Olive Oil Is The Hidden Power In The Food Industry: A Recurring Cash flow Business To Follow

 

As for the olive oil market in particular, it is one of the most attractive and reputable mature industries in Spanish agriculture, and it has become one of the most recognized products in Spain both nationally and internationally thanks to its quality and tradition over time. In this sense, the Interprofessional Association of Olive Oil works to promote it with the aim of increasing the international recognition of the Spanish designation of origin of olive oil.

Spain is the world's largest producer of olive oil, representing approximately 50% of global production. A high percentage of this production is destined for export, with Europe, the United States and Asia being the main markets. In this sense, the main producing regions are Andalusia (Jaén, Córdoba, Seville), Catalonia, the Valencian Community, Extremadura and Castilla-La Mancha.

As for the production process, olive oil is extracted from ripe olives, which must be between six and eight months old, as this is when they already contain their maximum amount of oil. This usually happens in late autumn, and it is at this stage that the olives are subjected to a first pressing in order to extract their juice. However, the quality of olive oil depends largely on the subsequent processing and therefore producers try to guarantee its quality by monitoring these steps very carefully. Thus, the quality will be judged based on its organoleptic properties and the content of free fatty acids.

Depending on how this process is carried out, various types of olive oil are produced:

- Extra Virgin Olive Oil (EVOO): it reaches the highest quality and is obtained directly from olives using only mechanical procedures.

- Virgin Olive Oil: similar to extra virgin but with slight variations in its sensory characteristics.

- Olive Oil: a mixture of refined olive oil and virgin olive oils.

- Olive Pomace Oil: obtained from the solid residue of the olive after the extraction of the virgin oil, and is also refined and mixed with virgin oil.

Among the characteristics of the product we can distinguish them by their quality, with Spanish olive oil being known for its superior quality and with Protected Designations of Origin (PDO) that certify its authenticity and origin. In turn, they can also be distinguished by their flavour and aroma depending on the variety of olive, the region and the production process, ranging from intense fruity to softer and more delicate. Finally, they can also be differentiated by their health benefits according to their content in monounsaturated fats and antioxidants, for which olive oil is recognised for its cardiovascular benefits and anti-inflammatory properties.

In line with the sector, in Spain there is a clear trend and interest in organic oils and premium quality olive oils in line with greater awareness of sustainability and health benefits. In any case, at an internal level, per capita consumption of olive oil in Spain is one of the highest in the world given the strong presence in the Mediterranean diet. The customer base of the Spanish market is growing and is relatively uniform across all ages, sexes, and geographic locations in Spain. However, it can be divided into 5 segments based on their different individual attributes, needs, preferences, and demands:

- Traditional consumers: these are mainly middle-aged and older people who follow a traditional Mediterranean diet linked to the consumption of olive oil. Their needs and preferences focus on traditional olive oils with a more intense and pure flavour, unrefined and obtained under traditional production techniques, and they value this quality and its origin more (for example, extra virgin olive oil is the purest oil of higher quality and has greater recognised health benefits). Their demand is focused on high-quality products obtained in traditional markets or directly from local producers. This segment is in decline due to the ageing of the population and the lower adoption of these preferences among younger generations.

- Health and wellness consumers: these are consumers of all ages (mainly middle-aged) who are very concerned about health and nutrition. They are aware of the health benefits of olive oil and choose it for its healthy properties. This group mainly consumes extra virgin and organic olive oil for its healthy properties and sustainable production processes. They prefer olive oils promoted as healthy, organic and pesticide-free, and high in polyphenols and antioxidants. In fact, they look for oils with clear labels that show these health benefits and sustainable practices. This segment instead is rapidly growing in line with the increase in health awareness and healthier and more sustainable foods being the market trends.

- Convenience consumers: they are mainly young professionals, busy families and people with little time to cook who are looking for easy-to-use products. Their needs and preferences are versatile, and therefore they prefer products that are easy to use and suitable for a variety of cooking methods. This group consumes olive oil, and specifically the blend of refined and virgin olive oil that is more suitable for cooking in general. And that is also easily accessible and convenient in supermarkets or online stores at an affordable price. In terms of trends and growth it is stable, but could decrease with more and more quality-conscious consumers looking for healthier and sustainably sourced products.

