The global race to capture the US olive oil market
by Eric Francucci, Analyst, HighQuest Partners
With nearly 10% of global olive oil consumption, and domestic production accounting for less than 5% of US olive oil demand, the US is a land of opportunity for any olive oil exporter.
In the past five years, Italy has accounted for 50% of US virgin olive oil imports by quantity, with Spain in second holding 25% of total imports- up 60% from the previous 5 year period, according to US International Trade Commission data. Other Mediterranean countries (15%) and “New World” producers, such as Chile, Argentina, and Australia (6%), supply the remainder of the market.
American taste for olive oil, particularly virgin (mechanically pressed) oil, is increasing yearly- quantities of virgin oil imports have more than quadrupled in the last twenty years. Although the growth rate has dipped slightly in the past ten years, virgin imports have increased by 70% while non-virgin imports have remained stable. The growing popularity of virgin olive oil can be largely attributed to increasing publicity of its health benefits, including its high content of monounsaturated fats.
Quality, or the perception of quality, is also a component of increasing olive oil consumption. Unlike health benefits, which may lead a consumer to decide to purchase virgin olive oil instead of another oil, quality (price aside) will dictate which bottle of olive oil the consumer will buy. Similar to wine, the quality of olive oil is difficult to perceive prior to purchasing the bottle, and is often done so incorrectly by the American consumer once the bottle is actually purchased- while a high quality olive oil is often described as “fruity”, “peppery”, or “grassy”, a UC Davis study has shown most American consumers find these tastes undesirable.
In the US, perception of quality is often linked to geographic origin, as consumers have demonstrated they prefer virgin oil from the EU, according to another UC study. This geographic bias can lead to incorrect assumptions about quality- while “Italian Olive Oil” is preferred and primarily exported to the US, what consumers are actually buying is often a blend of less-preferred Spanish, Greek, and Tunisian oil, a common practice of Italian bottling companies. While this has been recurring for many years, American consumers are beginning to take note, as epitomized by the 2014 lawsuits and the popularity of the NY Time’s “Extra Virgin Suicide,” accusing leading olive oil brands distributed in the US of mislabeling their products. Adding insult to injury, these companies are also accused of falsely labeling their products as “extra virgin” since the products themselves do not meet international extra virgin standards, another practice that has been commonplace in US markets.
These actions have created a domino effect. Even smaller-scaled “traditional” Italian producers, backed by a historical reputation and the most protected designations of origin (DOP) of any olive oil producing country in the world, are finding that their global reputation is being tarnished by fraudulent companies who market their products under the same, “Made in Italy,” brand. As extra virgin consumption continues to increase and consumers become more conscious of the quality of the oil they are consuming, the “Made in Italy” monopoly will begin to unravel, leading consumers to be more open to unconventional sources for their olive oil.
Made in Greece
While many Americans already unknowingly consume Greek olive oil as part of a blend, Greece currently has a very small share of American virgin imports, a mere 2.5% in 2014, according to US International Trade Commission data. Greece primarily relies on bulk shipments to Italy to soak up the majority of their exports, an unprofitable practice criticized in McKinsey’s 10-year growth strategy for Greece.
While Greek oil may lack the brand recognition of Italian Olive Oil, the quality is in fact, quite good- Greek production results in 80% extra virgin olive oil, and is often used to raise the quality of blends due to its pleasant flavor. US importers have begun to recognize this, as shown by Trader Joes, and more recently, Costco’s switch to 100% Greek olive oil.
The main obstacles keeping Greece from penetrating overseas export markets include a lack of recognition of the Greek brand and a lack of product differentiation, according to the US International Trade Commission. Correctly addressing these efforts through marketing campaigns by coops and producer organizations are key to break Greece’s perpetuating dependence on exports through the established Italian channel.
Made in Chile
With only 0.4% of global production, according to the International Olive Council, Chile will nonetheless be an interesting player to watch in the coming years. Currently Chile has more than five times the planted acreage it had in 2005 and estimates to grow its acreage at least another 20% by 2020, which would make it the seventh-largest world producer.
Because of the recent plantings, growers have been able to use state-of-the art production technologies such as fully irrigated groves and mechanical harvesting, resulting in a very high quality product, according to the US International Trade Commission Chilean olive oil is estimated to be 90% extra virgin, with some of the lowest acidity levels in the world. It has placed highly in a number of prestigious international competitions, further establishing its reputation.
Through heavy marketing efforts in the US emphasizing quality and freshness, Chile’s main producer association, ChileOliva, has been able to greatly increase presence in US markets since 2011. Under the slogan “Truly Extra Virgin”, ChileOliva endeavors to differentiate high-quality Chilean oil from the high amount of fraudulently labeled oil present in the US market. Marketing in the US will continue in the coming years but will not be too extensive due to this market fraud, according to ChileOliva staff. A large focus will also be on Brazil, which, contrary to the 75% bulk-import US market, is allowing Chilean producers to capture a higher premium due to a much larger percentage of bottled imports.
Made in the USA
US olive oil production has seen surprising growth over the past five years, up from about 1% of total market demand in 2011 to about 5% this season, according to American Olive Producers Association staff. Due to the high opportunity cost of planting olive trees instead of other crops a long-term production trend is unclear, and will depend on the expected returns of olive oil versus other crops that can be grown on the land. However, the drought in California has actually shifted land use in favor of olives, as olive groves typically use 1/2 to 1/3 of the water used by other permanent crops.
American olive oil producers have been able to capture a niche of the market because of their high quality product and its “local” appeal. The consumer of American olive oil is generally more knowledgeable about the product, and less sensitive to price. In fact, an econometric study based on Nielsen data has shown that the price elasticity of US branded olive oil is half that of foreign branded olive oil and private label olive oil, meaning that consumers of the product remain more loyal to it given a change in price. The government-mandatory standard for a product to be registered “extra virgin” in California is the highest of any government in the world, allowing the consumer to trust its consistent quality.
Increasing market penetration of domestically produced olive oil is made possible by a “multi-pronged marketing process.” Through initiatives led by state associations and larger individual producers, consumers are becoming more educated about the product. According to the US International Trade Commission, producers have reported that once consumers actually taste the product, they are highly likely to become a repeat customer. Overcoming pre-conceived notions of quality by allowing the consumer to experience your product, therefore, is of utmost importance in the race to capture the US olive oil market.