A "price war" in North America, consumer mistrust in Italy and a weakening dollar have cut into Deoleo's bottom line.
The world’s largest olive oil producer reported that its profits in the first six months of 2018 had decreased by nearly €50 million ($58.4 million) compared with the same period last year.
This strategy is not going to be abandoned even if, in the short term, it means loss of market share in markets such as the United States where value is being lost.
Deoleo attributed the decline to a “price war” in the United States, a decrease in sales in Italy and a weakening dollar compared with the euro. However, Patricia Sanz, a company spokeswoman, told Olive Oil Times that this is a temporary setback and Deoleo’s long-term strategy will continue to work.
In spite of its gross operating profit losses, Deoleo’s net financial debt only increased by 4.6 percent, which was linked mostly to money spent earlier in the year on replenishing its extra virgin olive oil stocks.
There is no evidence that the company is in danger of losing any of its liquidity either. “[The aforementioned factors] are purely an accounting adjustment, and have no effect on the company’s cash,” Sanz said.
In the United States and Italy the company’s sales have dropped by 2.2 and 5.8 percent, respectively. This has led to losses in the U.S. of $25.4 million over the first six months of 2018, compared with the same period last year. Losses in Italy were €21.2 million ($24.8 million) over the same time period.
In the U.S., Deoleo has struggled to match the low prices of Pompeian, which is partially owned by competitor DCoop. As olive oil prices have steadily decreased on supermarket shelves, Deoleo has lowered its prices to remain competitive
“In the United States the category of olive oil is deteriorating as a result of aggressive commercial policies that prioritize volume at lower prices over value, causing the trivialization of said market and the consequent devaluation of the assets associated with it,” Deoleo said in a press release.
Rather than dwelling on prices, Sanz said that the company plans to focus its efforts on research and development as well as increasing quality.
She points to a spate of recent awards for the company’s three most popular brands as proof that Deoleo’s strategy is going as planned.
“This strategy is not going to be abandoned,” Sanz said. “On the contrary, even if, in the short term, it means loss of market share in markets such as the United States where value is being lost.”
Meanwhile in Italy, rising consumer distrust in extra virgin olive oil brands has combined with political instability and uncertainty in the markets. These factors have hurt consumption and led to lower sales numbers.
“In Italy, the situation is specifically derived from the problems that exist with the ‘Made in Italy’ concept and the complicated political situation that the country is experiencing, which is affecting consumption,” Sanz said.
Deoleo is pouring its efforts into a marketing blitz, which the company hopes will help improve olive oil’s image and in turn their sales.
“Deoleo is taking an active role in the associations and signing agreements with different market agents whose results should be seen in the medium term, along with the normalization of the market,” Sanz said.
Finally, the depreciation of the dollar against the euro cost the company €6.7 million ($7.84 million) since the beginning of the year. Without this depreciation, Deoleo’s gross operating profit losses would have been about the same as they were last year.
In spite of these setbacks, there was also some good news for the olive oil behemoth in the first half of 2018. Their extra virgin olive oil sales in Spain rose by nine percent at a time when overall olive oil consumption has been decreasing in the country.
“The proof that our strategy is the right one is in how Deoleo has managed to improve its results in the Spanish market where three years ago the trend was negative,” Sanz said. “And now this trend has been reversed, as shown by the results of the first quarter of 2018.”
Gross operating profits in northern Europe also increased over the first half of 2018. In Germany alone, Deoleo’s profits rose by 72 percent. The company is looking to expand its market share in the region as the northern European appetite for olive oil increases, and the company continues to invest in more established markets.
“Deoleo will continue with the strategy it has been developing for three years,” Sanz said. “That is, to market olive oils based on their value and quality.”