In this post, a group of Master’s students studying International Business at Carlos III University – Madrid, analyze the current situation of the industry of olive oil in US.
For any seller, the American market is usually very attractive. It has a potential reach of more than 100 million people, sociocultural diversity, attractive economic power in business and is seen as the most powerful economy in the world.
Because of this, we must be very careful when analyzing the viability and economic prosperity of any industry in such an aggressive and competitive market.
Olive oil in US: comsupmtion figures
Focusing on the olive oil market in the United States, Spain is the world’s leading producer of olive oil, with more than 50% of its production exported. The rapid expansion of the United States helped Spain surpass Italy for the first time in 2014 with 44.5% of the market share volume (in regards to exports). The United States consumes about 10% of the total amount of olive oil produced annually worldwide.
The figures of the olive oil in US market reflect that the consumption of olive oil is growing, and that the local production market is riding this wave, contributing up to 2% of the demand on the west coast. This cluster of producers began to demand higher tax charges and legal barriers in order to protect local production. However, at this moment, it is safe to say that tax and legal barriers remain as a low concern for importers; causing low switching costs and low entry barriers.
The rivalry between existing competitors is high; new producing countries are competing with more modern and mechanized plantations, which cause prices to tend downwards and, as a consequence, a greater volume of production generated by these efficiencies. As a result, the market, traditionally led by Spain, Italy, Greece and Tunisia, is saturated.
Other competitive forces in the industry of olive oil in US
The main issue that this industry faces is the strong bargaining power of large retail platforms, such as Trader Joe’s, Whole Foods Markets, Costco, and Walmart Publix, where more than 51% of the market is directly distributed. Thus, the producers are forced to make a greater investment at the point of sale, but, in the end, large retail platforms are the ones who establish the final price. They earn more money just by selling their products in their supermarkets. Thus, olive oil sellers must be able to emphasize and catch the customers attention as it is complicated for the customer to differentiate between olive oil products. As a consequence, exporters of olive oil have to work on commercial strategies to attract the customer in the midst of this competitive market. The profile of American olive oil customers has evolved over the years, mainly because of a generational change, which interferes in the purchase of higher quality oils, but not always leading to the most economic ones. Olive oil consumption is growing 5% annually, which means that we could find a bottle of olive oil in 40% of American households.
Another difficulty that this industry presents is the amount of substitute products that
are used in the American market, mainly vegetable oils, such as: canola oil, corn oil, coconut oil and other products, such as butter. Although these substitutes have different textures, flavors and uses, they are equally available to the public in stores, and can be switched easily due to the fact that the exchange costs are low – -50% in Walmart–, but the properties of olive oil remain to be unique.
Due to the evolution of the olive oil in US market, the cost of becoming the king of the industry or the cost of being one of the great players of this market is increasingly expensive, as the competition is more efficient and has better resources.
Undoubtedly, the customer is the most influential and the most difficult to seduce by industry merchants. In the end, it is the customer who finds the supermarket shelves full of high-quality products that are definitely worth tasting.