Olive oil in UK market

University Degree Business and Administrative studies

Petrolivia and the olive oil

producer market

Since many years, the olive oil producer market has been dominated by three European countries: Spain, Italy and Greece, which account 97 per cent of the European production and 77 per cent of the world production. These three European countries are followed by African countries such as Tunisia, and Asian countries. The big fight between Italy and Spain has conducted the International Olive Oil Council (CIO), the European Union (EU) and the World trade organisation (WTO) to introduce rules and laws in order to regulate and control the olive oil trade over the world. This has helped countries such as Argentina and Australia, to develop their own production of olive oil but also countries such as USA and Japan to increase their consumption rate of olive oil. The olive oil industry became more competitive and the new entrants are now threatening the leading position of the three European countries. (Case study, 2007)

Spain was the first producer of olive oil in the world due to, according to researchers, its better production capabilities with an average of eighteen thousand tons of olive oil produced per year. Spain owns more than 25 per cent of the world’s total olive grove. Most of its production is exported in bulk to international buyers such as Italy, France, Portugal and United Kingdom (UK) who package and market the products and export them to international market, using their own distribution channels. However, Spanish brands know some difficulties to position themselves and their products in the international marketplace. That is why, two public organisations have been created in order to change the perception of the quality of Spanish oil and position it as the world’s benchmark for quality. (Case study, 2007)

The purpose of this essay is to carry out a strategic analysis of the olive oil industry and to establish strategic options and recommendations on the market entry strategy for Petrolia in the UK market.

To begin we are going to set up a strategic analysis. According to Aaker and McLoughin, the strategic analysis is composed by four elements: the external and costumer analysis, the competitor analysis, the market and submarket analysis, the environmental analysis and strategic uncertainty. (Aaker and McLoughin, 2007)

Regarding the external and costumer analysis, since 2000, the olive oil became an essential ingredient of the British diet with more than 44 per cent of households consuming it. In UK, Olive oil accounts 80 per cent of its sales in the top five supermarkets but most of them are under supermarkets’ own label brands. Despite these facts, olive oil is still subsidized in term of quantity by solid oils such as butter and margarine but also by vegetable oils, which have a large coverage in most supermarkets. However, as today consumers are paying more intention to health problems, according to BBC, sales of olive oil were now worth more. (BBC, 2006)

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Looking at the numbers, according to Anthony Fletcher, the olive oil market is on fire in the UK market with a growth of 39 per cent of the sales since 2000. Before 2000, this market only represented 43 per cent of the liquid oils market value but thanks to health concerns and general consumer consumption move toward premium product, the olive oil market is now representing 51 per cent of the total market and worth around £104 millions. (Fletcher, 2006)

In addition, the premium price of olive oils have made not only benefits on its segment but also in ...

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In addition, the premium price of olive oils have made not only benefits on its segment but also in the liquid oils market, benefits from health associations and a greater understanding by the consumer of quality levels that exist within the market. (Mintel, 2005)

Regarding the competitors analysis, the UK market of olive oil is dominated by supermarket own label brands which account 50 per cent of the sales. This shows that there is little differentiations between retailers positioning in their own label brand. (Case study, 2007)

The rest of the market is mostly divided between five major leading brands: Filippo Berio, Carapelli, Napolina, Bertolli and Frantoio, all from Italy, which share respectively 18 per cent, 4.1 per cent, 1.7 per cent, 3.7 per cent, 2 per cent of the market shares. (Mintel, 2005)

Regarding the market segmentation, the olive oil market is one segment of the liquid oil market. It is a global product and a guarantee of quality. It has been defined by the CIO in 1979 as a product which must be obtained exclusively from the olive. The term of olive oil can only be used in the labelling if the product contains more than 50 per cent of it. Olive oil is graded and judged according to its level of acidity. The market of olive oil is divided in three types: plain, virgin and extra virgin. The extra virgin olive oil is considered as premium product, first cold pressing of only high quality of olives. (Mintel, 2006)

This is the most popular type of olive oil because of its association with quality. Moreover it is considered as a premium product and the key factor for consumer choice is the region of origins and its association with quality. This is emphasised by promotional campaign which seems to highly influence British consumer. (Case study, 2007)

According Mintel, since few years speciality oils segment have extended the segment of olive oils such as sprays oils, mild/light variants oils, flavoured oils such as garlic, ginger, or spicy sesame and non-olive oils like sesame oil, groundnut oil, pumpkinseed and grapeseed oil, walnut oil, macadamia oil, avocado oil. The speciality oils segment is estimated at £4.1 million. (Mintel, 2005)

The environmental analysis and strategic uncertainty consists to study the fives forces of the Porter model. First of all, the treat to entry in the olive oil is quite low, even if the benefits associated with bulk purchase generate economy of scale, which should normally be a treat to entry high. But, actually the government actions in the regulation of olive trade have allowed other non-traditional olive oil producer countries such as Australia and USA to enter in this market. In addition, the important of differentiation seems to be quite low as well as British consumers tend to buy supermarkets’ own label brands.

