According to Euromonitor International research, demand for olive oil in the Middle East and Africa in 2010 was driven by gradual economic growth, increasing awareness of its health benefits and greater availability in the grocery channel. However, its relatively high price means that packaged olive oil is only affordable to middle- and upper-income consumers in many regional markets.
Sales continue to rise, underpinned by gradual economic recovery
Research shows that olive oil sales are benefiting from gradual economic recovery in the region and the recovering purchasing power of middle-class consumers. According to Euromonitor International’s Countries and Consumers database, GDP in the Middle East and Africa grew by 4% in real terms in 2010, compared with a 2% increase registered in the previous year.
Retail value sales of olive oil in the Middle East and Africa reached US$974M in 2010. This represents an increase of 13% (US$ fixed exchange rates) on the previous year. This robust growth should however be analysed in the context of high inflation in the region. Retail volume sales grew by a more modest 6% in 2010, in line with growth registered in the previous year.
In 2010, four countries – Algeria, Iran, Morocco and Saudi Arabia – accounted for nearly 77% of total olive oil retail value in the Middle East and Africa. In terms of individual countries, Algeria is the largest market in the region, accounting for 34% of total retail volume sales in 2010. In terms of sales growth, Israel (11% retail volume growth), South Africa, Algeria and Iran (7% retail volume growth each) recorded the strongest performances.
Health and wellness trend gains importance in the region
Although olive oil is relatively expensive and, as a result, tends to be utilised sparingly, it, nonetheless, remains an important component of Middle Eastern diets.
In the United Arab Emirates, despite high unit prices (US$6.50/kg), olive oil saw the strongest volume growth in oils and fats in 2010 over the previous year, with sales rising by 5%. This was partly due to the health and wellness trend, with olive oil benefiting from a healthy positioning, and partly due to the wider availability of its local and international brands in the expanding supermarkets/hypermarkets channel, accounting for 73% of oils and fats value sales in 2010. Cheap vegetable oil (US$1.50/kg) is mostly used for cooking, while olive oil is increasingly popular in salad dressings. Extra virgin olive oil accounted for around half of category volume sales in 2010, with less expensive virgin, pure and light varieties accounting for the remainder of sales.
In Egypt, cooking fats, viewed as relatively unhealthy, were partially or fully replaced by olive oil in the households of middle- and higher-income earners in 2005-2010. Olive oil, which is seen as a healthier option, has benefited from this trend and increased value sales by 12% in 2010.
In Saudi Arabia, growing consumer awareness of olive oil’s health benefits contributed to the category’s retail volume sales growth of 6% in 2010. Furthermore, increased in-store promotions, such as the price cuts introduced by International Foodstuffs for its Rahma brand in early 2010, helped drive sales growth in the first half of the year.
Unpackaged olive oil sales still significant in Algeria and Morocco
Olive oil posted healthy volume growth in Algeria (6%) and Morocco (4%) in 2010 because of continued strong demand for packaged oils and fats from urban consumers areas and its staple status in the national diets. Although olive oil consumption in Algeria and Morocco is fairly high compared to in other countries – at 1.2kg and 0.8kg/year per person respectively – its sales are hindered by sales of unpackaged olive oil. Loose oil is much cheaper than packaged olive oil, and most people purchase their annual needs of olive oil in bulk at much lower prices in open markets.
According to Fenagri (the National Federation of Agro-food Products in Morocco), volume sales of packaged olive oil represent only one third of total national production.
Premium olive oil drives demand in Israel
An off season for olive oil production in 2009-2010 (characterised by a low olive yield caused by a natural growth cycle), aggravated by unfavourable weather conditions, caused a deficit of olive oil in open markets and increased demand through grocery channels.
Being quite sophisticated in their preferences, Israeli consumers demand olive oil of the finest quality and flavours, at reasonable prices. One of the main indicators of preference migration towards better quality products amongst Israelis is the fact that extra virgin olive oil increased its share of total olive oil retail value sales in Israel from 50% in 2005 to 82% in 2010.
