THE APPETIZING DUO

BARBARA McDONALD

Oils and vinegars -- especially the growing number of specialty items -- are generating high margins and hefty sales in the grocery aisle.

Ron Tanner, vice president of communications for the National Association of Specialty Food Trade, New York, which represents 2,050 manufacturers of gourmet-food products, said consumers are buying a range of olive oils and vinegars because they have realized that each product has a different use.

"They may want a more expensive extra virgin olive oil for salad dressing. The average consumer has a breadth of these products. Supermarkets are realizing they can increase their sales and profits by offering a number of items," Tanner said.

Rick Lombardo, director of procurement for Grocers' Specialty Co. and Grocers' General Merchandise, two subsidiaries of Certified Grocers of California, Los Angeles, and Dave Tucker and Steve McPherson, both category managers for Grocers' Specialty Co., all spoke with SN about the growth in the vinegars and oils category. Certified supplies 2,700 supermarkets, from Denver to the Pacific coast, from stores in inner-city barrios to "the ultra-gourmet," as one of the men said.

"In the specialty class, olive oils and vinegars are high margin," Tucker said. Other retailers contacted by SN had varying opinions on margins, though all agreed that vinegar is profitable. One Mid-Atlantic chain executive who did not wish to be identified told SN that edible oil gives 12% to 13% profit, while vinegar is close to 20%. His company carries a private-label vinegar that sells at an 8% profit.

Dave Weidener, category manager for Genuardi's Family Markets, Norristown, Pa., calls vinegar a high-margin item. "Oil is middle of the road, due to competitive pricing. Olive oil has become more popular than a couple of years ago," he added. Vinegars are up 3% in sales, oils are up 2%, both for 1998 vs. 1997 in the 29 Genuardi's units. "I would guess that health concerns play a role in the demand for olive and canola oil, because it's been in the news, but I have no way to document that," he said.

A year or two ago, Genuardi's added more upscale olive oils, and has knocked out a few "because the sales weren't there," Weidener said. "They are expensive; they take up inventory dollars. We have a pretty good variety, but have down-SKU'd some in the past six months. We were just too heavy in the varieties." Some of the more unusual kinds it stocks include basil and artichoke flavors.

Among olive oils, Genuardi's Top 2 items are both extra virgin; No. 3 is light, Nos. 4, 5 and 6 are pure olive oil.

Of the Top 10-selling olive oils, three are Genuardi's private label. Oils are stocked in the baking aisle. There is an 8-foot regular oil section, with Wesson, Crisco, Mazola and others, and a separate 4-foot olive-oil section, Weidener said.

Genuardi's vinegar buyer has added some new balsamic vinegars, Weidener said. "That's the new hot thing right now. Our No. 1 seller is white vinegar."

The Mid-Atlantic grocery executive told SN that an effective marketing strategy in the oil category is to present customers with a lot of variety. "Oils are something like mustards. You can influence a customer's opinion by how many different kinds you have on the shelf. The more, the better," he said.

But sometimes retailers can add too many. For example, Genuardi's and some of Certified's customers had to pull back when they realized they had too many stockkeeping units.

Over the past several years, Certified Grocers managers said, offerings have grown from the traditional olive oils (pure, extra virgin and extra light), to flavored olive oils, and now, infused oils, such as the rosemary, sundried tomato or garlic selections seen in some of the high-end condiment sections.

Olive oils and vinegars have a wide range of retail prices and can cost up to $30, $40 or even $50 or more for 8 ounces of balsamic vinegar, according to the Certified executives.

"Balsamic has really changed over the years," said Tucker. The traditional way of making it required a long process, in which certain casks could be used only once. Because the demand for balsamic vinegar has become so great, manufacturers have found ways to speed up the process chemically and make the product less expensive, so that retail cost can vary from $2.29 up to $100, depending on the age and origin of the vinegar, he said.

The customer for very expensive vinegars is a very affluent one, "Probably the same person who would pay an exorbitant price for wine for a dinner party," Tucker said.

In the oil and vinegar categories, Grocers Specialty has 40% more SKUs to offer today than it did a year or two ago, Tucker said. Its SKU count has increased mainly because of the diverse demographics that the company services.

In olive oils especially, the Certified grocers say demand is based on neighborhood demographics. Two or three years ago, some of the major chains put 8-foot olive oil sections in their stores.

"Those are no longer there, because they were over-SKU'd and weren't getting the sales results. Prices on olive oil have fluctuated too," Tucker said. Prices were high in 1996, due to shortages, but they are more moderate now.

