Analyst Insight by Ewa Hudson
It is no secret that the health and wellness trend has affected the oils and fats market in a most profound manner. And this is not only borne out in a handful of advanced packaged food markets – the impact is evident at a global level. For instance, Euromonitor International's latest packaged food statistics show that over the 2006-2011 review period global volume sales of butter remained virtually stagnant, while those of margarine fell by almost 2%.
Butter, due to its high saturated fat content, is regarded as contributing to cardiovascular disease, while margarine, which was once seen as the “healthy” alternative, has had its health halo well and truly shattered by the recognition of its inherently sky-high transfat content. The production process employed in margarine manufacturing is responsible for creating transfats, and these are now known to be even more damaging to heart health than saturated fats.
The spreadable oils and fats category provides plenty of evidence that consumers have been shifting from butter and margarine to healthier options. Volume sales of functional varieties, most of which are marketed as possessing cholesterol-lowering properties, rose by 15% over the review period, while volumes of regular spreadable oils and fats stagnated. Olive oil, lauded for its cardiovascular health benefits and an essential constituent of the Mediterranean diet, which is widely regarded as one of the healthiest ways of eating, emerged as another big winner by achieving a 19% volume gain over 2006-2011.
Although the switch away from solid saturated fats towards healthier unsaturated liquid and spreadable fats prevails at a global level, there are “anomalous” counter trends playing out in some smaller markets. One such trend is the Low Carbohydrate High Fat (LCHF) craze currently holding much of Scandinavia's consumer base in its thrall. This has contributed to the much-publicised Norwegian butter shortage. More details on this phenomenon can be found in a Passport article published on 6 January 2012, entitled Welcome Back Fat: The Booming Low Carb Trend in Scandinavia.
Organic is the smart choice for health
In the 32 markets in which Euromonitor International carries out its in-depth health and wellness research, organic oils and fats performed most dynamically over the 2005-2010 review period, achieving a value growth rate of 58%, compared to 35% for health and wellness-positioned oils and fats overall. Much like fruit, vegetables, meat, milk and eggs, oils and fats count as dietary staples, and health and wellness-oriented consumers often prefer to buy organic versions of some of these, even if their diet is not entirely composed of organic foods.
Usually, it is fresh produce where the strongest preference for organic offerings is shown, but savvy shoppers are increasingly aware that oils and fats tend to accumulate pesticides and other potentially harmful chemicals in much greater quantities than foods with a high water content (such as fruit and vegetables). For commercial seed oils, for example, solvents are commonly employed to remove the oil from the seeds, and even though most of the solvent is recovered after the extraction process, trace amounts of these chemicals remain in the oil. The amounts are small and are not considered to constitute a public health risk, but common sense would suggest that they are probably not conducive to good health. In addition, fat-soluble chemicals are also much harder for the body to excrete than water-soluble ones and hence they tend to accumulate in the body over the years, which may well lead to health problems for susceptible individuals over the long term.
For these reasons, for shoppers with a strong personal health motivation who are unwilling to take the risk, choosing organic oils and fats makes perfect sense. In line with this, Euromonitor International's health and wellness data show that the organic olive oil and vegetable and seed oil categories exhibited particular dynamism with review period growth rates of 69% and 66%, respectively, in the 32 health and wellness markets.
The country markets with the highest growth rates over the 2005-2010 review period were identified as Sweden, Norway, Denmark, Greece and the US. In China, where organic oils and fats only started to register notable sales from 2007 onwards, value sales more than doubled between 2007 and 2010 to RMB101 million (US$15 million). China's middle-class consumers are clearly not immune from worries about how excessive pesticide and agrochemical usage may be affecting their health, and their fears will continue to drive demand for organic oils and fats over the long term.
Olive oil continues to deliver strong growth
As already touched upon, olive oil is a champion contender in the global oils and fats market, propelled entirely by the health and wellness trend. In North America, for example, olive oil was the only oils and fats category able to make any volume gains at all over the 2006-2011 review period. Olive oil volumes in the region increased by 19%, while those of margarine plummeted by 33% and overall oils and fats fell by 9%. In Latin America, olive oil registered a whopping 58% increase. The highest growth markets for olive oil over the review period included Pakistan, Romania, China, India, Japan, Brazil, Peru, Russia and the Philippines.
Using Romania as an example, olive oil retail volume sales in the country almost tripled over the review period. The category's rapid growth was mainly the result of the increasing consumer perception that olive oil is an excellent natural digestive remedy and a healthy product. Although there is a lack of tradition where olive oil consumption is concerned in Romania, the penetration of Mediterranean-style cuisine, of which appreciable quantities of olive oil are an integral part, also contributed to increased awareness and volume growth. In addition, market development was helped along by the emergence of cheaper brands.
Traditional Romanian cuisine is rich in fat, and the interest in healthier varieties is largely limited to higher-income households in Bucharest and other large cities. Margarine and spreadable oils and fats remain greatly appreciated by mainstream consumers as Romanians are still fairly unconcerned about the health concerns surrounding the consumption of hydrogenated fats. This, however, is bound to change over the medium to long term, and Romania is expected to continue its shift to healthier oils and fats over the forecast period.
Taking a brief look at another emerging market, namely the Philippines, where olive oil also managed to deliver an admirable performance, the trend was driven by a combination of factors similar to those in Romania (and other geographies), ie the increasing health consciousness of the middle-income demographic, continued exposure to Western culture and cooking, coupled with the widening availability of lower-priced versions in supermarkets (a rapidly expanding grocery retail channel). However, penetration of olive oil in traditional sari-sari stores – small shops situated in the heart of local neighbourhoods and frequented for the purchase of all essential household items – remains limited due to olive oil's premium pricing. Sari-sari stores still account for over one third of oils and fats distribution in the Philippines.
At the other end of the market development spectrum, in Japan, a highly sophisticated packaged food market where overall oils and fats retail volume sales virtually stagnated over the 2006-2011 review period, olive oil also surged ahead, in this case by 115% in retail volume terms. This was precipitated by a widespread consumer shift from cooking with vegetable and seed oils to using olive oil instead – a common trend in consumer markets with higher disposable incomes.
Olive oil has a bright future ahead. On a global level, Euromonitor International predicts that the category will gain 18% in retail volume terms over the 2011-2016 forecast period, ahead of the wider oils and fats category, which is expected to increase by 16%. In Western as well as Eastern Europe, olive oil is set to remain the top oils and fats growth category, with expected volume increases of 14% and 38%, respectively.
Olive oil's success in Europe is being helped greatly by official recognition of its health benefits. In a comprehensive health claims review, the European Food Safety Authority (EFSA) approved a heart-health claim in April 2011 pertaining to the polyphenols found in olive oil, namely hydroxytyrosol and its derivatives. The agency concluded that a minimum daily intake of 5mg of hydroxytyrosol, which can be achieved through the consumption of a moderate amount of olive oil as part of a balanced diet, protects LDL cholesterol particles in the blood from oxidative damage (oxidation of LDL cholesterol is a known contributory factor in the development of cardiovascular disease).
And it is not only liquid olive oil which is set to benefit from EFSA's positive assessment conclusion, but also olive oil-based spreads and functional spreads with added polyphenols extracted from olive oil. At this point in time, the term “hydroxytyrosol” is not yet commonly recognised by European consumers, but, on account of EFSA's decision, this should be about to change, turning it into one of the most promising functional ingredients of the future in the area of cardiovascular health and, of course, in the functional spreads category.