In response to high demand caused by the off season, Israeli manufacturers introduced a range of premium brands such as Achiya Organic and Achiya Chef by Meshek Achiya Vineyards Ltd and Zeita First Harvest, Hyssop Olive Oil and Zeita Canaan by Wissotzky Tea (Israel) Ltd in late 2009 and 2010.
Interestingly, along with a taste for premium products, Israeli consumers developed a fondness for private label olive oil throughout the 2005-2009 period. Private label increased its value share of olive oil from 13% in 2005 to 18% in 2009. This increase was largely thanks to the performance of Shufersal Ltd, the leading grocery retail chain in Israel. Within olive oil, Shufersal posted a 14% retail value share in 2009. Private labels’ prominence in Israel is due to the high proliferation of supermarkets/hypermarkets and discounters in the country, accounting for a combined 65% share of value sales of oils and fats.
Olive oil is expected to record the strongest growth in oils and fats in Israel over the forecast period, rising in volume by an 8% CAGR and in constant value by a 7% CAGR and growing mainly on the back of demand for health and wellness products and offerings helping to achieve culinary excellence.
Olive oil is yet to win a consumer following in Iran
Consumption of olive oil remains low due to its limited use in Iranian cuisine and its high price for the majority of Iranian consumers. The category recorded the fastest current value growth within oils and fats (19% increase) in 2010; however, it only held an 8% share of total oils and fats value sales in the country. The poor quality of both domestic and imported olive oil, predominantly originating from Turkey and Italy, has led to consumer dissatisfaction in recent years, and the image of the product needs to be re-established in order for it to win broad acceptance.
In 2010, supermarkets/hypermarkets accounted for a 12% share of retail value sales of oils and fats, an increase of three percentage points over 2004, made largely at the expense of independent small grocers.
A growing number of modern retail outlets will furthermore stimulate sales of olive oil. Hyperstar, the first Western-style hypermarket opened in Tehran in August 2009 and operated by Majid Al Futtaim Group, has a license to establish a further 11 branches and is likely to expand to other key cities. This could initiate discounting and price competition, which will benefit consumers and bring down unit prices, which are the third highest in the region, at US$12.40/kg, behind South Africa and Egypt.
Olive cultivation in Iran is expected to increase in line with the targets of Fourth 5-Year Development Plan (2005-2010) implemented by the Ministry of Jihad-e-Agriculture. The so-called “Touba Plan” supports 36 domestic producers and assists in expansion of land under olive cultivation by 50,000ha/year. Coupled with continued high volumes of imports, olive oil consumption can be expected to increase over the period of 2010-2015.
Alternative products increasingly replace olive oil in Tunisia
Vegetable oils are replacing olive oil in the households of Tunisia, where incomes from olive oil exportation are classified among the most important resources in the country. At US$4.00/kg, locally produced olive oil remains expensive for the average consumer, and vegetable oils costing US$1.00/kg are seen as a money-saving alternative.
Tunisian consumers are increasingly using a mix of butter with vegetable oil for cooking and keeping olive oil to add to fresh salads and meze. As a result, retail volumes of olive oil increased at a CAGR of 1%, while vegetable and seed oil volumes grew at a CAGR of 5%, in 2005-2010.
Sales of olive oil in the Middle East and Africa are forecast to grow with a CAGR of 4% in retail volume terms over 2010-2015, according to Euromonitor International projections. This performance will be driven by those countries seeing the strongest retail volume gains across the region: Saudi Arabia (+44%); Iran (+29%); and Algeria (+24%).
Despite economic recovery, high unemployment and slow income growth in many regional markets will prompt consumers to continue searching for the best-value-for-money products in the short term. Low-income consumers are expected to continue purchasing cheap loose olive oil from open markets and independent small grocers. In order to expand the consumer base, olive oil manufacturers are expected to continue price promotional campaigns and increase segmentation of their product portfolios to specifically target consumers with different levels of spending power.
In the longer term, regional economic growth and the accompanying increase in purchasing power will have a twofold impact on sales. On the one hand, it will allow a larger number of consumers in lower-tier cities and rural areas to trade up from unpackaged olive oil to packaged branded products. On the other hand, it will increase the relative importance of value-added brands in upper-tier cities, driven by an expanding middle-class willing to pay a higher price for better quality.