On the East Coast, prices are very competitive on olive oils, especially the pure variety. In Florida, it almost amounts to a war, said one industry leader who did not want to be identified.

"It's a very competitive category, but no more so than before, and the East Coast has always been very competitive," said Tom Mueller, president of Filippo Berio Brand, a division of Salov North America Corp., Hackensack, N.J., and also the chairman of the North American Olive Oil Association, Matawan, N.J.

Pure olive oil, the least expensive of the three major segments, in 3-liter tins has recently been featured in the Northeast at prices ranging from $5.99 to $10.99.

In 1998, there were several months of growth in sales of 3-liter tins, a 45% to 50% average increase, said Richard Sullivan, president of the NAOOA, "because it is your best dollar value." Extra virgin continues to grow and now accounts for 31.7% of all retail sales of olive oil, according to the NAOOA. Back in the early 1980s, only 5% of the market was extra virgin, so it has grown by a factor of six.

"Extra virgin has more flavor. Some people start out with light, then get used to it and step up to extra virgin. It could also be due to the aging of the population; people liking stronger flavors," said Sullivan.

Olive oil accounts for 8% of the volume of all oils in supermarkets, said Sullivan, citing figures from Information Resources Inc., Chicago. But it was responsible for 25% of dollar sales, for the 52-week period ended June 1998, he said.

Vegetable oil was the leader, at roughly 60 million gallons, but it showed a decline of 1.7%, for the same period. Canola oil is in second place, at about 30 million gallons, with an 11% increase from 1997 to 1998.

Corn oil has continued its decline, Mueller said, down to about 25 million gallons, or 7% year to year. Olive oil has grown 10.5% in the same period, now at 11.5 million gallons.

Mueller attributes increasing olive oil consumption to greater consumer awareness about its flavor-enhancing properties and health benefits. Bertolli for years has spent a tremendous amount of time and effort, as well as money, advocating the Mediterranean diet (of which olive oil is a part), said William C. Monroe, president and chief executive officer of Bertolli North America, Secaucus, N.J.

"Our responsibility is not only to sell it to the retailer, but to make sure the consumer understands the uses of the product," Monroe said. With its Web site, 800 number for customer inquiries and recipe books, Monroe says, Bertolli treats olive oil as more than a commodity.

Olive oil companies keep the category interesting by coming up with new products every year. For example, last year Bertolli introduced a new extra virgin, Gentile al Palato, or gentle to the palate, and Fillipo Berio now has an organic extra virgin and a low-acidity extra virgin.

Linden, N.J.-based Colavita has a Limonolia flavor, an extra virgin with lemon essence, that was cited in the Seattle Times recently as an interesting new product, good brushed on seafood or in a vinaigrette salad dressing. Its retail price was $6.49 for an 8.5-ounce jar.

Most retailers stock oil in the baking aisle and promote it on a regular basis. "There are quite a few deals on the oils, because it became so competitive." Weidener of Genuardi's said. "If the product doesn't move, [retailers will] discontinue it, so they'll give you a lot of deals to keep activity going on their items."

One way that Genuardi's promotes olive oil is by cross merchandising it with bread from the bakery department. As for vinegar, some stores will generate impulse sales during Easter by stacking vinegar where the eggs are, along with egg dye kits. In summer, one way to get extra sales is to display vinegar in the produce department, for use in salads and in canning.

Ross Nixon, vice president of merchandising at Dahl's Food Markets, Des Moines, Iowa, said in most of the chain's 11 stores, oils are merchandised in the baking aisle. Private-label oils do not do that well, garnering 10% to 15% of the sales. Safflower oil is still hot, he said, and canola is still popular, but olive oil is "the hottest button right now." Most of it is sold on promotion. Nixon passes on all the allowances given by the warehouse.

In vinegars, white sells best, he noted, because it is multipurpose. He expects the future of vinegars to be bright for the high end -- for example, raspberry vinegars and other unusual flavors -- because of consumers' fondness for produce and salads.

Another Midwestern grocer, Dick Rinehart, owner of Dick's IGA in River Falls, Wis., said the holidays, particularly New Year's Eve, brought strong sales in olive oils. "The shelves were full in the morning, and one-third was gone by the end of the day."

He said oils and vinegars continue to be a high-margin category, and that the two groups have grown about 3% to 5% over the past few years. His store has added 10% more upscale olive oils and vinegars, and his customers find the new flavors, like garlic and spicy jalapeno, interesting. He places some oils in the baking aisle, others in the pasta section across from sauces. He and other retailers reported carrying as many as 30 SKUs of vinegar, or more.