`Deoleo's 'Radical Transformation'

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Deoleo's 'Radical Transformation'

Nov. 26, 2013
Julie Butler

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Deoleo Details its ‘Radical Transformation’
After sev­eral years of self-admit­ted semi-silence, Deoleo, the world’s biggest olive oil bot­tler, has spo­ken about its rad­i­cal trans­for­ma­tion” and immi­nent launch of prod­ucts mark­ing a new par­a­digm of inno­va­tion.

A stronger pitch for the health seg­ment is promised and could see the new items in the Car­bonell port­fo­lio — going on sale in Jan­u­ary — fea­ture an olive oil mixed with an omega 3 oil and a spe­cial oil blend for chil­dren.

The Madrid-based giant has under­gone major changes includ­ing a big down­siz­ing of staff and fac­to­ries, a move to just-in-time inven­to­ries — not with­out trauma for pro­duc­ers — and a bru­tal price bat­tle with the thriv­ing store brands.

The new Deoleo: not an olive oil com­pany, a con­sumer goods one

The leaner, more effi­cient and less debt-sad­dled Deoleo is mov­ing from an era of restruc­tur­ing to one of inno­va­tion, chief exec­u­tive Jaime Carbó said at the pre­sen­ta­tion of the company’s third quar­ter results and overview of its strate­gic plan at the Madrid stock exchange on Novem­ber 8.

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Carbó stressed that Deoleo wasn’t an agribusi­ness but a fast mov­ing con­sumer goods com­pany.”

One of the impor­tant mes­sages, he said, is that we’re not just going to ded­i­cate our­selves to sell­ing olive oil in the tra­di­tional way but in the mod­ern way.”

It was a mes­sage also shared by Gre­go­rio Jiménez López, who joined Deoleo last year to advise on strat­egy and inno­va­tion. Jiménez said the com­pany was seek­ing to dif­fer­en­ti­ate itself and on a path involv­ing rad­i­cal change to the tra­di­tional con­cept held of it.

Deoleo isn’t an olive oil pro­ducer, it sells good prod­ucts for con­sumers. It pack­ages edi­ble oils,” he said.

Talk of more health­ful” prod­ucts using cheaper oils”

Lipids are going to become the main gen­er­a­tors of health in the 21st cen­tury and therein lies an extra­or­di­nary oppor­tu­nity,” Jiménez said.

One of the company’s new plat­forms is there­fore based on how to improve the func­tion­al­ity of olive oil and another on doing the same for its seed oils busi­ness.

Olive oil, as a monoun­sat­u­rated fat, is per­fectly healthy as a replace­ment for but­ter or sat­u­rated fats but it lacks func­tion­al­i­ties, there­fore we need to com­ple­ment it with essen­tial fatty acids, and above all with highly unsat­u­rated fats, polyun­sat­u­rated fats, of the omega 3 DHA type, he said.”

What mat­ters is the sci­ence and the sci­ence says that a range of fatty acids should be con­sumed, in addi­tion to those in olive oil.”

For­tu­nately we can incor­po­rate a mix of dif­fer­ent oils, that are cheaper than olive oil, because olive oil has a very high price.” Deoleo could there­fore not only gain value via the health seg­ment, but with prod­ucts that are cheaper because they use cheaper raw mate­ri­als,” he said, offer­ing oils of much more nutri­tional and health value and at a lower price.”

Seg­men­ta­tion seen as key to future suc­cess

Draw­ing on his 20 years head­ing the dairy com­pany Puleva — dur­ing which he led its devel­op­ment of for­ti­fied milk prod­ucts — Jiménez said that when the com­pany had just sold milk, it didn’t make money, but when it sold prod­ucts such as an omega 3‑enriched milk and a milk for chil­dren, it did.

He did not give any details of the new prod­ucts planned but a search of Spain’s trade mark reg­is­ter shows that ear­lier this month Deoleo applied to reg­is­ter the Span­ish equiv­a­lent of Car­bonell 0.4 helps care for your heart” and in June Car­bonell Kids” and Car­bonell Kidds”.

Carbonell’s Dutch web­site refers to Car­bonell olive oil enriched with Omega 3 (EPA / DHA) and says it is good for your heart and cho­les­terol lev­els.”

Car­bonell and Deoleo sta­ble­mate Bertolli are the world’s top two olive oil brands in terms of the value of their mar­ket share.

The suc­cess of Deoleo’s spray for­mats

Respond­ing to a ques­tion from a bank ana­lyst on what kinds of returns Deoleo could achieve on its new prod­ucts, Carbó gave the exam­ple of the Car­bonell spray for­mat launched last year, which has a vol­ume of about 200ml and is sold at the price of a liter.”

It doesn’t work out to a return five times that of stan­dard one liter bot­tle, because pro­duc­tion costs are higher, but nev­er­the­less, the mar­gin in Spain — one of the tough­est mar­kets there is — is 3 – 4 times higher,” he said

When con­sumers see one liter bot­tles of brands A, B, C and Car­bonell on a super­mar­ket shelf, the com­par­i­son is lin­ear — one liter is seen as the same as another liter of oil, he said.

But this changes when con­sumers lose a price ref­er­ence. When you change the para­me­ter, then they can’t com­pare,” Carbó said.

Cut­ting out the mid­dle­men, buy­ing local in key mar­kets

Another key change is Deoleo’s new pol­icy of buy­ing local in key mar­kets”, a strat­egy designed to increase its earn­ings by absorb­ing the inter­me­di­aries’ mar­gins,” Deoleo said in a doc­u­ment in Span­ish on its strate­gic revi­sion.

Deoleo’s gen­eral man­ager of pur­chases, logis­tics and qual­ity, Car­los Jiménez Ot, explained at the pre­sen­ta­tion that five years ago Deoleo bought 60 per­cent of its sup­plies from pro­duc­ers and the rest through inter­me­di­aries. Now Deoleo buys 98 per­cent of its sup­plies direct from pro­duc­ers.”

Five years ago we bought four per­cent of our sup­plies out­side the EU, now it’s 14 per­cent.”

We have the free­dom today to buy 40 mil­lion liters from the sup­plier Pepe Lopez in…Murcia , and I could buy 50 mil­lion liters from Bound­ary Bend in Aus­tralia.

What do I base it on? On sen­sory pro­files, what my client wants, on legal fac­tors, and the des­ti­na­tion. Who the prod­uct is for, what prod­uct they want, and where works out the most effi­cient for me to buy.

Today I’m 100 per­cent free to buy oil in any part of the world and tomor­row I want to be free to pack­age oil in any part of the world,” he added.

Carbó shared later that in the last year, Deoleo had bought Aus­tralian olive oil, pack­aged it in Europe, and later sold it to Amer­ica. It sounds strange but the num­bers added up,” he said.

Com­ing next: the price bat­tle with store brands, Deoleo’s most lucra­tive mar­kets, how olive oil pro­duc­ers have — reluc­tantly — helped improve its work­ing cap­i­tal posi­tion, and the state of Deoleo’s finan­cial health.



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