OIL CHANGE 2004-05-10 (2)

JON SPRINGER

There's a particular customer at Zagara's Marketplace in Cleveland Heights, Ohio, who insists the store carry the imported Spanish olive oil Zoe and gladly pays $22 a tin for it.

"If we don't carry it," said grocery buyer Pat Yauger, "he's not going to shop here."

With one customer satisfied, it's on to the rest, and that's where things get dicey. With prices having already risen for specialty oils, and mainstream oil brands expected to see further price increases, retailers like Yauger are skeptical of a strong performance from their salad oil sets this year.

With the exception of olive oil, cooking oils and shortenings have grown little in recent years. According to ACNielsen, Chicago, unit sales of the entire shortening and oil category in supermarkets have seen slight declines in each of the last three years, though dollar volume has increased steadily. The one hot category has been olive oil, but even its explosive sales growth has plateaued recently as price increases have curtailed consumers.

"Olive oil has generally done very well here," said Yauger, whose upscale-leaning IGA store carries between 20 and 25 brands. "But in the last month, we've seen price increases of 20% to 25%, and it's kind of slowed it all down. The less expensive olive oils are selling better now, and we're not seeing as much movement on the expensive ones.

"Among regular vegetable oils, we haven't seen price increases yet. But I imagine they're coming," Yauger stated. "I see the price of butter going sky-high and people switching to margarine. The demand for that is going to have a ripple effect."

Retailers in the Western states told SN they have already seen price increases from manufacturers on some oil brands, and that the cost for private-label oils is on the rise, too.

"I think sales are going to slow down," said Steve Vanderploge, category manager for Bashas', Chandler, Ariz. "I think oil is a price-conscious item. What I'm interested to see is how much [manufacturers] are going to promote now. That could make a difference."

Soaring commodity prices and some poor crops last year have pressured manufacturers to raise prices, observers said. In the case of olive oil, an unexpectedly rainy harvest season in Spain affecting olive yields and dollar weakness against the euro have made imported items costlier.

The pricing concerns and sluggish sales threaten to overshadow some potentially positive category developments. New products are on the way that cater to trends in healthier eating -- and olive oil sometime this summer may get a formal approval from the Food and Drug Administration to make a qualified health claim on bottle labels.

The North American Olive Oil Association, Neptune, N.J., was among the first groups to have petitioned the FDA under its Consumer Health Initiative for Better Nutrition Initiative to make a qualified health claim for its member company products. The message regards monounsaturated fatty acid's potential role in preventing coronary heart disease. The trade group expects to hear by the end of July whether the FDA will approve the claim, and packages could be carrying labels, neckers, stickers and signs trumpeting the message soon after.

If successful, "there's going to be a lot of attention focused on olive oil, and it's going to be a great opportunity for retailers to take advantage," predicted Bob Bauer, president of the association. "Consumers are going to be looking for it, and retailers will be able to tie it in with other heart-healthy foods. It's going to mean pretty good things for the category."

That's not to say olive oil hasn't already enjoyed a great run. According to ACNielsen, dollar volume on olive oil in U.S. supermarkets has increased more than 35% since 2000, while unit sales have climbed 23.3%. Once thought of as an ethnic food with a taste too bold for mainstream Americans, olive oil has become more popular due to a growing interest in healthier foods and gourmet cooking, said William C. Monroe, former president and chief executive officer of Unilever's Bertolli USA division, makers of the best-selling U.S. olive oil brand.

"For the retailer, the olive oil customer is important because that customer has a higher income and a higher education," said Monroe, who today advises food importers with his own company, Monroe Global Solutions. "They're not just buying olive oil; they're also buying the best cuts of meat and the best produce. Their cart contributes a higher profit margin."

At Bashas', recent higher prices have slowed the momentum of olive oil, said Vanderploge. "Olive oil isn't as established out here as on the East Coast, but a year ago, when prices were good, it was selling like crazy. People were anxious to try anything new, especially for the taste and health issues."

Bashas' often displays olive oil with pasta, sauces and fresh bread, he added. "Many people out here didn't know you could dip bread in olive oil until they saw some of the restaurants doing it. Now they want to try it when they get home."

According to Monroe, olive oil tends to perform best when it's merchandised like wine: Consumers want lots of variety, and tend to become more interested with additional knowledge of the product.

"Selling olive oil calls for ingenuity, communication and follow-up," said Monroe, pointing to Publix, Lakeland, Fla., and Wakefern Food Corp., Elizabeth, N.J., as retailers that have done exceptionally well with it. Publix has grown sales through effective category management, and Wakefern's ShopRite stores have created effective themed events to sell olive oil, particularly during the Columbus Day holiday, Monroe said.

Elsewhere, consumers are increasingly switching to lighter cooking oils such as canola, and away from corn and vegetable oil, said Bashas' Vanderploge. One exception is Hispanic consumers, particularly those shopping at Bashas' Food City division: They have a strong preference for corn oil.

"They're very brand loyal to Mazola corn oil," he noted. "They will buy different brands of vegetable oil including private label, but in corn oil they have a strong preference for Mazola. We merchandise it on display-ready pallets."

Corn oil is also the largest oil business for Unified Western Grocers, said Debbie Esparza, grocery buyer for the City of Industry, Calif.-based co-op that serves many stores with a predominantly Hispanic shopper base. "Our business has been very consistent in corn oil," she said. However, Esparza also expressed concern about potential rising costs.

Shortening has seen yearly declines in units and dollars during each of the previous three years, according to ACNielsen, though some manufacturers appear ready to address the problem. Orrville, Ohio-based J.M. Smucker, the new parent of the Crisco brand, recently debuted a reformulated Crisco shortening variety featuring zero grams of trans fats. Smucker, whose acquisition of Minneapolis-based International Multifoods Corp., is expected to close in June, said in a statement it intends to leverage the Crisco brand with the Pillsbury, Robin Hood and Martha White baking goods brands it will acquire in the deal. Smucker "has laid out a clear path in the fats and oils space, and the vehicle is baking," according to a recent report by Chicago-based Mintel International.

STRIKING OIL

The market for all edible fats and oils over the last five years has been flat, with dollar growth coming mainly from commodity price increases and selected segment growth, according to a report from Chicago-based Mintel International. Mintel expects the market will grow at 6% at current prices through 2008, which translates to a 6% decline at constant prices.

Sales of all edible fat products -- cooking and salad oil, mayonnaise, olive oil and shortening -- were around $2.7 billion in 2003, with 98.8% of those sales taking place in supermarkets. Mass merchandisers excluding Wal-Mart and drug stores each account for less than 1% of the total fats and oils market.

Vegetable oil is the most popular oil variety, followed by olive oil, canola oil and corn oil. Around 93% of all U.S. consumers use cooking oil, with mayonnaise at 87%, nonstick cooking spray at 73% and shortening at 57%. Penetration tends to increase with age, Mintel noted, primarily because younger households (ages 18 to 24) are less likely to bake. Married families also use more oils and fats than single households.

Cultural and dietary differences influence the rate of consumption and the type of fats used, Mintel said. Asian, African American and Hispanic consumers are twice as likely as white households to use more than four quarts of oil in 90 days; and half as likely to use less than one quart, the report found. Asian households show the lowest usage of mayonnaise and cooking spray among the four groups but are most likely to regularly use cooking oil.

Consumers use oil most often for frying or sauteing (76%), followed by baking (59%), deep frying (40%) and salads (32%). Consumers aged 18 to 24 are deep frying 4% more often than the average consumer -- a percentage that has increased significantly from a 2002 study. Mintel attributes this in part to the popularity of large gas-powered turkey fryers that have arrived on the market in recent years.