Is the Cooking Oil Business profitable?
Introduction & Current Market Opportunity
Cooking oil forms an integral part of almost all cuisine that we can think of. Be it making hot pakoras on a rainy evening or trying out a delicious cake recipe, cooking oil is essential to almost all forms of cooking. The main component of our meals is edible oil, and every individual utilises different types of edible oils in food every day in one way or another. Regarding oil seeds, several parts of India are highly affluent. About 175,000–200,000 tonnes of sunflower oil are imported into India each month, and the war between Russia and Ukraine has disrupted the supply. Over the last several decades, edible oil imports have increased by roughly 174%. The necessity for India to be self-sufficient in edible oils has once again been brought to light by the continuing Russia-Ukraine conflict. Given these numbers, the obvious question is whether the cooking oil business offers any scope for profitability and should budding entrepreneurs venture into this business or not. From the outside, the oil business is indeed profitable, however, before one venture into it, one must carry out a thorough study of the market, and be aware of its pitfalls of this market. No business venture can be fruitful without determined efforts and strong determination to succeed. There are many cooking oil manufacturers in India, and their growth story reflects how a single-minded focus on business and expanding into various markets have allowed them to rise to the top.
Knowing your Oil Seeds
Before starting a cooking oil business, it is important to understand what cooking oil is, how they are extracted and the various types of oil seeds that can be used for manufacturing and packaging. Remember the final cooking oil price depends on a lot of factors that you must be aware of. You could regularly consume soybean, maize, canola, cottonseed, rapeseed, grapeseed, sunflower, safflower, and rice bran seed oils, which are some of the most popular seed oils. Additionally, mustard seeds, coconut, olives, and other dry fruits may be used to obtain cooking oil. But since they are so costly, dried fruit oils like almonds and others are seldom utilised in India for regular cooking. The most popular cooking oils are made from a range of refined sources, including sunflower, soy, peanuts, and coconut. It should be noted that inexpensive palm oil imported from Indonesia and Malaysia makes up a significant portion of the blend in many refined oils.
Running a Profitable Cooking Oil Business
Market Survey & Research: The first step of a cooking oil business is to do thorough market research on the cooking oils, their popularity, consumption pattern across the nation, and the kind of raw materials needed for it. It is important to know the competition and identify the loopholes in their current business strategy. Once you have done this research, you would have determined the particular oil business that you find the most promising.
Becoming a Registered Business: The subsequent step to a successful oil business is to ensure that you are a legitimate oil mill where you must obtain registration from the Food Safety and Standards Association of India (FSSAI) as well as the Bureau of Indian Standards (BIS). You also need to register your company with the commercial ministry of the state and obtain a GST number. Another important thing to note is that you must open a bank account in the oil mill name of any bank in India.
Financing Your Business: Any firm must have enough money to succeed which is essential. If you don't have the money to start your company, you can't succeed. To guarantee a smooth flow of company operations, you should set aside cash for the start-up capital and the working capital needs. You may either start your oil mill with your own money or get bank financing for it. You may also benefit from the many programmes and incentives the government provides for MSMEs (Medium and Small Scale Industries). You should keep accurate records of your financial transactions since they provide a clear picture of the development and success of your company.
Procuring Machines: Once your finances are sorted, and the necessary loans have been approved you need to scout for a location to set up the oil mill. For the same, you can rent out premises within the city or close to it. Remember, it is important to be located in an area such that your packaged oil can reach the market quickly for sale and consumption. After the location has been identified and the necessary lease documents have been signed, you need to procure the relevant machinery for oil pressing. Oil extraction from seed can be either done through machines and chemicals or as the trend is now, to use cold pressing equipment that extracts oil without the use of chemicals. For machine-pressed oil extraction, the following machines are essential.
- Oil Expeller
- Filters
- Boilers
- Steam kettle
- Post Extraction Filtration
- Packaging machines
If one is looking to start small, then a minimum capital of 8 to 10 lakh Indian rupees is enough. However, as the profits come in, it is important to keep aside a decent portion of the profits for further expansion. The oil mills that are set up are usually set up based on its monthly oil extraction capacity.
Finding Reliable Raw Material Supplier: The next step is to find reliable sources of oil seeds to ensure that your machines are constantly working to deliver the maximum output. For this, you must scout various markets, agricultural hubs, and regions renowned for their oil seed production. Mustard seeds are grown throughout north Indian states, especially Punjab and Madhya Pradesh. It would be prudent to source your oil seeds directly from the farmers in order to rule out any middlemen, and thus increase your profit margins.
Workforce: For any successful business venture, there is a need to hire trained professionals who are adept at operating these machines. This means having a set of hired hands that need to be paid a regular salary. Remember that since you are a legitimate business firm, you must follow the Labour laws of the land, and the salary and other benefits must be given to your employees. This includes provident fund contributions, healthcare access, and leaves.
Packaging: Now that you have sorted out almost everything that is needed to operate your oil mill, you are ready to process oil seeds and send them to the market as packaged products. Generally, for household consumption, cooking oil manufacturers package their oil into one litre of packets or a bottle. For more significant consumers like hotels and restaurants, it is preferable to have a 5-litre plastic can packaging or a 10 – 20 litre oil tin packaging. But before this can happen, you must establish a chain of suppliers and wholesalers who would be willing to sell your product. This can happen by regularly visiting your dealers, offering them discounts and other lucrative offers such as cashbacks, free samples, and other benefits.
Media & Publicity: Advertising is very important in the FMCG business, and digital platforms are the chosen source for reaching a large number of possible customers. Other means of advertising include newspapers, pamphlets, word-to-mouth publicity, offering free samples for consumers, and other schemes. Here, your market research about your competitors will come in handy and you can tap into the drawbacks of their marketing strategies.
Pricing Your Oil: Cooking oil price is a very sensitive issue for a market like India, and it needs to be carefully understood. The price of cooking oil fluctuates depending on various factors such as imports, oil seed availability, inflation, etc. Generally, for any cooking oil, one can expect the price to range between 50 – 65 rupees per litre. Having said that, the final price should obviously consider the market conditions. Therefore, the Cooking oil wholesale price keeps fluctuating, and you, as an entrepreneur must keep abreast of this.
If one follows the basic business plan described in this article, then cooking oil will indeed be a profitable business. As per the business outlook and other studies, one can easily expect a profit ranging from 15 – 35% depending on the oil being processed by your company.
Conclusion: Cooking oil business is indeed a good avenue for any entrepreneur to explore. The profits are good as long as the business is run in a sustainable model and a portion of these profits are reinvested into the expansion of the business operations. There are many kinds of oil seed crops and one must do a thorough research on the kind of cooking oil business you want to venture into. Advertising and finances are very important to ensure success in this field.
Also, Read - India’s Best Essential Oil Manufacturers & Suppliers
FAQs: Cooking Oil
Q. What are the most common cooking oil seed crops grown in India?
Ans. Mustard, Sunflower, Peanuts, Soya, and rice bran are common cooking oil seed crops in India.
Q. How much profit can I expect if I set up a 1200-litre monthly manufacturing and processing mill for cooking oil?
Ans. One can expect a profit of 15 – 35% depending on the oil you are manufacturing.
Q. Can I start my cooking oil mill locally without getting any certification from government agencies?
Ans. No! Since you would be in the commercial markets, thus it is important to register your company with the necessary agencies and get the required documentation.