OIL PRICES UP SHARPLY IN CENTER AISLES, TOO

Lucia Moses

STATEN ISLAND, N.Y. -- Retailers are seeing more price spikes for oil -- olive oil, that is.

"They're going up dramatically," said Paul Orecchia, a senior director of non-perishables at Key Food Stores Co-op here, noting that he just paid $105 for a four-gallon case of Bertolli olive oil, a 19.5% increase.

Orecchia said he hasn't seen such steep prices for a decade, when a severe drought in the Mediterranean stunted olive oil production. "This has been two years running, and it's been up, up."

Suppliers are raising prices in anticipation of weak supply. A spring frost and lack of rain in Spain were expected to blunt the fall harvest in that country, which provides 60% of the world's olive oil, said Bill Monroe, chief executive of Pompeian and past president of the North American Olive Oil Association.

Monroe said in mid-October that a metric ton of olive oil (defined as raw material cost plus estimated freight to the United States) cost $4,800, an increase of 48% over the past six months. He predicted it would hit $5,500 by March.

"The retail prices to consumers will go up anywhere from 25% to 50%, and in some cases could double," he said.

The increases come at a time when olive oil's demand is greater than ever, due to the popularity of cooking, gourmet foods and the Mediterranean diet.

Consumers have also become more aware of olive oil's health benefits. The Food and Drug Association in November 2004 approved the use of a qualified health claim that olive oil consumption may reduce the risk of coronary heart disease.

Olive oil's sales have outpaced those of all other shortening/oil products in recent years. Dollar sales in food, drug and mass merchant stores grew nearly 30% over the past four years to $508 million, while sales of all shortening/oil grew 12.5% to $1.8 billion, according to ACNielsen.

During the shortage a decade ago, consumers responded to higher prices by trading down to smaller bottles of olive oil or substituting tree oils, Monroe said. Because olive oil is more of a mainstream product today, observers expect the consumer impact to be more muted.

"Customers are used to spending more for olive oil," said Bob Bauer, president of the North American Olive Oil Association.

Retailers expressed skepticism that shoppers would ignore the higher prices, though.

"A 34-ounce bottle of Bertolli is over $10 now, whereas they can get a less popular brand for less than $7," said Tom Incandela, general manager and grocery buyer at Caputo's Fresh Markets in Addison, Ill.

Incandela said he'll likely put more promotion behind Caputo's own brand of olive oil. Since he stocked up on it before the price went up, he can afford to price it competitively with the national brands.

Orecchia expected Key Food to downplay olive oil in its weekly ad and instead promote new blended oils.

"Thirty dollars is still $30," he said. "We will promote the smaller bottles, but the smaller bottles are still very expensive."

Orecchia also predicted that price increases could ease in a few months as curtailed consumption allows supplies to build up. "If people start backing off of pure olive oil, it starts backing up in the warehouses," he said.