a marked decline in growth rates, according to PF's new report, "Olive Oil in the U.S."

While the segment's compound annual growth rate between '04 and '08 was still at 7%, its retail share of overall oils and shortenings -- which had reached 45% in 2007 -- declined to 37% last year.

Furthermore, PF projects a 15.6% sales decline this year, followed by 11% growth in a presumably improved 2010 and smaller annual growth rates thereafter. CAGR for 2008 through 2013 is projected at just 1.1%, with sales reaching $1.8 billion by 2013.

"Simply put, the olive oil market in the U.S. may be maturing, and the days of longer-term accelerated growth are likely behind us," sum up the analysts.

Olive oil brands face growing competition not only from cheaper varieties of oils/shortenings, but private-label olive oils. In fact, as of 2006, private-label products overtook the leading brand, Filippo Berio, and as of last year had an estimated 22% market share versus Berio's 19% (despite Berio's 12% CAGR between '04 and '08).

Other brands in the top five, per Information Resources, Inc. '08 retail sales data, are Bertolli, Pompeian, Star and Carapelli -- demonstrating the continuing power of imports' "aura" among U.S. consumers, notes PF.

Within the top imports, Pompeian and Star -- both positioned as moderately priced -- saw CAGRs of over 10% during the last five years. Major U.S. oil/shortening marketers have introduced branded olive oil products at low price points in recent years. However, despite robust growth -- between '07 and '08, J.M. Smucker's Crisco olive oil sales jumped from $6 million to $11 million, and ACH Food Companies' Mazola olive oil sales from $3.3 million to $5.4 million (for an '04-'08 Mazola CAGR of 137%) -- their shares of market continue to be far below those of the leading imports, PF points out.

Premium olive oil marketers can benefit from turning the recession-driven trend toward more home-prepared meals to their advantage -- by comparing the relative inexpensiveness of using quality olive oils to prepare meals at home to the cost of dining out, for example (as in Bertolli's use of the tagline "The Restaurant You Create at Home" for its line), the analysts advise.

Potential marketing leverage points for the segment as a whole, they say, include reducing consumers' confusion about olive oils via grassroots education initiatives, employing celebrity chef endorsements and cooking show product placements, more aggressive Internet/social media marketing and behavioral targeting, and ethical/cause-related marketing that helps differentiate brands (such as The Colavita Foundation for Children).

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