Things to bear in mind to succeed with olive oil in China

Chinese consumers place increasing importance on health, seeing olive oil as the healthiest oil option and Spain as the most recognised origin. The industry in China expects the category to grow once prices return to more affordable levels. Importers and retailers intend to increase their purchases. The considerable rise in recognition of geographical indications (GIs) among target consumer groups in some cities may also benefit companies covered by that scheme.

However, besides high prices as the main current constraint, the category faces other challenges. These include the relatively fragile state of the Chinese economy, the decline of the gifting channel, the lack of leading Spanish brands, the rise of Chinese brands, Chinese regulations that do not distinguish beyond virgin olive oil, and a cultural lack of understanding about how it is used and applied in China.

Exports will soon start to grow, but success will go to those who best understand the market and can prepare fastest.

Understanding and use of the different oils available in China

In China's millennia-old culinary culture, oil is an indispensable staple, deeply rooted in everyday use. Oil is always used. From informal street stalls to the most elaborate dishes, in home kitchens and restaurants alike, oil plays a fundamental role in defining a cuisine full of distinctive flavours.

Historically, oils such as sunflower, rapeseed, peanut and sesame have been the pillars of the category. Each brings its own character, flavours and textures to the dishes prepared. These oils are chosen not only for their affordability and availability in everyday retail outlets, but also for their compatibility with traditional Chinese cooking techniques and food rituals.

Each oil has its own associations and understanding. Peanut oil suits home cooking well because of its strong flavour when stir-frying. Rapeseed oils are a classic choice in central and western China, where cooking and frying at high temperatures are common. Another alternative is sesame oil, a lighter option generally used as a finishing touch on cold dishes and some dressings. And when looking for a healthier option (with less fat), sunflower varieties come out on top.

And olive oil? Known worldwide for its health benefits and culinary versatility, olive oil remains relatively unfamiliar to Chinese consumers as a whole, although it is well known among target groups in tier-one cities, even if used only occasionally. With an already broad range of market alternatives, olive oil remains little used and finds it hard to stand out.

Olive oil is the healthiest oil

This is our strongest selling point and the reason it is sought after. Olive oil is the healthiest oil there is. When Chinese consumers use olive oil, the main driver is its health benefits.

Food distribution players are clearly keen to push olive oil as soon as prices come down a little, so we believe the category's exports to China will grow from next year, or as soon as prices normalise.

Consumer profiles

The first group consists of those who want to use it as a gift, especially around Chinese New Year, which once accounted for more than half of annual sales (depending on the company). However, the pandemic, the rise in the product's price and economic instability in China have significantly affected this profile.

The second group is affluent urban consumers, who are starting to seek a lifestyle with a healthier diet. To some extent, olive oil can also offer a way to build an image of modernity (personal success), but health remains the main concern.

In short, people under 55 living in large cities are more aware of the positive impact that olive oil (and other healthy food choices) can have on their lives. For these groups, who typically live in work-focused urban centres such as Beijing, Shanghai or Guangzhou, progress has been rapid, salaries are higher and people have travelled the world. Western restaurants are also a more common everyday experience.

Some limitations in understanding and using olive oil

What is healthy? It is a concept that is not entirely clear in China. Health, or a healthy lifestyle, is a somewhat abstract, blurry notion for most Chinese people. Consumers will of course not turn down a healthier life, but they lack the knowledge to achieve it, or to know what it means. This sometimes leads them to follow the wrong messages.

The case of extra virgin olive oil: virgin olive oil is traditionally the highest oil grade recognised in China. The regulations do not provide for "extra virgin". As a result, most imports are of the cheapest virgin olive oil available.

Its use is limited. As consumers do not believe it is good for cooking (especially Chinese food), it is mainly used for salads or cold foreign dishes, which limits how widely it is used. Promotion and consumer education are key to broadening the product's use.

Adapting the product and bottle size to recent price fluctuations

Compared with the other household oils mentioned above, the paths diverge sharply. For Chinese consumers, oil is an everyday staple. The various alternatives are affordably priced. Olive oil prices at origin have risen recently, just as Chinese consumers have become more price-sensitive (buying more rationally). As a result, imports into China have trended downwards.

It is also important to understand that, because of rigid distribution channels, consumers accept a price range of 60 to 90 RMB for the product but rarely tolerate higher figures. Accordingly, when the price fluctuates, the usual response is to reduce the bottle size (from 1 L to 500/700 ml), lower the quality or adjust the promotional budget.

In addition, with current high prices at origin (because of the drought), few importers risk new brands and even established ones are shipping smaller bottles. But the situation could change soon.

Spain's image

The image projected is very important for selling imported food in China. More than 90% of olive oil exports to China come from Spain. However, brands are not finding a way to exploit this clear advantage. Chinese brands such as Olivoila import Spanish-origin oil but then promote it under their own name. This approach appears to have worked, and they are even starting to enter other markets such as Vietnam.

Spain's image is fragmented, and brands have not devoted the same resources as other countries (as Italy has). Nor is there a clear, unified message about what consuming Spanish olive oil means.

"Produced and bottled in Spain" offers a safety guarantee

Despite improvements in food safety in China, many consumers prefer the product to be produced and bottled in Spain. This avoids any possible adulteration in China.

These views are reinforced by a series of safety scandals, such as the recent case in which tankers were reported to be carrying edible oils alongside industrial oils without first cleaning the tanks properly. The case came to light recently in both the Spanish and the Chinese press.

Other factors to consider for the future

• "Gourmet" olive oil (extra virgin): As noted, "extra virgin" is neither properly regulated nor clearly understood. However, the market is becoming more sophisticated (in large tier-one cities) and demand for higher-quality oils such as extra virgin olive oil is rising. Its superior benefits and culinary uses are gaining recognition.

For all these reasons, there is a market for gourmet olive oil, but the segment is highly competitive because of the many brands trying to thrive in this emerging niche. Rising prices, the declining importance of gifting and weaker HORECA performance are not helping. If prices fall (as expected), the Chinese economy recovers and promotion is introduced, the gourmet olive oil market has a chance of success.

• Designations of origin (PDO) in China: The slow but steady promotion of EU geographical indications in China is also benefiting some brands, though so far only moderately. Not just for olive oil, but for many other imported foods too. Willingness to pay can rise if the product displays its designation-of-origin certification. For Chinese consumers buying imported products, a designation-of-origin label helps justify spending more. The EU and China also have an agreement on geographical indications to boost trade cooperation.

Even so, awareness remains somewhat abstract, as many consumers still do not fully understand what it means, or what benefits it can bring.

Olive oil and promotional strategy

In general, the storytelling and experience behind consuming a product are the key to success in China. This includes categories as distinctive as olive oil.

1. To communicate and convince people of the benefits of Spanish olive oil, promotion needs to change. There need to be more brands available on the shelves to project a stronger, more sophisticated image.
2. The olive oil category does not behave like other premium foods. As explained, oil is a category well integrated into Chinese cooking, making it easier to understand and adopt. Olive oil can be chosen as a complement (healthier, safer) to their other everyday oil use.
3. In fact, it is not about presenting the product solely as a sophisticated imported option, but about positioning it as a healthy improvement to their cultural eating habits.
4. Olive oil needs to set itself apart from other varieties of blended oils, while always keeping its connection with the category - the family - on the shelf.

In recent years, awareness campaigns and educational initiatives have begun to bear fruit, helping the general consumer understand olive oil's distinctive qualities and benefits.

If you would like to know about other commercial activities PRODECA runs in China, you can write to Rosalba Arrufat at rarrufat@gencat.cat.