- Gourmets and cooking lovers: includes consumers of any age who enjoy cooking and experimenting with high-quality foods. They value. Their needs and preferences are the superior quality, flavour and authenticity of olive oils with unique properties such as single-varietal, first-harvest oils or limited editions. Thus, they look for products that can add a special flavour to their dishes and that are considered luxury or premium. The type of oil they choose is premium extra virgin olive oil with superior quality and unique flavour profiles. This segment is growing along with its trends due to the increasing popularity of gastronomy and the appreciation of gourmet products among younger consumers.

- Environmentally conscious consumers: are consumers concerned about the sustainability and environmental impact of their food choices. They are often young people, adults and families with small children. Among their needs and preferences is olive oil produced sustainably with organic farming practices and with certifications such as organic or fair trade. They demand products that minimise environmental impact, including sustainable packaging and transparency in the supply chain. The type of oil they choose is organic and fair trade extra virgin olive oil for its sustainable and ethical production methods, and their current growth is driven by increased environmental awareness and concern for sustainability.

Overall, the growth of the health and wellness, gourmet and environmentally conscious consumer segments reflect a shift towards more informed and ethical consumption at the expense of traditional consumers in decline due also to demographic and generational changes.

When it comes to importing olive oil, overly sophisticated specialized equipment is not generally required, but some factors depend on where the product is going, the distance and the temperature among other factors. In any case, it is important to have adequate infrastructure and equipment and to follow rigorous protocols to ensure that the product maintains its quality during storage, transport and import, so meeting the necessary quality standards can be a significant investment that represents a barrier to entry into the industry. On the one hand, adequate and controlled storage is necessary since olive oil is sensitive to light, heat and oxygen, and stainless steel tanks are preferred to maintain quality because they protect the product from oxidation and contamination. On the other hand, international transport is usually carried out in special containers that preserve the quality of the product by avoiding contact with air and light, such as flexitanks, which are ideal for large volumes of food liquids such as olive oil. Quality control equipment is also necessary to ensure that imported oil meets quality standards. In this regard, analytical equipment includes instruments to measure acidity, purity (in the sense that the olive oil is not mixed with lower quality oils), oxidation and other oil quality parameters. Finally, knowledge of international and customs regulations governing the trade of food products is required, including tariffs, taxes, import licenses, and specific regulations on labeling, food safety, and certifications (such as Protected Designation of Origin or ecological and sustainability certifications) to ensure that the product is legitimate and meets international quality standards such as ISO 22000 (food safety management systems) or GlobalGAP (good agricultural practices).

In terms of experience and special skills needed to compete in the industry, in addition to knowledge of applicable regulations, in-depth knowledge of international trade, logistics (national and international), and product quality is needed to successfully operate in this industry. In addition, knowledge of negotiation and supplier management is very important to negotiate contracts with producers and suppliers, obtain a good price, and ensure that shipments are made according to agreed standards. In terms of handling and distributing the goods, it is also useful to have commercial skills and market knowledge to market olive oil, since consumers tend to look for high-quality products with certifications that support their authenticity.

Regarding patents, in this case they do not represent a barrier to entry into the industry because olive oil is a natural and agricultural product, which prevents patents from being granted on it. However, numerous barriers to entry were mentioned above, and these reduce the threat of new entrants and help current competitors to have more stable market shares. In this sense, the company can focus on strategies that prevent new competitors from entering, such as product proliferation (which by definition means ensuring that all segments and customers are very well satisfied), maintaining a strong commitment to research and development constantly so that new competitors have to enter under pressure to invest and cannot survive by selling the same products as current competitors, and taking advantage of economies of scale to set lower prices than those with which they would maximize profits, which in turn would prevent many competitors from entering profitably. In terms of costs, industrial leaders benefit most from existing economies of scale with decreasing marginal unit costs, not only in terms of the quantity of raw material or liters of oil, but also in terms of transport and storage in larger containers. Therefore, there are volume discounts for purchasing from suppliers, which can be especially advantageous in international markets where competition for large contracts is high. In this sense, the negotiation of customs rates and tariffs will be key when importing large volumes in order to reach better terms with customs authorities or in tariff management. Likewise, the process of handling large import volumes must be optimized in terms of logistics and distribution so that infrastructure and personnel are well used in order to handle larger quantities of product without proportionally increasing operating costs.

Regarding competition, olive oil is highly developed in Spain with more than 1,800 olive oil producing companies (of which around 90% are SMEs). In this sense, competition at national and international level is quite strong, and competitive strategies tend to focus on the quality and differentiation of brands. At national level, the main competitors are:

- Deoleo S.A.: one of the largest players in the global market through well-known brands such as Carbonell and Hojiblanca.

