Fats/Oils Category Relatively Recession-proof

by Karlene Lukovitz, Oct 18, 2011, 4:17 PM

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U.S. sales of salad and cooking oils, butter, margarine, mayonnaise and other fats had a compound annual growth rate (CAGR) of 3.1% between 2007 and 2011, rising from $8.2 billion to $9.2 billion, according to a new report on the category from Packaged Facts.

Growth was minimal in four of those years. The exception was 2008, when food inflation drove up dollar sales.

The category is expected to show 2% growth next year, again largely due to inflation/higher pricing. However, the category’s growth is expected to pick up along with the economy and overall consumer spending, reaching 3.5% by 2016, when sales are projected at $10.6 billion.

Of course, many categories would have welcomed a 3% CAGR in recent years. “These products have sold well enough, even in tough times, that they have emerged as relatively recession-proof compared to other food categories,” observes Packaged Facts Publisher David Sprinkle.

The reality that many fat/oils items are staples not subject to being eliminated from grocery lists certainly works in the category’s favor. However, consumers’ increased awareness of the health benefits of monosaturated and polyunsaturated fats has become a key growth-driver -- one that should further drive momentum as makers leverage this via new products and marketing approaches, according to Sprinkle.

“Thanks to recent studies indicating that certain fats can lower disease risk, ‘good’ fats as a component of food have left the nutritional doghouse,” he says. “Consumers who had embraced low-fat diets for years are returning to foods and beverages that feature the better-for-you fats.”

However, private-label products pose a growing challenge to national and regional brands, at least in the butter and olive oil segments. Private-label fat/oil products are projected to reach $1.6 billion this year, accounting for more than one-quarter of total-category sales, according to Packaged Facts.

Sales of private-label fats/oils product grew by 5.3%, compared to overall category growth of 0.6%, in the 52 weeks ending April 17 in mass-market channels (excluding Walmart), SymphonyIRI data show. Most of the private-label growth was in butter, where these products saw sales increase by 19% during the period, to account for more than half of all butter sales. Packaged Facts attributes this to large increases in butter prices, which drove many consumers to switch to store brands.

While private-label sales within the cooking/salad oils segment as a whole actually declined, these products account for about a quarter of sales in this segment. And within the olive oil segment, private-label sales rose by 3% -- even though olive oil prices have been declining.

Olive oil is the fifth-largest segment within fats/oils, in part because of a growing number of new entrants in the market, according to Packaged Facts analyst Shannon Brown, who authored the report. Some of the growth of private-label olive oil is attributable to some retailers’ increased emphasis on marketing the high-end quality of their store brands, she points out.

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