Oil prices slip as coconut enters top 10

Cooking oil, hair conditioner, teeth whitener… is there no end to coconut oil’s uses? Here’s another: soothing a struggling sector.

And cooking oil is certainly struggling, as the discounters steal share and the mults cut prices in response. Conditions are worsening - wholesale vegetable oil prices are sliding fast; suppliers are reeling from the worst olive harvest ever seen - but there’s a ray of sunshine: speciality oils are up 37% to £18.3m.

Granted, that’s small change in a sector worth £333.6m, but what gives cause for optimism is the fantastic premium such products command, particularly coconut oil. Although it’s unlikely it will ever be a high-volume product, it fetches £20 a litre. Compare that with a paltry category average of £2.23.

Speciality oils are transforming the bestsellers list. Vita Coco, which launched a coconut oil in 2014, has shot into the top 10 and wants to pass £10m in 2016. Lucy Bee and The Groovy Food Co, which has spent £2m on expanding its factory and unveiled new coconut oil SKUs, have also entered the top 10.

“The future is in added-value products and virgin coconut oil is the sector’s current buzz product,” says Mike Baldrey, sales director at KTC. “Customers are prepared to pay more for an oil that has health benefits or tastes better, or both.”

It’s a stark contrast to olive and vegetable oils (with commodity prices soaring and plunging respectively) as supermarkets drain value from own label by chasing volumes lost to Aldi and Lidl. “The deflation across olive oil and cooking oil alike has not seen a significant increase in penetration of shoppers, which you would normally expect, hence the category decline,” says Neil Brownbill, marketing director at Edible Oils.

Baldrey adds health-conscious consumers are also using less oil for cooking while oil sprays are increasingly popular. Frylight senior brand manager Mark Key says TV ads, promotions in store and NPD such as a coconut oil spray have attracted new consumers. The brand has also embraced the discounters.

Crisp ’n Dry is another brand outperforming the market after a difficult 2014. It’s won back shoppers with heavy promotions - volumes have risen more than three times faster than value, with average prices 10% lower.

“It’s worked well for us to be able to grow our market shares and brand awareness,” says Brownbill. Growth was also down to working closely with its retail partners on merchandising and offering a point of difference to own label, he adds. The brand has launched a £1.99 pack into c-stores and discounters and is investing in TV and radio ads.

Buoyed principally by Frylight and Crisp ’n Dry, overall branded value sales are flat on volumes up 2%. No thanks to Filippo Berio and Napolina, which have continued to find the going tough. A near 50% hike in raw material costs, as disease and drought hit Spanish and Italian olive crops, was not helped by further pricing pressure from the discounters.

“Raw material prices have eased from the spike in September but the potential imbalance between supply and demand will result in prices remaining very firm in 2016,” says Filippo Berio UK MD Walter Zanré. The sector will need more soothing in 2016, it seems.

Get 20% off the full category ranking. Click here and enter discount code NIELSENGROCER