The top five supermarkets account by themselves 80 per cent of the total olive oil sales in the UK market. That means that the power of the buyer is high. Nerveless, there is a high number of undifferentiated small Spanish exporting suppliers of olive oil, most of them are small family businesses supplying for large supermarkets, which is making the supplier power very low. (Case study, 2007). Moreover, there is no powerful Spanish brand present in the UK market. (Mintel, 2005)

Finally, in the UK, olive oils are easily substituted by sub-segment such as solid oils like butter and margarine and also by vegetable oils. (Case study, 2007)

To conclude, the olive oil demand in the UK is increasing which is making the UK market having a high potential in Petrolivia considerations to enter in this market. Slowly, olive oil is replacing standard oil in the choice of consumer because of health issues such as obesity problems and consumer consumption moving to high quality expectations. However, with the new regulations, non-traditional olive oil producers such as Australia and USA are now emerging in the olive oil market which is making it very competitive. Moreover British consumers do not make any differentiation between retailers positioning. And Finally Spanish olive oil has some trouble to be seen as a quality product, because in their mind it is an Italian product.

Actually, according to the case study, Petroliva has a long tradition in the olive oil business; the company started in 1940 and had a strong reputation in its home market. Moreover the company has a high production capability, a wide range of product of olive oil such as extra virgin olive oil and sunflower oil. The brand is also present on numerous markets abroad such as China, Japan, Philippines, USA, Chile, Mexico, Brazil, Ecuador, Canada, Germany, Holland and Russia. But, the company has always handed marketing activities through third parties which is making the company in a bad position regarding marketing in a new market. Despite the strong state financial support by the EU, the main problem, that the Spain olive oil industry is facing, is the inefficient use of modern marketing by medium sized businesses which is the case of Petrolivia. Actually, they do not have marketing and export departments. Nerveless Petrolivia brands are relatively new; the company started selling its products under its own brands only since 1987. (Case study, 2007)

Entering into the UK market, Petrolivia will need to consolidate its position and gain competitive advantage against its future competitors. According to Porter’s, the strategic options are the following: cost leadership, product differentiation and the specialisation in a particular market segment. (Porter, 1990)

In order to be competitive in this new market, Petrolia has to differentiate itself to other competitors and this is about offering a unique and superior product to the certain target. (Mili, 2004)

Concerning the unique offer, Petrolivia should position its products as a premium product. According to the case study, British consumers tend to prefer quality olive oil brands. Quality is defined by quality insurance labels, health related information, country of origin indication, bottling material and price. As Spanish olive oil does not have a quality image, it is important to compensate with a good packaging and brand equity building values. In Spain most of firms do not used coloured bottles and prefer plastic bottles compare to Italy which is using it since ten years. As coloured bottle allows conserving olive oil by keeping the oil away from intense light and high temperatures and improving the presentation, Petrolivia should use it to give its product a high quality image. Moreover premium product goes with premium price policy, which will allows Petrolivia to make higher margins. Petrolivia have to re-establish its brands into this way and communicate on the benefits of its products. Advertising and promotion are playing a huge role in the differentiation process by creating the product image and the brand loyalty.

Then, regarding the certain segment, as seen in the strategic analysis below, the market of olive oil is changing, leading by changes in the consumer consumption.

The standard cooking oil is falling behind the rise of olive oil and consumers are paying more intention to healthy eating. That is why; Petrolivia should target the upper socio-economic AB group, more specifically women between 16-60, living in London, working; as the Mintel report has shown the importance of this group which purchases speciality oils with enhanced benefits and which is more likely wanted to purchased a high quality and healthy product. (Mintel, 2005)

Finally, regarding the market segment, even if olive oil seems to be principle beneficiary of this trend, healthy concerns, it seems to be threaten by the emergence of other healthy varieties of oils such as soybean oil, walnut oil. That is why Petrolivia should considered the possibility to introduce itself in the speciality oils segment which become more popular due to interests in culinary exploration and the add of authenticity.

References

Aaker D. A. and Damien McLoughlin (2007), Strategic market Management, UK , ed. Wiley

Anon (2006), Olive oil sales Boom in UK shops, [online] <http://news.bbc.co.uk/1/hi/business/4608248.stm

Flechter Anthony (2006), Olive oil established as leading UK edible oil, [online] from

Mili Samir (2004), Prospects for Olive Oil Marketing in Non-Traditional Markets, [online] from <http://66.102.9.104/search?q=cache:1jCciNtSg7AJ:eumed-agpol.iamm.fr/html/publications/partners/olive_oil_paper.pdf+strategic+options+spanish+olive+oil&hl=fr&ct=clnk&cd=2&gl=fr>

Mintel (2005), Liquid oil, [online] from <>

Porter M (1990), The competitive Advantage of Nations, USA, ed. Free Press