Business

Deoleo Steadfast on Strategy as Profits Fall Further

A "price war" in North America, consumer mistrust in Italy and a weakening dollar have cut into Deoleo's bottom line.

Aug. 29, 2018
By Daniel Dawson

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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.- Patri­cia Sanz, Deoleo Spokesper­son

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.

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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.”

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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.”





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