Turning oil into profit

Olive oil is a fragmented market and consumption levels are still relatively low in the Middle East. But margins are potentially handsome and there is still room for new suppliers to make a mark.

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By  David Ingham Published  March 21, 2005

|~|borges.jpg|~|Oriol Castells says Spain produces fine extra virgins as well as cheaper olive oils that provide healthy alternatives to vegetable oils.|~|The shelves of regional supermarkets are crowded with olive oil brands. Whilst that may indicate that this is a competitive market, with many brands vying for share, it also shows that the segment is a relatively young one, with plenty of room still left for new players to make a mark. The dozens of olive oil companies exhibiting at Gulfood 2005 last month, many of them without any regional distribution, indicates that producers see plenty of potential to develop business in the region. “Olive oil in general is a new product in this market,” says Nejib Attia, general manager for olive oils at Sharjah-based ERCO, which recently introduced the Rahma extra virgin brand. “It’s used sometimes for salads, sometimes even on the skin and hair, but it is not yet widely used. This is why we are doing our best to show the consumer that this product is the best kind of oil, that this product is healthy and that it can be used in all [types] of cooking.” Informal estimates put the total amount of olive oil sold in the GCC countries at around 12,000 metric tons per year. Extra virgin oil makes up around half the market, with less expensive virgin, pure and light varieties accounting for the rest. Spanish and Italian olive oil brands hold well over half the total market and Spain alone up to 40%. In fact, when it comes to volume, Spain is king with around 60% of global olive oil output. Whilst Italian and Australian producers position their oils as premium products, not all of the olive oil sold in supermarkets is extra virgin or even virgin. Extra virgin accounts for only half the regional market, with the rest being made up of cheaper blended oils, which is where Spain, because of its huge output, excels. Spanish producers naturally say that their virgins are as good as anyone else's, but they have been particularly successful in persuading consumers to exchange vegetable oils used for regular cooking for what are called pure, light and extra light, olive oils. Virgin oils are distinguished by their low acidity levels, which are set by the International Olive Council at 0.8% for extra virgin olive oil and 2% for virgin. ‘Pure’ olive oil is a less expensive blend of refined oil and extra virgin oil. When virgin oil has high acidity or its flavour is deemed undesirable, it goes through a refining process to reduce its bitterness and acidity. In order to improve the refined oil’s flavour and colour and increase its vitamin E content, it is blended with virgin oil. The resulting blend may not have an acidity level of more than 1%. According to International Olive Oil Council regulations, this blend should be called ‘Olive Oil’ on the label, with the terms ‘pure’ or ‘100% pure’ allowed to be carried underneath. The typical composition of such a blend would be 80% refined oil and 20% virgin oil. Extra light olive oil is made in the same way as pure olive oil, but with more refined oil and less virgin oil in the blend. “Pure olive oil can be used for sauces, mayonnaise, in salads and also for frying,” says Oriol Castells, manager of the international division at Borges, a Spanish producer of extra virgin, pure and extra light oils. “Extra light is mainly recommended for deep frying.” Key to the success of pure olive oil and extra light olive oil is for consumers to start using them in place of vegetable oils. “The key to substitution is to promote olive oil as key to a more healthy diet. Olive oil has a very good effect on the health because it is rich in Vitamin E, it’s rich in antioxidants and good for the heart,” says Castells. Spreading the healthy message, however, requires time and patience, he says. “It takes time to change people’s habits, but we have to convince people how good olive oil is for the health.” Spain may have been successful in the mass market with pure and light olive oils, but its producers naturally reject the assertion that their products are only for broad consumption. Borges currently exports a generic extra virgin olive oil into the region, but it also makes higher priced products based on particular varieties of olive. Arbequina extra virgin olive oil, for example, is smooth and aromatic, traditionally from Catalonia. Piqual comes from Andalucia in southern Spain and has a more bitter and spicy taste. The products are not yet available in the Middle East, with Borges preferring to first establish its generic extra virgin, pure and light labels in the region. Those oils are now on sale in the UAE, with Saudi Arabia and Kuwait likely to follow soon. Like many of his counterparts, Castells stresses the need for promotional activity to raise awareness of olive oil and its positive impact on the health. “Our strategy is to invest a lot in marketing activities,” he says. “We do leaflets in Arabic, we hand out sachets and we develop promotions. Spain’s Southern European neighbour, Italy, takes a somewhat different approach to the olive oil market. Rather than going for volume, its producers are focused, they say, on the high end, extra virgin segment. “The reason we can claim to be the leader in quality, and the highest producer of extra virgin olive oil, is simply because we produce less olives and so can take a specialised approach to the oil,” says Simonetta Cruciani, export manager at Monini, a producer in Italy’s Umbria region. To produce oil that can be termed extra virgin, the olives must be picked at the right stage of maturity when