How many “olive oil cabinets” have you come across?
I come from a family that owns nearly 8,000 olive trees on the Dalmatian coast of Croatia, and I can tell you, I’ve never come across a single, gold-plated olive oil display case.
When you look beyond the very modern, very masturbatory awards shows and sommelier schools that have cropped up in just the past few decades, olive oil generally doesn’t become more interesting the more money you make.
A case in point. My grandfather maintains multiple, basement-spanning wine cellars. He has one in Canada, and one in Croatia.
He collects grape varietals from all across British Columbia and works with local vintners to produce enough wine every year to last himself a long Canadian winter. He prefers quality over quantity, and of course enjoys both. He certainly doesn’t spare a dime when it comes to his personal supply.
And when he’s in the old country in the late summer, he picks grapes from our quaint little vineyard behind the village home. The famously warm and rich red wine of the Dalmatian Plavac Mali greets him at his inevitable return in the early spring each year.
I’ve never seen him put the same level of care and attention into crafting his wines as he does with his olive oil, of which our family farm now annually produces nearly 10,000 liters and counting.
But this isn’t to say that he cares less about our olive oil legacy than his middling wine hobby. That couldn’t be further from the truth.
It’s just that obsessing over a supply of even the highest quality olive oil, one that that will be consumed by the end of the year anyway, does far less for him personally than a similar investment of time into his much less lucrative albeit much more satisfying and perhaps, one might say, much more sexy, wine hobby.
This is because wine, unlike olive oil, is a true luxury good. You not only spend more on it as your income increases, but you actually buy more of it, and at higher prices too. In fact, you fill cellars and cabinets, and parties, and weddings, and more with it, for decades.
Under the strictest economic definition of a luxury good, even the highest quality extra virgin olive oils do not make the cut.
A luxury good means an increase in income causes a bigger percentage increase in demand. It means that the income elasticity of demand is greater than one. For example, HD TVs would be a luxury good. When income rises, people spend a higher percentage of their income on the luxury good.
The very best olive oil goes rancid in 3 years, with an average edible lifespan of 2-3 years when stored properly, unopened in the cool of dark. Furthermore, the most powerful, health-amplifying, anti-oxidative properties of olive oil are depleted within 6-12 months of harvest.
Olive oil is not something you can afford to save for very long.
This is something that I came to learn while selling our olive oil last year for the first time, after importing a small portion of our annual harvest and launching Selo Olive, the North American distribution arm of our fledgling international olive oil enterprise.
By positioning Selo Olive as a premium, luxury product, one that at times sold for USD $100 per bottle, we sorely missed out on a much larger, much more robust market.
In Mediterranean countries, for example, the average person consumes 15 L of olive oil per year, while in North America, that number barely exceeds a single liter. This may be due to a variety of reasons, including geographic distances (although California almost produces as much as Croatia does now), as well as cultural and gustatory differences, including an aversion to “fat” in North America. All that being said, such a gap represents a vast financial opportunity, and one that simply won’t be closed with a retail price point that is too far above the average European retail price of 30 Euros per liter.
While we did in fact sell our olive oil between $70 and $100 per half liter last year, it not only required that we educate, entertain and hard-sell our customers, but when they did eventually purchase a bottle, they would only drink it sparingly. They would savor it as if it were a 10 year old single malt Scotch whisky, drinking maybe one or two bottles per year.
Although we never received a single complaint, or a refund, we also didn’t get nearly as many orders as I had initially anticipated, naively believing as I did that a sophisticated e-comm offering was the panacea that most olive oil companies were clearly missing.
I was very wrong.
To get specific, the reorder rate at those prices never exceeded twice per year from a single customer, with the average returning customer rate on the whole never surpassing 15%. To sell 10,000 liters per year, the baseline required to justify expanded agricultural operations, we would have to create an average of 27 new customers daily.
To our credit, it was a very tough sell. The cost of shipping glass alone was quite high, forcing us to drive up the retail price to almost unjustifiable levels compared to what it would cost to distribute locally (I’m noticing that many online olive oil retailers ship in tin cans as opposed to glass — this might be something to consider for the future).
But when you add to all that the extraordinary opportunity cost of time required to drum up demand from the internet, what you end up with is a perpetual content marketing operation, in which the founders become irreplaceable, and the business is left without a concrete plan to scale up without them.
This is not desirable from the perspective of the overall supply chain, which demands a constant flow of orders from the farm in order to justify the risks and expenses of investing in export licenses, equipment, compliance, and most of all, the opportunity cost of simply selling our stock at local prices to local markets and tourists — a feat that my grandmother has managed to accomplish single-handedly every year since our groves first started producing olive oil just 5 to 10 years ago.
Don’t get me wrong. I love olive oil. I use it daily. So does my grandfather. I drink shots of Selo every morning to clear my throat, and douse my steaks in it. Just to be perfectly clear, my taste for olive oil is ravenous. Obviously, the purpose of this article was not to downplay the very product that my family grows and sells.
Rather, it was to put into writing something I’ve been thinking about for a long time:
Olive oil is not a luxury good.
The best olive oils are definitely high quality, “up market”, and even artisanal.
Extra virgin olive oils aid in preventing all sorts of physical ailments, including inflammation, bacterial infections, and even cancer. They’re great for the skin, hair, heart and even the eyes, improving their overall function. They taste fresh and have beautiful aromas. Olive oil is a super-food beyond all physical measure.
But it’s just not a luxury item. No matter how you package it.
Perhaps a change in strategy, one involving a price reduction and a reorientation toward local grocery retailers, was what was required all long. Even if at the expense of “a good margin”, to signal to our customers that our olive oil is not just a gift from the Gods, veritable liquid gold, but that it’s also a healthy dietary staple, a high quality food that you should never go without, and certainly not for long.
Selo Olive now retails for USD $53 at our online store (including shipping), and will continue to be available online. In the next few months, it will retail at CAD $45 in select groceries and artisanal delis in Western Canada. With time, we will expand outward from there.