- La Española Olive Oil Inc.: through its Spanish subsidiary Grupo Acesur, it distributes the Coosur brand, one of the most recognized brands in Spain, while La Española is internationally recognized.

- Dcoop S.C.A.: a leading cooperative in the production of olive oil with a strong presence in the national and international market.

- Borges International Group: a family business with more than 125 years of history that distributes its Borges brand in Spain, one of the main brands in Spain.

- Sovena Group: an important producer and distributor of olive oil under brands such as Fontoliva and Olivari.

- Olive Line International S.L.: this is a company with an international presence that distributes its olive oil under various brands such as Olive Line, Maestro Aceite de Oliva, Ibérica and Señorita.

- Mueloliva, S.L.: This is an international olive oil producer characterized by a wide range of oil types, packaging sizes, and the possibility of online shipping.

- Grupo Ybarra Alimentación: It has a long tradition in olive oil production and a strong presence in the Spanish market.

In this sense, the best-selling brands are Carbonell and Coosur (with 10.5% and 5.4% market share in 2023 respectively), but after the recent inflation, olive oil consumption has slightly declined in favour of cheaper substitutes and white labels, which dominate the market with a 52.8% market share in 2023. Therefore, we can say that the costs of switching to other products are not that high, as well as brand loyalty in general.

In this sense, the importance of cheaper substitutes is expected to decrease in the long term given the growing awareness of health and the progressive increase in per capita income that facilitates the consumption of olive oil compared to others such as sunflower oil, seeds, soy or corn.

In order to identify good businesses to invest in, there are some competitive strategies that could help you stand out in the national and international market:

- Quality and innovation: you will focus on differentiating yourself through the quality of your olive oil given your strong positioning in the Spanish market. To do this, you will invest in research and development in order to improve the quality of your oils beyond the current good level and adapt to the new consumer trends mentioned above.

- Brand and recognition: maintain a strong focus on branding in your marketing plan with quality certification and highlighting the origin within the unique characteristics of the product. The brand value already built in this market can be leveraged to easily and efficiently break into other markets where we will see that the company will try to expand.

- Taking advantage of economies of scale: competition for quality and differentiation through the brand does not exclude paying attention to improving your production process in order to be able to compete with low costs as far as possible and increase your profit margins even more. In this sense, the company can expand its production centres to Tunisia or Morocco, two of the five largest olive oil production centres in the world after Spain, but which have a lower cost of land for new plantations. In any case, whatever the production centres, a fast and efficient supply must be guaranteed that provides a good level of efficiency to the company. In this sense, taking advantage of economies of scale is something that is usually necessary to be able to carry out an internationalisation process, so these higher profit margins will facilitate future expansions beyond what is currently being considered.

- Portfolio diversification: offering a wide range of olive oils, including, for example, trends with great potential such as organic oils that are also gourmet in nature.

- International expansion: export strategies to new profitable markets in order to increase sales and diversify both product sales and the markets in which it operates. Following the other three strategies above will facilitate the marketing of products through the different distribution channels in these new markets.

This strategy focused on high quality and differentiation can work very well in the current stage of evolution in the maturity of the market and may even be necessary to achieve credibility in foreign markets because many consumers are looking for premium and authentic products, and therefore it is possible that this aspect represents a competitive advantage with respect to their competitors.

The highest level of quality is achieved with the Protected Designations of Origin (PDO) and the Protected Geographical Indications (PGI) are quality seals at European level that guarantee production under the highest quality standards and unique characteristics (for example, certain varieties of olive) and that are therefore closely linked to a historical tradition and a well-defined territory. The difference between both seals is that the Protected Designation of Origin guarantees that the cultivation, extraction of the oil and its packaging have been carried out in a specific territory, while the Protected Geographical Indication does not guarantee the packaging. Currently Spain has 32 PDO and two PGI for extra virgin olive oils.

Once we have analysed the olive oil market in Spain, we have to take into account that it is a food product that is consumed daily by its consumers. It is a product that is used for cooking at every meal, and therefore the cash flows are as recurrent as water, coffee, or breakfast cereals. However, unlike many food investment alternatives, health studies indicate that it is the healthiest variety of oil, and therefore its consumption prospects are very positive if we take into account that the population shows a growing awareness about health at a global level.