acidity levels in the fruit are low to non-existent — almost like harvesting bananas when they are still green. “This is the problem that Spain has,” explains Cruciani. “They produce so many olives that they cannot hope to harvest them all at the ideal stage of development.” Once acidity levels reach above 2%, it is then necessary to refine the oil to render it usable. That is why Spain produces a lot of the ‘pure' olive oil described above. Cruciani likens Monini’s olive oil production to a fine wine chateau in France. “The production of oil here is regarded as a fine art. This is why we can achieve a more subtle aroma to the oil, whereas Spain’s oil is naturally stronger and more pungent,” she says. Much like the great French wine houses of Bordeaux and Burgundy, Italy has taken to producing oil with its own Denomination of Protected origin (D.O.P.). Monini’s premium brand of oil, D.O.P. Umbria, exhibits a soft bouquet and woody aroma typical of the region. Umbria has also established its own acidity limit of 0.65%, lower than the 0.8% stipulated by the International Olive Oil Council. Monini’s Classico extra virgin olive oil is its mainstream brand and retails at around five euros (US $6.6) per bottle. GranFruttato is one up, rich in polyphenols to produce a strong, pungent taste. It is ideal for use on bruschetta, salads and vegetables, and sells for around 8 euros (US $10.55) per 500 ml bottle. The Bios range is an organic oil with an acidity of 0.4%. “Olive oil is such an integral part of Italian culture,” says Cruciani. “It is the effort, combined with the specialist knowledge that is put into making our oil, that makes us number one.” Italy doesn’t have it all its own way at the top end of the market, however, and plenty of new competitors think that their extra virgins are just as good. The latest challenger is Australia, which is looking to prove that its new world olive oils are just as good as its wines. One of the companies leading the charge is Barossa Olive Oil Company, which already has a distributor in Saudi Arabia and says it has received several approaches for UAE distribution rights. The company sells its oil under the brand name Ollo in two flavours, Mild & Mellow and Fresh & Fruity. The company’s group sales & marketing manager, Roger Ley, describes the oil as, “premium mass market” in terms of its positioning. It retails for around US $7 for half a litre and has an acidity level of just 0.25%, according to Ley. Oil is produced within just two hours of picking, helping to ensure quality, he says. Barossa is not the first Australian olive oil producer to target global markets, but Ley says that his company has the financial backing that previous, smaller producers may have lacked. The company now has 100,000 trees and can produce around 6,000 bottles per hour. Consistency of supply, Ley insists, will therefore not be an issue for retailers that choose to carry the product. Spanish, Italian and even Australian olive oils may be in vogue with consumers, but what often gets overlooked is Arabic olive oils. The olive is believed to have first been cultivated in Syria and the Arab region certainly produces plenty of oil. Consumption has traditionally been mostly local and International Olive Oil Council guidelines may not always have been closely adhered to, thus ruling out export markets. However, recent years have seen a number of producers with broader ambitions emerging. One of those is East Mediterranean Olive Oil Company (EMCO) in Syria, which has invested “millions of dollars” in becoming a mass producer, according to its sales & marketing manager, Mohanad R Alwani. It produces all varieties of olive oil, both in small bottles and larger tins, and has already begun exports to Saudi Arabia. It is now looking for a partner in the UAE. Another local player keen to make a major impact on the market is Sharjah-based Emirates Refining Co (ERCO), which has put a lot of effort into the launch of Rahma, an extra virgin oil made from Southern Mediterranean olives. Nejib Attia, ERCO’s enthusiastic general manager for olive oils, is confident that he can overcome any doubts about the quality of regionally-produced oils and become the UAE’s number one selling extra virgin olive oil brand. Key to that, he insists, is education, which means not only talking about the healthy qualities of olive oil, but also clarifying the differences between virgin, extra virgin, pure and light olive oils. Consumers, he insists, are mostly still not aware that extra virgin is the superior kind of olive oil. “The consumer has to understand what the difference is between categories,” says Attia. “When they see olive oil on the label, to them all the products are the same." ERCO has responded with promotions, newspaper and radio adverts, and a booklet about extra virgin olive oil and how to use it. The pricing of Rahma is relatively low at just AED10.5 for the half litre bottle. Within a year, ERCO aims to have 15% of the UAE’s extra virgin olive oil market, currently around 2000 metric tons per year. The sheer number of olive oil producers present at February's Gulfood 2005 suggests that this is one segment of the food retailing sector where opportunities for growth are still plentiful. In the high end, extra virgin segment, new producers are still entering the market, whether ‘premium’ brands such as Monini and Ollo, or lower priced, higher volume offerings such as Rahma. This is not purely a connoisseur’s market, however. There also exists a considerable opportunity to persuade consumers to switch from vegetable oils, used in cooking and deep frying, to supposedly healthier pure and light olive oils. As the debate over healthy eating gears up in the region and producers step up their consumer awareness campaigns, the olive oil market can only be expected to grow.||**||

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